DCIT CIR 6(1)(2), MUMBAI vs. BIRLA SUNLIFE INSURANCE COMPANY LTD, MUMBAI

This appeal by the Revenue is arising out of the order of CIT(A)-16, Mumbai, in appeal No. CIT(A)-16/DCIT-8(1)/IT-25/2013-14 dated 03-03-2015. The Assessment was framed by DCIT -8(1), Mumbai for the A.Y. 2010-11 vide order dated 07-03-2013 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

2. The only issue in this appeal of Revenue is against the order of CIT(A) allowing inclusion of loss arising from funds under pension scheme in the assessed loss from remaining sources despite the fact that income from funds under the pension scheme does not form part of the total income of the assessee under section 10(23AAB) of the Act. For this Revenue has raised following two grounds: - “1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in allowing inclusion of Birla Sunlife Insurance Company Ltd.; AY.10-11 loss arising from fund under the pension scheme in the "assessed loss" from remaining sources, ignoring the settled position of law that income includes loss and that the income from fund under the pension scheme does not form part of the total income of the assessee u/s 10(23AAB) of the Income Tax Act, 1961 ".

Birla Sunlife Insurance Company Ltd.; AY.10-11 and & 8358/Mum/2010 dated 19.12.2013. The CIT(A) has allowed the claim of the assessee by observing as under: - “1.5 In the current year, the Appellant had incurred a deficit/loss of Rs 507,82,11,312/- which included loss of Rs. 26,16,32,515 from pension business and expenses for earning exempt income of Rs 5,66,01,757/-. As a result, the Appellant had declared net deficit/loss of Rs. 475,99,77,100/- in the original ROI filed. The Appellant, however, states that it had inadvertently and under a bonafide belief that as income from Pension fund is exempt from tax under section 10(23AAB) of the Act in which event the loss would also not to be considered for the purpose of computing surplus (deficit) from the insurance business, reduced the loss incurred on the investments made from the total loss incurred for the year.

1.6 It is-humbly submitted that the Appellant inadvertently reduced the loss from the pension fund from the total deficit/loss under the false impression that since the income from the pension fund is exempted from tax under section 10(23AAB) of the Act, the loss would also not be' considered for the purposes of computing the surplus/ (deficit) from the insurance business under section 44 of the Act read with the First Schedule.

Subsequently, the Appellant had filed revised return of income wherein it claimed the loss arising from the pension business amounting to Rs 26,16,32,515/-.

1.7 In this regard, the Jurisdictional Bombay High Court in its decision in the case of CIT vs. Life Insurance Corporation of India Ltd (338 ITR 212), has held that the pension fund would continue to be governed by the Birla Sunlife Insurance Company Ltd.; AY.10-11 provisions of section 44 irrespective of the fact that the income from such fund is exempted, or not, and accordingly, while determining the surplus / (deficit) from the insurance business for the purposes of section 44 of the Act, loss from pension fund (as determined by the actuary) is to be considered. The relevant extract of the decision is reproduced below:

Birla Sunlife Insurance Company Ltd.; AY.10-11 consideration the loss incurred under Jeevan Suraksha Fund.

1.8 The object of inserting section 10(23AAB) as per the Board Circular No. 762, dated 18-2-1998 was to enable the assessee to offer attractive terms to the contributors. Thus, the object of inserting section 10(23AAB) was not with a view to treat the pension fund like Jeevan Suraksha Fund outside the purview of insurance business but to promote insurance business by exempting the income from such fund. Therefore, in the facts of the present case, the decision of the Income-tax Appellate Tribunal in holding that even after insertion of section 10(23AAB), the loss, incurred from the pension fund like Jeevan Suraksha Fund had to be excluded While determining the actuarial valuation surplus from the insurance business under section 44 of the Income-tax Act, 1961 cannot be faulted. Accordingly, questions (c) and d) are answered in the affirmative, that is, in favour of the assessee and against the revenue."

The Appellant submitted that the decision of the Hon'ble Bombay High Court in the Life Insurance Corporation, of India Ltd's case (supra) categorically reverses the interpretation adopted at the time of filing the original return of income by the Appellant. [i.e. the income/loss covered under section 10(23AAB) of the Act would not be considered for the purposes of section 44].

In light of the above decision, the Appellant revised its ROT on March 29, 2012 for considering the loss from pension fund while determining the surplus / (deficit) from the insurance business for the purpose of Section 44 read with First Schedule of the Act. Further, for AY 2005-

Birla Sunlife Insurance Company Ltd.; AY.10-11 06, 2006-07 and 2007-08, the Appellant, in light of the Bombay High Court Decision in the case of Life Insurance Corporation(supra), had raised an additional ground of appeal before the Hon'ble Mumbai Income Tax Appellate Tribunal to consider the loss from Pension Fund while determining the surplus/ (deficit) from the insurance business. The Hon'ble ITAT admitted the additional ground filed by the Appellant and directed the AO to consider the plea afresh in the light of the decision of the Jurisdictional High Court in the case of Life Insurance Corporation of India(supra).

Therefore, the Appellant submitted that as in the Appellant’s own case in the earlier years, the Hon’ble ITAT has considered the jurisdictional High Court decision, it ought to be followed in the earlier years, the Hon’ble ITAT has considered the jurisdictional High Court decision, it ought to be followed in the current assessment year.

1.9 The appellant further submitted that there is no dispute as to the applicability of the decision in the Life Insurance Corporation of India Ltd’s case (supra) to the Appellant. The only reason why the Ld AO has not allowed the claim of the Appellant is to maintain consistency and keep the issue alive as the Department has filed a Special Leave Petition ("SLP") before the Apex Court against the Hon'ble Bombay High Court's decision. Thus, the Appellant submitted that the Ld AO has not at any point in the assessment order, raised any doubt on the argument of the Appellant, and following the jurisdictional High Court's decision; the Appellant's claim should be allowed.

Birla Sunlife Insurance Company Ltd.; AY.10-11 1.10 In addition to the above, appellant also placed reliance on the following decisions of the Jurisdictional Tribunal in the case of various insurance companies on the same issue, wherein it was held that the deficit/loss from pension fund, exempt under section 10(23AAB) of the Act is to be considered while computing the surplus/ deficit as per section 44 of the Act:

HDFC Standard Life Insurance Company Ltd. v. DCIT (ITA No.2203/ Mum/ 2012)

ICICI Prudential Life Insurance Co. v. ACIT (ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 of 2010)(Mum)

Thus, the abovementioned principle has been laid down by the Hon'ble Jurisdictional High Court, Hon'ble Jurisdictional Tribunal as well as in the Appellant's own case.

1.11 Further, in case Kotak Mahindra Old Mutual Life Insurance Limited (ITA 422 of 2012), the Hon'ble Bombay High Court had warned the revenue to refrain from raising an already settled issue. The Jurisdictional High Court in the case of CIT v. Larsen & Tourbo Limited (ITA No. 424 of 2012) held that the Assessing officer should abide by the Tribunal's findings in matters when they are based on settled principles of law. The Appellant's case is already covered by the jurisdictional High Court, Jurisdictional Tribunal as well as by the Appellant's own case in the previous years.

2.3 Decision The Assessing Officer's order, the contentions of the appellant company as well as material on record have Page 7 of 8

Birla Sunlife Insurance Company Ltd.; AY.10-11 been considered. In the light of decision of Hon'ble Bombay High Court cited (supra) which has also been followed in Appellant's own case by Hon'ble Mumbai Tribunal for earlier years, the loss incurred on the pension business to the Appellant is allowed.”

Aggrieved, now Revenue is in second appeal before Tribunal.