DCIT CIR-8(3)(1), MUMBAI vs. M/S. TATA AIA LIFE INSURANCE CO. LTD.,, MUMBAI
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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
PER OM PRAKASH KANT, AM
This appeal by the Revenue is directed against order dated 16.03.2023 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds:
Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in allowing the appeal of assessee relying on the decision of Hon'ble Tribunal Mumbai in assessee's own case for A.Y. 2014-15, whereas the Department has not accepted the decision of Hon'ble Tribunal and filed further appeal before the Hon'ble High Court.
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"Whether on the facts and circumstances of the case and in "Whether on the facts and circumstances of the case and in "Whether on the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the surplus law, the learned CIT(A) has erred in holding that the surplus law, the learned CIT(A) has erred in holding that the surplus disclosed in the Actuarial Report in Form I can be changed by disclosed in the Actuarial Report in Form I can be changed by disclosed in the Actuarial Report in Form I can be changed by way of adjustment. way of adjustment. 3. Whether on t Whether on the facts and circumstances of the case and in he facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the capital law, the learned CIT(A) has erred in holding that the capital law, the learned CIT(A) has erred in holding that the capital contribution of shareholders account to policy holder account contribution of shareholders account to policy holder account contribution of shareholders account to policy holder account has to be reduced while computing income u/ r.w.s first has to be reduced while computing income u/ r.w.s first has to be reduced while computing income u/ r.w.s first schedule of IT Act. schedule of IT Act. 4. Whether on Whether on the facts and circumstances of the case and in the facts and circumstances of the case and in law, the learned CIT(A) has erred in agreeing to reduce the law, the learned CIT(A) has erred in agreeing to reduce the law, the learned CIT(A) has erred in agreeing to reduce the exempt income u/s 10(34) of t he IT Act while computing exempt income u/s 10(34) of t he IT Act while computing exempt income u/s 10(34) of t he IT Act while computing income of insurance business of the assessee us 44 of the IT income of insurance business of the assessee us 44 of the IT income of insurance business of the assessee us 44 of the IT Act. 2. Briefly stated, facts o Briefly stated, facts of the case are that the assessee company f the case are that the assessee company during relevant year was engaged in the business of providing life during relevant year was engaged in the business of during relevant year was engaged in the business of insurance. The assessee filed return of income on 30.11.2015 he assessee filed return of income on 30.11.2015 he assessee filed return of income on 30.11.2015 declaring total income of Rs.2,70,16,25,000/ declaring total income of Rs.2,70,16,25,000/-. The return of income . The return of income filed by the assessee was selected for scrutiny and statutory notices see was selected for scrutiny and statutory notices see was selected for scrutiny and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and tax Act, 1961 (in short ‘the Act’) were issued and tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment completed u/s 143(3) of the Act complied with. In the assessment completed u/s 143(3) of the Act complied with. In the assessment completed u/s 143(3) of the Act on 29.12.2017 , the Assessing officer , the Assessing officer assessed the income under assessed the income under the provisions of section 44 of the Act visions of section 44 of the Act but he rejected the claim of rejected the claim of the assessee filed otherwise then by way of revised return for non- the assessee filed otherwise then by way of revised return for non the assessee filed otherwise then by way of revised return for non considering the surplus as per the considering the surplus as per the actuarial report based on the actuarial report based on the IRDA report as income of the assessee. On further appeal, the RDA report as income of the assessee. On further appeal, the RDA report as income of the assessee. On further appeal, the Ld. CIT(A) following the finding of the Tribunal in assessment year CIT(A) following the finding of the Tribunal in assessment year CIT(A) following the finding of the Tribunal in assessment year 2014-15 allowed the claim of the assessee. The Ld. CIT(A) also 15 allowed the claim of the assessee. The Ld. CIT(A) also 15 allowed the claim of the assessee. The Ld. CIT(A) also reduced exempted income exempted income earned u/s 10(34) of the Act while ) of the Act while computing the income of the insurance business of the assessee computing the income of the insurance business of the assessee computing the income of the insurance business of the assessee u/s 44 of the Act. Aggrieved 44 of the Act. Aggrieved, the Revenue is in appeal before the the Revenue is in appeal before the Tribunal by way of grounds as reproduced above. Tribunal by way of grounds as reproduced above.
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The ground No. 1 and 2 of the appeal of the Revenue relate the The ground No. 1 and 2 of the appeal of the Revenue relate the The ground No. 1 and 2 of the appeal of the Revenue relate the claim in respect of surplus claim in respect of surplus of business in the actuarial report in business in the actuarial report in Form No. 1 prescribed. prescribed. The ground No. 3 of the appeal of the The ground No. 3 of the appeal of the Revenue also relates to computation of life insurance business Revenue also relates to computation of life insurance business Revenue also relates to computation of life insurance business income. The ground No. 4 relate income. The ground No. 4 relates to excluding exempted income to excluding exempted income u/s 10(34) of the Act while computing the income of the insurance of the Act while computing the income of the insurance of the Act while computing the income of the insurance business u/s 44 of the Act. We find that the Ld. CIT(A) has referred 4 of the Act. We find that the Ld. CIT(A) has referred 4 of the Act. We find that the Ld. CIT(A) has referred to the order of the Tribunal for assessment year 2014-15 and to the order of the Tribunal for assessment year 2014 to the order of the Tribunal for assessment year 2014 allowed the appeal of the assessee. For ready reference, the relevant allowed the appeal of the assessee. For ready reference, the relevant allowed the appeal of the assessee. For ready reference, the relevant part of the decision is extracted as part of the decision is extracted as under:
“5. Ground of appeal no. 2 Ground of appeal no. 2 is related the manner of computation of is related the manner of computation of income in the case of appellant should be as per the surplus/deficit should income in the case of appellant should be as per the surplus/deficit should income in the case of appellant should be as per the surplus/deficit should be computed in accordance with regulations contained in Part be computed in accordance with regulations contained in Part be computed in accordance with regulations contained in Part-1 and Part II of the Fourth Schedule of the un of the Fourth Schedule of the un-amended Insurance Act, 1938. Th amended Insurance Act, 1938. The A.R of the appellant has pointed out that this ground is covered by the decision of the appellant has pointed out that this ground is covered by the decision of the appellant has pointed out that this ground is covered by the decision of ITAT, Mumbai in the case of ICICI Prudential Insurance Co.Ltd [2012] 28 ITAT, Mumbai in the case of ICICI Prudential Insurance Co.Ltd [2012] 28 ITAT, Mumbai in the case of ICICI Prudential Insurance Co.Ltd [2012] 28 taxmann.co. 257 (Mum.) and in his appellant's own case in ITA No. taxmann.co. 257 (Mum.) and in his appellant's own case in ITA No. taxmann.co. 257 (Mum.) and in his appellant's own case in ITA No. 1482/M/2018 dated 08.11.2019 in 1482/M/2018 dated 08.11.2019 in A.Y. 2014-15. He has pointed out to the 15. He has pointed out to the relevant portion of the order as under: relevant portion of the order as under: "ITA No.1482/M/2018 (Revenue's appeal) "ITA No.1482/M/2018 (Revenue's appeal) 2. The Revenue has raised the following grounds of appeal: 2. The Revenue has raised the following grounds of appeal: 1. "Whether on the facts and circumstances of the case and in law, the 1. "Whether on the facts and circumstances of the case and in law, the 1. "Whether on the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the surplus disclosed in the CIT(A) has erred in holding that the surplus disclosed in the CIT(A) has erred in holding that the surplus disclosed in the Actuarial Report in Form I can be changed by way of adjustment. Actuarial Report in Form I can be changed by way of adjustment. Actuarial Report in Form I can be changed by way of adjustment. 2. Whether on the facts and circumstances of the case and in law, the 2. Whether on the facts and circumstances of the case and in law, the 2. Whether on the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the capital contri learned CIT(A) has erred in holding that the capital contri learned CIT(A) has erred in holding that the capital contribution of shareholders account to policy holder account has to be reduced while shareholders account to policy holder account has to be reduced while shareholders account to policy holder account has to be reduced while computing income u/ r.w.s first schedule of IT Act. computing income u/ r.w.s first schedule of IT Act. ……………….. 3. The issue raised in ground No.1 is against the order of Ld. CIT(A) holding 3. The issue raised in ground No.1 is against the order of Ld. CIT(A) holding 3. The issue raised in ground No.1 is against the order of Ld. CIT(A) holding that surplus disclosed in the actuari that surplus disclosed in the actuarial report in form 1 can be charged by al report in form 1 can be charged by way of adjustment whereas the ground No.2 is against the order of Ld. way of adjustment whereas the ground No.2 is against the order of Ld. 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 CIT(A) holding that capital contribution of the shareholders account to policy CIT(A) holding that capital contribution of the shareholders account to policy
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holder account has to be reduced while computing income under section holder account has to be reduced while computing income under section holder account has to be reduced while computing income under section 44 read with 1 schedule of the Act. read with 1 schedule of the Act. 4. The Ld. AR at the outset, submitted that the identical issue has been The Ld. AR at the outset, submitted that the identical issue has been The Ld. AR at the outset, submitted that the identical issue has been decided in assessee's own case in ITA NO.1039/M/2011 A.Y. 2006 assessee's own case in ITA NO.1039/M/2011 A.Y. 2006-07 & assessee's own case in ITA NO.1039/M/2011 A.Y. 2006 others vide order dated others vide order dated 21.09.2106 by the coordinate bench. The Ld. A.R. 21.09.2106 by the coordinate bench. The Ld. A.R. submitted that since the issues raised in both the grounds of appeal stood tted that since the issues raised in both the grounds of appeal stood tted that since the issues raised in both the grounds of appeal stood decided by the co decided by the co-ordinate bench of the Tribunal in favour of the assessee ordinate bench of the Tribunal in favour of the assessee and against the Revenue and accordingly the ground No. 1 & 2 raised by and against the Revenue and accordingly the ground No. 1 & 2 raised by and against the Revenue and accordingly the ground No. 1 & 2 raised by the Revenue may kindly be dismissed. the Revenue may kindly be dismissed. 5. The Ld. D.R., on the other hand, fairly agreed that the issue have been The Ld. D.R., on the other hand, fairly agreed that the issue have been The Ld. D.R., on the other hand, fairly agreed that the issue have been decided in assessee's own case and thus fairly agreeing with the arguments decided in assessee's own case and thus fairly agreeing with the arguments decided in assessee's own case and thus fairly agreeing with the arguments of the Ld. A.R., however, relied on the grounds of appeal and order of the of the Ld. A.R., however, relied on the grounds of appeal and order of the of the Ld. A.R., however, relied on the grounds of appeal and order of the AO. 6. After going through the fac 6. After going through the facts on record and the order of coordinate bench ts on record and the order of coordinate bench of the Tribunal in ITA No. 1036 & 1039/M/2011 (supra), we observe that of the Tribunal in ITA No. 1036 & 1039/M/2011 (supra), we observe that of the Tribunal in ITA No. 1036 & 1039/M/2011 (supra), we observe that the ground No. 1 & 2 raised in the this appeal by the Revenue are identical the ground No. 1 & 2 raised in the this appeal by the Revenue are identical the ground No. 1 & 2 raised in the this appeal by the Revenue are identical to ground No.3 & 2 respectively which has been decided by the to ground No.3 & 2 respectively which has been decided by the to ground No.3 & 2 respectively which has been decided by the co-ordinate bench of the Tribunal as bench of the Tribunal as under: 8. After considering the relevant finding given in the impugned order After considering the relevant finding given in the impugned order After considering the relevant finding given in the impugned order as wel as the aforesaid decisions of the Tribunal, we agree with Ld. as wel as the aforesaid decisions of the Tribunal, we agree with Ld. as wel as the aforesaid decisions of the Tribunal, we agree with Ld. Counsel that all the three issues raised in the grounds raised by the Counsel that all the three issues raised in the grounds raised by the Counsel that all the three issues raised in the grounds raised by the revenue are covered decisions of the Tribunal. We find that the revenue are covered decisions of the Tribunal. We find that the revenue are covered decisions of the Tribunal. We find that the Tribunal in the case of ICICI Prudential Insurance Co. Ltd. (supra) Tribunal in the case of ICICI Prudential Insurance Co. Ltd. (supra) Tribunal in the case of ICICI Prudential Insurance Co. Ltd. (supra) has dealt with all these issues in detail after considering the has dealt with all these issues in detail after considering the has dealt with all these issues in detail after considering the judgment of jurisdictional High Court; catena of other deci judgment of jurisdictional High Court; catena of other deci judgment of jurisdictional High Court; catena of other decisions and the relevant provisions of law. The relevant observations and the the relevant provisions of law. The relevant observations and the the relevant provisions of law. The relevant observations and the findings of the Tribunal in the case of ICICI Prudential Insurance Co. findings of the Tribunal in the case of ICICI Prudential Insurance Co. findings of the Tribunal in the case of ICICI Prudential Insurance Co. Ltd. (supra) on Ltd. (supra) on various points paragraph wise summarized as under: various points paragraph wise summarized as under: "24. Before analyzing the issue, it is nec "24. Before analyzing the issue, it is necessary to discuss the essary to discuss the principles of incorporation' of Insurance Act 1938 into the Income Tax principles of incorporation' of Insurance Act 1938 into the Income Tax principles of incorporation' of Insurance Act 1938 into the Income Tax Act 1961. As rightly pointed out by the learned Counsel, the Act 1961. As rightly pointed out by the learned Counsel, the Act 1961. As rightly pointed out by the learned Counsel, the reference to the Insurance Act 1938 in the Income Tax Act as such reference to the Insurance Act 1938 in the Income Tax Act as such reference to the Insurance Act 1938 in the Income Tax Act as such can only be considered as 'legislati can only be considered as 'legislation by incorporation on by incorporation 27. actuarial valuation made in accordance with the Insurance Act, 27. actuarial valuation made in accordance with the Insurance Act, 27. actuarial valuation made in accordance with the Insurance Act, 1938* do mean that the actuarial valuation done in accordance with 1938* do mean that the actuarial valuation done in accordance with 1938* do mean that the actuarial valuation done in accordance with the Insurance Act, 1938. In arriving at the above decision we have the Insurance Act, 1938. In arriving at the above decision we have the Insurance Act, 1938. In arriving at the above decision we have also taken into consideration that also taken into consideration that Rule-5 in Part 5 in Part-B of the first schedule with reference to 'other insurance business' did incorporate schedule with reference to 'other insurance business' did incorporate schedule with reference to 'other insurance business' did incorporate the IRDA and its Regulations as amended by the Finance Act 2009 the IRDA and its Regulations as amended by the Finance Act 2009 the IRDA and its Regulations as amended by the Finance Act 2009 w.e.f. 1.4.2011 is also taken into consideration. This indicates that w.e.f. 1.4.2011 is also taken into consideration. This indicates that w.e.f. 1.4.2011 is also taken into consideration. This indicates that the Legislature consci the Legislature consciously omitted incorporating the provisions of ously omitted incorporating the provisions of IRDA or the Regulations IRDA or the Regulations made there under in rule 2 which still refers made there under in rule 2 which still refers to the Insurance Act.1938 only. to the Insurance Act.1938 only. 28. Further, we also notice that the Insurance Act itself was 28. Further, we also notice that the Insurance Act itself was 28. Further, we also notice that the Insurance Act itself was amended along with the introduction of IRDA Ac amended along with the introduction of IRDA Act 1999. Along with t 1999. Along with
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the said IRDA Act, there are various amendments proposed in the the said IRDA Act, there are various amendments proposed in the the said IRDA Act, there are various amendments proposed in the Insurance Act in tune with IRDA IT No.1482 1683/M/2018 M/s. Insurance Act in tune with IRDA IT No.1482 1683/M/2018 M/s. Insurance Act in tune with IRDA IT No.1482 1683/M/2018 M/s. Tata AlA Life Insurance Co. Ltd. 4 Act by Tata AlA Life Insurance Co. Ltd. 4 Act by Act by amending the relevant provisions of Act by amending the relevant provisions of Insurance Act Insurance Act 1938. However, since the Rule 5 was amended in the First schedule by However, since the Rule 5 was amended in the First schedule by However, since the Rule 5 was amended in the First schedule by specifically referring to the IRDA Act 1999 or the Regulations made specifically referring to the IRDA Act 1999 or the Regulations made specifically referring to the IRDA Act 1999 or the Regulations made there under, we are of the opinion that the legislature intended not to there under, we are of the opinion that the legislature intended not to there under, we are of the opinion that the legislature intended not to modify o modify or amend the Rule-2. This indicates the intention of This indicates the intention of legislature that the actuarial valuation has to be made in accordance legislature that the actuarial valuation has to be made in accordance legislature that the actuarial valuation has to be made in accordance with the unamended with the unamended Insurance Act, 1938. We are of the firm opinion , 1938. We are of the firm opinion that the unamen that the unamended provisions of Insurance Act 1938 were only incorporated into the incorporated into the Income Tax Act as far as life insurance as far as life insurance businesses are concerned. Therefore, AO's ac businesses are concerned. Therefore, AO's action in following the tion in following the format prescribed under the Regulations of IRDA Act is not in format prescribed under the Regulations of IRDA Act is not in format prescribed under the Regulations of IRDA Act is not in accordance with the spirit of Rule accordance with the spirit of Rule-2 and provisions as made 2 and provisions as made applicable under the applicable under the Income Tax Act. 29. It is also noticed t 29. It is also noticed that the actuarial report and abstracts under hat the actuarial report and abstracts under the Insurance Act Insurance Act carrying on life insurance business shall, in carrying on life insurance business shall, in accordance with the Regulations contained in Part I of the Fourth accordance with the Regulations contained in Part I of the Fourth accordance with the Regulations contained in Part I of the Fourth Schedule and in conformity wi Schedule and in conformity with the requirements of Part II of that th the requirements of Part II of that Schedule. Schedule. 30. The First to Fourth Schedule of the Insurance Act 1938 was 30. The First to Fourth Schedule of the Insurance Act 1938 was 30. The First to Fourth Schedule of the Insurance Act 1938 was omitted by the omitted by the Insurance Amendment Act 2002 after incorporation 2002 after incorporation of the relevant schedules in of the relevant schedules in the IRDA Act. Even though the said the IRDA Act. Even though the said schedules were omitted from the schedules were omitted from the Insurance Act, 1938, we are of the , 1938, we are of the opinion that as far as Rule opinion that as far as Rule-2 is concerned by the principle of 2 is concerned by the principle of 'Legislation by incorporation' unamend 'Legislation by incorporation' unamended Insurance Act Insurance Act, 1938 is applicable and the actuarial valuation has to be made in accordance applicable and the actuarial valuation has to be made in accordance applicable and the actuarial valuation has to be made in accordance with the then existing Part with the then existing Part-I of the Fourth Schedule and in conformity I of the Fourth Schedule and in conformity with the requirements of Part with the requirements of Part-II of that schedule. Therefore, t schedule. Therefore, assessee's contention that the IRDA Regulations even though are assessee's contention that the IRDA Regulations even though are assessee's contention that the IRDA Regulations even though are applicable to assessee since it has commenced business after the applicable to assessee since it has commenced business after the applicable to assessee since it has commenced business after the commencement of the IRDA Act, 1999, for the purpose of Rule commencement of the IRDA Act, 1999, for the purpose of Rule commencement of the IRDA Act, 1999, for the purpose of Rule-2, the actuarial valuation has to be done in actuarial valuation has to be done in accordance with the accordance with the Regulations contained in erstwhile Fourth schedule Part Regulations contained in erstwhile Fourth schedule Part Regulations contained in erstwhile Fourth schedule Part-I and Part II. This is what assessee is contending and merging the accounts of This is what assessee is contending and merging the accounts of This is what assessee is contending and merging the accounts of policyholder's and shareholder's account and arriving at the policyholder's and shareholder's account and arriving at the policyholder's and shareholder's account and arriving at the actuarial deficit, without taking into actuarial deficit, without taking into consideration the transfer of consideration the transfer of funds from the shareholder's account to policyholder's account. funds from the shareholder's account to policyholder's account. funds from the shareholder's account to policyholder's account. 31. After introduction of IRDA Act, the entire Regulation of insurance 31. After introduction of IRDA Act, the entire Regulation of insurance 31. After introduction of IRDA Act, the entire Regulation of insurance business has gone to the authority and in order to protect the business has gone to the authority and in order to protect the business has gone to the authority and in order to protect the interests of holders of insu interests of holders of insurance policies, to regulate, to promote and rance policies, to regulate, to promote and ensure orderly growth of insurance industry number of regulations ensure orderly growth of insurance industry number of regulations ensure orderly growth of insurance industry number of regulations have been prescribed by the IRDA. One such is, Insurance have been prescribed by the IRDA. One such is, Insurance have been prescribed by the IRDA. One such is, Insurance Regulatory and Development Authority (IRDA) (Actuarial Report and Regulatory and Development Authority (IRDA) (Actuarial Report and Regulatory and Development Authority (IRDA) (Actuarial Report and Abstract) Regulations 2 Abstract) Regulations 2000 by which method of preparation of 000 by which method of preparation of actuaries report and abstracts were prescribed. An actuary is actuaries report and abstracts were prescribed. An actuary is actuaries report and abstracts were prescribed. An actuary is responsible for analyzing possible outcomes of the types of events responsible for analyzing possible outcomes of the types of events responsible for analyzing possible outcomes of the types of events
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that would potentially cost policy holders to make claims against that would potentially cost policy holders to make claims against that would potentially cost policy holders to make claims against their insurance policie their insurance policies. Insurance companies need to make sure s. Insurance companies need to make sure that the money they are charging and collecting from policy holders that the money they are charging and collecting from policy holders that the money they are charging and collecting from policy holders is adequate to cover the costs of certain claims that might is adequate to cover the costs of certain claims that might is adequate to cover the costs of certain claims that might beneficially be made by policy holders as well as their other beneficially be made by policy holders as well as their other beneficially be made by policy holders as well as their other expenses. In fact, the wo expenses. In fact, the work that actuaries perform is crucial to an rk that actuaries perform is crucial to an insurance company's ability to remain in business. Actuaries are insurance company's ability to remain in business. Actuaries are insurance company's ability to remain in business. Actuaries are involved at all stages in product development and in the pricing risk involved at all stages in product development and in the pricing risk involved at all stages in product development and in the pricing risk assessment and assessment and marketing of the products. Their job involves marketing of the products. Their job involves making estimates making estimates of ultimate out-come of insurable events. In the come of insurable events. In the business of insurance the product cost is an abstraction, depending business of insurance the product cost is an abstraction, depending business of insurance the product cost is an abstraction, depending on the timing issues, variability issues and risk parameters. One big on the timing issues, variability issues and risk parameters. One big on the timing issues, variability issues and risk parameters. One big function actuaries provide is making reserves to insure that function actuaries provide is making reserves to insure that function actuaries provide is making reserves to insure that insuranc insurance companies keep enough money on their balance sheets to e companies keep enough money on their balance sheets to make good of all the claims they will have to pay. This involves make good of all the claims they will have to pay. This involves make good of all the claims they will have to pay. This involves arriving at actuarial surplus or deficit depending on various factors. arriving at actuarial surplus or deficit depending on various factors. arriving at actuarial surplus or deficit depending on various factors. In order to ensure a fair play in the business, the IRDA prescr In order to ensure a fair play in the business, the IRDA prescr In order to ensure a fair play in the business, the IRDA prescribed regulations according to which various norms were prescribed in regulations according to which various norms were prescribed in regulations according to which various norms were prescribed in order to ensure that Life Insurance business (even other insurance order to ensure that Life Insurance business (even other insurance order to ensure that Life Insurance business (even other insurance business) are done according to healthy business practices. As per business) are done according to healthy business practices. As per business) are done according to healthy business practices. As per the above regulations, Regulation 4 prescribes number the above regulations, Regulation 4 prescribes number the above regulations, Regulation 4 prescribes number of abstracts and statements in respect of (a) linked business; (b) non and statements in respect of (a) linked business; (b) non and statements in respect of (a) linked business; (b) non-linked business and (c) health insurance business. As part of this business and (c) health insurance business. As part of this business and (c) health insurance business. As part of this Regulation 4(2) (d) item no. iv, Form Regulation 4(2) (d) item no. iv, Form-"I" was prescribed for the "I" was prescribed for the purpose of valuation results and to indicate the sur purpose of valuation results and to indicate the sur purpose of valuation results and to indicate the surplus or deficit in the life insurance business of a company. Apart from the above the life insurance business of a company. Apart from the above the life insurance business of a company. Apart from the above regulations, IRDA also prescribed Insurance Regulatory and regulations, IRDA also prescribed Insurance Regulatory and regulations, IRDA also prescribed Insurance Regulatory and Development Authority (Preparation of Financial Statements and Development Authority (Preparation of Financial Statements and Development Authority (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations Auditor's Report of Insurance Companies) Regulations Auditor's Report of Insurance Companies) Regulations 2002. The surplus or deficit arrived at by the actuary in his valuation for the surplus or deficit arrived at by the actuary in his valuation for the surplus or deficit arrived at by the actuary in his valuation for the inter valuation period has to be taken into consideration under the inter valuation period has to be taken into consideration under the inter valuation period has to be taken into consideration under the regulations in financial accounts as well. regulations in financial accounts as well. 32. 32. 32. IRDA IRDA IRDA Regulations Regulations Regulations specifically specifically specifically require require require maintaining maintaining maintaining the the the policyholder's account and the shareholder's account separately and holder's account and the shareholder's account separately and holder's account and the shareholder's account separately and permits permits permits transfer transfer transfer of of of funds funds funds from from from shareholder's shareholder's shareholder's account account account to to to policyholder's account as and when there is a deficit in policyholder's account as and when there is a deficit in policyholder's account as and when there is a deficit in policyholder's account. As rightly noted by the Hon'ble Bombay High policyholder's account. As rightly noted by the Hon'ble Bombay High policyholder's account. As rightly noted by the Hon'ble Bombay High Court, as a p Court, as a policy, company is transferring funds/assets from olicy, company is transferring funds/assets from shareholder's account to policyholder's account even during the year shareholder's account to policyholder's account even during the year shareholder's account to policyholder's account even during the year periodically as and when the actuarial valuation was arrived at in periodically as and when the actuarial valuation was arrived at in periodically as and when the actuarial valuation was arrived at in policyholder's account. Most of the companies are required to submit policyholder's account. Most of the companies are required to submit policyholder's account. Most of the companies are required to submit quarterly accounts under the Company Law, there is requirement of arterly accounts under the Company Law, there is requirement of arterly accounts under the Company Law, there is requirement of actuarial valuation report periodically and accordingly assessee was actuarial valuation report periodically and accordingly assessee was actuarial valuation report periodically and accordingly assessee was transferring funds from the shareholder's account to policyholder's transferring funds from the shareholder's account to policyholder's transferring funds from the shareholder's account to policyholder's account. Since the insurance business will not yield th account. Since the insurance business will not yield th account. Since the insurance business will not yield the required profits in the initial 7 to 10 years, lot of capital has to be infused so profits in the initial 7 to 10 years, lot of capital has to be infused so profits in the initial 7 to 10 years, lot of capital has to be infused so as to balance the deficit in the policyholder's account. During the as to balance the deficit in the policyholder's account. During the as to balance the deficit in the policyholder's account. During the year as already stated assessee has issued fresh capital to the year as already stated assessee has issued fresh capital to the year as already stated assessee has issued fresh capital to the extent of Rs.250 crores and transferred extent of Rs.250 crores and transferred funds to the extent of Rs.233 funds to the extent of Rs.233 crores from the shareholder's account to policyholder's account. Since crores from the shareholder's account to policyholder's account. Since crores from the shareholder's account to policyholder's account. Since assessee is having only one business of life insurance, the entire assessee is having only one business of life insurance, the entire assessee is having only one business of life insurance, the entire
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transactions both under the policyholder's and shareholder's account transactions both under the policyholder's and shareholder's account transactions both under the policyholder's and shareholder's account do pertain to the do pertain to the life insurance business only as it was not permitted life insurance business only as it was not permitted to do any other business. Once assessee is in the life insurance to do any other business. Once assessee is in the life insurance to do any other business. Once assessee is in the life insurance business, the computation has to be made in accordance with the business, the computation has to be made in accordance with the business, the computation has to be made in accordance with the Rule-2 as per provisions of 2 as per provisions of section 44. Therefore, there is a valid . Therefore, there is a valid argument raised by assessee that both the policyholder's & argument raised by assessee that both the policyholder's & argument raised by assessee that both the policyholder's & shareholder's account has to be consolidated into one and transfer shareholder's account has to be consolidated into one and transfer 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 from one account to another is tax neutral. What AO has done is to from one account to another is tax neutral. What AO has done is to tax the surplus af tax the surplus after the funds have been transferred from ter the funds have been transferred from shareholder's account to the policyholder's account at the gross level shareholder's account to the policyholder's account at the gross level shareholder's account to the policyholder's account at the gross level while ignoring such transfer in shareholder's account, while bringing while ignoring such transfer in shareholder's account, while bringing while ignoring such transfer in shareholder's account, while bringing to tax only to tax only the incomes declared in the shareholder's account that the incomes declared in the shareholder's account that too und too under the head 'other sources of income'. In fact while giving the er the head 'other sources of income'. In fact while giving the finding that assessee is in the life insurance business only and finding that assessee is in the life insurance business only and finding that assessee is in the life insurance business only and incomes are to be treated as income from life insurance business, the incomes are to be treated as income from life insurance business, the incomes are to be treated as income from life insurance business, the CIT (A) surprisingly in subsequent assessment years appea CIT (A) surprisingly in subsequent assessment years appea CIT (A) surprisingly in subsequent assessment years appeals accepted AO's contention that surplus in shareholder's account is to accepted AO's contention that surplus in shareholder's account is to accepted AO's contention that surplus in shareholder's account is to be taxed as other sources of income. But once the provisions be taxed as other sources of income. But once the provisions be taxed as other sources of income. But once the provisions of section 44 section 44 of IT Act are invoked anything contained in the heads of IT Act are invoked anything contained in the heads of income like income from other sources, capital gains, house income like income from other sources, capital gains, house income like income from other sources, capital gains, house property or even interest on securities does not come into play and property or even interest on securities does not come into play and 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, only first schedule has to be invoked to arrive at the profit. Therefore, only first schedule has to be invoked to arrive at the profit. Therefore, in our opinion both the policyholder's and shareholder in our opinion both the policyholder's and shareholder 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. to be consolidated for the purpose of arriving at the deficit or surplus. to be consolidated for the purpose of arriving at the deficit or surplus. Comparison of Forms Comparison of Forms-I under the Insurance Act Insurance Act and the IRDA Regulations. Regulations. 33. Whether Assessing Officer's action in a 33. Whether Assessing Officer's action in adopting Form dopting Form-I prescribed under the IRDA Regulations same as that of actuarial valuation under the IRDA Regulations same as that of actuarial valuation under the IRDA Regulations same as that of actuarial valuation made made in in accordance accordance with with the Insurance the Insurance Act 1938. Act Even though Insurance Act 1938 also 1938 also refers refers to Form-I, there is to Form substantial difference in the formats. Both AO and the CIT (A) has substantial difference in the formats. Both AO and the CIT (A) has substantial difference in the formats. Both AO and the CIT (A) has given credence to Form I without understanding that the old form given credence to Form I without understanding that the old form given credence to Form I without understanding that the old form-I prescribed under the prescribed under the Insurance Act 1938 is entirely different from 1938 is entirely different from new Form new Form-I prescribed under the IRDA Regulations. 35. The department is asked to explain what the surplus is shown 35. The department is asked to explain what the surplus is shown 35. The department is asked to explain what the surplus is shown under Form I i.e. at column (a) above. Regulation 8 as shown above under Form I i.e. at column (a) above. Regulation 8 as shown above under Form I i.e. at column (a) above. Regulation 8 as shown above has Column (a) 'surplus shown has Column (a) 'surplus shown under Form I'. In Col.(e) one has to under Form I'. In Col.(e) one has to represent sum transferred from shareholder's fund during the inter represent sum transferred from shareholder's fund during the inter represent sum transferred from shareholder's fund during the inter valuation period. Item valuation period. Item (g) refers to the 'total surplus' after taking into (g) refers to the 'total surplus' after taking into account items (a) to (f). Under Col.(a) surplus shown in Form I is a account items (a) to (f). Under Col.(a) surplus shown in Form I is a account items (a) to (f). Under Col.(a) surplus shown in Form I is a deficit as per Form AR as per Form AR-A in the policyholder's deficit account in this A in the policyholder's deficit account in this year. This corresponds the 'actuarial valuation surplus or deficit' year. This corresponds the 'actuarial valuation surplus or deficit' year. This corresponds the 'actuarial valuation surplus or deficit' referred to under the referred to under the Insurance Act, 1938. This amount also tallies , 1938. This amount also tallies with Form I prescribed under Regulation 4. IRDA Regulations Form I prescribed under Regulation 4. IRDA Regulations Form I prescribed under Regulation 4. IRDA Regulations however, after arriving at the surplus or deficit in the Form I also however, after arriving at the surplus or deficit in the Form I also however, after arriving at the surplus or deficit in the Form I also prescribes a separate statement again as Form I with details of (a) to prescribes a separate statement again as Form I with details of (a) to prescribes a separate statement again as Form I with details of (a) to (f) under Regulation 8. As can be seen from these two forms, (f) under Regulation 8. As can be seen from these two forms, (f) under Regulation 8. As can be seen from these two forms, there is variation in the amounts are presented, as these forms serve variation in the amounts are presented, as these forms serve variation in the amounts are presented, as these forms serve different purposes. The Form I which was prescribed under different purposes. The Form I which was prescribed under different purposes. The Form I which was prescribed under Regulations 8 is after arriving at the distribution surplus under Regulations 8 is after arriving at the distribution surplus under Regulations 8 is after arriving at the distribution surplus under
M/s Tata AIA Life Insurance Co. Ltd. M/s Tata AIA Life Insurance Co. Ltd. 8 ITA No. 1650/M/2023
Regulations 6. The Regulations 6, 7 and 8 are as under: Thus Regulations 6. The Regulations 6, 7 and 8 are as under: Thus Regulations 6. The Regulations 6, 7 and 8 are as under: Thus as can be seen from above Regulations, the Form I under Regulation 8 be seen from above Regulations, the Form I under Regulation 8 be seen from above Regulations, the Form I under Regulation 8 represent the total surplus for the purpose of distribution of represent the total surplus for the purpose of distribution of represent the total surplus for the purpose of distribution of bonuses/ dividends to policy holders and does not represent surplus bonuses/ dividends to policy holders and does not represent surplus bonuses/ dividends to policy holders and does not represent surplus or deficit of actuarial valuation for the purposes of ba or deficit of actuarial valuation for the purposes of ba or deficit of actuarial valuation for the purposes of balance sheet. This amount is represented in Form I prepared under Regulation 4 This amount is represented in Form I prepared under Regulation 4 This amount is represented in Form I prepared under Regulation 4 for the purpose of financial accounts. for the purpose of financial accounts. Reconciliation of amounts: Reconciliation of amounts:- 36. As seen from the orders of the authorities, the 'Total surplus' 36. As seen from the orders of the authorities, the 'Total surplus' 36. As seen from the orders of the authorities, the 'Total surplus' prepared under Regulation 8 was taken as ba prepared under Regulation 8 was taken as basis ignoring the Form sis ignoring the Form- I of Regulation 4. of Regulation 4. While accepting the department argument that for While accepting the department argument that for the purposes of Life insurance business the act provides for surplus the purposes of Life insurance business the act provides for surplus the purposes of Life insurance business the act provides for surplus of valuation to be taxed at lesser rate, we cannot accept the of valuation to be taxed at lesser rate, we cannot accept the of valuation to be taxed at lesser rate, we cannot accept the argument that surplus is Total sur argument that surplus is Total surplus including Transfers from plus including Transfers from share holder's account. Basically transfers are tax neutral as a share holder's account. Basically transfers are tax neutral as a share holder's account. Basically transfers are tax neutral as a credit in one account gets cancelled by debit in other account when credit in one account gets cancelled by debit in other account when credit in one account gets cancelled by debit in other account when accounts are consolidated. What the Rule.2 prescribed was only accounts are consolidated. What the Rule.2 prescribed was only accounts are consolidated. What the Rule.2 prescribed was only 'average surplus' arrived by a 'average surplus' arrived by adjusting the surplus disclosed in the djusting the surplus disclosed in the actuarial valuation made with regard to the actuarial valuation made with regard to the Insurance Act Insurance Act, 1938 in respect of inter valuation period. Assessee in the course of the respect of inter valuation period. Assessee in the course of the respect of inter valuation period. Assessee in the course of the assessment proceedings has furnish assessment proceedings has furnished general balance sheet in ed general balance sheet in Form-A. A. 38. The statement furnished is in accordance with the 38. The statement furnished is in accordance with the 38. The statement furnished is in accordance with the Insurance Act, 1938, therefore, it cannot be stated that assessee returned , 1938, therefore, it cannot be stated that assessee returned , 1938, therefore, it cannot be stated that assessee returned income is not in accordance with the income is not in accordance with the Insurance Act Insurance Act, 1938. There is no basis for AO to take Form no basis for AO to take Form-I 'total surplus' as surplus of the Life I 'total surplus' as surplus of the Life insurance business ignoring transfer from shareholder's account. insurance business ignoring transfer from shareholder's account. insurance business ignoring transfer from shareholder's account. 39. It is also on record that assessee fo 39. It is also on record that assessee followed the IRDA llowed the IRDA recommendations and accordingly prepared the actuarial valuation recommendations and accordingly prepared the actuarial valuation recommendations and accordingly prepared the actuarial valuation report including the surplus or deficit. However, Rule report including the surplus or deficit. However, Rule report including the surplus or deficit. However, Rule-2 prescribes only actuarial valuation in accordance with the only actuarial valuation in accordance with the Insuran Insurance Act, 1938. Therefore, AO is duty bound to insist on actuarial valuation in Therefore, AO is duty bound to insist on actuarial valuation in Therefore, AO is duty bound to insist on actuarial valuation in accordance with the accordance with the Insurance Act, 1938, so as to bring to tax the , 1938, so as to bring to tax the surplus or deficit. What we notice is that AO, ignoring Rul surplus or deficit. What we notice is that AO, ignoring Rul surplus or deficit. What we notice is that AO, ignoring Rule-2, has relied on the actuarial valuation report prescribed under the IRDA relied on the actuarial valuation report prescribed under the IRDA relied on the actuarial valuation report prescribed under the IRDA recommendations under Regulation 8 that too at 'Total surplus', recommendations under Regulation 8 that too at 'Total surplus', recommendations under Regulation 8 that too at 'Total surplus', which is at variance with the which is at variance with the Insurance Act, 1938. Since no , 1938. Since no amendment dment was was brought brought to to Rule Rule-2 2 to to incorporate incorporate IRDA IRDA recommendations, we are of the opinion that the action of AO in recommendations, we are of the opinion that the action of AO in recommendations, we are of the opinion that the action of AO in relying on the IRDA Regulations is not according to the law. relying on the IRDA Regulations is not according to the law. relying on the IRDA Regulations is not according to the law. Assessee had submitted its accounts as stated above, which are in Assessee had submitted its accounts as stated above, which are in Assessee had submitted its accounts as stated above, which are in accordance with t accordance with the Insurance Act, 1938. Instead of examining , 1938. Instead of examining these statements, just because assessee has shown total surplus in these statements, just because assessee has shown total surplus in these statements, just because assessee has shown total surplus in the accounts in similarly named Form the accounts in similarly named Form-I( under Regulation 8), AO I( under Regulation 8), AO wants to tax the amount whic wants to tax the amount which is after taking into account the h is after taking into account the transfer of assets by way of fresh capital from shareholder's transfer of assets by way of fresh capital from shareholder's transfer of assets by way of fresh capital from shareholder's account. This in a way is taxing fresh capital infused into business account. This in a way is taxing fresh capital infused into business account. This in a way is taxing fresh capital infused into business indirectly which cannot be done as this is not business surplus but indirectly which cannot be done as this is not business surplus but indirectly which cannot be done as this is not business surplus but infusion of capital di infusion of capital directly.
M/s Tata AIA Life Insurance Co. Ltd. M/s Tata AIA Life Insurance Co. Ltd. 9 ITA No. 1650/M/2023
What assessee has done in reconciling the IRDA format with that 40. What assessee has done in reconciling the IRDA format with that 40. What assessee has done in reconciling the IRDA format with that of old Insurance Form is correct and accordingly the loss disclosed in of old Insurance Form is correct and accordingly the loss disclosed in of old Insurance Form is correct and accordingly the loss disclosed in the the the computation computation computation of of of income income income is is is according according according to to to the the the actuarial actuarial actuarial surplus/deficit under the surplus/deficit under the Insurance Act, 1938 prescribed under , 1938 prescribed under Rule 2 of the first schedule part Rule 2 of the first schedule part-A. In view of this, we are of the A. In view of this, we are of the opinion that insistence by AO to bring to tax the entire amount opinion that insistence by AO to bring to tax the entire amount opinion that insistence by AO to bring to tax the entire amount shown shown under under the the new Regulations inclu new Regulations including ding transfer from transfer from shareholder's account is not correct. Instead of AO in taking the shareholder's account is not correct. Instead of AO in taking the shareholder's account is not correct. Instead of AO in taking the surplus at Regulation 8(1)(a) which is the actuarial surplus / deficit surplus at Regulation 8(1)(a) which is the actuarial surplus / deficit surplus at Regulation 8(1)(a) which is the actuarial surplus / deficit for the year took the amount as disclosed at Regulation 8 (1) (f) (total for the year took the amount as disclosed at Regulation 8 (1) (f) (total for the year took the amount as disclosed at Regulation 8 (1) (f) (total surplus after transfer from surplus after transfer from Shareholder's account) which is not at all Shareholder's account) which is not at all correct. Conclusion: Conclusion:- M/s. Tata AIA Life Insurance Co. Ltd. M/s. Tata AIA Life Insurance Co. Ltd. 42. In view of the above, looking at the issue in any way what we 42. In view of the above, looking at the issue in any way what we 42. In view of the above, looking at the issue in any way what we notice is that the computation made by assessee is in accordance notice is that the computation made by assessee is in accordance notice is that the computation made by assessee is in accordance with Rule with Rule-2 of the Insurance Act 1938 according to which only AO surance Act 1938 according to which only AO can base his computation. This also corresponds to the way incomes can base his computation. This also corresponds to the way incomes can base his computation. This also corresponds to the way incomes were assessed in earlier years ie. the correct method as per Rule 2 were assessed in earlier years ie. the correct method as per Rule 2 were assessed in earlier years ie. the correct method as per Rule 2 and Sec 44 of IT ACT. In view of the discussion above and after and Sec 44 of IT ACT. In view of the discussion above and after and Sec 44 of IT ACT. In view of the discussion above and after analyzing the analyzing the Forms, Regulations and Provisions we have no Forms, Regulations and Provisions we have no hesitation to hold that the assessee working of actuarial surplus/ hesitation to hold that the assessee working of actuarial surplus/ hesitation to hold that the assessee working of actuarial surplus/ deficit is in accordance with Rule 2 of First Schedule. Therefore, deficit is in accordance with Rule 2 of First Schedule. Therefore, deficit is in accordance with Rule 2 of First Schedule. Therefore, assessee grounds on this issue are allowed and AO is directed to assessee grounds on this issue are allowed and AO is directed to assessee grounds on this issue are allowed and AO is directed to modify the modify the order accordingly". This decision has been followed by the Tribunal in the case of HDFC This decision has been followed by the Tribunal in the case of HDFC This decision has been followed by the Tribunal in the case of HDFC Standard Life Insurance Co. Ltd. (supra). Thus, following the same Standard Life Insurance Co. Ltd. (supra). Thus, following the same Standard Life Insurance Co. Ltd. (supra). Thus, following the same judicial precedence which would apply on the facts of the present judicial precedence which would apply on the facts of the present judicial precedence which would apply on the facts of the present case also, we decide the issues rai case also, we decide the issues raised vide ground no. 1&2 in the sed vide ground no. 1&2 in the department's appeal in favour of the assessee and against the department's appeal in favour of the assessee and against the department's appeal in favour of the assessee and against the Department. Department. 9. Similarly, with regard to the issue raised in ground No.3 also, the 9. Similarly, with regard to the issue raised in ground No.3 also, the 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 same is also covered by the same decision as incorporated above same is also covered by the same decision as incorporated above and accordingly, and accordingly, respectfully following the same, we uphold the respectfully following the same, we uphold the order of the CIT(A) and dismissed the ground raised by the order of the CIT(A) and dismissed the ground raised by the order of the CIT(A) and dismissed the ground raised by the Department." Department." Since the facts of the issues raised by the revenue are identical as Since the facts of the issues raised by the revenue are identical as Since the facts of the issues raised by the revenue are identical as decided by the coordinate bench in the order as stated reproduced decided by the coordinate bench in the order as stated reproduced decided by the coordinate bench in the order as stated reproduced above, accordingly the ground no. 1 and 2 raised by the revenue are bove, accordingly the ground no. 1 and 2 raised by the revenue are bove, accordingly the ground no. 1 and 2 raised by the revenue are dismissed and the order of ld. CIT(A) is upeld. dismissed and the order of ld. CIT(A) is upeld.” Findings and Decision : Findings and Decision : 6. I have gone through the facts of the case and material available 6. I have gone through the facts of the case and material available 6. I have gone through the facts of the case and material available on record. on record.
M/s Tata AIA Life Insurance Co. Ltd. M/s Tata AIA Life Insurance Co. Ltd. 10 ITA No. 1650/M/2023
Ground of appeal no. 1 is covered in Ground of appeal no. 1 is covered in favour of appellant by order of favour of appellant by order of Hon'ble ITAT, Mumbai in his own case in ITA No. 1683/Mum/2018 Hon'ble ITAT, Mumbai in his own case in ITA No. 1683/Mum/2018 Hon'ble ITAT, Mumbai in his own case in ITA No. 1683/Mum/2018 dated 08.11. 2019 for A.Y. 2014 dated 08.11. 2019 for A.Y. 2014-15. Therefore, ground of appeal no. 15. Therefore, ground of appeal no. 1 is allowed. 1 is allowed. 7. Ground of appeal no. 2 is also covered in favour of appellant by 7. Ground of appeal no. 2 is also covered in favour of appellant by 7. Ground of appeal no. 2 is also covered in favour of appellant by order of Ho order of Hon'ble ITAT, Mumbai in his own case in ITA No. n'ble ITAT, Mumbai in his own case in ITA No. 1482/M/2018 dated 08.11.2019 in 1482/M/2018 dated 08.11.2019 in A.Y. 2014-15. Ground of appeal 15. Ground of appeal no. 2 is allowed. no. 2 is allowed.” 3.1 Thus, we find that the Ld. CIT(A) has followed the binding we find that the Ld. CIT(A) has followed the binding we find that the Ld. CIT(A) has followed the binding precedent on the issue in dispute and therefore precedent on the issue in dispute and therefore, we do not find a we do not find any error in the order of the Ld. CIT(A) error in the order of the Ld. CIT(A) on the issues in dispute. Further in dispute. Further before us, the Ld. Counsel of the assessee has also referred to the before us, the Ld. Counsel of the assessee has also referred to the before us, the Ld. Counsel of the assessee has also referred to the decision of the Tribunal in the case of Addl. CIT v. Tata Aig Life decision of the Tribunal in the case of Addl. CIT v. Tata Aig Life decision of the Tribunal in the case of Addl. CIT v. Tata Aig Life Insurance Co. Ltd. in ITA Nos. 1035 to 1039, 18 Insurance Co. Ltd. in ITA Nos. 1035 to 1039, 1823/M/2011 and 23/M/2011 and 4111/M/2012 and CO Nos. 56/M/2012, 57, 53, 54, 55, 4111/M/2012 and CO Nos. 56/M/2012, 57, 53, 54, 55, 4111/M/2012 and CO Nos. 56/M/2012, 57, 53, 54, 55, 195/M/2013 order dated 21.09.2016 wherein the Tribunal has 195/M/2013 order dated 21.09.2016 wherein the Tribunal has 195/M/2013 order dated 21.09.2016 wherein the Tribunal has given a detailed finding as under: given a detailed finding as under:
“8. After considering the relevant finding given in the impugned order as 8. After considering the relevant finding given in the impugned order as 8. After considering the relevant finding given in the impugned order as well as the aforesaid well as the aforesaid decisions of the Tribunal, we agree with Ld. Counsel decisions of the Tribunal, we agree with Ld. Counsel that all the three issues raised in the grounds raised by the revenue are that all the three issues raised in the grounds raised by the revenue are that all the three issues raised in the grounds raised by the revenue are covered in favour of the assessee and against the Department by the covered in favour of the assessee and against the Department by the covered in favour of the assessee and against the Department by the aforesaid decisions of the Tribunal. We find that the Tribuna aforesaid decisions of the Tribunal. We find that the Tribuna aforesaid decisions of the Tribunal. We find that the Tribunal in the case of ICICI Prudential Insurance Co. Ltd. (supra) has dealt with all these issues in ICICI Prudential Insurance Co. Ltd. (supra) has dealt with all these issues in ICICI Prudential Insurance Co. Ltd. (supra) has dealt with all these issues in detail after considering the judgment of jurisdictional High Court; catena of detail after considering the judgment of jurisdictional High Court; catena of detail after considering the judgment of jurisdictional High Court; catena of other decisions and the relevant provisions of law. The relevant observations other decisions and the relevant provisions of law. The relevant observations other decisions and the relevant provisions of law. The relevant observations and the findings of the Tribunal in the case of ICICI Prudential Insurance Co. the findings of the Tribunal in the case of ICICI Prudential Insurance Co. the findings of the Tribunal in the case of ICICI Prudential Insurance Co. Ltd. (supra) on various points, paragraph wise are summarized as under: Ltd. (supra) on various points, paragraph wise are summarized as under: Ltd. (supra) on various points, paragraph wise are summarized as under:- "24. Before analyzing the issue, it is necessary to discuss the "24. Before analyzing the issue, it is necessary to discuss the principles of incorporation' of Insurance A principles of incorporation' of Insurance Act 1938 into the Income Tax ct 1938 into the Income Tax Act 1961. As rightly pointed out by the learned Counsel, the Act 1961. As rightly pointed out by the learned Counsel, the Act 1961. As rightly pointed out by the learned Counsel, the reference to the Insurance Act 1938 in the Income Tax Act as such reference to the Insurance Act 1938 in the Income Tax Act as such reference to the Insurance Act 1938 in the Income Tax Act as such can only be considered as 'legislation by incorporation can only be considered as 'legislation by incorporation can only be considered as 'legislation by incorporation 27. actuarial valuation made in accordance wi 27. actuarial valuation made in accordance with the Insurance Act, th the Insurance Act, 1938* do mean that the actuarial valuation done in accordance with 1938* do mean that the actuarial valuation done in accordance with 1938* do mean that the actuarial valuation done in accordance with the Insurance Act, 1938. In arriving at the above decision we have the Insurance Act, 1938. In arriving at the above decision we have the Insurance Act, 1938. In arriving at the above decision we have also taken into consideration that Rule also taken into consideration that Rule-5 in Part 5 in Part-B of the first schedule with reference to 'other i schedule with reference to 'other insurance business' did incorporate nsurance business' did incorporate
M/s Tata AIA Life Insurance Co. Ltd. M/s Tata AIA Life Insurance Co. Ltd. 11 ITA No. 1650/M/2023
the IRDA and its Regulations as amended by the Finance Act 2009 the IRDA and its Regulations as amended by the Finance Act 2009 the IRDA and its Regulations as amended by the Finance Act 2009 w.e.f. 1.4.2011 is also taken into consideration. This indicates that w.e.f. 1.4.2011 is also taken into consideration. This indicates that w.e.f. 1.4.2011 is also taken into consideration. This indicates that the Legislature consciously omitted incorporating the provisions of the Legislature consciously omitted incorporating the provisions of the Legislature consciously omitted incorporating the provisions of IRDA or the Regulat IRDA or the Regulations made there under in rule 2 which still refers made there under in rule 2 which still refers to the Insurance Act.1938 only. to the Insurance Act.1938 only. 28. Further, we also notice that the Insurance Act itself was 28. Further, we also notice that the Insurance Act itself was 28. Further, we also notice that the Insurance Act itself was amended along with the introduction of IRDA Act 1999. Along with amended along with the introduction of IRDA Act 1999. Along with amended along with the introduction of IRDA Act 1999. Along with the said IRDA Act, there are various amendment the said IRDA Act, there are various amendments proposed in the s proposed in the Insurance Act in tune with IRDA IT No.1482 1683/M/2018 M/s. Insurance Act in tune with IRDA IT No.1482 1683/M/2018 M/s. Insurance Act in tune with IRDA IT No.1482 1683/M/2018 M/s. Tata AlA Life Insurance Co. Ltd. 4 Act by Tata AlA Life Insurance Co. Ltd. 4 Act by Act by amending the relevant provisions of Act by amending the relevant provisions of Insurance Act Insurance Act 1938. However, since the However, since the Rule 5 was amended in the First schedule by Rule 5 was amended in the First schedule by specifically referring to the IRDA Act 1999 or the Regulations made specifically referring to the IRDA Act 1999 or the Regulations made specifically referring to the IRDA Act 1999 or the Regulations made there under, we are of the opinion that the legislature intended not to there under, we are of the opinion that the legislature intended not to there under, we are of the opinion that the legislature intended not to modify or amend the Rule modify or amend the Rule-2. This indicates the intention of This indicates the intention of legislature legislature that the actuarial valuation has to be made in accordance that the actuarial valuation has to be made in accordance with the unamended with the unamended Insurance Act, 1938. We are of the firm opinion , 1938. We are of the firm opinion that the unamended provisions of that the unamended provisions of Insurance Act 1938 were only incorporated into the incorporated into the Income Tax Act as far as life insurance as far as life insurance businesses are concerned. Therefore, AO's action in following the businesses are concerned. Therefore, AO's action in following the businesses are concerned. Therefore, AO's action in following the format prescribed under the Regulations of format prescribed under the Regulations of IRDA Act is not in IRDA Act is not in accordance with the spirit of Rule accordance with the spirit of Rule-2 and provisions as made 2 and provisions as made applicable under the applicable under the Income Tax Act. 29. It is also noticed that the actuarial report and abstracts under 29. It is also noticed that the actuarial report and abstracts under 29. It is also noticed that the actuarial report and abstracts under the Insurance Act Insurance Act carrying on life insurance business shall, in carrying on life insurance business shall, in accordance with the Regulations contained in Part I of the Fourth accordance with the Regulations contained in Part I of the Fourth accordance with the Regulations contained in Part I of the Fourth Schedule and in conformity with the requirements of Part II of that Schedule and in conformity with the requirements of Part II of that Schedule and in conformity with the requirements of Part II of that Schedule. Schedule. 30. The First t 30. The First to Fourth Schedule of the Insurance Act 1938 was o Fourth Schedule of the Insurance Act 1938 was omitted by the omitted by the Insurance Amendment Act 2002 after incorporation 2002 after incorporation of the relevant schedules in the IRDA Act. Even though the said of the relevant schedules in the IRDA Act. Even though the said of the relevant schedules in the IRDA Act. Even though the said schedules were omitted from schedules were omitted from the Insurance Act, 1938, we are of the , 1938, we are of the opinion that as far as Rule opinion that as far as Rule-2 is concerned by the principle of 2 is concerned by the principle of 'Legislation by incorporation' unamended 'Legislation by incorporation' unamended Insurance Insurance Act, 1938 is applicable and the actuarial valuation has to be made in accordance applicable and the actuarial valuation has to be made in accordance applicable and the actuarial valuation has to be made in accordance with the then existing Part with the then existing Part-I of the Fourth Schedule and in conformity I of the Fourth Schedule and in conformity with the requirements of Part with the requirements of Part-II of that schedule. Therefore, II of that schedule. Therefore, assessee's contention that the IRDA Regul assessee's contention that the IRDA Regulations even though are ations even though are applicable to assessee since it has commenced business after the applicable to assessee since it has commenced business after the applicable to assessee since it has commenced business after the commencement of the IRDA Act, 1999, for the purpose of Rule commencement of the IRDA Act, 1999, for the purpose of Rule commencement of the IRDA Act, 1999, for the purpose of Rule-2, the actuarial valuation has to be done in accordance with the actuarial valuation has to be done in accordance with the actuarial valuation has to be done in accordance with the Regulations contained in erstwhile Fourth s Regulations contained in erstwhile Fourth schedule Part chedule Part-I and Part II. This is what assessee is contending and merging the accounts of This is what assessee is contending and merging the accounts of This is what assessee is contending and merging the accounts of policyholder's and shareholder's account and arriving at the policyholder's and shareholder's account and arriving at the policyholder's and shareholder's account and arriving at the actuarial deficit, without taking into consideration the transfer of actuarial deficit, without taking into consideration the transfer of actuarial deficit, without taking into consideration the transfer of funds from the shareholder's accou funds from the shareholder's account to policyholder's account. nt to policyholder's account.
M/s Tata AIA Life Insurance Co. Ltd. M/s Tata AIA Life Insurance Co. Ltd. 12 ITA No. 1650/M/2023
After introduction of IRDA Act, the entire Regulation of insurance 31. After introduction of IRDA Act, the entire Regulation of insurance 31. After introduction of IRDA Act, the entire Regulation of insurance business has gone to the authority and in order to protect the business has gone to the authority and in order to protect the business has gone to the authority and in order to protect the interests of holders of insurance policies, to regulate, to promote and interests of holders of insurance policies, to regulate, to promote and interests of holders of insurance policies, to regulate, to promote and ensure orderly growt ensure orderly growth of insurance industry number of regulations h of insurance industry number of regulations have been prescribed by the IRDA. One such is, Insurance have been prescribed by the IRDA. One such is, Insurance have been prescribed by the IRDA. One such is, Insurance Regulatory and Development Authority (IRDA) (Actuarial Report and Regulatory and Development Authority (IRDA) (Actuarial Report and Regulatory and Development Authority (IRDA) (Actuarial Report and Abstract) Regulations 2000 by which method of preparation of Abstract) Regulations 2000 by which method of preparation of Abstract) Regulations 2000 by which method of preparation of actuaries report and abstr actuaries report and abstracts were prescribed. An actuary is acts were prescribed. An actuary is responsible for analyzing possible outcomes of the types of events responsible for analyzing possible outcomes of the types of events responsible for analyzing possible outcomes of the types of events that would potentially cost policy holders to make claims against that would potentially cost policy holders to make claims against that would potentially cost policy holders to make claims against their insurance policies. Insurance companies need to make sure their insurance policies. Insurance companies need to make sure their insurance policies. Insurance companies need to make sure that the money they are that the money they are charging and collecting from policy holders charging and collecting from policy holders is adequate to cover the costs of certain claims that might is adequate to cover the costs of certain claims that might is adequate to cover the costs of certain claims that might beneficially be made by policy holders as well as their other beneficially be made by policy holders as well as their other beneficially be made by policy holders as well as their other expenses. In fact, the work that actuaries perform is crucial to an expenses. In fact, the work that actuaries perform is crucial to an expenses. In fact, the work that actuaries perform is crucial to an insurance company's a insurance company's ability to remain in business. Actuaries are bility to remain in business. Actuaries are involved at all stages in product development and in the pricing risk involved at all stages in product development and in the pricing risk involved at all stages in product development and in the pricing risk assessment and assessment and marketing of the products. Their job involves marketing of the products. Their job involves making estimates of ultimate out making estimates of ultimate out-come of insurable events. In the come of insurable events. In the business of ins business of insurance the product cost is an abstraction, depending urance the product cost is an abstraction, depending on the timing issues, variability issues and risk parameters. One big on the timing issues, variability issues and risk parameters. One big on the timing issues, variability issues and risk parameters. One big function actuaries provide is making reserves to insure that function actuaries provide is making reserves to insure that function actuaries provide is making reserves to insure that insurance companies keep enough money on their balance sheets to insurance companies keep enough money on their balance sheets to insurance companies keep enough money on their balance sheets to make go make good of all the claims they will have to pay. This involves od of all the claims they will have to pay. This involves arriving at actuarial surplus or deficit depending on various factors. arriving at actuarial surplus or deficit depending on various factors. arriving at actuarial surplus or deficit depending on various factors. In order to ensure a fair play in the business, the IRDA prescribed In order to ensure a fair play in the business, the IRDA prescribed In order to ensure a fair play in the business, the IRDA prescribed regulations according to which various norms were prescribe regulations according to which various norms were prescribe regulations according to which various norms were prescribed in order to ensure that Life Insurance business (even other insurance order to ensure that Life Insurance business (even other insurance order to ensure that Life Insurance business (even other insurance business) are done according to healthy business practices. As per business) are done according to healthy business practices. As per business) are done according to healthy business practices. As per the above regulations, Regulation 4 prescribes number of abstracts the above regulations, Regulation 4 prescribes number of abstracts the above regulations, Regulation 4 prescribes number of abstracts and statements in respect of (a) linked business; and statements in respect of (a) linked business; and statements in respect of (a) linked business; (b) non-linked business and (c) health insurance business. As part of this business and (c) health insurance business. As part of this business and (c) health insurance business. As part of this Regulation 4(2) (d) item no. iv, Form Regulation 4(2) (d) item no. iv, Form-"I" was prescribed for the "I" was prescribed for the purpose of valuation results and to indicate the surplus or deficit in purpose of valuation results and to indicate the surplus or deficit in purpose of valuation results and to indicate the surplus or deficit in the life insurance business of a company. Apa the life insurance business of a company. Apart from the above rt from the above regulations, IRDA also prescribed Insurance Regulatory and regulations, IRDA also prescribed Insurance Regulatory and regulations, IRDA also prescribed Insurance Regulatory and Development Authority (Preparation of Financial Statements and Development Authority (Preparation of Financial Statements and Development Authority (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations 2002. The Auditor's Report of Insurance Companies) Regulations 2002. The Auditor's Report of Insurance Companies) Regulations 2002. The surplus or deficit arrived at by the actuary in his v surplus or deficit arrived at by the actuary in his v surplus or deficit arrived at by the actuary in his valuation for the inter valuation period has to be taken into consideration under the inter valuation period has to be taken into consideration under the inter valuation period has to be taken into consideration under the regulations in financial accounts as well. regulations in financial accounts as well. 32. 32. 32. IRDA IRDA IRDA Regulations Regulations Regulations specifically specifically specifically require require require maintaining maintaining maintaining the the the policyholder's account and the shareholder's account separately and policyholder's account and the shareholder's account separately and policyholder's account and the shareholder's account separately and permits rmits rmits transfer transfer transfer of of of funds funds funds from from from shareholder's shareholder's shareholder's account account account to to to policyholder's account as and when there is a deficit in policyholder's account as and when there is a deficit in policyholder's account as and when there is a deficit in policyholder's account. As rightly noted by the Hon'ble Bombay High policyholder's account. As rightly noted by the Hon'ble Bombay High policyholder's account. As rightly noted by the Hon'ble Bombay High Court, as a policy, company is transferring funds/assets from Court, as a policy, company is transferring funds/assets from Court, as a policy, company is transferring funds/assets from shareholder's a shareholder's account to policyholder's account even during the year ccount to policyholder's account even during the year periodically as and when the actuarial valuation was arrived at in periodically as and when the actuarial valuation was arrived at in periodically as and when the actuarial valuation was arrived at in policyholder's account. Most of the companies are required to submit policyholder's account. Most of the companies are required to submit policyholder's account. Most of the companies are required to submit quarterly accounts under the Company Law, there is requirement of quarterly accounts under the Company Law, there is requirement of quarterly accounts under the Company Law, there is requirement of
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actuarial valuation report periodically and accordingly assessee was actuarial valuation report periodically and accordingly assessee was actuarial valuation report periodically and accordingly assessee was transferring funds from the shareholder's account to policyholder's transferring funds from the shareholder's account to policyholder's transferring funds from the shareholder's account to policyholder's account. Since the insurance business will not yield the required account. Since the insurance business will not yield the required account. Since the insurance business will not yield the required profits in the initial 7 to 10 years, lot of capital profits in the initial 7 to 10 years, lot of capital has to be infused so has to be infused so as to balance the deficit in the policyholder's account. During the as to balance the deficit in the policyholder's account. During the as to balance the deficit in the policyholder's account. During the year as already stated assessee has issued fresh capital to the year as already stated assessee has issued fresh capital to 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 extent of Rs.250 crores and transferred funds to the extent of Rs.233 extent of Rs.250 crores and transferred funds to the extent of Rs.233 crores from the shareholder's acc crores from the shareholder's account to policyholder's account. Since ount to policyholder's account. Since assessee is having only one business of life insurance, the entire assessee is having only one business of life insurance, the entire assessee is having only one business of life insurance, the entire transactions both under the policyholder's and shareholder's account transactions both under the policyholder's and shareholder's account transactions both under the policyholder's and shareholder's account do pertain to the life insurance business only as it was not permitted do pertain to the life insurance business only as it was not permitted do pertain to the life insurance business only as it was not permitted to do any o to do any other business. Once assessee is in the life insurance ther business. Once assessee is in the life insurance business, the computation has to be made in accordance with the business, the computation has to be made in accordance with the business, the computation has to be made in accordance with the Rule-2 as per provisions of 2 as per provisions of section 44. Therefore, there is a valid . Therefore, there is a valid argument raised by argument raised by assessee that both the policyholder's & assessee that both the policyholder's & shareholder's account has to be consolidated into one and transfer shareholder's account has to be consolidated into one and transfer 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 from one account to another is tax neutral. What AO has done is to from one account to another is tax neutral. What AO has done is to tax the surplus after the funds have been transferred from tax the surplus after the funds have been transferred from tax the surplus after the funds have been transferred from shareholder's account t shareholder's account to the policyholder's account at the gross level o the policyholder's account at the gross level while ignoring such transfer in shareholder's account, while bringing while ignoring such transfer in shareholder's account, while bringing while ignoring such transfer in shareholder's account, while bringing to tax only to tax only the incomes declared in the shareholder's account that the incomes declared in the shareholder's account that too under the head 'other sources of income'. In fact while giving the too under the head 'other sources of income'. In fact while giving the too under the head 'other sources of income'. In fact while giving the finding that assessee is in the life insurance business only and finding that assessee is in the life insurance business only and finding that assessee is in the life insurance business only and incomes are to be treated as income from life insurance business, the incomes are to be treated as income from life insurance business, the incomes are to be treated as income from life insurance business, the CIT (A) surprisingly in subsequent assessment years appeals CIT (A) surprisingly in subsequent assessment years appeals CIT (A) surprisingly in subsequent assessment years appeals accepted AO's contention that surplus in shareholder's accoun accepted AO's contention that surplus in shareholder's accoun accepted AO's contention that surplus in shareholder's account is to be taxed as other sources of income. But once the provisions be taxed as other sources of income. But once the provisions be taxed as other sources of income. But once the provisions of section 44 section 44 of IT Act are invoked anything contained in the heads of IT Act are invoked anything contained in the heads of income like income from other sources, capital gains, house of income like income from other sources, capital gains, house of income like income from other sources, capital gains, house property or even interest on securities does not come into play and property or even interest on securities does not come into play and 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, only first schedule has to be invoked to arrive at the profit. Therefore, 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 in our opinion both the policyholder's and shareholder's account has in our opinion both the policyholder's and shareholder's account has to be consolidated for the purpose of arrivin to be consolidated for the purpose of arriving at the deficit or surplus. g at the deficit or surplus. Comparison of Forms Comparison of Forms-I under the Insurance Act Insurance Act and the IRDA Regulations. Regulations. 33. Whether Assessing Officer's action in adopting Form 33. Whether Assessing Officer's action in adopting Form 33. Whether Assessing Officer's action in adopting Form-I prescribed under the IRDA Regulations same as under the IRDA Regulations same as that of actuarial valuation that of actuarial valuation made made in in accordance accordance with with the Insurance the Insurance Act 1938. Act Even though Insurance Act 1938 also 1938 also refers refers to Form-I, there is to Form substantial substantial difference in the formats. Both AO and the CIT (A) has difference in the formats. Both AO and the CIT (A) has given credence to Form I without understanding that the old form given credence to Form I without understanding that the old form given credence to Form I without understanding that the old form-I prescribed under the prescribed under the Insurance Act 1938 is entirely different from 1938 is entirely different from new Form new Form-I prescribed under the IRDA Regulations. 35. The department is asked to explain what the surplus is shown 35. The department is asked to explain what the surplus is shown 35. The department is asked to explain what the surplus is shown under Form I i.e. at column (a) above. Regulation 8 as shown above under Form I i.e. at column (a) above. Regulation 8 as shown above under Form I i.e. at column (a) above. Regulation 8 as shown above has Column (a) 'surplus shown under Form I'. In Col.(e) one has to has Column (a) 'surplus shown under Form I'. In Col.(e) one has to has Column (a) 'surplus shown under Form I'. In Col.(e) one has to represent sum transfer represent sum transferred from shareholder's fund during the inter red from shareholder's fund during the inter valuation period. Item valuation period. Item (g) refers to the 'total surplus' after taking into (g) refers to the 'total surplus' after taking into account items (a) to (f). Under Col.(a) surplus shown in Form I is a account items (a) to (f). Under Col.(a) surplus shown in Form I is a account items (a) to (f). Under Col.(a) surplus shown in Form I is a deficit as per Form AR deficit as per Form AR-A in the policyholder's deficit account in t A in the policyholder's deficit account in this
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year. This corresponds the 'actuarial valuation surplus or deficit' year. This corresponds the 'actuarial valuation surplus or deficit' year. This corresponds the 'actuarial valuation surplus or deficit' referred to under the referred to under the Insurance Act, 1938. This amount also tallies , 1938. This amount also tallies with Form I prescribed under Regulation 4. IRDA Regulations with Form I prescribed under Regulation 4. IRDA Regulations with Form I prescribed under Regulation 4. IRDA Regulations however, after arriving at the surplus or deficit in the Form I also ver, after arriving at the surplus or deficit in the Form I also ver, after arriving at the surplus or deficit in the Form I also prescribes a separate statement again as Form I with details of (a) to prescribes a separate statement again as Form I with details of (a) to prescribes a separate statement again as Form I with details of (a) to (f) under Regulation 8. As can be seen from these two forms, there is (f) under Regulation 8. As can be seen from these two forms, there is (f) under Regulation 8. As can be seen from these two forms, there is variation in the amounts are presented, as these f variation in the amounts are presented, as these f variation in the amounts are presented, as these forms serve different purposes. The Form I which was prescribed under different purposes. The Form I which was prescribed under different purposes. The Form I which was prescribed under Regulations 8 is after arriving at the distribution surplus under Regulations 8 is after arriving at the distribution surplus under Regulations 8 is after arriving at the distribution surplus under Regulations 6. The Regulations 6, 7 and 8 are as under: Thus as can Regulations 6. The Regulations 6, 7 and 8 are as under: Thus as can Regulations 6. The Regulations 6, 7 and 8 are as under: Thus as can be seen from above Regulations, the Form I under Regu be seen from above Regulations, the Form I under Regu be seen from above Regulations, the Form I under Regulation 8 represent the total surplus for the purpose of distribution of represent the total surplus for the purpose of distribution of represent the total surplus for the purpose of distribution of bonuses/ dividends to policy holders and does not represent surplus bonuses/ dividends to policy holders and does not represent surplus bonuses/ dividends to policy holders and does not represent surplus or deficit of actuarial valuation for the purposes of balance sheet. or deficit of actuarial valuation for the purposes of balance sheet. or deficit of actuarial valuation for the purposes of balance sheet. This amount is represented in Form I prepared u This amount is represented in Form I prepared under Regulation 4 nder Regulation 4 for the purpose of financial accounts. for the purpose of financial accounts. Reconciliation of amounts: Reconciliation of amounts:- 36. As seen from the orders of the authorities, the 'Total surplus' 36. As seen from the orders of the authorities, the 'Total surplus' 36. As seen from the orders of the authorities, the 'Total surplus' prepared under Regulation 8 was taken as basis ignoring the Form prepared under Regulation 8 was taken as basis ignoring the Form prepared under Regulation 8 was taken as basis ignoring the Form- I of Regulation 4. of Regulation 4. While accepting the department argument that for e department argument that for the purposes of Life insurance business the act provides for surplus the purposes of Life insurance business the act provides for surplus the purposes of Life insurance business the act provides for surplus of valuation to be taxed at lesser rate, we cannot accept the of valuation to be taxed at lesser rate, we cannot accept the of valuation to be taxed at lesser rate, we cannot accept the argument that surplus is Total surplus including Transfers from argument that surplus is Total surplus including Transfers from argument that surplus is Total surplus including Transfers from share holder's account. Basica share holder's account. Basically transfers are tax neutral as a lly transfers are tax neutral as a credit in one account gets cancelled by debit in other account when credit in one account gets cancelled by debit in other account when credit in one account gets cancelled by debit in other account when accounts are consolidated. What the Rule.2 prescribed was only accounts are consolidated. What the Rule.2 prescribed was only accounts are consolidated. What the Rule.2 prescribed was only 'average surplus' arrived by adjusting the surplus disclosed in the 'average surplus' arrived by adjusting the surplus disclosed in the 'average surplus' arrived by adjusting the surplus disclosed in the actuarial valuation ma actuarial valuation made with regard to the Insurance Act Insurance Act, 1938 in respect of inter valuation period. Assessee in the course of the respect of inter valuation period. Assessee in the course of the respect of inter valuation period. Assessee in the course of the assessment proceedings has furnished general balance sheet in assessment proceedings has furnished general balance sheet in assessment proceedings has furnished general balance sheet in Form-A. A. 38. The statement furnis 38. The statement furnished is in accordance with the hed is in accordance with the Insurance Act, 1938, therefore, it cannot be stated that assessee returned , 1938, therefore, it cannot be stated that assessee returned , 1938, therefore, it cannot be stated that assessee returned income is not in accordance with the income is not in accordance with the Insurance Act Act, 1938. There is no basis for AO to take Form no basis for AO to take Form-I 'total surplus' as surplus of the Life I 'total surplus' as surplus of the Life insurance business ignoring transfer from shareholder's account. insurance business ignoring transfer from shareholder's account. insurance business ignoring transfer from shareholder's account. 39. It is also on record that assessee followed the IRDA 39. It is also on record that assessee followed the IRDA 39. It is also on record that assessee followed the IRDA recommendations and accordingly prepared the recommendations and accordingly prepared the actuarial valuation actuarial valuation report including the surplus or deficit. However, Rule report including the surplus or deficit. However, Rule report including the surplus or deficit. However, Rule-2 prescribes only actuarial valuation in accordance with the only actuarial valuation in accordance with the Insurance Act Insurance Act, 1938. Therefore, AO is duty bound to insist on actua Therefore, AO is duty bound to insist on actuarial valuation in rial valuation in accordance with the accordance with the Insurance Act, 1938, so as to bring to tax the , 1938, so as to bring to tax the surplus or deficit. What we notice is that AO, ignoring Rule surplus or deficit. What we notice is that AO, ignoring Rule surplus or deficit. What we notice is that AO, ignoring Rule-2, has relied on the actuarial valuation report prescribed relied on the actuarial valuation report prescribed under the IRDA recommendations under Regulation 8 that too at 'Total surplus', recommendations under Regulation 8 that too at 'Total surplus', recommendations under Regulation 8 that too at 'Total surplus', which is at variance with the which is at variance with the Insurance Act, 1938. Since no , 1938. Since no amendment amendment was was brought brought to to Rule Rule-2 2 to to incorporate incorporate IRDA IRDA recommendati recommendations, we are of the opinion that the action of AO in ons, we are of the opinion that the action of AO in relying on the IRDA Regulations is not according to the law. relying on the IRDA Regulations is not according to the law. relying on the IRDA Regulations is not according to the law. Assessee had submitted its accounts as stated above, which are in Assessee had submitted its accounts as stated above, which are in Assessee had submitted its accounts as stated above, which are in
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accordance with the accordance with the Insurance Act, 1938. Instead of examining , 1938. Instead of examining these statements, just because assessee has shown total surplus in these statements, just because assessee has shown total surplus in these statements, just because assessee has shown total surplus in the accounts in similarly named Form the accounts in similarly named Form-I( under Regulation 8), AO I( under Regulation 8), AO wants to tax the amount which is after taking into account the wants to tax the amount which is after taking into account the wants to tax the amount which is after taking into account the transfer of assets by way transfer of assets by way of fresh capital from shareholder's of fresh capital from shareholder's account. This in a way is taxing fresh capital infused into business account. This in a way is taxing fresh capital infused into business account. This in a way is taxing fresh capital infused into business indirectly which cannot be done as this is not business surplus but indirectly which cannot be done as this is not business surplus but indirectly which cannot be done as this is not business surplus but infusion of capital directly. infusion of capital directly. 40. What assessee has done in reconciling the IRDA f 40. What assessee has done in reconciling the IRDA f 40. What assessee has done in reconciling the IRDA format with that of old Insurance Form is correct and accordingly the loss disclosed in of old Insurance Form is correct and accordingly the loss disclosed in of old Insurance Form is correct and accordingly the loss disclosed in the the the computation computation computation of of of income income income is is is according according according to to to the the the actuarial actuarial actuarial surplus/deficit under the surplus/deficit under the Insurance Act, 1938 prescribed , 1938 prescribed under Rule 2 of the first schedule part Rule 2 of the first schedule part-A. In view of this, we are of the A. In view of this, we are of the opinion that insistence by AO to bring to tax the entire amount opinion that insistence by AO to bring to tax the entire amount opinion that insistence by AO to bring to tax the entire amount shown shown shown under under under the the the new Regulations including new new Regulations Regulations including including transfer from transfer from transfer from shareholder's account is not correct. Instead of AO in taking shareholder's account is not correct. Instead of AO in taking shareholder's account is not correct. Instead of AO in taking the surplus at Regulation 8(1)(a) which is the actuarial surplus / deficit surplus at Regulation 8(1)(a) which is the actuarial surplus / deficit surplus at Regulation 8(1)(a) which is the actuarial surplus / deficit for the year took the amount as disclosed at Regulation 8 (1) (f) (total for the year took the amount as disclosed at Regulation 8 (1) (f) (total for the year took the amount as disclosed at Regulation 8 (1) (f) (total surplus after transfer from Shareholder's account) which is not at all surplus after transfer from Shareholder's account) which is not at all surplus after transfer from Shareholder's account) which is not at all correct. Conclusion: Conclusion:- M/s. Tata AIA L M/s. Tata AIA Life Insurance Co. Ltd. 42. In view of the above, looking at the issue in any way what we notice is 42. In view of the above, looking at the issue in any way what we notice is 42. In view of the above, looking at the issue in any way what we notice is that the computation made by assessee is in accordance with Rule that the computation made by assessee is in accordance with Rule that the computation made by assessee is in accordance with Rule-2 of the Insurance Act 1938 according to which only AO can base his computation. Insurance Act 1938 according to which only AO can base his computation. Insurance Act 1938 according to which only AO can base his computation. This also corresponds to the way incomes were assessed in earlier years ie. orresponds to the way incomes were assessed in earlier years ie. orresponds to the way incomes were assessed in earlier years ie. the correct method as per Rule 2 and Sec 44 of IT ACT. In view of the the correct method as per Rule 2 and Sec 44 of IT ACT. In view of the the correct method as per Rule 2 and Sec 44 of IT ACT. In view of the discussion above and after analyzing the Forms, Regulations and Provisions discussion above and after analyzing the Forms, Regulations and Provisions discussion above and after analyzing the Forms, Regulations and Provisions we have no hesitation to hold that the assesse we have no hesitation to hold that the assessee working of actuarial e working of actuarial surplus/ deficit is in accordance with Rule 2 of First Schedule. Therefore, surplus/ deficit is in accordance with Rule 2 of First Schedule. Therefore, surplus/ deficit is in accordance with Rule 2 of First Schedule. Therefore, assessee grounds on this issue are allowed and AO is directed to modify the assessee grounds on this issue are allowed and AO is directed to modify the assessee grounds on this issue are allowed and AO is directed to modify the order accordingly". order accordingly". This decision has been followed by the Tribunal in the case o This decision has been followed by the Tribunal in the case o This decision has been followed by the Tribunal in the case of HDFC Standard Life Insurance Co. Ltd. (supra). Thus, following the same judicial Standard Life Insurance Co. Ltd. (supra). Thus, following the same judicial Standard Life Insurance Co. Ltd. (supra). Thus, following the same judicial precedence which would apply on the facts of the present case also, we precedence which would apply on the facts of the present case also, we precedence which would apply on the facts of the present case also, we decide the issues raised vide ground no. 182 in the department's appeal in decide the issues raised vide ground no. 182 in the department's appeal in decide the issues raised vide ground no. 182 in the department's appeal in favour of the assessee and favour of the assessee and against the Department. 9. Similarly, with regard to the issue raised in ground No.3 also, the same is 9. Similarly, with regard to the issue raised in ground No.3 also, the same is 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, also covered by the same decision as incorporated above and accordingly, also covered by the same decision as incorporated above and accordingly, respectfully following the same, we uphold the order of the CIT(A) and respectfully following the same, we uphold the order of the CIT(A) and respectfully following the same, we uphold the order of the CIT(A) and dismissed the ground raised by the Department. the ground raised by the Department. 10. Lastly, with regard to ground No.4, that is, disallowing exemption under 10. Lastly, with regard to ground No.4, that is, disallowing exemption 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 section 10(34) with regard to the dividend income earned, we find that the 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 Ld. CIT(A) after relying upon various decisions held that section 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 applicable to Life Insurance Company. The Tribunal has reiterated the same applicable to Life Insurance Company. The Tribunal has reiterated the same
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view in the above cases that provisions of section 14A will not apply to view in the above cases that provisions of section 14A will not apply to view in the above cases that provisions of section 14A will not apply to Insurance companies, whose income are strictly assessable in terms of Insurance companies, whose income are strictly assessable in terms of Insurance companies, whose income are strictly assessable in terms of Rules of the Insurance Act. Rules of the Insurance Act. Thus, respectfully following the same, we affirm Thus, respectfully following the same, we affirm the order of the CIT (A) and dismissed the ground raised by the revenue. the order of the CIT (A) and dismissed the ground raised by the revenue. the order of the CIT (A) and dismissed the ground raised by the revenue. Accordingly, grounds raised by the revenue are dismissed. Accordingly, grounds raised by the revenue are dismissed.” ” 3.2 As all the issue in dispute in the As all the issue in dispute in the present appeal are squarely appeal are squarely covered by the decision of the Tribunal (supra). Respectfully by the decision of the Tribunal (supra). Respectfully by the decision of the Tribunal (supra). Respectfully following the same, the grounds of appeal of the Revenue are following the same, the grounds of appeal of the Revenue are following the same, the grounds of appeal of the Revenue are dismissed.
In the result, the appeal of the Revenue is dismissed. In the result, the appeal of the Revenue is dismissed. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on nounced in the open Court on 30/08/2023. /08/2023. Sd/- Sd/ Sd/ Sd/- (SANDEEP SINGH SANDEEP SINGH KARHAIL) (OM PRAKASH KANT) (OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 30/08/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai
