TaxTMI 
TaxTMI 
2019 (11) TMI 1769
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....learned CIT(A) has erred in holding that the capital contribution of shareholders account to policy holder account has to be reduced while computing income u/ r.w.s first schedule of IT Act. 3. Whether on the facts and circumstances of the case and in law, the learned CIT(A) has erred in agreeing to reduce the exempt income u/s 10(34) of the IT Act while computing income of insurance business of the assessee u/s 44 of the IT Act. 4. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary. 5. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the AO restored." 3. The issue raised in ground No.1 is against the order of Ld. CIT(A) holding that surplus disclosed in the actuarial report in form 1 can be charged by way of adjustment whereas the ground No.2 is against the order of Ld. CIT(A) holding that capital contribution of the shareholders account to policy holder account has to be reduced while computing income under section 44 read with 1 schedule of the Act. 4. The Ld. A.R., at the outset, submitted that the identical issue has been decided in assessee's own case in ITA No.1039/M/2011 A.Y.....
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....1 is also taken into consideration. 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 Act, 1938 only. 28. Further, we also notice that the Insurance Act itself was amended along with the introduction of IRDA Act 1999. Along with the said IRDA Act, there are various amendments proposed in the Insurance Act in tune with IRDA Act by amending the relevant provisions of Insurance Act 1938. However, since the Rule 5 was amended in the First schedule by specifically referring to the IRDA Act 1999 or the Regulations made there under, we are of the opinion that the legislature intended not to modify or amend the Rule-2. This indicates the intention of legislature that the actuarial valuation has to be made in accordance with the unamended Insurance Act, 1938. We are of the firm opinion that the unamended provisions of Insurance Act 1938 were only incorporated into the Income Tax Act as far as life insurance businesses are concerned. Therefore, AO's action in following the format prescribed under the Regulations of IRDA Act is not in accordance with the spirit of Ru....
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....s as well as their other expenses. In fact, the work that actuaries perform is crucial to an insurance company's ability to remain in business. Actuaries are involved at all stages in product development and in the pricing risk assessment and marketing of the products. Their job involves making estimates of ultimate out-come of insurable events. In the business of insurance the product cost is an abstraction, depending on the timing issues, variability issues and risk parameters. One big function actuaries provide is making reserves to insure that insurance companies keep enough money on their balance sheets to make good of all the claims they will have to pay. This involves arriving at actuarial surplus or deficit depending on various factors. In order to ensure a fair play in the business, the IRDA prescribed regulations according to which various norms were prescribed in order to ensure that Life Insurance business (even other insurance business) are done according to healthy business practices. As per the above regulations, Regulation 4 prescribes number of abstracts and statements in respect of (a) linked business; (b) non-linked business and (c) health insurance business. As ....
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....nds 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 the life insurance business only and incomes are to be treated as income from life insurance business, the CIT (A) 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. Comparison of Forms-I under the Insurance Act and the IRDA Regulations. 33. Whether Assessing Officer's action in adopting Form-I prescribed un....
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....nsfers are tax neutral as a credit in one account gets cancelled by debit in other account when accounts are consolidated. What the Rule.2 prescribed was only 'average surplus' arrived by adjusting the surplus disclosed in the actuarial valuation made with regard to the Insurance Act, 1938 in respect of inter valuation period. Assessee in the course of the assessment proceedings has furnished general balance sheet in Form-A. 38. The 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. 39. It is also on record that assessee followed the IRDA recommendations and accordingly prepared the actuarial valuation report including the surplus or deficit. However, Rule-2 prescribes only actuarial valuation in accordance with the Insurance Act, 1938. Therefore, AO is duty bound to insist on actuarial valuation in accordance with the Insurance Act, 1938, so as to bring to tax the surplus or deficit. What we notice is that A....
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....n has been followed by the Tribunal in the case of HDFC Standard Life Insurance Co. Ltd. (supra). Thus, following the same judicial precedence which would apply on the facts of the present case also, we decide the issues raised vide ground no. 1&2 in the department's appeal in favour of the assessee and against the Department. 9. Similarly, with regard to the issue raised in ground No.3 also, the same is also covered by the same decision as incorporated above and accordingly, respectfully following the same, we uphold the order of the CIT(A) and dismissed the ground raised by the Department." Since the facts of the issues raised by the revenue are identical as decided by the coordinate bench in the order as stated reproduced above, accordingly the ground no. 1 and 2 raised by the revenue are dismissed and the order of ld. CIT(A) is upeld. 7. The issue raised in ground No.3 by the Revenue is against the order of Ld. CIT(A) directing the AO to reduce the exempt income under section 10(34) of the Act while computing the income of insurance business of the assessee under section 44of the Act. 8. The Ld. A.R. at the outset submitted that the identical issue has been decided by th....
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....s than the returned income by relying on the circular of the Central Board of Direct Taxes (CBDT) i.e. Circular no 549 dated 31 October 1989 and thereby rejecting the computation of income furnished by the Appellant prepared in accordance with regulations contained in Part-l and Part-ll of the Fourth schedule of the unamended Insurance Act, 1938 reporting a taxable surplus of Rs.3,806,005,935. 2. Placing reliance on the CBDT Circular no 549 dated 31 October 1989, the learned CIT(A) erred in disregarding the revised claim under section 10(34) and section 10(23AAB) of the Act amounting to Rs 1,065,553,682 and Rs 317,696,000 respectively on the basis that the deduction would reduce the assessed income below the income disclosed in the revised return of income." 13. The assessee has also raised following additional grounds which is as under : "The CIT(A) erred in holding the exemption under section 10(34) is allowable on a net basis." 14. The facts in brief are that the AO while passing the order held that method of computing of business income of life insurance company are to be computed as per the provision of section 44 of the Act read with rule 2 of the 1st schedule. The A....
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....nt will be lower than the returned income which is not permissible (the surplus as per Old Form I comes to Rs 3,80,60,05,935 and the income as per the revised return of income is Rs 4,53,28,55,247) in view of the decision of Hon'ble Mumbai High Court in the case of LML Ltd. [1994] 205 ITR 585 (Bombay HC), wherein the Hon'ble Mumbai High Court relying on the CBDT Circular No. 549, dated 31-10-1989 has held that the assessed income cannot be lower than the returned income. In light of the above, I hold that total income is to be restricted to the income as per revised return of income filed by the Appellant. The AO is hereby directed to compute the total income "as per the revised return of income filed by the Appellant on 28 March 2016. This ground Is accordingly partly allowed." 16. The Ld. A.R. vehemently submitted before the Bench that the order passed by the Ld. CIT(A) on this issue is not as per the provisions of the Act. The Ld. A.R. submitted that the assessee has challenged the observations of the Ld. CIT(A) in which the Ld. CIT(A) has held that in view of the decision of the Hon'ble Bombay High Court in the case of LML Ltd. (1994) 204 ITR 585 (Bom. - HC) rel....
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.... case of LML Ltd. Vs. ACIT (supra) are in the context of assessment year 1989-90 which were prior to the amendments made to section 143(3) of the Act by the Finance Act (No.2) 1998 w.e.f. 01.10.1998. As section 143(3) of the Act stood for the assessment year 1989- 90, there was no provision for refund after the regular assessment. In the present case, the assessment years involved are 2006-07 onwards, which pertain to period after section 143(3) of the Act was amended by the Finance Act (No.2) 1998 w.e.f. 01.10.1998. As per the amendment, the assessment under section 143(3) of the Act, inter-alia, envisages the Assessing Officer to grant refund of any amount due to the assessee consequent to the assessment and therefore, the Assessing Officer is statutorily empowered to determine the revised income which can be lower than the returned income. Therefore, in our view, the objection raised by the Revenue to the impugned order of CIT(A) is untenable in the eyes of the law, as it stood for the period under consideration." It is apparent from the above that post amendment to section 143(3) of the Act by Finance Act (2), 1998 w.e.f. 01.10.1998, the AO has the power to determine the revi....