TaxTMI 
TaxTMI 
2024 (6) TMI 459
X X X X Extracts X X X X
X X X X Extracts X X X X
....eting the provisions of Section 44 of the Income Tax Act, 1961 ["the Act") read with Rule 2 of the First Schedule along with provisions of Insurance Act, 1938, Insurance Regulatory and Development Authority Act. 1999 and regulations made thereunder and accordingly allowing adjustment from the 'surplus' worked out as per "actuarial valuation" in Form-I? 2. "Whether, on the facts and circumstance of the case and in law, the Ld CITA) was correct in holding that the exemption under section 10(34) of the Act was allowable to the assessee while calculating its income under section 44 read with First Schedule of the Act based on the decision of Hon'ble Tribunal, Mumbai in assessee's own case for A.Y. 2014-15, when the Department has not accepted the said decision and is in appeal before the Hon'ble Bombay High court?" 3. "Whether, on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in disregarding the AO's contention that if the claim of exemption of the assessee u/s 10(34) for dividend income earned is allowed during appellate proceedings then the provision of sec14A shall apply?" 4. Whether, on the facts and circumstances....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s offered by the Appellant in the return of income in accordance with the provisions of the Act. 2. On the facts and circumstances of the case and in law, having allowed ground nos. 2 and 3 raised before him to the effect that entire income of the Appellant is taxable as income from life insurance business to be computed as per Rule 2 in the First Schedule to the Act in accordance with the regulations contained in Part-I and Part-II of the Fourth Schedule of the unamended Insurance Act, 1938, while deciding on ground nos. 4 and 5 raised before him, the learned CIT(A) ought to have directed the learned AO to rectify the errors in the manner of computation of income (resulting in double taxation) pointed by the Appellant in the income-tax computation sheet (annexed to the assessment order) rather than directing the learned AO to verify the errors pointed out by the Appellant. While directing the learned AO to verify the errors pointed by the Appellant in computation of income, the learned CIT(A) erred in issuing such directions under section 251(1)(c) instead of section 251(1)(a) of the Act applicable in case of an appeal against the assessment order. 3. On....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h 2017 (B) 2,94,51,94,177 Surplus as per section 44 (A-B) (C) 2,37,58,97,733 Less: Exemption u/s 10(23AAB) (D) 39,44,22,207 Less: Exemption u/s 10(34) (E) 91,82,72,148 (D-E) (F) 1,31,6,94,355 Surplus/(Deficit) from insurance business (C-F) 1,06,32,03,378 Less: Chapter VIA deduction Section 80JJAA 2,13,95,768 Total Income/(Loss) 1,04,18,07,610 6. The assessee offered total income of INR 1,041,807,610 in the return of income whereas, the AO assessed the total income at INR 4,875,212,340. And consistent with the order of this Tribunal (Mumbai) in the assessee's own case for AYs 2002-03 to AY 2008-09 and AY 2014-15; and as per section 44 read with Rule 2 of the First Schedule to the Act, the assessee computed the taxable surplus of Rs. 237,58,97,733 from life insurance business by taking into account the incremental surplus/(deficit) disclosed in the Valuation Balance Sheet (i.e. Old Form) prepared in accordance with the Regulations contained in Part-I and Part-II of the Fourth Schedule of the un-amended Insurance Act, 1938. From the tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....adopted new Form 1 as the basis to compute the aforesaid taxable surplus instead of Old Form I which was adopted by the assessee for computing its income as per section 44 read with Rule 2 of the First Schedule to the Act. 9. According to assessee, the AO computed incremental surplus of INR 1,50,53,69,000 as per New Form I, and since the said surplus represented only policyholders' results, the AO added the surplus of INR 87,05, 28,733 as per the Profit & Loss Account (i.e. shareholders' account) to arrive at the total taxable surplus of INR 2,37,58,97,733 from life insurance business as per section 44 read with Rule 2 of the First Schedule to the Act. 10. Further, according to assessee, the AO denied exemptions claimed by the assessee under section 10(34) and section 10(23AAB) of the Act and pointed out that by the AO at para 8.5 on page 23 of the order, denied the exemption of INR 91,82,72,148 in respect of dividend income claimed by the assessee under section 10(34) of the Act. And as concluded the AO at para 9.7 on page 28 of the order, denied exemption of INR 39,44,22,207 in respect of surplus from pension business claimed by the Appellant under section 10(23AAB) of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....this issue are allowed and AO is directed to modify the order accordingly". 14. And Tribunal in assessee's own case (supra) endorsed the aforesaid ratio and noted as under: - "This decision 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." 15. Since there is no change in law, respectfully following the order of Tribunal (supra), we dismiss ground no. 1 of the revenue and therefore ground no. 8 of the revenue doesn't require adjudication being infructuous. Therefore, both grounds 1 & 8 are dismissed. 16. Ground no. 2 & 6 of the revenue are against the action of the Ld. CIT(A) allowing the assessee exemption u/s 10(34) & 10(23AAB) of the Act while computing income of insurance business of assessee u/s 44 of the Act. 17. At the outset, it was brought to our notice that both these issues are no longer res-integra. And drew our attention to the assessee's own case in earlier years (supra) wher....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion (Modified Ground of Appeal No.2 - Original Ground of Appeal No.2.1 & 2.2) -. The issue arises in a peculiar manner in this assessment year. While dealing with the issue of profit on sale of investments, the Assessing Officer proposed to differ from assessee stand and bring to tax the profit on sale of investment. The assessee alternately submitted that the deduction under section 10(38) in respect of long term capital gain was available. When this issue came up before the CIT (A), the CIT (A) not only rejected the claim under section 10(38) but also considered and elaborately discussed how and why the assessee was not eligible for deductions already allowed by the Assessing Officer in respect of 'interest on tax free bonds' amounting to Rs. 3,45,19,352/- under section 10(15) and dividend income amounting to Rs. 270,66,46,489/- under section 10(34). He has elaborately discussed this issue from Para 6 onwards and ultimately made an enhancement of income to an extent of Rs. 274,11,65,844/- the amount which was allowed by the Assessing Officer as exempt under section 10. The contention of the CIT (A) was that the assessee was not eligible for deduction under section 10, onc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y 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) (.........) (c) Such amount carried over to a reserve for unexpired risks as may be prescribed in this behalf shall be allowed as a deduction". The Assessing Officer has in the reasons for reopening the assessment proceeded on the premise that in computing the profits and gains of business for an assessee who carries on general insurance business no other section of the Act would apply and that the computation could be carried out only in accordance with section 44 read with Rule 5 of the First Schedule. In Life Insurance Corporation of India, Bombay v. Commissioner of Income Tax Bombay City-III, a Division Bench of this Court construed the provisions of section 44 and of the First Schedule. The assessee in that case which carried on life insurance business had made a claim to exemption under section 10(15) and section 19(1). In a reference before the Court, the que....
X X X X Extracts X X X X
X X X X Extracts X X X X
....First Schedule is not excluded". This judgment is sought to be distinguished by the Assessing Officer while disposing of the objections on the ground that the decision was rendered in the context of an assessee which carried on life insurance business to whom Rules 1 to 4 of the First Schedule applied whereas in the case of the assessee in this case which carries on general insurance business Rule 5 could apply. According to the Assessing Officer, Rule 5 would not permit any adjustment to the balance of profit as per annual accounts prepared under the Insurance Act, and hence the judgment would not be applicable. The Assessing Officer has clearly not noticed that the decision in Life Insurance Corporation (supra) though rendered in the context of an assessee which carries on life insurance business, followed an earlier decision of a Division Bench of this Court in Commissioner of Income-Tax v. New India Assurance Co Ltd. That was a case of an assessee which carried on non life insurance business. In New India Assurance Co. Ltd. the Division Bench dealt inter alia with the provisions of section 19(7) of the Income Tax Act, 1922. The questions referred to this Court included....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... made it clear that in order to attract the applicability of the provision the amount should firstly be an expenditure or allowance and secondly it should be one not admissible under the provisions of section 30 to 43A. The Supreme Court held that the sum of Rs. 3 crores in that case which was set apart as a provision for redemption of preference shares could not have been treated as an expenditure and hence could not have been added back under rule 5(a). In that context the Supreme Court held as follows: "There is another approach to the same issue. Section 44 of the Income-tax At read with the rules contained in the First Schedule to the Act lays down an artificial mode of computing the profits and gains of insurance business. For the purpose of income-tax, the figures in the accounts of the assessee drawn up in accordance with the provisions of the First Schedule to the Income-tax Act and satisfying the requirements of the Insurance Act are binding on the Assessing Officer under the Income-tax Act and he has no general power to correct the errors in the accounts of an insurance business and undo the entries made therein". The question whether an assessee who ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is therefore, cancelled. Ground is accordingly allowed". 49. In view of the above and respectfully following the same, we hold that assessee is entitled to exemption under section 10. Therefore, we do not see any reason to differ from the order of the CIT (A) where he has allowed assessee's claim of exemption under section 10(23AAB) of surplus of Participating Pension Business and also dividend under section 10(34). Accordingly, Revenue ground on this issue is rejected." 18. Respectfully following the ratio of the decision of this Tribunal on identical lis, we dismiss ground no. 2 & 6 of revenue. 19. Ground nos. 3, 4 & 7 are regarding disallowance made by AO u/s 14A of the Act. The Ld. AR pointed out that these issues are also covered in favour of assessee in assessee's own case (supra) wherein at para 10 it was held as under: - "10. Lastly, with regard to ground no. 4, that is, disallowing exemption under section 10(34) with regard to the dividend income earned, we find that the Ld. CIT(A) after relying upon various decisions held that section 14A is not applicable to Life Insurance Company. The Tribunal has reiterated the same view in the above cases t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, it's income has to be computed as per section 115B of the Act. And we note that in the earlier years there was no dispute on this issue and the AO himself has applied the rate of tax @ 12.5% in accordance with section 115B of the Act. In such a scenario, the AO ought to have levied tax @ 12.5% as per section 115B of the Act. This ground of assessee is allowed. 25. Ground no. 4 is against the action of the Ld. CIT(A) direction to the AO to pass a speaking order regarding the claim of assessee in respect of its claim of deduction of Rs. 2,13,95,768/- u/s 80(JJAA) of the Act. On this issue, according to assessee, it has claimed in its return deduction of Rs. 2,13,95,768/- u/s 80(JJAA) of the Act and the AO didn't adjudicate on it. Therefore, the Ld. CIT(A) directed the AO to hear the assessee on this issue and pass speaking order. Aggrieved, the assessee submits that Ld. CIT(A) ought to have decided on this issue. We note that assessee had filed the requisite Form-10DA before the AO for making claim u/s 80(JJAA) of the Act. But AO has not examined/adjudicated the claim and has disallowed it without giving any reason. And the Ld. CIT(A) has directed the AO to verify and pass spea....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 5. "Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the capital contribution from share-holders account to policy holder account has to be reduced while computing income under section 44 read with First Schedule of IT Act" 6. "Whether, on the facts and circumstances of the case and in law, the Ld. CIT(A) has justifying in allowing relief to the assessee in exemption under section 10(23AAB) of the Act for income earned from pension business by basing its decision on the decision of Hon'ble ITAT in a common order passed in assessee's own case for AY 2002-03 to AY 2008-09 even though the department is in appeal against the said common order?" 7. "Whether, on the facts and in the circumstance of the case and in law, the Ld. CIT was correct in holding that the exemption under section 10(34) of the Act and 10(23AAB) was allowable to the assessee while calculating its income under section 44-read with First Schedule of the Act without considering its impact on Section 14A wrt to disallowance that needs to be made when part of the income earned. is exempt income?" 8. 'The appellant craves leave to amend or....