mumbai the year 2010 may well see the beginning of litigation between life insurance industry and the income tax department the it department is raising demands on companies with large accumulated losses which the life insurance industry is determined to appeal there are several disputes brewing between the life insurance industry and the income tax department the early disputes relate to the departments decision to impose tax on funds transferred from shareholders account to policyholders accounts secondly insurers are also worried that the proposed minimum alternate tax mat would be much higher than the regular rate of taxation the insurance industry also wants to be treated distinctly compared to other companies when it comes to income recognition the tax department gives distinctive treatment to accounting of other industries which are exempt from schedule vi of the it act it should accept that insurance also needs a distinct accounting practice said the chief executive of a life insurance company another turning point is that several companies are expected to report a decent profit this year although they may have accumulated losses the companies that have reported profits include sbi life kotak mahindra life and bajaj allianz life insurance others continue to make losses even after a decade of operations unlike other companies life insurers bring out two sets of accounts one is in respect of the policyholders funds and the second is in respect of shareholders funds even among the policyholder funds there are two sets of accounting norms one applies to the traditional life business and the second to the unitlinked business funds collected under traditional business the endowment policies where returns are in the form of bonus declared year after year are all combined in a life fund every investor earns identical returns under the life fund the surplus generated under the fund is distributed among shareholders and policyholders in the ratio of 1090 companies can declare a bonus only when the fund is in surplus to ensure that early customers do not suffer private life companies have been transferring funds from the shareholders account to the policyholders account in the hope that they can get back the funds when it turns into surplus that they will be able to do so is now uncertain in case of unitlinked insurance plan there is no such issue as any appreciation in the value of the investment is clearly assigned to the investor in the form of a higher net asset value