DCIT (LTU), NEW DELHI vs. M/S. THE ORIENTAL INSURANCE CO. LTD.,, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘G’, NEW DELHI Before Sh. Amit Shukla, Judicial Member Dr. B. R. R. Kumar, Accountant Member ITA No. 4818/Del/2016 : Asstt. Year : 2010-11 Deputy Commissioner of Vs M/s The Oriental Insurance Co. Income Tax, Circle-1, LTU Ltd., A-25/27, Asaf Ali Road, New Delhi-110017 New Delhi-110002 (APPELLANT) (RESPONDENT) PAN No. AAACT0627R Assessee by : Sh. Tarandip Singh, Adv. Revenue by : Sh. S. S. Rana, CIT DR Date of Hearing: 17.09.2019 Date of Pronouncement:22.10.2019 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the revenue against the order of the ld. CIT(A)-22, New Delhi dated 21.06.2016.

ITA No.4818/Del/2016 2 Oriental Insurance Co. Ltd. account of expenses incurred on Guest House maintenance. 4. On the facts and in the circumstances of the case and in law, ld. CIT (A) has erred in reversing the action of the AO in computing income of the assessee u/s 115JB of the Act.” Addition on account of interest: 3. Brief facts of the case are that the assessee is a public sector undertaking of Government of India, conducting the business of non-life insurance for large projects, motor car, health, medi-claim and for other products and establishments. During the year, the company has received an interest income of Rs.92,00,59,000/- which the Assessing Officer brought to tax on the grounds that the interest is accruing to it every year on debentures, loans and bonds has been provided for. The matter has reached to the level of Tribunal on the earlier years from 2002 onwards wherein the matter from 2002-03, 2004-05, 2007-08, 2008-09 and 2011-12 has been deleted the addition continuously.

ITA No.4818/Del/2016 3 Oriental Insurance Co. Ltd. “17. We have heard rival submissions of the parties and have gone through the material available on record. Identical issue arose in assessee's own case for AY 1985-86. The Tribunal accepted the plea of the assessee and in fact the issue went up to the Hon'ble. Delhi High Court in AY 1986-87 to 1988-89, which is reported as 125 Taxman 1094 (Del.), decided the issue in favour of the assessee by holding that section 44 of the Act is a special provision dealing with the computation of profits and gifts of business of insurance. It being a non obstinate provision has to prevail over other provisions in the Act. It clearly provides that income from insurance business has to be computed in accordance with the rules contained in the First Schedule. It is not the case of the Revenue that the assessee has not computed the profits and gains of its insurance business in accordance with the said rules. Reliance was placed on the scope of section 44, as held in the case of General Insurance Corpn. of India Vs. CIT (1999) 240 ITR 139 (SC), wherein Their Lordships of the Apex Court have categorically held that the provision of section 44 being a special provision, govern computation of taxable income earned from business of insurance. It mandates the tax authorities to compute the taxable income in respect of insurance business in accordance with the provisions of the First Schedule to the Act. In the light of these, their Lordships of Delhi High Court have held that no question of law, much less a substantial question of law survives for their consideration. In other words, order of the Tribunal has been affirmed. Following the same reasoning, addition made by the Assessing Officer is deleted.” 5. Since the facts of the case before us are identical to the facts of the case for the earlier assessment years, we respectfully following the decision of the ITAT in assessee’s own case for earlier assessment years, this issue is being decided in favour of the assessee.

ITA No.4818/Del/2016 4 Oriental Insurance Co. Ltd. 6. The Hon’ble Delhi High Court has also decided the issue in question in assessee’s own for AYs 1986-87 & 1988-89 by returning following findings:- “8. We find substance in the contention of learned counsel for the assessee. 9. Section 44 of the Act is a special provision dealing with the computation of profits and gains of business of insurance. It being a non obstante provision, has to prevail over other provisions in the Act. It clearly provides that income from insurance business has to be computed in accordance with the rules contained in the First Schedule. It is not the case of the Revenue that the assessee has not computed the profits and gains of its Insurance business in accordance with the said rules. The scope of section 44 of the Act came up for consideration before the Supreme Court in General Insurance Corpn.’s case (supra), and their Lordships observed thus “Section 44 of the Income-tax Act is a special provision governing computation of taxable income earned from business of insurance. It opens with a non obstante clause and thus has an overriding effect over other provisions contained in the Act. It mandates the assessing authorities to compute the taxable income for business of insurance in accordance with the provisions of the First Schedule. A plain reading of rule 5(a) of the First Schedule makes it clear that in order to attract the applicability of the said provision the amount should firstly be an expenditure or allowance. Secondly, it should be one not admissible under the provisions of sections 30 to 43A. If the amount is not an expenditure or allowance, the question of testing its eligibility for adjustment by reference to rule 5(a) of the First Schedule would not arise at all." (p.144) 10. In view of the said authoritative pronouncement, and in the absence of any finding by the Assessing Officer that the taxable income has not been computed in accordance with section 44 of the Act, no fault can be found with the view taken by the Tribunal. No question of law, much less a substantial

ITA No.4818/Del/2016 5 Oriental Insurance Co. Ltd. question of law, survives for our consideration. Consequently, both the appeals are dismissed.” 9. So, respectfully following the decision rendered by the coordinate Bench of the Tribunal as well as Hon’ble High Court in the assessee’s own case, as discussed in the preceding paras, we are of the considered view that the assessee company had rightly not recognised an amount of Rs.92,00,59,000/- as income for the years as per its accounting policy and as per policy issued by the Insurance Regulatory Development Authority (IRDA). So, finding no illegality or perversity in the findings returned by the ld. CIT (A), ground no.1 is determined against the Revenue.

Addition on account Guest House:

ITA No.4818/Del/2016 6 Oriental Insurance Co. Ltd. 11. The learned Departmental Representative, on the other hand, strongly justified the order of the CIT(A), in the light of his discussion in the impugned order. 12. We have carefully considered; the rival contentions and gone through the records, The Tribunal in assessment year 1999- 2000 has held that expenditure incurred for maintenance of the company's own guest houses is covered under section 30(a)(ii) of the Act. Therein the Tribunal accepted the plea of the assessee that in respect of the guest houses owned by the assessee, repair expenses will have to be allowed as deduction under section 30(a)(ii) of the Act. Once the expenditure is allowable under section 30(a)(ii), if the expenditure of incurred on repair and maintenance of guest house taken on lease should also be allowed. In the light of the aforesaid order of the Tribunal, we decide the matter, for the AYs in question, in favour of the assessee.” 9. Hence, following the decision rendered by the coordinate Bench of the Tribunal, we are of the considered view that when the expenditure incurred by the assessee company for maintenance of company’s own guest houses, the same is covered u/s 30(a) of the Act. The repair expenses thereof would also be allowed as deduction as section 30(a) of the Act. So, we find no ground to interfere with the findings returned by the ld. CIT (A) and consequently ground no.2 is determined against the Revenue.

Disallowance u/s 14A:

ITA No.4818/Del/2016 7 Oriental Insurance Co. Ltd. ld. DR for the Revenue filed the written submissions on this ground by relying upon the decision rendered by the Hon’ble Apex Court in the case of Maxopp Investment Ltd. vs. CIT (2018) 91 taxmann.com 154 (SC) and contended that since Maxopp Investment Ltd. (supra) judgment was rendered by Hon’ble Supreme Court on February 12, 2018, the Tribunal was not having its benefit to rely upon. 13. The coordinate Bench of the Tribunal in AY 2005-06 decided this issue in favour of the assessee by relying upon the decision in AYs 2000-01 & 2001- 02 by returning following findings:- “18. The next common dispute relates to the order of the CIT(A) in sustaining the action of AO in making (sic) allowing only 50 per cent of the management expenses by invoking the provisions of s. 14A of the Act. The addition is made by the AO on the plea that the provision of s. 14A was inserted by Finance Act, 2001 w.e.f. 1st April, 1962. It is stated that the investments made by the assessee are both taxable as well as tax free. An estimated disallowance of 50 per cent out of the management expenses incurred and as claimed in the P&L a/c is treated as expenses incurred in connection with the looking after tax-free investment. 19. The learned counsel for the assessee vehemently argued that the income of the assessee is to be computed under s. 44 r/w r. 5 of Sch. I of the IT Act. Sec. 44 is a non obstante clause and applies notwithstanding anything to the contrary contained within the provisions of the IT Act relating to computation of income chargeable under different heads, other than the income to be computed under the head "Profits and gains of business or profession". For computation of profits and gains of business or profession the mandate to the AO is to compute the said income in accordance with the provisions of ss. 28 to 43B of the Act. In the case of the computation of profits and gain of any business of insurance, the same shall be done in accordance

ITA No.4818/Del/2016 8 Oriental Insurance Co. Ltd. with the rules prescribed in First Schedule of the Act, meaning thereby ss. 28 to 43B shall not apply. No other provision pertaining to computation of income will become relevant. According to the learned counsel, two presumptions that follow on a combined reading of ss. 14, 14A and 44 and r. 5 of the First Schedule are: (a) That no head-wise bifurcation is called for. The income, inter alia, of the business of insurance is essentially to be at the amount of the balance of profits disclosed by the annual accounts as furnished to the Controller of Insurance under the Insurance Act, 1938. The said balance of profits is subject only to adjustments thereunder. The adjustments do not refer to disallowance under s. 14A of the Act. (b) Profits and gains of business as referred to in (a) above have only to be computed in accordance with r. 5 of the First Schedule. 20. Sec. 44 creates a specific exception to the applicability of ss. 28 to 43B. Therefore, the purpose, object and purview of s. 14A has no applicability to the profits and gains of an insurance business. 21. The learned Departmental Representative strongly justified the action of the AO and that of the CIT(A) in the light of the clear provisions of s. 44A of the Act. 22. We have considered the rival contentions and gone through the records. The provisions of s. 44 read as under: "44. Insurance business.—Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head ‘Interest on securities’, ‘Income from house property’, ‘Capital gains’ or ‘Income from other sources’, or in s. 199 or in ss. 28 to 43B, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a

ITA No.4818/Del/2016 9 Oriental Insurance Co. Ltd. co-operative society, shall be computed in accordance with the rules contained in the First Schedule." 23. The above provision makes it very clear that s. 44 applies notwithstanding anything to the contrary contained within the provisions of the IT Act relating to computation of income chargeable under different heads. We agree with the learned counsel that there is no requirement of headwise bifurcation called for while computing the income under s. 44 of the Act in the case of an insurance company. The income of the business of insurance is essentially to be at the amount of the balance of profits disclosed by the annual accounts as furnished to the Controller of Insurance. The actual computation of profits and gains of insurance business will have to be computed in accordance with r. 5 of the First Schedule. In the light of these special provisions coupled with non obstante clause the AO is not permitted to travel beyond these provisions. 24. Sec. 14A contemplates an exception for deductions as allowable under the Act are those contained under ss. 28 to 43B of the Act. Sec. 44 creates special application of these provisions in the cases of insurance companies. We therefore, agree with the assessee and delete the disallowance made by the AO which is based on the application of s. 14A of the Act as according to us, it is not permissible to the AO to travel beyond s. 44 and First Schedule of the IT Act.” 11. Following the decision rendered by the coordinate Bench of the Tribunal, we are of the considered view that the argument addressed by the ld. DR for the Revenue by relying upon the decision rendered by Hon’ble Supreme Court in Maxopp Investment Ltd. (supra) are not sustainable because of the fact that in case of insurance company, the assessee in this case, the income is to be computed as per provisions contained u/s 44 read with Rule 5 of First Schedule, coupled with non-

ITA No.4818/Del/2016 10 Oriental Insurance Co. Ltd. obstante clause and in these circumstances, the AO is not empowered to travel beyond these provisions. Even otherwise, section 14A contemplates an exception for deduction as allowable under the Act are those contained under sections 228 to 438 of the Act and section 44 creates special application of these provisions in case of the insurance companies. The ld. AR for the assessee stated at Bar that the decision rendered by coordinate Bench of the Tribunal right from AYs 2000-01 to 2005-06 have not been challenged in the Hon’ble High Court. So, finding no illegality or perversity in the findings deletion made by the ld. CIT (A), ground no.3 is determined against the Revenue.

Sd/- Sd/- (Amit Shukla) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 22/10/2019 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR