TaxTMI 
TaxTMI 
2016 (7) TMI 12
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....ue. As per the CIT, assessee had mixed up provisions of Section 44 of the Act applicable to insurance company with normal provisions of the Act and in the process availed ineligible benefits. CIT noted that as per Section 115B of the Act, income from insurance business was required to be taxed at 12.5%, whereas balance of the total income was to be taxed at normal rates. As per the CIT, profits and gains of life-insurance business had to be carved out of the total income of the assessee which was not done by the AO. As per the CIT profits and gains of life-insurance business could alone be taxed at the concessional rate of 12.5%, whereas the balance of income which related to shareholders' account was to be taxed at normal rates. Thus according to him there was omission to bring to tax income of Rs. 24,31,68,000/- appearing in the shareholders account. 3. Assessee in its reply mentioned that its business was covered by Insurance Act, 1938 and Insurance Regulatory and Development Authority (IRDA) Act, 1999. As per the assessee it was all along filing the return of income by aggregating the result of the shareholders profit and loss account and policy holders revenue account. Th....
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....the assessment afresh. 5. Now before us, Ld. AR submitted that all the required particulars regarding computation of income was asked for by the AO during the course of assessment proceedings and furnished by the assessee. According to him the division of profit and loss account into two viz., revenue account and shareholders account was to comply with IRDA regulations. Relying on the regulations issued by IRDA on 30.03.2002. placed at paper book pages 2 to 4, Ld. AR submitted that a person carrying on life-insurance business was required to comply with Schedule 'A' of the said regulations. According to him, Part-V of the said schedule stipulated preparation of Revenue account (policy holders account) Profit and Loss account (shareholders account), and Balance Sheet in form A -RA, A-PL and A-BS respectively. Thus assessee had to comply with the such regulations and was required to separately prepare its profit and loss account for the policy holders and for the shareholders account. This according to him did not mean that assessee was doing two types of business. Assessee as per the Ld. AR was doing one business which was of life-insurance. Ld. AR submitted that liability ....
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....atment for both types of income. 7. We have perused the material on record and heard the rival contentions. CIT had considered the assessment order to be erroneous and prejudicial to the interests of Revenue for the following reasons : "The AO's order is erroneous and prejudicial to the revenue due to the fact that, the income from shareholders account amounting to Rs. 24,31,68,000/- has been failed to be taxed. Therefore, revisionary proceedings u/s.263 are initiated in this case." As per the CIT though assessee was a single entity, total income of the entity having been divided into profits of shareholders and profits from investments done by shareholders, former alone would be eligible for concessional rate of 12.5%, whereas the latter sum had to be taxed under the normal provisions of the Act. First question to be answered by us is whether the issue regarding separation of accounts between shareholders account and policy holders account and method of dealing with the results was in the mind of the AO while doing the original assessment. In reply to a notice issued by the AO on 12.10.2012, assessee had stated as under : 8. Assessee in the above reply had clearly brought out ....
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....older's account. During the year as already stated assessee has issued fresh capital to the extent of Rs. .250 crores and transferred funds to the extent of Rs. .233 crores from the shareholder's account to policyholder's account. Since assessee is having only one business of life insurance, the entire transactions both under the policyholder's and shareholder's account do pertain to the life insurance business only as it was not permitted to do any other business. Once assessee is in the life insurance business, the computation has to be made in accordance with the Rule-2 as per provisions of section 44. Therefore, there is a valid argument raised by assessee that both the policyholder's & shareholder's account has to be consolidated into one and transfer from one account to another is tax neutral. What AO has done is to tax the surplus after the funds have been transferred from shareholder's account to the policyholder's account at the gross level while ignoring such transfer in shareholder's account, while bringing to tax only the incomes declared in the shareholder's account that too under the head 'other sources of income'. In fact while giving the finding that assessee is in ....