2010 (4) TMI 1076 - AT - Income Tax

Tribunal rules in favor of assessee on taxation of investment profits & expense disallowance

M/s. Reliance General Insurance Co. Ltd. Versus. The Dy. Commissioner of Income-tax

The Tribunal consistently ruled in favor of the assessee across three assessment years regarding the taxation of profits on the sale of investments and ... Taxability of income of insurance companies - Profit on sale of investments - exemption was claimed in the computation of income as profit on sale of investments as per Rule 5(b) of the First Schedule - A.O. did not accept the assessee’s contention as in his opinion there was no provision in Rule 5(b) of First Schedule for reducing the profit from sale of investments disclosed in the annual accounts - CIT(A) confirmed not excluding the profit from sale of investments while computing the income. HELD THAT:- We find that the issue raised in this ground now stands settled by the Tribunal in assessment years 2001-2002 and 2002-2003 etc, in assessee’s own case as held that the taxability of income of insurance companies does not extend to taxability of profits on sale of investments for the period assessment years 1989-90 to 2010-2011. Respectfully following the precedent we allow this ground of appeal. Disallowance of expenses u/s.14A - assessee earned interest income from investment made in debentures / bonds and said interest was exempt from income tax u/s.10(23G) - CIT(A) reduced the disallowance - HELD THAT:- We find that the Tribunal in assessee own case held that section 14A contemplates an exception for deductions as allowable under the Act u/s 28 to 43B. It has further been held that since section 44 is a special provision applicable to insurance companies, it is not permissible for the A.O. to travel beyond section 44 and First Schedule of the Income-tax Act. The resultant disallowance sustained by the learned CIT(A) was deleted by the Tribunal. In the absence of any distinguishing feature having been brought to our notice by the ld. DR, respectfully following the precedent, we overturn the impugned order on this issue and order for the deletion of addition - This ground is allowed. Issues:1. Taxing of profit on sale of investments2. Disallowance of expenses u/s.14AAnalysis:Assessment Year 2003-2004:- The first issue relates to the taxing of profit on the sale of investments amounting to Rs. 8,24,73,523. The Assessing Officer did not accept the assessee's contention for exemption under Rule 5(b) of the First Schedule. However, the Tribunal, following its precedent, held in favor of the assessee, stating that profits on the sale of investments are not taxable for insurance companies.- The second issue was the disallowance of expenses u/s.14A amounting to Rs. 75,82,000. The Assessing Officer made the disallowance, but the Tribunal overturned this decision, stating that section 14A does not apply to insurance companies due to the special provisions under section 44.Assessment Year 2004-2005:- The first issue was the direction to tax profit on the sale of investments amounting to Rs. 2,81,64,661. The Tribunal ordered the deletion of the entire addition, following the decision taken for the previous assessment year.- The second issue, concerning the head under which the profit on the sale of investments should be taxed, was deemed academic and dismissed.- The third issue was the disallowance u/s.14A, which was also ordered to be deleted by the Tribunal, following the decision for the previous year.Assessment Year 2006-2007:- The first issue was the direction to tax profit on the sale of investments amounting to Rs. 1,71,39,003. Similar to previous years, the Tribunal ordered the deletion of the entire addition.- The second issue, concerning the head under which the profit on the sale of investments should be taxed, was dismissed as academic.- The third issue was the disallowance u/s.14A, which was ordered to be deleted by the Tribunal, following the decision for the previous year.In all three assessment years, the Tribunal consistently ruled in favor of the assessee regarding the taxation of profits on the sale of investments and the disallowance of expenses u/s.14A, based on the special provisions applicable to insurance companies.