DCIT-1(3)(1), MUMBAI vs. M/S FUTURE GENERALI INDIA LIFE INSURANCE CO. LTD, MUMBAI

In the grounds of appeal, Revenue has raised the following grounds:-

“1. Whether on the facts and in the circumstances of the case Rs. 30,73,76,32 and in law, the Hon'ble Tribunal was justified in denying the addition made by the Assessing Officer on account of Surplus disclosed in Form 1 of Actuarial Report ignoring the Provision of Sec.44 rws 2 of the First Schedule of the IT. Act, 1961?" 2."Whether on the facts and in the circumstances of the case and in law the Ld CIT(A) was correct in allowing relief to the assessee by holding that 'surplus' available both in Policy Holders Account and Share Holder's account is to be consolidated and only 'net surplus' is to be taxed as income from Insurance Business ?" 3. "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made by the AO on account of loss from pension fund ignoring settled position of law that income includes loss and that income from Pension Fund does not form part of the total income of the assessee corporation u/s 10(23AAB) of the IT Act 1961?" 4. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in ignoring the fact that the non-obstante provision of Section 44 also applies to section 10(23AAB) of the IT Act 1961 in view of the fact that section 10 and all its subsections are not non obstante?" 5."Whether on the facts and in circumstances of the case and in Law, Sec 10 of IT Act is applicable to Insurance business when total income of Insurance activity is governed and computed under Schedule 1 of the IT Act independent of various computational provisions as prescribed u/s 44 of the Act?”

At the outset ld. Counsel for the assessee submitted that this issue is covered by the series of decisions of the Tribunal in assessee’s own case right from A.Y.2009-10 to 2017-18 even the ld. CIT (A) also has followed earlier orders of the Tribunal and 3 M/s. Future Generali India Life Insurance Co. Ltd. also the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Life Insurance Corporation of India Ltd 338 ITR 212 and General Insurance Corporation of India 17 taxmann.com 247.

The brief facts of the case are that the assessee company is engaged in the business of life insurance and has obtained license of life insurance business from insurance regulatory and development authority. Accordingly, it was required to maintain books in accordance with the directions issued by IRDA which mandate the preparation of policy holders account (called revenue account) and shareholders account (called profit and loss account) separately and balance sheet for the company as a whole. It has filed its income tax returns on 01/10/2018 disallowing total loss of Rs.144,50,63,150/- from the business after adjusting transfer of Rs.162,48,88,000/- from profit and loss account and revenue account. The ld. AO held that in view of the provision of Section 44 r.w.r.2 which has overriding effect on all the computation provision of the income should be applied and accordingly, surplus appearing in Form No.1 should be offered to tax without any modification. He also noted that though this addition has been deleted in all the previous assessment years by the ld. CIT (A) and the Tribunal, however, further appeal has been filed before the Hon’ble High Court is pending. Accordingly, keeping the issue alive and being consistent with the stand taken by the department, he added an amount of Rs.90,43,14,000/- u/s.10(23AAB) on account of surplus deficit from the pension fund. On this count, he noted 4 M/s. Future Generali India Life Insurance Co. Ltd. that though the decision of the Hon’ble Bombay High Court in the case of M/s. Life Insurance Corporation of India Ltd (supra) is in the favour of the assessee, however, the department has not accepted the said order and SLP is pending.

The ld. CIT(A) after discussing the various judgments of the Hon’ble Bombay High Court in the case of CIT vs. ICICI Prudential Insurance Co. Ltd. 242 Taxman159 and also the decision of the Tribunal in assessee’s own case right from A.Y.2009-10 to 2017-18 has deleted the said addition.

Similarly with regard to disallowance of profits from pension fund of Rs.6,84,02,000/- u/s. 10(23AAB) relied upon by the decision of the Hon’ble Bombay High Court in the case of Life Insurance Corporation Ltd. (supra) and Group Insurance of India (supra) and also decision of the Tribunal in assessee’s own case.

The ld. DR though admitted that this issue is covered in favour of the assessee, however, he relied upon the order of the ld. AO.

After considering the finding in the impugned orders as well as various decisions of the Tribunal in assessee’s own case, it is an undisputed fact that assessee is maintaining its regular books of accounts in accordance with the directions issued by IRDA which mandate preparation of policy holders account and shareholders account separately and since assessee is into life insurance business, the computation of profit and loss account of insurance / business for the purpose of tax has to be made in 5 M/s. Future Generali India Life Insurance Co. Ltd. accordance with Section 44 r.w.r.2 of first Rule of the Act. We find that this Tribunal consistently has been holding that the view of the Hon’ble High Court in the case of ICICI Prudential Insurance Company, wherein it has been held that surplus amount as added by the AO is to be deleted. As stated above, as per the IRD Act and specific Rules, the Insurance company has to segregate policy holder’s account and share holder’s account and provides that every insurer or after the commencement of IRD Act 1999, in respect of insurance business transacted by him in respect of shareholder’s fund shall at the expiration of each financial year prepare a balance sheet, profit and loss account a separate account of receipts and payments and revenue account in accordance with the regulations made by the authority. Thus, according to the Regulations, Profit and Loss Account (P & L A/C) of Insurance Company is divided into a Technical Account (Policyholder's Account) also called as Revenue Account and Non Technical Account (Shareholder's Account) also called as P & L Account. The Technical Account deals with all the transactions relating to the income by way of premium and expenditures and actuarial provisions shown segment wise. All the transactions relating to Shareholder's like funding the deficit, income earned on investment of share capital and reserves are dealt in non technical Shareholder's account. IRDA (Actuarial Report and Abstract) Regulations 2000 prescribes a method of preparation of actuarial report and abstract. As per Regulation 4(2)(d) item no.iv, Form I was prescribed for purpose of valuation result and to indicate surplus 6 M/s. Future Generali India Life Insurance Co. Ltd. of deficit in the life insurance business. This precise question was answered by the Hon’ble Jurisdictional High Court in the case of CIT vs. ICICI Prudential Insurance Ltd. wherein the issue was whether the Tribunal was correct in allowing the relief to the assessee by holding that the surplus available in shareholder’s account is not to be taxed separately as income from other sources and at the normal corporate rate and holding that surplus cum shareholders account was only part of income from insurance business arrived at after combining surplus available in shareholders account with the surplus available in the policy holders account. The Hon’ble High Court held that the order of the Tribunal holding that income from shareholders account is also to be taxed as part of life insurance business and cannot be found fault with the view of the clear mandate of Section 44 of the Act. The ld. CIT (A) following the earlier year orders of the Tribunal has deleted the addition after observing as under:- “5.11 I find that the policyholder account and shareholder account forms part of Insurance business and therefore New Form I which includes only Policyholders account cannot be considered for determining the surplus from Life Insurance as it reflects only Policyholder funds and therefore to determine the surplus taxable under Rule 2 of the First Schedule the aggregate of Policyholder's A/c and Shareholder A/c forms part of surplus/deficit of Life Insurance business. The surplus or deficit amount as defined under Rule 2 of First Schedule of Section 44 of The Act should be arrived at after adjusting both accounts i.e. Policyholder Account and Shareholder's Account in view of the above discussion and respectfully following the judgment of the Hon'ble tribunal in the apellant's own case, the addition made by the AO of Rs.90,43,14,000/- on account of considering the surplus disclosed in Form-I as the income of the appellant is deleted. The appeal on this ground is treated as followed.”

Thus, the order of the ld. CIT(A) following the earlier orders of the Tribunal is confirmed and consequently, the grounds raised