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Income Tax Appellate Tribunal, DELHI BENCH ‘Friday – A’NEW DLEHI
Before: SHRI G.S. PANNU & SHRI K. NARASIMHA CHARY
PER K. NARASIMHA CHARY, J.M.
Aggrieved by the separate orders dated 28.02.2019 in appealsNos. 06/16-17 and 14/16-17 -New Delhi, passed by the learned Commissioner of Income Tax (Appeals)-22, New Delhi (“Ld. CIT(A)”),for the assessment years
2012-13 to 2013-14, M/s Max Life Insurance Company Ltd. (“the assessee”) and the Department have filed cross-appeals Nos. 4384 & 4385/Del/2019 and appeals Nos. 4634 &4635/Del/2019 respectively, whereas the Revenue has also filed ITA Nos. 4633& 4636/Del/2019 for the same assessment years challenging the impugned orders of learned CIT(A) dated 28.02.2019, whereby the orders u/s. 154 passed by the Assessing Officer were set aside.Since all these appeals emanate from the same set of facts, we deem it just and convenient to dispose them of by way of a common order.
Brief facts of the case, as could be culled out from the record, are that the assessee is a joint venture between Max India Ltd and New York Life International Holdings Ltd. and is an Indian insurance company, allowed a life insurance business license by the Insurance Regulatory and Development Authority (IRDA). For the assessment years 2012-13 and 2013- 14, assessee filed their returns of income on 27/11/2012 and 28/11/2013 declaring income of Rs. Niland Rs.3,84,19,25,560/-respectively under the normal provisions of the Income Tax Act, 1961 (for short “the Act”). Assessment under section 143(3) of the Act was completed by orders dated 2/3/2016 and 22/3/2016 at Rs nil and Rs.4 34,91,24,560/-respectively. In this process learned Assessing Officer made an addition to the tune of Rs. 15,05,52,000/-and Rs. 18,45,42,000/-on account of profit on sale of investment, Rs. 1,94,21,000/-and Rs. 2,76,84,000/-on account of provision for bad debts and Rs. 10.5 crores and 2 crores on account of the donation paid in respect of these 2 years respectively.
Aggrieved by such additions assessee preferred appeals before the Ld. CIT(A). Ld. CIT(A) by way of impugned orders sustained the addition made on account of donations, but gave relief in respect of the additions
made on account of the profit on sale of investment and provision for bad debts. Assessee made an additional claim before the Ld. CIT(A) by way of which the assessee sought exemption under section 10 (34) of the Act on account of dividend income earned. Ld. CIT(A), however, held that a claim of new deduction requiring verification of facts, would depend on satisfaction of the authority as to the facts existing in the subject assessment year and therefore, on that ground the assessee was not entitled to any relief.
Assessee also filed application under section 154 of the Act on 3/6/2016 in respect of both the years requesting to rectify the assessment order passed under section 143(3) of the Act and requested to apply the rate of tax at 1.5% instead of 30%. Learned Assessing Officer, however, rejected the rectification application as filed by the assessee stating that the assessee had not offered to tax “profit on sale of investments” and accordingly the same is brought to tax by way of separate addition in accordance with the provisions of section 28 to 43B of the Act as profit on sale of investments representing income from nonlife insurance business and also that there is justification for taxing the other disallowances, namely, provision for bad debts and donation expenses at the rate of 30%. In appeal Ld. CIT(A) however accepted the contentions of the assessee and while following the orders of the Tribunal for the assessment year 2010-11 deleted the same. Revenue, therefore, preferred appeals in ITA 4633 and 4636 /Del/ 2019 for the assessment years 2012-13 and 2013-14 respectively.
Insofar as the appeal of the assessee are concerned, first challenge relates to the disallowance of the donation made by the assessee. Assessee pleaded in the alternative to allow the deduction under section 80G of the
Act on the amount of donation paid by the assessee during the previous year relevant to the concerned assessment year.
At the outset it is brought to our notice that this issue has been covered in favour of the assessee by the order of the Tribunal in ITA No. 5643/Del/2010 in assessee’s own case for assessment year 2006-07. Ld. AR submitted a copy of the order dated 22/4/2019. At paragraph No. 41 of this order, a coordinate Bench of this Tribunal dealt with the issue and held that when the donation expenditure was disallowed and added to the total income of the assessee, then naturally the assessee is entitled to deduction under chapter-VI-A of the Act with respect to the donation under section 80G of the Act. Since the requisite details as required by section 80G of the Act were not furnished before the Tribunal, the Tribunal directed the assessee to furnish the relevant information before the Assessing Officer in accordance with law to claim any deduction under section 80G of the Act along with all donation receipts and 80G certificates issued by the donee to the assessee. Assessing officer was directed to verify the details in accordance with law and if found proper, to grant deduction.
This factual position has not been controverted by the Ld. DR and no decision to the contrary is brought to our notice. Facts being identical, and the view taken by the Tribunal in assessee’s own case for the earlier assessment years covering the issue, we are of the considered opinion that the said view could be followed for this assessment year also. We accordingly remand issue to the file of the learned Assessing Officer for verification of the details to be furnished by the assessee in respect of the donation along with all the supporting material, and to grant deduction if such material is found proper.
Other issue raised by the assessee in its appeals relates to the exemption under section 10 (34) of the Act in respect of the dividend income earned by the assessee during the relevant previous year. It is submitted on behalf of the assessee that this issue is also squarely covered in favour of the assessee by the orders of the Tribunal for the assessment years 2006-07, 2007-08 to 2009-10 and 2010-11. Copies of the orders are produced and there is no contradiction from the other side on this aspect.
In assessee’s own case for the assessment year 2010-11, reported in Max New York Life Insurance Co. Ltd. vs. DCIT (2018) 91taxmann.com 477 (Delhi-Trib.) a coordinate Bench of this Tribunal dealt with this issue in detail and observed that,-
Now coming to the additional ground taken by the assessee which relates to the claim of deduction by the assessee u/ 10 (34) in respect of dividend income, we noted that this issue is duly covered by decision of Mumbai Bench of this Tribunal in case of ICICI Prudential Insurance Co. Ltd. (supra) in which under para 47 while dealing with similar issue following decision of General Insurance Corp of India (supra) by Bombay HC gave clearcut finding that assessee is entitled to exemption u/s 10(34) for the dividend income. We also noted while disposing of ground relating to applicability of S. 14A for disallowance of expenditure in respect of income not forming part of Total Income. This Tribunal Mumbai Bench in the aforesaid case under para 45-46 took the view that since S. 44 creates a specific exception to the applicability of S. 28-43B, therefore purpose object & purview of S. 14A has no applicability to profits and gains of an insurance business. This decision of co-ordinate Bench is binding on us. The learned DR in this regard although referred to decision of Delhi Tribunal in the case of assessee Asstt. CIT v. Max New York Life Insurance Co. Ltd. [2017] 86 taxmann.com 239/167 ITO 540 (Delhi-Trib.) for AY 2002-03 dt 17/10/2017, we noted Tribunal took the view when the question of application of provision of S. 92 came before it, it took the view that S. 92 applied to an assessee carrying on insurance business. In case of computation of determination of ALP of International transaction, we are concerned with S. 92 in the case of an assessee carrying on life insurance business, there has to be two staged computation of income. First income has to be computed as per S. 44 read with First Schedule & while computing income all the
other provisions relating to the computation of income chargeable under the head 'Interest on Securities', 'income from house property', 'income from capital gains' or 'income from other sources' or in S. 199 or in S. 28- 43B has to be disregarded. Second stage comes after computation of income u/s 44, computation as per provision of S. 92 by making addition on a/c of transfer pricing adjustment. 98. This decision in our view will not apply w.r.t. the applicability of S. 14A as the applicability or inapplicability of S 14A has to be considered at the stage of making computation of income u/s 44. We also do not agree with submission of learned DR since the only activity in shareholders a/c is of investment, it cannot be said that no expenditure was incurred for earning dividend. In this regard, we may state question before us is not whether any expenditure has been incurred or not for earning of dividend but the question relates to the applicability of S. 14A, which issue has already been decided by co-ordinate Bench against Revenue in view of discussion under para 46 of the order of this Tribunal Mumbai Bench in case of ICICI Prudential Insurance Co. Ltd. (Supra), in which they have followed the decision of Delhi Bench in case of Oriental Insurance Co. Ltd. v Asstt. CIT [2010] 40 SOT 19 (URO). No contrary decision for applicability of S. 10(34) & S. 14A was brought to our knowledge. We accordingly allow the additional ground and dismiss the plea of learned DR that directions be given in case exemption is granted u/s 10(34) to disallow be expenditure u/s 14A of the Income Tax Act. 10. The above view taken for the assessment year 2010-11 was followed subsequently in assessee’s own case for assessment year 2006-07 by order dated 22/4/2019 in ITA No. 5643/del/2010 and the Tribunal directed the assessing officer to allow exemption to the assessee under section 10(34) of the Act without disallowing any expenditure under section 14A of the Act. On this issue also neither any change of circumstances nor any decision of any higher forum is brought to our notice by the Revenue. Hence while respectfully following the above consistent view taken by the Tribunal in assessee’s own case for the earlier assessment years, we allow ground No. 2 of assessee’s appeal and direct the Assessing Officer to allow exemption to the assessee under section 10(34) of the Act without disallowing any expenditure under section 14A of the Act.
Now coming to the Revenue’s appeal, Revenue challenges the direction of the Ld. CIT(A) to the learned Assessing Officer to recompute the taxability of the company engaged in the business on the premise that the profit on sale of investments should not be treated as income from insurance business and instead should be treated as income from other sources and the deletion of the disallowance made by the learned Assessing Officer on account of provision for bad debts.
Ld. AR submitted that the treatment of profit on sale of investments in case of assessee had fallen for consideration in assessee’s own case for the assessment year 2010-11 and it was consistently followed in respect of the assessment years 2006-07 and 2007-08 to 2009-10.
In its order dated 5/1/2018, in assessee’s own case for assessment year 2010-11, the Tribunal vide paragraph No. 73 to 75 set aside the order of CIT(A) on this issue and directed the Assessing Officer to take profit shown in shareholders' profit and loss account i.e. Form A-PL to be part of the income derived from life insurance business. Similar view was taken in respect of the assessment year 2006-07 and it was followed by another coordinate Bench of this Tribunal for assessment years 2007-08 to 2009-10. It was observed in the order for the assessment year 2007-08 to 2009-10 that in 2005-06, the Revenue itself had decided the issue in favour of the assessee by holding that profit and loss arising from the sale of investment is not chargeable to tax separately and it is beyond the purview of section 44 of the Act.
Since the issue has squarely been covered in assessee’s own case for the earlier assessment years in favour of the assessee, in the absence of any reasons compelling to take a different view, we are of the considered
opinion that no addition should have been made on account of income from sale of investment in case of assessee and therefore find the grounds of appeal on this aspect devoid of merits and consequently dismiss the same.
Coming to the 2nd issue relating to the provision of bad debts, Ld. AR 15. submits that this issue also has been covered in assessee’s own case for the assessment years 2010-11. On perusal of appeal order dated 5/1/2018 in ITA No. 142/Del/2017, we find that this issue was covered by ground No. 6 in such appeal and vide paragraph No. 93, a coordinate Bench of this Tribunal observed that,-
Ground no. 6 relates to enhancing the assessment by making additions for the provision for doubtful debts amounting to Rs.2,41,83,000/- in shareholders' P & L a/c. We heard rival submissions and carefully considered the same while disposing of ground no. 2 in the preceding paragraph. We have already held that income in the shareholders a/c also forms part of profit & gains from life insurance business of the assessee. Income has to be computed as per Rule 2 of Schedule I r.w.s. 44 of the Income Tax Act. S. 44 debars Revenue to apply the provisions of Sections 28 to 43B of the Income Tax Act while computing profit & gains from an insurance company and income has to be computed with the Rules contained in the First Schedule. In view of this specific provision, in our view the Revenue cannot apply the normal provisions of the Income Tax Act for computing the income under the Income Tax Act. From form A - P & L a/c i.e. shareholders a/c pg 178 of the audited balance sheet and P & L a/c, it is apparent that the assessee has made provision for doubtful debts amounting to Rs.2,41,83,000/-. We noted that Revenue on the one side disallowed provision for doubtful debts but on the other side has taken the provision to the extent there is increase in value of investment other than temporary decline, as part of the income. This implies that CIT(A) has just taken the contrary view. We have also examined the contention of the learned DR that the assessee himself added back the royalty while computing the shareholders income. This implies that the assessee has accepted the view of the Revenue that the income in the shareholders a/c has to be computed under the normal provisions of the computation of income in Income Tax Act. Royalty paid by the assessee in our view cannot be regarded to be an expense relating to the life insurance business. Therefore, there is nothing wrong caused to the Revenue as Royalty cannot
be regarded to be liability incurred for life insurance business. We therefore set aside order of CIT(A) on this issue and delete the enhancement made by CIT(A) by Rs.2,41,83,000/-. Thus this ground stands allowed. Above view taken by the coordinate Benches is squarely applicable to the facts relating to appeals on hand also and while respectfully following the same, we do not find anything illegality or irregularity in the view taken by the Ld. CIT(A) on this aspect and accordingly uphold the same.
Appeals in ITA No. 4633 and 4636 /Del/ 2019 are preferred by the Revenue in respect of the orders passed by the Ld. CIT(A) against the orders dated 3/6/2016 under section 154 of the Act by the learned Assessing Officer. In view of our above findings, these two appeals have become infructuous and are, accordingly, dismissed.
In the result ITA No. 4384 and 4385/del/2019 are allowed and ITA numbers 4633 to 4636 /Del/ 2019 are dismissed. Pronounced in open court on this the 14th January, 2020.
Sd/- Sd/- (G.S. PANNU) (K. NARASIMHA CHARY) VICE PRESIDENT JUDICIAL MEMBER
Dated: 14/01/2020 ‘aks’