2023 (1) TMI 480 - AT - Income Tax

Tribunal upholds CIT(A) decisions on tax issues for life insurance companies

DCIT, Circle-1 (1), Pune. Versus Bajaj Allianz Insurance Co. Ltd.

The Tribunal dismissed both appeals by the Revenue, upholding the CIT(A)'s decisions on all issues regarding the applicability of Section 14A to life ... Applicability of section 14A - computation of income of an assessee engaged in the life insurance business in view of the non-obstante provisions of section 44 r.w. Rule 2 of First Schedule of the Income Tax Act - HELD THAT:- The provisions of section 44 provides that the provisions of Income Tax Act, 1961 relating to the computation of income of an assessee engaged in the life insurance business excludes those provisions contained in sections 28 to 43B of the Act. It is also important to note that section 14A begins the words “for the purposes of computing the total income under this chapter, no deduction shall be allowed in respect of expenditure incurred ”. The chapter in question is chapter IV. This chapter also contains the provisions relating to computation of profits and gains of business or profession. The identical issue was came before the Hon’ble Delhi High Court the case of Oriental Insurance Co. Ltd. [2020 (3) TMI 507 - DELHI HIGH COURT] wherein, it was clearly held that the applicability of provisions of section 14A was excluded in relation to the computation of taxable income of an assessee engaged in the life insurance business. Thus, in view of non-obstante provisions of section 44 r.w. Rule 2 of First Schedule of the Income Tax Act, which clearly excludes the applicability of provisions of sections 28 to 43B in relation to the computation of income of an assessee engaged in the life insurance business, the provisions of section 14A have no application while computing the income under Chapter IV, we are of the considered opinion that resort to provisions of section 14A cannot be made while computing the income of insurance company - Decided against revenue. Excess provisions of income-tax debited in the books of account as expenditure - According to the AO, such excess provisions cannot be allowed as deduction while computing the profits and gains of business of the respondent-assessee, accordingly, brought such excess provision to tax - HELD THAT:- It is enumerated in clause (a), (b) and (c) of Rule 5, whereas, no such power has been conferred on the Assessing Officer to make any kind of adjustments as disclosed in the profits and gains prepared in accordance with provisions of the Insurance Act in relation to the life insurance business. Therefore, the ratio laid down by the Hon’ble Supreme Court in the case of Life Insurance Corpn. of India [1963 (12) TMI 5 - SUPREME COURT] that the AO had no power to do anything not contained in Rule 2 of First Schedule of the Income Tax Act still holds field. In the light of the above discussions, the Assessing Officer was not justified in making the addition on account of excess provisions of income-tax debited in the books of account. In the circumstances, we do not find any illegality or perversity in the order of the ld. CIT(A) deleting the addition on account of excess provisions of income-tax, and does not warrant interference by us. Accordingly, this ground of appeal no.5 filed by the Revenue stands dismissed. Determination of income u/s 44 - Taxing the income arising on account of shareholders profits - whether an assessee engaged in the business of life insurance, whether the surplus available in the shareholders account engaged in the life insurance business can be taxed separately from other sources or it should be treated as part and parcel of income from life insurance business by combining the surplus available with the shareholders accounts and with the policy-holders accounts? - HELD THAT:- The issue is no longer res integra as it stands settled in the case of CIT vs. ICICI Prudential Insurance Co. Ltd.[2015 (7) TMI 1259 - BOMBAY HIGH COURT] Hon’ble Bombay High Court in the case of ICICI Prudential Insurance Co. Ltd. (supra) held that where the assessee company was engaged only in life insurance business and was not carrying on any other business, surplus or deficit as per shareholders account is to be aggregated with surplus or deficit with policyholders account for the purpose of determining the Profit & Loss Account of an assessee engaged in life insurance business u/s 44 of the Act. Then, the findings given by us in relation to the computation of taxable income of the assessee in para 16 of this order would also apply. The ratio of the Hon’ble Jurisdictional High Court in the case of ICICI Prudential Insurance Co. Ltd. (supra) is squarely applicable to the facts of the present case and, therefore, we do not find any perversity or fallacy in the order of the ld. CIT(A). Accordingly, ground of appeal no.6 filed by the Revenue stands dismissed. CIT-A admitting additional ground of appeal - Exemption of interest income - additional ground of appeal was filed claiming exemption of interest u/s 10(15) - HELD THAT:- CIT(A) can admit an additional ground of appeal which involves pure question of law requiring no investigation into facts as held by the Hon’ble Supreme Court in the Case of National Thermal Power Co. Ltd.[1996 (12) TMI 7 - SUPREME COURT] and Pruthvi Brokers & Shareholders[2012 (7) TMI 158 - BOMBAY HIGH COURT] It is not the case of the Department that the interest income claimed by the respondent-assessee is not entitled for exemption u/s 10(15) of the Act. Therefore, we do not find any illegality and perversity allowing the additional ground of appeal by the ld. CIT(A). Accordingly, the ground of appeal filed by the Revenue stands dismissed. Issues Involved:1. Applicability of Section 14A to life insurance companies.2. Addition on account of excess provisions for income tax.3. Taxation of income from shareholders' accounts.4. Allowance of additional grounds of appeal for exemption of interest income under Section 10(15).Detailed Analysis:1. Applicability of Section 14A to Life Insurance Companies:The Revenue challenged the CIT(A)'s decision that Section 14A does not apply to life insurance companies due to the non-obstante provisions of Section 44 read with Rule 2 of the First Schedule of the Income Tax Act. The Tribunal upheld the CIT(A)'s decision, referencing the Delhi High Court's ruling in PCIT vs. Oriental Insurance Co. Ltd., which held that Section 14A is excluded for life insurance companies, as Section 44 overrides other provisions for computing income.2. Addition on Account of Excess Provisions for Income Tax:The Assessing Officer (AO) added Rs. 58.36 crores for excess provisions of income tax. The CIT(A) deleted this addition, citing that Section 44 and Rule 2 of the First Schedule mandate the computation of profits based on actuarial valuation, as upheld by the Supreme Court in Life Insurance Corp. of India vs. CIT and CIT vs. Oriental Fire and General Insurance Co. Ltd. The Tribunal agreed, noting that the AO has no authority to alter the actuarial surplus/deficit.3. Taxation of Income from Shareholders' Accounts:The AO added Rs. 33.10 crores from the shareholders' accounts, arguing it should be taxed separately. The CIT(A) ruled that shareholders' profits are integral to the life insurance business and should be included in the actuarial surplus. The Tribunal upheld this, citing the Bombay High Court in CIT vs. ICICI Prudential Insurance Co. Ltd. and the Karnataka High Court in PCIT vs. Exide Life Insurance Co. Ltd., which confirmed that shareholders' income is part of the life insurance business.4. Allowance of Additional Grounds of Appeal for Exemption of Interest Income under Section 10(15):The CIT(A) admitted an additional ground for exemption of Rs. 1.57 crores in interest income under Section 10(15). The Revenue argued this was improper as it wasn't claimed in the return. However, the Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in National Thermal Power Co. Ltd. vs. CIT, which allows CIT(A) to admit additional grounds involving pure questions of law.Conclusion:Both appeals by the Revenue were dismissed, affirming the CIT(A)'s decisions on all issues. The Tribunal's order, pronounced on January 10, 2023, applies to both assessment years 2012-13 and 2013-14.