TaxTMI 
TaxTMI 
2019 (11) TMI 1463
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....in the return filed for the relevant year. 2) The CIT (A) erred in not following the ITAT order in Appellant's own case for assessment years 2005-06 to 2008-09. 3) The CIT (A) erred in holding that Income from annuity is similar to Pension Business and loss from Pension Scheme is not adjustable against taxable business income. 4) The CIT (A) erred in holding that Rule 5 is applicable to income from Health Schemes, Group Schemes and others treated as non-life insurance schemes. 5) The CIT (A) erred in holding that the appellant also carries on investment activity and activities other than life insurance, the income from which is assessable under respective heads other than sec. 44. 6) The CIT (A) erred in holding that the actuarial surplus determined for the purpose of the Insurance Act must be the same as the surplus for the purpose of Rule 2 of the First Schedule 7) (a) The CIT (A) erred in not accepting the principle laid down by the Hon'ble Tribunal the case of the Appellants that any transfers between Shareholder Funds and Policyholders funds inter-se should be regarded tax neutral for the Company as a whole. ....
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....t year and also not following the order of ITAT in assessee's own case for AY 200506 to 2008-09, therefore we thought it fit to dispose of the same by this common order. 8. At the outset, Ld. AR appearing on behalf of the assessee submitted before us that these ground are squarely covered by the consolidate order of Coordinate Bench of Hon'ble ITAT for AY 2005-06 to 2008-09, 2009-10, 2010-11 & 2011-12 in assessee's own case on merits. 9. On the other hand, Ld. DR fairly conceded that these grounds are covered by the order of ITAT. 10. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that the identical ground raised in the present appeal has already been decided by the Coordinate Bench of ITAT for AY 2005-06 to 2008-09, 2009-10, 2010-11 & 2011-12 in assessee's own case on merits. The operative portion of the order of ITAT for AY 2005-06 to 2008-09 is contained in para no. 36 to 38 at page no. 39 to 43 and the same is reproduced below:- Reconciliation of amounts: 36. As seen from the orders of the authorities, the 'Total surplus' prepared....
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....bsp; Annuities due and unpaid Amount due to other persons or bodies carrying on Insurance Business Current Liabilities & Provisions 38,75,046 16,37,931 Total Rs. 4,09,53,600 1,79,85,829 Total Rs 4,09,53,600 1,79,85,829 Likewise it also given Form-G consolidating Revenue Account as under: Form-G Consolidated Revenue Account Revenue Account of ICICI Prudential Live Insurance Company Limited as at March 31, 20O6 (Amount in Rupees'000) Particulars Mar-05 Mar-04 Particulars Mar-05 Mar-04 Claims under policies, less re-insurance: Balance of fund at the beginning year 95,97,898 26,58,698 By Death 1,11,348 59,627 Premiums: By Maturity 2,539 - 1st year premiums 1,45,43,024 62,91,180 Annuities, less reinsurance ~ ~ Renewal premiums 77,94,747 23,84,328 Surrenders (incl. sur bonus) less re-insurance 9,286 4,076 Singl....
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....ntial Life Insurance Company Limited FY 2004-05/ AY 2005-06: Reconciliation of Form-I Surplus with Return of Income Particulars Amount (Rs.) Amount (Rs.) Form-I Surplus as on 31.3.2005 (Page-14B 35,86,96,280 Less Form I Surplus as at 31.3.2004 - Surplus for FY 2004-05/AY 2005-06 35,86,96,280 Less: Shareholder's funding Deficit funding transfers from shareholder's fund (Page 8PB) 2,33,34,74,000 ) Advance funding based on estimates (Note 1) 4,12,09,280 (2,37,46,82,280) Less: Round off (12,808) Deficit in account (2,01,59,99,808) Surplus for participating business 10,41,05,196 Deficit for non-participating business (36,30,236) Surplus for participating annuities (Pension Business) 21,33,71,824 Deficit for linked business (1,66,59,51,826) Deficit for linked pension business (63,09,19,492) Deficit for linked group business (3,29,75,274) Deficit in policyholder's account (2,01,59,99,808) Add: surplus in shareholder's' accoun....
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....n funds as exemption, but adjusted the loss from annuity schemes against taxable business income and as per law, the income includes loss and he observed that even loss from annuity schemes would be exempt u/s 10(23AAB) of the Act and would not enter into computation of total income for the purpose of determination of income u/s 44 of the Act. 14. Considering the rival submission and material placed on record, we notice that Ld. CIT(A) misunderstood the provisions of section 80CCC and 10(23)AAB of the Act and try to merge the insurance business of annuity plan and pension plan and also presumed that assessee's line of business of annuity and pension are different and also assessee can claim benefit u/s 80CCC of the Act, which is not correct. The deduction u/s 80CCC also available only to the individual assessee, not to the insurance company. Since assessee's line of business are only with life cover and other benefits are extended benefits allowed to the policy holders alongwith life cover, therefore presumption drawn by Ld. CIT(A) is not proper and accordingly direction given by the Ld. CIT(A) to enhance assessment is accordingly dismissed. Accordingly, ground raised by the ....
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....of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only) or the happening of any contingency dependent on human life, and any contract which is subject to payment of premiums for a term dependent on human life and shall be deemed to include- (a) the granting of disability and double or triple indemnity accident benefits, if so provided in the contract of insurance, (b) the granting of annuities upon human life, and (c) the granting of superannuation allowances and annuities payable out of any fund applicable solely to the relief and maintenance of persons engaged or who have been engaged in any particular profession, trade or employment or of the dependents of such persons [Explanation.-For the removal of doubts, it is hereby declared that "life insurance business" shall include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a component of investment and a component of insurance issued by an insurer referred to in clause (9) of this section;] Significantly, the definition of life insurance busin....
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....hedule is not applicable: The additional reasons set out herein below also support the Appellant's submission that the surplus realised by the Appellant from the class of products referred to in paragraph 3(ii) above was assessable and has been rightly assessed by the AO under Rule 2 of the First Schedule: (i) Rule 5 deals with general insurance. (ii) The term 'general insurance' has not been defined under the Act. It has been defined in sec.2(6B) of the Insurance Act to mean 'fire, marine or miscellaneous insurance business whether carried on singly or in combination with one or more of them ' (iii) Health schemes clearly do not fall within the purview of either 'fire' or 'marine' insurance which have been defined sec. 2(6A) and 2(13A) of the Insurance Act ( definitions given below). Nor are these products covered under 'miscellaneous insurance business' which is defined in sec.2(13B) of the Insurance Act to mean 'the business of effecting insurance which is not principally or wholly included in clauses (6A), (11) and (13A). The relevant definitions are reproduce....
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....ucts of the Appellant applying the provisions of Rule 5 is not possible. 7. Principle of consistency: Further the profits/deficit disclosed by the Appellant have, in the preceding as well as subsequent years, been assessed under Rule 2 of the First Schedule. The well-settled principle of consistency must be followed especially since there is no change in the factual position. 8 Pure health policies issued by the largest public sector Life Insurer i.e. Life Insurance Corporation of India as also by HDFC Life Insurance Co. Ltd. have been recognized and accepted as part of the life insurance business. Brochures of the Appellant's products existing in the relevant year are enclosed at (pgs. 1 to 26) along with brochures of pure health policies being currently issued by the Life Insurance Corporation of India (pgs. 27 to 33) and by HDFC Life Insurance Co. Ltd. (pgs. 34 to 45). 9. Annuity plans are covered under sec.2(1 1)(b) of the definition of life insurance In view of the above it is therefore respectfully submitted that the CIT(A)'s conclusion that the surplus from health schemes and annuity plans be assessed under Rule 5....
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....rties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that the identical ground raised in the present appeal has already been decided by the Coordinate Bench of Hon'ble ITAT for AY 2005-06 to 200809, 2009-10, 2010-11 & 2011-12 in assessee's own case on merits. The operative portion of the order of Coordinate Bench of ITAT for AY 2005-06 to 2008-09 is contained in para no. 32 at page no. 35 & 36 of its order and the same is reproduced below:- 32. IRDA Regulations specifically require to maintain the policyholder's account and the shareholder's account separately and permits transfer of funds from shareholder's account to policyholder's account as and when there is a deficit in policyholder's account. As rightly noted by the Hon'ble Bombay High Court, as a policy, company is transferring funds/assets from shareholder's account to policyholder's account even during the year periodically as and when the actuarial valuation was arrived at in policyholder's account. Most of the companies are required to submit quarterly accounts under the Company Law, there is requir....
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....issue has already been decided by the Coordinate Bench of Hon'ble ITAT in AY 2005-06 to 2008-09, 2009-10, 2010-11 & 2011-12 in assessee's own case on merits. Therefore, respectfully following the decision of the coordinate bench of Hon'ble ITAT which is applicable mutatis mutandis in the present case, we allow these grounds raised by the assessee. Ground No. 6 25. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in holding that the actuarial surplus determined for the purpose of the Insurance Act must be the same as the First Schedule. 26. At the outset, Ld. AR appearing on behalf of the assessee submitted before us that this ground is squarely covered by the consolidate order of Coordinate Bench of Hon'ble ITAT for AY 2005-06 to 2008-09, 2009-10, 2010-11 & 2011-12 in assessee's own case on merits. 27. On the other hand, Ld. DR fairly conceded that these grounds are covered by the order of ITAT. 28. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that the identical ground raised in the present appeal has already be....
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....urplus after transfer from Shareholder's account) which is not at all correct. 41. Learned Counsel in the course of the argument also placed reconciliation of the various figures as under: Table: Statement of deficit in policyholder's account (PHA), Shareholder account (SHA) funding and Net deficit: S.No Particulars Amount (?. In crs.) Amount (? In crs.) Paper book page reference Deficit in PHA a/c 233.34 Page 70 - Part of Actuarial Report and also Page 8 Revenue A/c Met by transfer from SHA a/c amounting to: 237.46 a.Transfer to meet the deficit b. Additional Transfer 233.34 4.12 * 237.46 Page 70 Part of Actuarial Report and also at Page 8 Revenue Account I SCENARIO 1: If transfer disregarded as income: The amount transferred cannot be of income nature, if disregarded, there will be a net deficit in the PHA of Add: Surplus in SHA -201.59 10.93 Page 8 Revenue account (31.74-233.33) Page 9 Profit & Loss A/c (11.34-0.41) -190.66 II SCENARIO 2: If transfer disregarded as income: If amount ....
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....le ITAT which is applicable mutatis mutandis in the present case, we allow this ground raised by the assessee. Ground No. 9 30. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in upholding the order of AO subjecting the amount of negative reserve to tax. 31. At the outset, Ld. AR appearing on behalf of the assessee submitted before us that this ground is squarely covered by the consolidate order of Coordinate Bench of Hon'ble ITAT for AY 2005-06 to 2008-09, 2009-10, 2010-11 & 2011-12 in assessee's own case on merits. 32. On the other hand, Ld. DR fairly conceded that these grounds are covered by the order of ITAT. 33. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that the identical ground raised in the present appeal has already been decided by the Coordinate Bench of Hon'ble ITAT for AY 2005-06 to 200809, 2009-10, 2010-11 & 2011-12 in assessee's own case on merits. The operative portion of the order of Hon'ble ITAT for AY 2005-06 to 2008-09 is contained in para no. 57 to 59 at page no. 56 to 58 of its order and....
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....s Premium Method". (7) If in the opinion of the appointed actuary, a method of valuation other than the Gross Premium Method of valuation is to be adopted, then, other approximations (e.g. retrospective method) may be used. Provided that the amount of calculated reserve is expected to be at least equal to the amount that shall be produced by the application of Gross Premium Method. (8) The method of calculation of the amount of liabilities and the assumptions for the valuation parameters shall not be subject to arbitrary discontinuities for one year to the next. (9) The determination of the amount of mathematical reserves shall take into account the nature and term of the assets representing those liabilities and the value placed upon them and shall include prudent provision against the effects of possible future changes in the value of assets on the ability to the insurer to meet its obligations arising under policies as they arise. Mandate to Appointed Actuary under regulations Sub-Rule 4 mandates Appointed Actuary to have prudent assumption of all relevant parameters and to include an appropriate margin for adverse deviations that may....
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....oned orders, we find that the identical issue has already been decided by the Coordinate Bench of Hon'ble ITAT in AY 2005-06 to 2008-09, 2009-10, 2010-11 & 2011-12 in assessee's own case on merits. Therefore, respectfully following the decision of the coordinate bench of Hon'ble ITAT which is applicable mutatis mutandis in the present case, we allow this ground raised by the assessee. Ground No. 10 & 11 35. These grounds raised by the assessee are inter connected and inter related and relates to challenging the order of Ld. CIT(A) in holding that provisions of section 14A of the Act are applicable in the case of assessee, therefore we thought it fit to dispose of the same by this common order. 36. At the outset, Ld. AR appearing on behalf of the assessee submitted before us that these grounds are squarely covered by the consolidate order of Coordinate Bench of Hon'ble ITAT for AY 2005-06 to 2008-09, 2009-10, 2010-11 & 2011-12 in assessee's own case on merits. 37. On the other hand, Ld. DR fairly conceded that these grounds are covered by the order of ITAT. 38. We have heard counsels for both the parties at length and we have also perused t....
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.... order in the case of General Insurance Corporation of India in ITA No.3554/Mum/2011 vide Para 9 is as under: 9. "Issue No.6 Non applicability of provisions of section 14A. (Modified Ground of Appeal No.3.1 to 3.4 - Original Ground of Appeal No.3.1 to 3.5). The issue is with reference to the applicability of section 14A and disallowance of expenditure in respect of sale of investment which are not taxed. We have heard the rival contentions. We also note that this issue is also considered by the Coordinate Bench in assessee's own case for 2006- 07 vide Para 7 to 9: 7. Grounds of appeal no.4 regarding the expenditure under section 14A. 8. We have heard the rival contentions and perused the relevant record. We note that this issue has been considered and decided by the Pune Bench of this Tribunal in the case of Bajaj Allianz General Insurance Company limited V/s Add. CIT in ITA No.1447/PN/2007 for the assessment year 200304 order dated 31.08.2009. This Tribunal in the case of JCITV/s M/s Reliance General Insurance co. in ITA No.3085/Mum/2008 for the assessment year 2005-06 vide order dated 26.2.2010 has considered this issue and decided in favou....
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....s not computed the profits and gains of its insurance business in accordance with the said rules. Reliance was placed on the scope of s. 144, as held in the case of General Insurance Corporation of India v. CIT [1999] 156 CTR (SC) 425 : [1999] 240 ITR 139 (SC), wherein their Lordships of the apex Court have categorically held that the provisions of s. 44 being a special provision govern computation of taxable income earned from business of insurance. I t mandates the tax authorities to compute the taxable income in respect of insurance business in accordance with the provisions of the First Schedule to the Act. In the light of these, their Lordships of Delhi High Court have held that no quest ion of law, much less a substantial quest ion of law survives for their consideration. In other words, order of the Tribunal has been affirmed. Following the same reasoning, addition made by the AO is deleted. 22. We have considered the rival contentions and gone through the records. The provisions of s. 44 read as under: "44. Insurance business.--Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable ....
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....o travel beyond s. 44 of First Schedule of IT Act. 18. The next common dispute relates to the order of the CIT (A) in sustaining the act ion of AO in al lowing only 50 per cent of the management expenses by invoking the provisions of s. 14A of the Act. The addition is made by the AO on the plea that the provisions of s.14A was inserted by Finance Act, 2001 w.e.f. 1st April, 1962. It is stated that the investments made by the assessee are both taxable as well as tax free. An estimated disallowance of 50 per cent out of the management expenses incurred and as claimed in the P&L a/c is treated as expenses incur red in connect ion with the looking after taxfree investment. 19. The learned counsel for the assessee vehemently argued that the income of the assessee is to be computed under s. 44 r/w r. 5 of Sch. 1 of the IT Act. Sec. 44 is a non obstinate clause and applies notwithstanding anything to the contrary contained within the provisions of the IT Act relating to computation of income chargeable under different heads, other than the income to be computed under the head 'Profit and gains of business or profession'. For computation of profits and gains of bu....
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....refore, the ground is allowed". Respectfully following the same, we modify the order of the CIT (A) and delete the addition made by AO. The ground and additional grounds are considered as allowed. 39. After having gone through the aforementioned orders, we find that the identical issue has already been decided by the Coordinate Bench of Hon'ble ITAT in AY 2005-06 to 2008-09, 2009-10, 2010-11 & 2011-12 in assessee's own case on merits. Therefore, respectfully following the decision of the coordinate bench of Hon'ble ITAT which is applicable mutatis mutandis in the present case, we allow these grounds raised by the assessee. Ground No. 12 40. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in applying the normal corporate rate of tax instead of rate specified in section 115B of the Act to income treated as other than from the business of insurance. 41. At the outset, Ld. AR appearing on behalf of the assessee submitted before us that this ground is squarely covered by the consolidate order of Coordinate Bench of Hon'ble ITAT for AY 2005-06 to 2008-09, 2009-10, 2010-11 & 2011-12 in assessee's own case on merits. 42. On the othe....
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....estments are made as part of solvency ratio of same business. The grounds are allowed. AO is directed to treat them as part of Life Insurance Business and tax them u/s 115B. 44. After having gone through the aforementioned orders, we find that the identical issue has already been decided by the Coordinate Bench of Hon'ble ITAT in AY 2005-06 to 2008-09, 2009-10, 2010-11 & 2011-12 in assessee's own case on merits. Therefore, respectfully following the decision of the coordinate bench of Hon'ble ITAT which is applicable mutatis mutandis in the present case, we allow this ground raised by the assessee. 45. Consequently, the appeal filed by the assessee stands allowed. ITA No. 632/Mum/2015 (AY 2012-13) 46. Now we take up revenue appeal filed in ITA No. 632/Mum/2015 for Ay 2012-13 on the grounds mentioned herein below:- 1. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in interpreting the provisions of Section 44 of the I.T. Act read with Rule 2 of the First Schedule alongwith provisions of Insurance Act 1938, Insurance Regulatory and Development Authority Act 1999 and regulations there under and accordingly allowing adjustm....
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....igh Court, Bombay? 6. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in giving relief to the assessee following the decision of Hon'ble /TAT in assessee's own case for the earlier years wherein Hon'ble Tribunal held that transfer from Share Holders Account to Policy Holder's Account and shown as part of 'surplus' in the "actuarial valuation" was only transfer of capital asset and not taxable u/s.44 of the Act r.w Rule 2 of the First Schedule; and when an appeal against this order of IT AT has been filed & is pending with High Court, Bombay? 7. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in allowing the relief to the assessee by holding that "surplus" available both in Policy Holders Account and Share Holder's Account is to be consolidated and only "net surplus" is to be taxed as income from Insurance Business? 8. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition made on account of claim of 100% depreciation ignoring the facts that Actuarial surplus is determined on the basis o....
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....orities. We find that the identical ground raised in the present appeal has already been decided by the Coordinate Bench of ITAT for AY 2005-06 to 2008-09, 2009-10, 2010-11 & 2011-12 in assessee's own case on merits. The operative portion of the order of ITAT for AY 2010-11 to 2011-12 is contained in para no. 4 to 7.2 of its order and the same is reproduced below:- 4. The revenue has raised common grounds in both the appeals. The grounds raised for the assessment year 201011 are as under :- "1. Whether on the facts and in the circumstances of the case and in law, the Ld C1T(A) erred in interpreting the provisions of Section 44 of the I.T. Act read with Rule 2 of the First Schedule alongwith provisions of Insurance Act 1938, Insurance Regulatory and Development Authority Act 1999 and regulations there under and accordingly allowing adjustment from the 'surplus worked as per 'actuarial valuation" [and as shown by the assessee in Form-I] in violation of the ratio of the Apex Court in the case of LIC vs CIT 51 ITR 778? 2. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in allowing the relief to the assessee by....
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....d only 'net surplus" is to be taxed as income from Insurance Business? 7. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in concluding that transfer between Share Holders Account and policy Holder's Account is tax neutral and not taxable u/s 44 of the Act r.w Rule 2 of the first Schedule. 8. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition made on account of claim of 100% depreciation ignoring the facts that Actuarial surplus is determined on the basis of the total assets of the company and therefore by not capitalizing the above assets, the assets of the assessee company are under-stated in the books and thereby it has an impact of reducing the surplus or increase in the deficit and therefore, the assets so written off are also accordingly required to be considered as part of the surplus and taxable under section 44 of the IT. Act? 9. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in allowing the dividend income of assessee as exempt u/s. 10(34) of the I.T. Act, 1961, ignoring the fact that divide....
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....prepared in accordance with the provisions of the Insurance Act, 1938 (4 of 1938) or the rules made thereunder or the provisions of the Insurance Regulatory and Development Authority Act, 1999 (4 of 1999) or the Regulations made thereunder subject to the following adjustments:- (a) subject to the other provisions of this rule, any expenditure or allowance including any amount debited to the profit and loss account either by way of a provision for any tax, dividend, reserve or any other provision as may be prescribed which is not admissible under the provisions of section 30 to 43B in computing the profits and gains of a business shall be added back: (b) (i) any gain or loss on realization of investments shall be added or deducted, as the case may be, if such gain or loss is not credited or debited to the Profit & Loss A/c ; (c) such amount carried over to a reserve for unexpired risks as may be prescribed in this behalf shall be allowed as a deduction". (emphasis supplied) This indicates that the legislature consciously omitted incorporating the provisions of IRDA or the Regulations made there under in Rule 2 which still refers to the Insurance A....
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.... surprisingly in subsequent assessment years appeals accepted AO's contention that surplus in shareholder's account is to be taxed as other sources of income. But once the provisions of section 44 of IT Act are invoked anything contained in the heads of income like income from other sources, capital gains, house property or even interest on securities does not come into play and only first schedule has to be invoked to arrive at the profit. Therefore, in our opinion both the policyholder's and shareholder's account has to be consolidated for the purpose of arriving at the deficit or surplus. .... ... 38. The above statement furnished is in accordance with the Insurance Act, 1938, therefore, it cannot be stated that assessee returned income is not in accordance with the Insurance Act, 1938. There is no basis for AO to take Form-I 'total surplus' as surplus of the Life insurance business ignoring transfer from shareholder's account. .... ..40. In our opinion what assessee has done in reconciling the IRDA format with that of old Insurance Form is correct and accordingly the loss disclosed in the computation of income is according to the ac....
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....CIT(A) gives a finding that assessee is exclusively in Life Insurance business. However, since he gave primacy to Form I proforma he concluded that other incomes are not of Life Insurance business. We have already considered and decided that assessee was mandated to maintain separate accounts by IRDA Regulations. Just because separate accounts are maintained the incomes in Shareholder's account does not become separate from Life insurance business. As per Insurance Act 1938 all incomes are part of one business only and these incomes are considered as part of same business. Therefore, the incomes in Shareholder's account are to be considered as arising out of Life insurance business only. More over Sec 44 mandates that only First Schedule will apply for computing incomes and excludes other heads of income like, Interest on Securities, income from house property, Capital gains or Income from other sources. Being non-obstante clause, sec. 44 mandates that the profits and gains of insurance business shall be computed in accordance with the rules contained in First Schedule. Therefore, the incomes in Shareholder's account are to be taxed as part of life insurance business on....