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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA & SHRI PAVAN KUMAR GADALE
30/09/2020 सुनवाई क� तार�ख / Date of Hearing घोषणा क� तार�ख /Date of Pronouncement 08/10/2020 आदेश / O R D E R PER PAVAN KUMAR GADALE - JM:
The Revenue has filed an appeal against the order of CIT(A)-12, Mumbai passed u/s 143(3) r.w.s144C and 250 of the Income Tax Act, 1961. The Revenue has raised the following grounds of appeal:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the order of ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 2 - the assessee’s own case of earlier year, in concluding that transfer between share holder’s account and policy holder’s account is tax neutral and not taxable u/s. 44 of the Act r.w Rule 2 of the first schedule, without appreciating the fact that this decision of the CIT(A) was not accepted by the, in earlier, in the same issue demand has been filed appeal u/s 260A of the IT Act.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the order of the assessee’s own case of earlier year, in interpreting section 44 r.w Rule 2 of the first Schedule that the legislature consciously omitted incorporation of the provision for insurance regulatory and development authority Act 1999 and Regulations made there under in Rule 2 of the First Schedule which refer only to un- amended insurance Act 1938 and regulations made there under, without appreciating the fact that this decision of the Ld. CIT(A) was not accepted by the department and appeal has been filed in earlier years on similar issue.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the order of the assessee’s own case of earlier year, in allowing relief to the assessee by holding that surplus available in share holders account is not to be taxed separately as income from other sources and at normal corporate rate and holding that surplus from share holders account was only part of income insurance business and the net surplus
ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 3 - arrived at after combing surplus available in share holders account and the surplus available in policy holders account is only taxable u/s. 44, a the rates specified u/s. 115B of the Act, without appreciating the fact that this decision of the Ld. CIT(A) was not accepted by the department and appeal has been filed in earlier years on similar issue 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the order of the assessee’s own case of earlier year, in deleting the addition made on account of claim of 100% depreciation, ignoring the fact that Actuarial surplus is determined on the basis of the total Assets of the company and therefore by not under stated in the books and thereby it has an impact of reducing the surplus or increasing the deficit and therefore, the assets so written off are also required to be considered in determining the surplus taxable u/s 44 of the Act, without appreciating the fact that this decision of the Ld. CIT(A) was not accepted by the department and appeal has been filed in earlier years on similar issue.
5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the order of the assessee’s own case of earlier year, in deciding that negative reserve has no impact of reducing the taxable surplus as per form-I and therefore corresponding adjustment for negative reserve need to be made to arrive ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 4 - at taxable surplus without appreciating the fact that this decision of Ld. CIT(A) was not accepted by the department and appeal has been filed in earlier years on similar issue.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the order of the assessee’s own case of earlier year, in deciding that the dividend income of the assessee as exempt u/s 10(34) of the Act, without appreciating the fact that the income is assessable u/s. 44 as per considered as part of income of life insurance business by the actuary, without appreciating the fact that this decision of the Ld. CIT(A) was not accepted by the department and appeal has been filed in earlier years on similar issue.
The Brief facts of the case are that the assessee Company is engaged in the business of life insurance and filed the return of income on 26.11.2013 with total income of Rs. Nil after setting off brought forward business losses against surplus from Life Insurance of Rs. 129,16,20,120/-. Subsequently, the assessee Company has filed the revised return of income on 30.06.2014 declaring total income of Rs. Nil after setting off brought forward business losses against surplus from life insurance business of Rs.
ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 5 - 109,40,23,000/-.Whereas the A.O has made additions and adjustment of set off of brought forward losses and passed order on28/12/2016 u/s 143(3) r.w.s 144C of the Act determining total income of Rs. 12,85,17,62,813/-. Aggrieved by the order, the assessee has filed an appeal with CIT(A). The Ld. CIT(A) considering the grounds of appeal, findings of the AO, submissions of the Assessee and judicial decisions in assessee’s own case has partly allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A) the Revenue has filed an appeal with the Tribunal.
We heard the rival submissions and perused the material placed on record. The Ld.DR relied on the orders of the Assessing Officer. Whereas, the Ld.AR submitted that the disputed issues in this Revenue appeal are in favour of the assessee and relied on the orders of the Hon’ble Income Tax Appellate Tribunal. We find that, identical grounds of appeal were raised by the revenue for the earlier assessment years. The in for AY 2012-13 dated 22- 11-2019 has dealt on the identical grounds of appeal
ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 6 - at page 57 to 70 at para no.50 to 51 of the order, which is read as under:-
“50. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that the identical ground raised in the present appeal has already been decided by the Coordinate Bench of ITAT for AY 2005-06 to 2008-09, 2009-10, 2010-11 & 2011-12 in assessee’s own case on merits. The operative portion of the order of ITAT for AY for AY 2010-11 to 2011-12 is contained in para no. 4 to 7.2 of its order and in the same is reproduced below:-
The revenue has raised common grounds in both the appeals. The grounds raised
for the assessment year 2010- 1! are as under - "1. Whether on the J2zcts and in the circumstances of the case and in law, the Ld Cl T(A) erred in interpreting the Provisions of Sec. 44 of the Act read with Rule 2 of the First Schedule alongwith provisions of Insurance Act 1938, Insurance Regulatory and Development Authority Act 1999 and regulations there under and accordingly allowing adjustment from the surplus worked as per 'actuarial valuation" [and as shown by the assessee in Form-I] in violation of the ratio of the Apex Court in the case of LIC vs CIT
51. ITR 778?
2. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in allowing the relief to the assessee by holding that 'surplus" available both in Policy Holders Account and Share Holders Account is to be consolidated and only "net surplus" is to be taxed as income from Insurance Business?
ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 7 -
3, Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in giving relief to the assessee, following the decision of Hon 'ble ITA T in assessee own case for the earlier years, wherein Hon 'ble tribunal held that on account of 'legislation by incorporation only' the "un amended" Insurance Act 1938 and the Regulations there under became part of Section 44 r.w Rule 2 of the First Schedule of the IT Rules; when an appeal against this order of ITA T has been filed & is pending with High Court, Bombay? 4. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in giving relief to the assessee, following the decision of Hon 'ble ITA T in assessee own case for the earlier years, wherein Hon 'ble Tribunal held that the Legislature consciously omitted incorporation of the provision of Insurance Regulatory and Development Authority Act 1999 and Regulations made thereunder in section 44 of the ITAct r.w.Rule 2 of the First Schedule which 'refers' only to un-amended Insurance Act 1938 and Regulations made there-under; when an appeal against this order of ITA T has been filed & is pending with High Court, Bombay? 5. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in giving relief to the assessee, following the decision of Hon 'ble ITA T in assessee own case for the earlier years, wherein Hon' ble Tribunal failed to take note that Section 28 of Insurance Regulatory and Development Authority Act 1999 clarifies that provisions of IRDA Act are in addition and not in derogation of Insurance Act 1938, which means IRDA Act and its regulation has been adopted in Section 44 of the I. T Act r.w. Rule 2 of the First Schedule by way of "legislation by reference"; and when an appeal against this order of ITA T has been filed & is pending with High ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 8 - Court, Bombay? 6. Whether on the facts and in the circumstances of the case and in law, the LD CIT(A) erred in allowing the relief to the assessee by holding that 'urplus" available both in Policy Holders Account and Share Holders Account is to be consolidated; and only 'net surplus" is to be taxed as income from Insurance Business? 7. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in concluding that transfer between Share Holders Account and policy Holder's Account is tax neutral and not taxable u/s 44 of the Act r. w Rule 2 of the first Schedule.
Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition made on account of claim of 100% depreciation ignoring the facts that Actuarial surplus is determined on the basis of the total assets of the company and therefore by not capitalizing the above assets, the assets of the assessee company are under-stated in the books and thereby it has an impact of reducing the surplus or increase in the deficit and therefore, the assets so written off are also accordingly required to be considered as part of the surplus and taxable under section 44 of the IT Act? 9. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in allowing the dividend income of assessee as exempt u/s. 10(34) of the I. T. Act, 1961, ignoring the fact that dividend income is considered as part of income of Life Insurance Business and is included as an income by the actuary? 10. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in allowing relief to the assessee by holding that surplus available in ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 9 - Share Holders Account is not to be taxed separately as 'income from other sources' and at the normal corporate rate and holding that surplus from Share Holders Account was only part of income from insurance business arrived at after "combining' surplus available in Share Holders Account with the surplus available in Policy Holders Account and then and taxing this 'net surplus' arrived at, at the rates specified u/s. I 15B of the Act? 11. "The appellant prays that the order of Ld. CJT(A) on the above grounds be set aside to file of A 0 or confirm the order of the A0. 12. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
5. Ground No.1 to 6 regarding interpretation of the provision of section 44 of the Income tax Act r.w. Rule 2 of the 1st Schedule of the Income tax Act, 1938.
5.1 We have heard the id. DR as well as the id. AR and considered the relevant material on record. The issue involved in ground No.1 to 6 of the revenue's appeal have been considered by this Tribunal in assessee 's own case for the assessment year 2005- 06 to 2008-09 in 140 lTD 41 in para nos. 23, 27, 32, 38, 40 and 42 which are as under "27. Respectfully following the above principles and examining the provisions of IT Act, we are of the opinion that the 'actuarial valuation made in accordance with the Insurance Act, 1938' do mean that the actuarial valuation done in accordance with the Insurance Act, 1938. In arriving at the above decision we have also taken into consideration that Rule-5 in Part-B of the first schedule with reference to 'other insurance business' did incorporate the IRDA and its Regulations as amended by ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 10 - the Finance Act 2009 w,e,f 1.4.2011 which is as under:
"B- Other Insurance Business:
Computation of profits and gains of other insurance business.
5. The profits and gal/is of any business of insurance other than life insurance shall be taken to be the profit before tax and appropriations as disclosed in the Profit & Loss A/c prepared in accordance with the provisions of the Insurance Act, 1938 (4 of 1938) or the rules made thereunder or the provisions of the Insurance Regulatory and Development Authority Act, 1999 ('4 of 1999) or the Regulations made thereunder subject to the following adjustments.- (a) subject to the other provisions of this rule, any expenditure or allowance including any amount debited to the profit and loss account either by way of a provision for any tax, dividend, reserve or any other provision as may be prescribed which is not admissible under the provisions of section 30 to 43B in computing the profits and gains of a business shall be added back:
(b,) (I) any gain or loss on realization of investments shall be added or deducted, as the case may be, if such gain or loss is not credited or debited to the Profit & Loss A/c,
(c) such amount carried over to a reserve for unexpired risks as may be prescribed in this behalf shall be allowed as a deduction". (emphasis supplied) This indicates that the legislature consciously omitted incorporating the provisions of IRDA or the Regulations made there under in Rule 2 which still refers to the ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 11 - Insurance Act 1938 only.
IRDA Regulations specifically require to maintain the policyholder's account and the shareholder's account separately and permits transfer of funds from shareholder's account to policyholder's account as and when there is a deficit in policyholder's account. As rightly noted by the Hon'ble Bombay High Court, as a policy, company is transferring funds/assets from shareholder's account to policyholder's account even during the year periodically as and when the actuarial valuation was arrived at in policyholder's account. Most of the companies are required to submit quarterly accounts under the Company Law, there is requirement of actuarial valuation report periodically and accordingly assessee was transferring funds from the shareholder's account to policyholder's 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 as to balance the deficit in the policyholder's account. During 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 crores from the shareholder's account to policyholder's account. Since assessee is having only one business of life insurance, the entire transactions both under the policyholder's and shareholder's account do pertain to the life insurance business only as it was not permitted to do any other business. Once assessee is in the life insurance business, the computation has to be made in accordance with the Rule-2 as per provisions of section 44. Therefore, there is a valid argument raised by assessee that both the policyholder's & 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 tax the surplus after the funds have been transferred from ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 12 - shareholder's account to the policyholder's account at the gross level while ignoring such transfer in shareholder's account, while bringing to tax only the incomes declared in the shareholder's account that too under the head 'other sources of income'. In fact while giving the finding that assessee is in the lift insurance business only and incomes are to be treated as income from lift insurance business, the CIT (A) surprisingly in subsequent assessment years appeals accepted AO's contention that surplus in shareholder's account is to be taxed as other sources of income. But once the provisions of section 44 of IT Act are invoked anything contained in the heads of income like income from other sources, capital gains, house 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, in our opinion both the policyholder's and shareholders account has to be consolidated for the purpose of arriving at the deficit or surplus.....
The above statement furnished is in accordance with the Insurance Act, 1938, therefore, it cannot be stated that assessee returned income is not in accordance with the Insurance Act, 1938. There is no basis for AO to take Form-I 'total surplus' as surplus of the Life insurance business ignoring transfer from shareholder's account..... 40. In our opinion what assessee has done in reconciling the IRDA format with that of old Insurance Form is correct and accordingly the loss disclosed in the computation of income is according to the actuarial surplus/deficit under the Insurance Act, 1938 prescribed under Rule 2 of the first schedule part-A. In view of this, we are of the opinion that insistence by AO to bring to tax the entire amount shown under the new Regulations including transfer from shareholder account is not ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 13 - correct. Instead of AO in taking the surplus at Regulation 8(1)('a) which is the actuarial surplus / deficit for the year took the amount as disclosed at Regulation 8 (1) (total surplus after transfer from Shareholder's account) which is not at all correct.....
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-2 of the Insurance Act 1938 according to which only AO can base his computation. This also corresponds to the way incomes were assessed in earlier years i.e. 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 we have no hesitation to hold that the assessee working of actuarial surplus/ deficit is in accordance with Rule 2 of First Schedule. Therefore, assessee grounds on this issue are allowed and AO is directed to modijj' the order accordingly. Ground Nos. I to 3 are considered allowed.
5.2 Following the earlier order of this Tribunal we do not find any error or illegality in the impugned order of the Ld. CIT(A) qua this issue. Accordingly ground Nos. I to 6 are dismissed. 6 Ground No.7 is regarding the taxability of surplus of both policy and share holders account.
6.1 We have heard the Id. DR as well as the ld. AR and considered the relevant material on record. We find that this issue was decided by this Tribunal in assessee 's own case for the assessment year 2005-06 and assessment year 2008-09 in para no. 55 as under . - 55. We have heard the rival contentions. As briefly discussed while deciding the issue of taxing surplus, assessee is in life Insurance business and it is not ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 14 - permitted to do any other business. All activities carried out by assessee are for furtherance of Life Insurance business. Maintaining adequate capital is necessary to comply with IRDA (Assets, Liabilities and Solvency margin of insurers) Regulations, 2000. Income earned on capital infused in business is integral part of Life Insurance business. The LD. CJT(A) gives a finding that assessee is exclusively in Life Insurance business. However, since he gave primacy to Form Iproforina he concluded that other incomes are not of Life Insurance business. We have already considered and decided that assessee was mandated to maintain separate accounts by IRDA Regulations. Just because separate accounts are maintained the incomes in Shareholder's account does not become separate from Life insurance business. As per Insurance Act 1938 all incomes are part of one business only and these incomes are considered as part of same business. Therefore, the incomes in Shareholder's account are to be considered as arising out of Life insurance business only. More over Sec 44 mandates that only First Schedule will apply for computing incomes and excludes other heads of income like, Interest on Securities, income from house property, Capital gains or Income from other sources. Being non-obstante clause, sec. 44 mandates that the profits and gains of insurance business shall be computed in accordance with the rules contained in First Schedule. Therefore, the incomes in Shareholder account are to be taxed as part of life insurance business only, as they are part of same business and investments are made as part of solvency ratio of same business. The grounds are allowed. A 0 is directed to treat them as part of Life Insurance Business and tax them u/s 1 15B," 62 Following the earlier order of this Tribunal we do not find any error or illegality in the impugned order of the ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 15 - Id. CIT(A) and decide this issue against the revenue and in favour of the assessee.
7, Ground No.8 is regarding the claim of 100% depreciation on fixed assets. 7.1 We have heard the ld. DR as well as the Id. AR. Considered the relevant material on record. We find that this issue was decided by this Tribunal in assessee 's own case for the assessment year 2005-06 and assessment year 2008-09 in para nos. 60 to 62 as under '60. Ground No. 2 is about deletion of addition made on account of claim of 100% depreciation of Rs. 15, 79, 7071-. It was the contention of the Revenue that the UT(A) ignored the actuarial surplus determined on the basis of the total assets if the company and therefore not capitalized in the above assets. The assets of assessee to that extent are not stated, therefore, it has an impact of reducing the total surplus.
Before the CIT(A) it was submitted that the assessee prepared its accounts as per the format prescribed by the IRDA in tune with the Insurance Act 1938. The assets were originally capitalized in the books and being eligible for 100% depreciation they are written off The IT(A), after considering the submissions, accepted the contention as under: -
The appellant has to prepare its accounts as per the formats prescribed by the IRDA under the Insurance Act, 1938. These accounts have accordingly been prepared by the appellant and have been subject to statutory audit. Further, the accounting policy of claiming 100% depreciation in its financial statements has been consistently followed by the appellant and has also been ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 16 - duly accepted by the IRDA. The appellant has stated that the assets on which depreciation has been claimed have been initially capitalized in the books and then 100% depreciation has been claimed on these assets. Taxation of Lift Insurance is presumptive taxation with only the surplus as disclosed by Form I being subjected to tax. In my view, as per the provisions of law only those adjustments which are expressly not prohibited under section 44 of the Act could be made. Consequently depreciation which has been debited in the audited accounts as per the consistently followed and accepted accounting policy need not be disallowed.
After considering the rival submissions, we are of the opinion that the action of the CIT(A) in deleting the amount is consistent with the accounting principles followed and the provisions of section 44 read with Rule 2 of the 1st Schedule, Therefore we uphold the order of the CIT(A) and dismiss the ground raised by the Revenue." 7.2 Following the earlier order of this Tribunal we do not find any error or illegality in the impugned order of the Ld. CIT(A). The issue involved in ground No. 8 is dismissed. 51.After having gone through the aforementioned orders, we find that the identical issue has already been decided by the Coordinate Bench of ITAT in AY 2010-11 & 2011- 12 & in assessee's own case on merits. Therefore, respectfully following the decision of the coordinate bench of ITAT which is applicable mutatis mutandis in the present case, we dismiss these grounds raised by the revenue.
4. We find that the disputed issues have been decided, considering the facts and the decisions of the ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 17 - Hon’ble Income Tax Appellate Tribunal. Further, the Ld.DR could not controvert the finding of the CIT(A) with any new information or cogent evidence. We respectfully follow the judicial precedence. Accordingly, We do not find any infirmity in the order of the CIT(A) and upheld the same and dismiss the grounds of appeal of the revenue.
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open court on 08.10.2020 Sd/- Sd/- (PAVAN KUMAR GADALE ) (SHAMIM YAHYA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 08 /10/2020 KRK, PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / The CIT(A) 4. आयकर आयु�त(अपील) / Concerned CIT �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Mumbai 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// 1. उप/सहायक पंजीकार ( Asst. Registrar)
ICICI Prudential Live Insurance Co. Ltd, Mumbai. - 18 - आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Mumbai Initial Date 1. Draft dictated on 01.09.2020 PS 2. Draft placed before author .10.2020 PS
3. Draft proposed & placed PS before the second member 4. Draft discussed/approved by PS Second Member. 5. Approved Draft comes to the PS Sr.PS/PS 6. Kept for pronouncement on 7. File sent to the Bench Clerk 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Dictation Pad is enclosed 2. Other Member… on which the