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Facts
The Revenue appealed against the CIT(A)'s order deleting the disallowance made by the Assessing Officer under Section 14A of the Income Tax Act. The assessee, an insurance company, had declared exempt dividend income and surplus from pension business. The Assessing Officer made a disallowance under Section 14A read with Rule 8D, which was deleted by the CIT(A).
Held
The Tribunal held that for an insurance company, the computation of income is governed by Section 44 of the Act, which has an overriding effect. Therefore, disallowance under Section 14A is not permissible as it goes beyond the provisions of Section 44. The appeal was found to be without merit.
Key Issues
Whether disallowance under Section 14A is permissible for an insurance company when its income computation is governed by Section 44, and whether Section 115JB is applicable in such cases.
Sections Cited
14A, 10(23AAB), 10(34), 143(3), 144B, 115JB, 44
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCHES “G”, MUMBAI
Before: Justice (Retd.) C V Bhadang, Hon’ble & Ms. Padmavathy S, Hon’ble
O R D E R Per Justice (Retd.) C V Bhadang, President:
By this appeal the Revenue is challenging the order dated 08.02.2025 passed by National Faceless Assessment Centre (hereinafter referred to as ‘CIT(A)’ ) thereby deleting the disallowance made by the Assessing Officer u/s. 14A of the Income Tax Act, 1961 (‘Act’ for short), vide order dated 23.04.2021. The appeal relates to A.Y. 2018-19.
There is delay of one day in filing the appeal for which an Affidavit has been filed. We have heard the parties. We find that the appellant has made out sufficient cause for not filing the appeal within time and the delay deserves to be condoned. Ordered accordingly. The appeal is taken up for hearing on merits.
The respondent assessee is in the business of Life Insurance. The assessee filed its Return of Income (RoI) for the relevant year declaring income as ‘Nil’ after Star Union Dai-Chi Insurance Company Limited setting off of brought forward losses to the extent of Rs.72,02,48,983/- pertaining to A.Y. 2012-13 of Rs.31,39,87,032/- and A.Y. 2013-14 of Rs.40,62,61,951/-.
Further, the assessee in its return of income has reported following exempt income: (a) Surplus in Pension Business exempt u/s. 10(23AAB) :Rs.11,47,32,611/- (b) Dividend exempt u/s. 10(34) :Rs.20,38,12,107/-
The case was selected for scrutiny in which the Assessing Officer claims that the disallowance u/s. 14A read with Rule 8D was required to be made as the assessee had reported the exempt income of Rs.20,38,12,107/- on account of dividend income u/s. 10(34) of the Act. The assessee placed reliance on section 44 read with Rule 5 of Schedule 1 of the Act in order to contend that the said section which has an overriding effect provides that the computation of income of an insurance company is to be made in accordance with the provisions of rules prescribed in First Schedule to the Act. It was thus, contended that the disallowance taking resort to section 14A could not have been made. Assessee placed reliance on the decision of Supreme Court in Life Insurance Corporation of India vs. CIT 51 ITR 773 (SC) claiming that the assessment of profits of an insurance business is governed by the provisions of Schedule 1 to the Income Tax Act and the Assessing Officer cannot travel beyond these provisions.
The learned Assessing Officer by an order dated 23.04.2021 u/s. 143(3) r.w.s. 144B of the Act made disallowance u/s. 14A of Rs. 20,36,71,987/- and proceeded to compute the profit in accordance with Section 115JB of the Act.
In appeal, the learned CIT(A) has noticed several decisions of this Tribunal including that of Mumbai Benches as also the decision of Supreme Court in Life Insurance Corporation of India (supra) and the decision of Bombay High Court in ICICI Prudential Co. Ltd. dated 20.07.2015 in Income Tax Appeal Nos. 688 and 711 of 2013, and has deleted the addition. It has been, inter alia, held that once the entity is Star Union Dai-Chi Insurance Company Limited governed by Section 44, other provisions including Section 115JB of the Act do not apply. Thus, the disallowance made under Section 14A of the Act read with Rule 8D of the Rules has been deleted while setting aside the computation of book profits under Section 115JB of the Act as the provision of Minimum Alternate Tax (MAT) are not applicable to the respondent-assessee. Feeling aggrieved the Revenue is in appeal.
We have heard parties. Perused record.
This appeal is filed by the Revenue on the following grounds : “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was correct in holding that section 44 of the Income Tax Act, 1961 applies in the computation of the profits and gains of business of insurance companies and it is not permissible for the Assessing Officer to travel beyond the provisions of section 44 and make the disallowance u/s 14A in respect of the exempt income in the case of an insurance company.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the assessee had declared dividend income of Rs: 20,38,12,107/- as exempt u/s 10(34) and surplus in pension business of Rs. 11,47,32,611/-as exempt u/s 10(23AAB) and these are not income accruing or arising to the assessee from life insurance business and, hence, the provisions of section 115JB(5A) are not applicable and the disallowance u/s 14A could be made in the computation of book profit u/s 115JB.”
10. It is submitted by the learned DR that once the assessee had claimed certain part of its income as exempt, the Assessing Officer was justified in making the disallowance by invoking the provisions of Section 14A of the Act. It is submitted that the learned CIT(A) was not justified in deleting the addition and further holding that the provisions of Section 115JB of the Act are not applicable to the respondent- assessee.
Star Union Dai-Chi Insurance Company Limited
The learned AR has supported the impugned order. It is submitted that the issue is well settled by several decisions of the Tribunal and also that of the Supreme Court.
We have considered the submissions made. The issue may not detain us long as the co-ordinate Benches of this Tribunal in the following decisions have held that in view of the provisions of Section 44 of the Act which starts with a non obstante clause, has an overriding effect. It is thus implicit that the computation of income of an Insurance Company has to be made in accordance with Schedule I of the Act.
i. ICICI Prudential Life Insurance Company Ltd., order dated 14.01.2015 in & 5530/Mum/2013 for A.Ys 2010-11 and 2011-12 ii. Aditya Birla Sunlife Insurance Company Ltd., order dated 28.10.2024 in & 3044/Mum/2024 for A.Y. 2021-22 iii. Cholamandalam MS General Insurance Co. Ltd. Vs. Dy. CIT 174 taxmann.com 603 (Madras) iv. Max Life Insurance Company Ltd., order dated 14.01.2020 in ITA Nos. 4384 & 4385/Del/2019 for A.Y.s. 2012-13 & 2013-14 and in ITA Nos. 4634, 4633, 4635 & 4636/Del/2019 for A.Ys 2012-13 & 2013-14 v. Bajaj Allianz Life Insurance, order dated 29.10.2024 in ITA Nos. 653 & 654/PUN/2024 for A.Ys. 2016-17 & 2018-19. vi. Kotak Mahindra Old Mutual Life Insurance Ltd., order dated 27.09.2017 in ITA No. 5655/Mum/2015 for A.Y. 2012-13 vii. Tata AIA Life Insurance Co. Ltd., order dt. 06.03.2025 in MA Nos. 233 & 234 (Arising out of ITA No. 1897/Mum/2023 and ITA No. 1759/Mum/2024 for AYs. 2013-14 and 2018-19 respectively) viii. Exide Life Insurance Company Ltd. (formerly known as ING Vyaya Life Insurance Company Ltd.) vs. ACIT, order dt. 03.02.2021 in IT(TP)A No. 1296 & 1297/Bang/2019 and 838 & 840/Bang/2019 for A.Ys. 2011-12, 2011-12, 2012-13 and 2014-15 Star Union Dai-Chi Insurance Company Limited ix. SBI Life Insurance Co. Ltd., order dt. 05.05.2025 in 1427, 1428, 4208, 4185 & 4247/Mum/2023 for A.Ys 2015-16, 2016-17, 2017-18 2018-19, 2019-20 & 2020-21) x. Bajaj Allianz Insurance Co. Ltd., order dt. 10.01.2023 in ITA No.s 656 & 657/PUN/2021 for A.Ys. 2012-13 and 2013-14
Learned CIT(A) has further noticed decision of General Insurance Company of India 240 ITR 139 (SC), wherein the Supreme Court has held that Section 44 of the Act is a special provision governing computation of taxable income earned from the business of Insurance.
The learned Assessing Officer has observed that some of these decisions are subject matter of challenge before the constitutional courts. We find that unless the orders are set aside or varied, they continue to hold good. Thus, no case for interference is made out. The appeal is without any merit and is accordingly dismissed.