2023 (1) TMI 1202 - AT - Income Tax

Assessee wins appeal for capital gains exemption, depreciation verification, and disallowance deletion.

M/s. The Oriental Insurance Co. Ltd, Versus. The DCIT, LTU, New Delhi

The Tribunal allowed the appeal of the assessee, granting exemption under Section 10(38) for gains from the transfer of long-term capital assets, ... Exemption u/s 10(38) - AO has classified the gains from transfer of long term capital asset being as part of the business activities of the assessee and accordingly denied exemption u/s 10(38) - sale of investment does not qualify to be income from general insurance business therefore, section 40 of the Act is not applicable and the general section 28 of the Act will come into action - HELD THAT:- The words “ business of insurance” here includes all the activities, which enable the insurance company to run the said business of insurance to not just earn profits and for gains but to indemnify the policy holders. Investment of funds in most secured modes has been ensured by IRDA guidelines and the Insurance Act, so that in an attempt of Insurance business company, trying to earn out of risk bearing investments, the insured persons is not left at loss. So, these investments cannot be termed as stock in trade of the to earn income and make gain, independently of the business of insurance run by the assessee and ld Tax authorities below have completely failed to take note of it and Ld. AO reached a erroneous conclusion that the assessee was doing two different business, one of general insurance business and second “other business‟. In the present assessment year the ld AO has himself allowed exemption u/s 10(15)(iv)(h) of the Act in regard to investment of tax free in public sector bonds. But still the Ld. AO, without citing reasons as to how u/s 10(15)(iv)(h) of the Act is applicable and Section 10(38) of the Act is not applicable, made the distinction and made the addition avoiding Section 10 of the Act. As observed that “Profits and gains of business‟ is one of the classified heads of the income as per Section 14 of the Act. To arrive at the income by way of “Profits and gains of business‟ for the purpose of Section 14 of the Act, the scope of total income provided under Section 5 of the Act has to be read with Section 10 of the Act, which as part of Chapter III of the Act, falls under the heading “incomes which do not form part of Total Income”. So, in any case the income by way of ““Profits and gains of business‟ which here in case of assessee means ““Profits and gains of insurance business”, has to be arrived after giving benefit of exclusion of the incomes falling under Section 10 of the Act. That would include disputed exemption of section 10(38) of the Act. Even otherwise, the issue about applicability of provisions of section 10 of the Act in case of general insurance company stands decided in favor of insurance business companies In any way we look, the assessee is entitled exemption u/s 10(38) like any other assessee for computation of Income and ld tax authorities below have fallen in error in not extending the benefit. In fact the ld CIT(A) has decided the issue against the assessee following his finding in Assessment Year 2007-08 wherein, the Tribunal‟s order dated 22.07.2011 for Assessment Year 2004-05 was followed. However, as a matter of fact in assessee‟s own case for Assessment Year 2005-06, reproduced above, issue were decided in favour of the assessee by the Hon’ble Delhi High Court. Consequently, ground are decided in favour of the assessee by holding that assessee/appellant is entitled to benefit of Section 10(38) of the Act. However, the matter needs to be restored to the files of the Ld. AO to enquire that claim of assessee u/s 10(38), fulfills the desired conditions about payment of Securities Transaction Tax (STT). Applicability of section 115JB - HELD THAT:- Issue decided in assessee own case [2017 (9) TMI 172 - DELHI HIGH COURT] in favour of the Assessee and against the Revenue by holding that Section 115JB of the Act does not apply to insurance companies. Issues Involved:1. Exemption under Section 10(38) of the Income Tax Act.2. Disallowance of Depreciation.3. Provision for Standard Assets.4. Applicability of Section 115JB for Minimum Alternate Tax (MAT).5. Levy of Interest under Sections 234B and 234D.6. Validity of the Assessment Order under Section 143(3).Issue-wise Detailed Analysis:1. Exemption under Section 10(38) of the Income Tax Act:The primary issue was whether the assessee was entitled to claim exemption under Section 10(38) for gains from the transfer of long-term capital assets being equity shares. The Assessing Officer (AO) classified these gains as part of the business activities and denied the exemption, arguing that the shares were stock in trade. The assessee argued that the investments were in the nature of investments, not stock in trade, and relied on various judicial precedents, including the Hon'ble Bombay High Court's judgment in General Insurance Corporation of India and Life Insurance Corporation of India. The Tribunal observed that the revenue did not dispute that the income should be computed as per Section 44 read with Rule 5 of the First Schedule. The Tribunal noted that the AO erred in treating the investments as stock in trade and held that the investments made by the assessee in the insurance business could not be treated as stock in trade. The Tribunal concluded that the assessee was entitled to exemption under Section 10(38), subject to verification of compliance with the conditions regarding Securities Transaction Tax (STT).2. Disallowance of Depreciation:The AO disallowed a portion of the depreciation claimed by the assessee, following a formula from earlier years. The Tribunal noted that in the assessee's own case for AY 2010-11, the issue was restored to the AO for verification of details. The Tribunal observed that the necessary details were filed by the assessee and directed the AO to verify the details and decide the issue afresh.3. Provision for Standard Assets:The AO disallowed the provision for standard assets made by the assessee, arguing that it was not an expenditure or allowance under Section 30 to 43B. The Tribunal referred to the assessee's own case for AY 2010-11, where a similar disallowance was deleted. The Tribunal held that the provision for standard assets should not be disallowed and decided the issue in favor of the assessee.4. Applicability of Section 115JB for Minimum Alternate Tax (MAT):The AO computed the income under Section 115JB for MAT purposes. The Tribunal referred to the Delhi High Court's judgment in the assessee's own case, which held that Section 115JB does not apply to insurance companies as they prepare accounts as per the Insurance Act and IRDA regulations, not as per Parts II and III of Schedule VI of the Companies Act. The Tribunal decided the issue in favor of the assessee, holding that Section 115JB was not applicable.5. Levy of Interest under Sections 234B and 234D:The Tribunal did not provide a detailed analysis for this issue but implied that the decision on the main grounds would affect the consequential levy of interest under Sections 234B and 234D.6. Validity of the Assessment Order under Section 143(3):The assessee challenged the validity of the assessment order. The Tribunal's decision on the main grounds rendered this issue moot as the Tribunal allowed the appeal, implying that the assessment order was not upheld in its entirety.Conclusion:The Tribunal allowed the appeal of the assessee, granting exemption under Section 10(38), directing the AO to verify the details for depreciation, deleting the disallowance for the provision for standard assets, and holding that Section 115JB was not applicable to the assessee. The Tribunal's decision resulted in consequential effects in favor of the assessee.