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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI JOGINDER SINGH & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The above titled appeals one by the Revenue and one by the assessee have been preferred against the order dated
2 ITA No.5013/M/2015 ITA No.5090/M/2015 M/s. The New India Assurance Co. Ltd. 31.07.15 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11. ITA No.5090/M/2015 (Assessee’s appeal)
The grounds raised by the assessee are as under:
“1.The Commissioner of Income-tax (Appeals) ("the CIT(A)") ought to have fully deleted the addition of Rs.27,98,000/- made by the Assessing Officer ("the AO") purportedly under section 69B of the Income-tax Act,1961("the Act"). 2.The CIT(A) ought to have held that Foreign Dividend Income was assessable in the Appellant's hands only net of the foreign taxes of Rs.79,22,473/- thereon. The Appellant craves leave to add to, amend and/or alter all or any of the above Grounds of Appeal.”
The issue raised in ground No.1 is against the confirmation of addition of Rs.27,98,000/- by CIT(A) as made by the AO under section 69B of the Act.
At the outset, the Ld. Counsel for the assessee submitted before the Bench that the issue raised in ground No.1 is fully covered in favour of the assessee by the order of the co- ordinate bench of the Tribunal in assessee’s own case in earlier years in ITA No.2330/M/2009 A.Y. 2005-06, in ITA No.3180/M/2009 A.Y. 2006-07 & ITA No.3402/M/2011 A.Y. 2007-08 and prayed that following the orders of the co- ordinate benches of the Tribunal the addition confirmed by the Ld. CIT(A) should be deleted in toto.
The Ld. D.R. did not object the arguments of the Ld. A.R. on this issue.
3 ITA No.5013/M/2015 ITA No.5090/M/2015 M/s. The New India Assurance Co. Ltd. 6. Having heard the rival submissions of both the parties and perusing the material on record and also the decisions of the co-ordinate benches of the Tribunal, we find that the issue is squarely covered in favour of the assessee by the earlier decision of the co-ordinate benches of the Tribunal. The brief facts of the case are that the AO during the course of assessment proceedings noticed that the assessee has credited to the P & L account of Rs.27,98,000/- as deemed income and accordingly AO asked the assessee to explain as to why the same should not be added under section 69B of the Act in the light of similar addition made in the earlier assessment years. In response, the assessee prayed vide letter dated 22.03.13 wherein the assessee submitted that whenever shares are sold by them, the same are immediately reduced from their holding statement and necessary accounting entries are passed. However, the buyer of the shares takes the physical delivery of the shares from our customers and after taking delivery of the shares, the buyer has to take steps to get the shares transferred in his name. It happens sometimes that the buyer fails to take delivery of shares transferred in his name for various reasons and thus this is the reason for the difference in number of shares as per the records maintained by the assessee which represents only a notional difference which would be resolved as and then the buyer takes delivery of the shares. The assessee also submitted that the said balance of Rs.27,98,000/- is
4 ITA No.5013/M/2015 ITA No.5090/M/2015 M/s. The New India Assurance Co. Ltd. cumulative out of which Rs.24.45 lakhs has already been added back by the department in the earlier years.
In the appellate proceedings, the Ld. CIT(A), however, partly allowed the appeal of the assessee by directing that only the incremental amount during the year should be added to the income of the assessee under section 69B of the Act. However, the co-ordinate bench of the Tribunal allowed the appeal in the earlier year and the relevant para is as under: “The assessee has sold the shares and buyers have failed to take the delivery, then in such a case how the provision of section 69B gets attracted because here it is not a case that the investment exceeds the amount recorded in the books of account. On these facts alone, the addition cannot be sustained. Accordingly, the same is deleted. In the result, the ground No.4 is treated as allowed.”
We, therefore, following the order of the co-ordinate bench of the Tribunal in the earlier year and also maintaining the consistency therewith, hold that the difference in the books of accounts of the assessee and the statement is only due to the fact that the buyers have failed to take the delivery of the shares and therefore the provision of section 69B is not attracted. Therefore, the order of CIT(A) is set aside and AO is directed to delete the addition. The ground No.1 is allowed.
The Ld. A.R. did not press ground No.2 and the same is accordingly dismissed as not pressed.
ITA No.5013/M/2015 (Revenue’s appeal) 10. The various grounds raised by the Revenue are as under: “1.Whether on the facts and in the circumstances of the case and in law, the id.
5 ITA No.5013/M/2015 ITA No.5090/M/2015 M/s. The New India Assurance Co. Ltd. CIT(A) is justified in holding that the profit on sale of investment has to be taxed as income from capital gains and not income from business. 2. Whether on the facts and in the circumstances of the case and in law, the id. CIT(A) further erred in holding that profit on sale of investment amounting to Rs.836,30,91,950/- on which STT was paid as is exempt u/s. 10(38) of the Income Tax Act, 1961.? 3. Whether on the facts and in the circumstances of the case and in law, ld. CIT(A) was justified in deleting the disallowance of expenses u/s. 14A without appreciating that the assessee was claiming benefits of exemption u/s. 10 despite the non-obstante provision of section 44 and hence, deleting the disallowance u/s. 14A amount to double relief to the assessee. 4.1 Whether on the facts and in the circumstances of the case and in law, ld. CIT(A) was justified in holding that the premium paid by the assessee on purchase of govt. Securities was allowable as revenue expenditure on amortization, without appreciating that under the I. T. A ct. 1961 amortization of such premium is not provided for. 4.2 Whether on the facts and in the circumstances of the case and in law, ld. CIT(A) was justified in holding that the premium paid by assessee on purchase of Govt. Securities was allowable as revenue expenditure without appreciating that such premium was capital in nature and hence, not allowable u/s. 37of IT. Act. 1961. 5. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance made by the AO u/s. 40(a)(ia) without appreciating the fact that the disallowance is as per the Rule 5 of First Schedule of the IT Act, 1961 and as held by the Hon'ble Supreme Court in the case of GIC of India Vs. CIT, 106 Taxman 389. 6. Whether on the facts and in the circumstances of the case and in law, ld. CIT(A) was justified in holding that provisions of section 115J8 of the Act are not applicable to the assessee without appreciating that the accounts of the assessee are prepared in accordance with the provisions of section 11(1) of the Insurance Act 1938 read with the provisions of such section (1), (2) and (5) of section 211 and sub- section (5) of section of 227 of the companies Act, 1956? 7. The appellant prays that the order of CIT(A) on the above ground be aside and that of the Assessing Officer be restored. 8. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
Ground Nos.1 & 2 11. At the outset, the Ld. Counsel submitted before us that the issue raised by the Revenue in ground No.1 & 2 are squarely covered in favour of the assessee by the decision of the co-ordinate bench of the Tribunal in the earlier years namely 2004-05, 2005-06, 2006-07 & 2007-08, the copy of
6 ITA No.5013/M/2015 ITA No.5090/M/2015 M/s. The New India Assurance Co. Ltd. which was also placed on record and therefore prayed before the Bench that the same should be decided in favour of the assessee following the ratio laid down in the said decisions.
The Ld. D.R., on the other hand, appeared to be fairly agreed to the contention of the Ld. A.R.
Having examined the record placed before us and the rival contentions, we find that the issue raised in ground No.1 is against the finding of Ld. CIT(A) that profit on sale of investments is to be taxed under the head income from capital gain and not as income from business and the issue in second ground is against the order of Ld. CIT(A) holding that profit on sale of investments amounting to Rs.836,30,91,950/- on which STT was paid is exempt under section 10(38) of the Act. After a perusal of order of Tribunal in ITA No.3562/M/2007 and 3180/M/2009 for A.Y. 2004-05 and 2006-07 we observe that identical issue has been decided by the co-ordinate bench of the Tribunal in favour of the assessee by observing as under: “9. We have heard the rival submissions and also perused the relevant finding given by the AO as well as Ld. CJT(A). The computation of taxable profit of an insurance company is governed by specific provision as given in section 44, read First schedule to the Income-Tax Act. Under the said scheme, only such adjustment can be made to the profits as disclosed in the annual accounts drawn under the Insurance Act, 1938, which are specifically provided under Rule 5. Prior to 01.04.1989, Clause b to Rule 5 read as under:- '(b) any amount either written off or reserved in the accounts to meet depreciation of or loss on the realization of Investments shall be allowed as a deduction, and any sums taken credit for in the accounts on account of appreciation of or gains on the realization of Investments shall be treated as part of the profits and gains:
Provided that the Assessing Officer is satisfied about the reasonableness of
7 ITA No.5013/M/2015 ITA No.5090/M/2015 M/s. The New India Assurance Co. Ltd. the amount written off or reserved in the accounts, as the case may be, to meet depreciation of or loss on the realization of investment."
Such a provision was omitted by Finance Act, 1988, w.e.f. 01.04.1989. The notes and clauses to the Finance Act and the CBDT circular clarified that, it was omitted to provide exemption of the profits earned by the General Insurance Corporation on the sale of investment. The relevant note nf clauses read as under:-
"Under the existing provisions of section 44 of the income-tax act, the profits and gains of any insurance business is computed in accordance with the rule contained in First Schedule to the Act. In rule 5 of this schedule, profits and gains of any business of insurance, other than life insurance, are taken to be balance of profits disclosed in the annual accounts furnished to the Controller to insurance subject to certain adjustments. One of the adjustments provided therein respect of any amount either written off or reserved in the accounts to meet depreciation or loss on the realization of investment which is allowed as deduction. Similarly, any sum taken credit for in the account on account of appreciation of or gain on the realization of investments is taken as part of the profits and gains of the business.
With a view to enable the General Insurance Corporation and its subsidiaries play a more active role in capital markets for the benefit of policy holders, it proposed to provide for exemption of the profits earned by them on the sale investments. As corollary, it is proposed to provide that the losses incurred by General Insurance Corporation on the realization of investment shall not be allowed as deduction in computing the profits chargeable to tax. To achieve this object clause (b) of rule 5 of the Schedule to the Income-tax Act is proposed to deleted." 10. Now again by Finance Act 2009, clause (b) have been introduced w.e.f. 01.04.20 11 which reads as under:-
"(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 and loss account;
(ii) any provision for diminution in the value of investment debited to the profit and loss account, shall be added back;”
This has been clarified by Finance Act that the amendment will be effective from A.Y. 2011-12 onwards. Thus, it is amply clear from the legislative intent that, prior to 01.04.2011, adjustment of such a gain on realization of investment cannot be added. This aspect of the matter have been dealt extensively and upheld by the Co- ordinate Benches of the Tribunal which have been referred to the learned counsel. Accordingly we hold that profit on sale of investment cannot be taxed. Thus, ground no. 2 as raised by the assessee is allowed.”
8 ITA No.5013/M/2015 ITA No.5090/M/2015 M/s. The New India Assurance Co. Ltd. 14. Accordingly, in order to maintain consistency with the decision of the Tribunal, we hold that the profit on sale of investments cannot be taxed as the amendment by the Finance Act is effective from A.Y. 2011-12 onwards and not prior to that. The grounds no 1 and 2 raised by the revenue are dismissed.
Ground No.3 15. The issue raised in ground No.3 is against the deletion of disallowance under section 14A read with rule 8D without appreciating the fact that the assessee was given the benefit of exemption under section 10 of the Act.
The Ld. A.R., at the outset, submitted that the issue involved in the present ground is covered in favour of the assessee by the decision of the Tribunal in the earlier years. and therefore prayed before the Bench that by following the same, this ground may be decided in favour of the assessee.
The Ld. D.R. appeared to be fairly agreed to the contention of the Ld. A.R.
We have perused the decisions of the Tribunal in ITA No.3562/M/2007 and ITA No.3180/M/2009 for A.Y. 2006-07 & 2007-08 wherein the Tribunal has decided the issue in favour of the assessee. The relevant extract is reproduced as under: “11. In Ground no. 3, the assessee has challenged the disallowance of Rs.16 lakhs made u/s 14A on estimated basis. It has been admitted by both the parties that provision of section 14A has no applicability in the cases of General Insurance Company, which are governed by specific provision laid down in section 44, as held by various decisions of the Tribunal including that, in assessee's
9 ITA No.5013/M/2015 ITA No.5090/M/2015 M/s. The New India Assurance Co. Ltd. own case for the A.Y. 2000-01 & 2003-04 and in the case of other General Insurance Corporation of India specifically in ITA No. 3554/Mum/2011, for A.Y. 2007-08. In view of the aforesaid submissions and also on the perusal of various decisions of the Tribunal including that of the assessee, we find that it has been consistently held that, provision of section 14A is not applicable in the cases of Insurance company which are governed by section 44, because it is non obstante provision wherein the income is to be computed as per P&L account prepared under the Insurance Act 1938. Section 14A contemplates exception for deduction allowable under the act, whereas section 44 creates special application of provision of computation of profit as per the Insurance Act. Thus, no disallowance u/s 14A can be made and accordingly, ground no. 3 is allowed in favour of the assessee.”
We, therefore, following the above decision of the Tribunal, dismiss the ground raised by the Revenue.
Ground No.4 20. The issue raised in ground No.4 (4.1 & 4.2) is against the decision of the Ld. CIT(A) holding that the premium paid by the assessee on purchase of government securities was allowable as revenue expenditure on amortization.
The Ld. A.R. submitted that the issue raised by the Revenue is covered by the decisions of the Tribunal in the earlier years right from A.Y. 2004-05 to 2007-08 and therefore the present issue should be decided in the light of the ratio laid down by the Tribunal in favour of the assessee.
The Ld. D.R. fairly agreed to the argument of the Ld. A.R.
After perusing the decision of the Tribunal in ITA No.3562/M/2007 and ITA No.3180/M/2009, we find that the issue is squarely covered in favour of the assessee in assessee’s own case. The operative part thereof is reproduced as under:
10 ITA No.5013/M/2015 ITA No.5090/M/2015 M/s. The New India Assurance Co. Ltd. “16. We have heard the rival submissions and also perused the relevant finding given in the impugned orders. The assessee in the course of carrying of its insurance business, is required to invest its fund in specific debts securities of government or PSU bonds or other securities in accordance with the Insurance Act, 1938 and IRDA regulations. The assessee has purchased securities at a price which was slightly higher than the face value of the security because of accumulated interest on such securities According to the terms of issue of the securities, the assessee was to get only the face value at the time of redemption or maturity. IRDA regulation prescribes, the accounting principle for preparation of financial statement, whereby the assessee is required to prepare the financial statements in the manner provided in the said regulation. The said regulation read with relevant rules given in the schedules therein, provides that debts securities including, Government securities shall be considered as "held to maturity" and shall be measured at historical cost subject to amortization. This IRDA regulation are binding on the insurance companies. The Tribunal in the case of Tata AIG General Insurance Company Ltd. has dealt this precise issue in detail after analyzing the relevant provision and the decision of the Hon'ble Supreme Court and observed and held as under:-
"7. On a careful consideration of the facts and the rival contentions, we are of the view that the amortization claim cannot be considered as 'an expenditure or allowance within the meaning of rule 5(a) of the First Schedule. As held by the Supreme Court in the case 01 Indian Molasses Co. (Private) Ltd. vs CIT, West Bengal (1959)37 ITR 66:(SC), spending in the sense paying out or away of money is the primary meaning of expenditure. Expenditure is what is paid our or away and is something which is gone irretrievably Expenditure, which is deductible for income tax, is one which is towards a liability actually existing at the time, but the putting aside of money which may become expenditure on the happening of an event is not expenditure. If this meaning is to be given to the word 'expenditure" occurring in rule 5(a) the amortization claim cannot be considered as expenditure and, therefore, cannot be added back to the balance of the profits. In General Insurance corporation of India vs. CIT (1999) 240 ITR 139 (SC) the Supreme Court held that even if an item of debit is considered as an expenditure, it should further be such an expenditure contemplated in sections 30 to 43A and, therefore, unless there was a specific prohibition for such an allowance, the departmental authorities would not be justified in adding back the amount under rule 5(a)., Therefore, even if the debit for amortization is considered as an expenditure, there is no specific prohibition against allowing such an expenditure under the provisions of sections 30 to 43B. The words "expenditure or allowance ……..Which is not admissible under the provisions of sections 30 to 438" appearing in the sub-rule has been explained by the Supreme Court to mean that there should be a specific prohibition against the expenditure or allowance in which case alone the Assessing Officer can add back the same to the balance of profits.
11 ITA No.5013/M/2015 ITA No.5090/M/2015 M/s. The New India Assurance Co. Ltd. It is common ground that there is no such specific prohibition against, the allowance of the expenditure in the above sections of the Act. It may be noted that though rule 5(a) of the First Schedule considered by the Supreme Court in the above judgment was slightly different, but the words "any expenditure or allowance which is not admissible under the provisions of section 30 to 43A" were present and the same words being present in the amended sub-rule, they have to be given the same meaning as was given by the Supreme Court. Therefore, even if the debit for amortization is considered as an expenditure or allowance, there being so specific prohibition against the expenditure or allowance in section 30 to 438, the departmental authorities were not justified in adding back the amount of the balance of the profits. The judgment of the Supreme Court in the case of General Insurance Corporation of India (supra) takes care of all the arguments advanced on behalf of the Revenue. We, therefore, delete the addition of Rs. 1,91,33,945/- and allow the first ground."
Since, no contrary decision have been brought to our notice, therefore, respectfully following the same, we hold that such an amortization claimed by the assessee as revenue expenditure is allowable. Accordingly, assessee’s ground no.5 is treated as allowed.
Following the decision of the Tribunal, we hold that the premium paid by the assessee on purchase of government securities is liable to be amortized and amortization claimed by the assessee is revenue expenditure and is allowable. The ground raised by the Revenue is dismissed.
Ground No.5 25. The issue raised in ground No.5 is against the deletion of disallowance as made by the AO under section 40(a)(ia) of the Act.
The Ld. Counsel submitted that the Ld. CIT(A) allowed the appeal of the assessee by observing that identical issue was decided in the earlier years and same was followed in the current year also. The Ld. Counsel also submitted that the case is also covered by the decision of Tribunal in the case of
12 ITA No.5013/M/2015 ITA No.5090/M/2015 M/s. The New India Assurance Co. Ltd. General Insurance Corporation of India vs. ACIT in ITA No. 4479 to 4481/Mum/2007 for A.Ys. 2004-05 to 2006-07 order dated 13.02.2009 in which it has been held that the provision qua deduction of TDS at source are not applicable on reinsurance commission and accordingly the order under section 201(1) r.w.s. 201(1A) was set aside. The Ld. Counsel also submitted that this order has been followed in the assessee’s own case in the earlier years and Ld. CIT(A) deleted the disallowance following these orders.
The Ld. D.R. did not raise any objection against the submission of the Ld. A.R.
After perusing the material on record and the decision cited by the Ld. A.R. of the assessee, we find that the identical issue has been decided in the case of General Insurance Corporation of India vs. ACIT (supra) following which the Ld. CIT(A) allowed the appeal of the assessee. We, therefore, do not find any infirmity or illegality in the order of the Ld. CIT(A) and therefore, the ground raised by the Revenue is dismissed.
Ground No.6 29. The issue raised in ground No.6 by the Revenue is against the decision of Ld. CIT(A) upholding that the provision of section 115JB of the Act are not applicable to the assessee.
The Ld. A.R., at the outset, submitted that the issue is covered in favour of the assessee by the decision of the co- ordinate bench of the Tribunal in the own case of the assessee
13 ITA No.5013/M/2015 ITA No.5090/M/2015 M/s. The New India Assurance Co. Ltd. for A.Y. 2004-05 to 2007-08 and therefore following the said decision the issue raised by the Revenue should be dismissed.
The Ld. D.R. fairly agreed to the argument of the Ld. A.R.
We have perused the material on record and the decisions of the co-ordinate bench of the Tribunal for the earlier years i.e. from A.Y. 2004-05 to 2007-08. On sample basis, we would like to quote the operative part from ITA No.3562/M/2007 and others for A.Y. 2004-05 and others which is as under: “18. Besides this, the assessee has raised additional ground that the provisions of section 115JB has no application to the assessee.
Before us, learned counsel submitted that this issue is squarely covered by various decisions of the Co-ordinate Benches in the case of General Insurance Corporation and other decisions. Ld. DR also admitted that this issue is covered by various decisions of the Tribunal as filed by the assessee.
After considering the decisions in the case of General Insurance Corporation and other decisions filed by the learned counsel, we find that the issue of non-applicability of MAT u/s 115JB to the General Insurance Company has been upheld. Even otherwise also the provision of MAT will only come into play, only when assessee prepares its P&L account in accordance with part (II) and part (III) of Schedule (VI) of the Companies Act. Since the assessee’s P&L account is prepared in accordance with Insurance Act 1938, as specifically provided in Section 44 read with First schedule, therefore, the provision of section 115JB will not apply in case of assessee. This has been held in the case of General Insurance Corporation in ITA No.3554/Mum/2011 order dated 05.02.2012 and ITA No.8824/Mum/2011 order dated 15.01.2014. Thus the additional ground raised by the assessee is allowed.”
Following the decision of the coordinate, we hold that the accounts of the insurance company are prepared in accordance with the Insurance Act, 1938 as has been provided under section 44A read with First Schedule and therefore, the provisions of section 115JB do not apply to the assessee’s
14 ITA No.5013/M/2015 ITA No.5090/M/2015 M/s. The New India Assurance Co. Ltd. case. Accordingly, the ground raised by the Revenue is dismissed.
In the result, appeal filed by the assessee is partly allowed and the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 28.03.2018.
Sd/- Sd/- (Joginder Singh) (Rajesh Kumar) JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 28.03.2018. * Kishore, Sr. P.S.
Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [ By Order
Dy/Asstt. Registrar, ITAT, Mumbai.