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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI R C SHARMA & SHRI AMIT SHUKLA
आदेश ORDER PER BENCH:
The aforesaid appeals and cross objections have been filed by the revenue as well as by the assessee, against separate impugned orders of even date 23.11.2010, for the quantum of assessment passed under section 143(3) for the assessment years 2002-03, 2003-04, 2004-05, 2005-06 and under section 143(3) for the assessment year 2006-07; and order dated, 01.02.2010 and 30.03.2012 for the assessment year 2007-08 and 2008-09 respectively, all passed by Ld. CIT(Appeals )-6, Mumbai.
3 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs 2. Since common issues were involved in the all the impugned years arising out of identical set of facts, therefore, they were heard together and are being disposed off by way of this consolidated order. We will first take-up revenue’s appeal for the AY 2006-07, being ITA No.1039/Mum/2011, which on merits will cover the similar issues contested by the revenue in various other assessment years. In the grounds of appeal, the revenue has raised following grounds:- “1. The order of CIT(A) is opposed to law and facts of the case.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to reduce the capital contribution of Rs.57.42 crores from the shareholder’s account to policy holder’s account while computing income u/s 44 read with First Schedule of the I T Act.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that surplus disclosed in Actuarial Report in Form I can be changed by way of adjustments.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to reduce the dividend from the surplus as per Form I as dividend is exempt u/s 10(34) without appreciating that income of the assessee was computed u/s 44 read with First Schedule of the I T Act in which dividend was not included hence there is no question of its exclusion.
For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored”.
Background of the assessee in brief is that, Tata AIG Life Insurance Company was incorporated in August, 2000 as a joint venture by M/s Tata Sons Ltd. and American
4 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs International Group. The former held 74% stake, whereas, the later held 24% through its subsidiary American International Company (Bermuda). The assessee company is Insurance Company in terms of section 2(7A) of Insurance Act, 1938 and is carrying on the business of life insurance business in India w.e.f. 2th February, 2001 and has started its operations on 1st April, 2001. Being a Life Insurance Company, its computation of income is done u/s 44 of the Income Tax Act, which envisages that its income shall be computed in accordance with the rules contained in First Schedule and not like any other heads of income prescribed under the Act.
The relevant facts, as noted by the CIT(A) are that the Assessee Company filed its return of income for the previous year relevant to AY 2006-07 on 29.11.2006 declaring a loss of Rs.44,88,11,261/-. The Appointed Actuary of the assessee under the Insurance Act, 1938, showed a surplus of Rs.58.04 crores as on 31.03.2006 in Form “I”. The AO made the following adjustments to the returned income.
Disregarding the net deficit of Rs.44,88,11,261/- declared in the return of income filed by the Appellant and adopting, instead, the surplus amounting to Rs.58,04,28,000/- as per Form ‘I’. as the income of the Appellant;
Not deducting the previous year's surplus from the surplus of Rs.58,04,28,000/- as on 31.03.2006 as per Form T;
Adding back the deficit amounting of Rs.4,03,48,000/- in relation the pension scheme (qualifying for exemption
5 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs under section 10(23AAB) of the Act), to the surplus as per Form T, in computing the taxable income; and
Disallowing the exemption under 10(34) of the Act, in relation to the dividend income earned by the Appellant.
The reconciliation between the assessed income and returned income is given below: Particulars Amt Amount Rs in crores Rs. in crores Total income as per assessment order 62.07 Add: Income/ (loss) as per shareholders’ A/c Net Income in Shareholders’ A/c (Non-technical account) 22.16 Less: Amount transferred to Policyholders’ A/c (76.07) (53.91) Less: Amount transferred from Policyholders’ A/c (3.51) (57.42) Less: 4.65 Surplus b/f from preceding year 30.17 Transfer from linked fund (lapsed policies) 4.24 Bonus to policyholders 11.08 Deficit in pension scheme u/s 10(23AAB) 4.04 (49.53) Total income/ (loss) as per return filed (44.88)
The Ld. CIT (A), in the impugned order has dealt with the provision of section 44 r.w. Rule 2 of First Schedule and various other regulatory provision relating to insurance companies and their accounting requirements and also analyzed the case of the Assessing Officer as well as the contentions raised by the assessee and various decisions on this point. His observations and finding as under on the impugned issues (as raised by the revenue) are reproduced hereunder:-
6.7 I have considered the facts of the-issue and the submissions made by the AR. There is no merit in the AR's contention that the profits as - per financials adopted by it in the return of income meet the requirements of Rule 2. In Life Insurance Corporation of
6 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs India v. CIT, 190 ITR 900 (Born), the Bombay High Court observed as follows: “... In view of the artificial mode of computation, unless there is a special power vested in the ITO under the provisions of 1kw 1.7'. Act, it will he difficult to hold that instead of taking the statutory surplus as the starting point of the computation of the profit of the life insurance business, he should take a f igure different from the one which represents the actual surplus ascertained on the basis of Form '1' in the Fourth Schedule of the Insurance Act, 1938."
Thus, the High Court has very categorically held that Form 1 should be the basis for computation of actuarial surplus. In view of this judgment of the Jurisdictional Nigh Court, it is held that the Appellants contention of adopting the surplus as shown in the financials for the purpose of Rule 2 of the First Schedule cannot be accepted. At the same time, there is merit in the AR's contention that the amount of surplus disclosed in Form 'I’ is not sacrosanct and it could be adjusted, if necessary. Apart from the above, the main reasons for this decision are as follows: (a) As mentioned above, a life insurance company is now required to maintain and prepare separate Profit and Loss A/cs for shareholders' funds and policy holders' funds. The Assessing Officer has himself accepted that shareholders' accounts are a part of insurance business (para 4.11..f; page 15 of the assessment order). If this is the case, then in the year in which there is no transfer from shareholders' fund to policy holders' fund by adopting the figure in Form 'I' (,which does not take into consideration income in shareholders' account), the entire income in _shareholders' account' would escape taxation. Again in the old formats of Financial statements prescribed for Life Insurance - Companies, there was no distinction between policyholders' account and shareholders' account. It is noted that a mere change in formats for presentation' of the accounts of the Insurance Companies cannot result in different taxable result.
(b) Further, rule 2 is a computation provision in relation to section 14, which is a part of the provisions relating to computation of profits and gains of business that is section 28 to 43B. Hence, it does not override other provisions, namely, section 2(24) defining the total income, section 5 containing the
7 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs scope thereof and section 10 providing for exclusions therefrom. In other words, if an item is not income within the meaning of section 2(24) itself or is specifically excluded therefrom by virtue of section 10, it cannot be taxed on the ground that it forms part of actuarial surplus disclosed in Form ‘I’'.
6.8 Thus, the correct approach to the commutation of income under Rule -2 would be as follows: Step 1: Adopt the figure of surplus as per Form 'I' as the starting point. Step 2: Examine and ascertain the individual items in Form 'I' which need adjustments. Step 3: Reduce / increase the surplus as per Form 'I' in respect of the individual items in step 2 that require adjustments. Keeping the above approach in mind, the various adjustments suggested/contested by the Appellant are discussed in the following paragraphs. Regarding Deduction of Rs.57.42 crores being the capital infusion included in the transfer of Rs.76. 07 crores from shareholders account to policyholders account in shareholders account, the surplus of Rs.58.04 crores in Form I arose after- transfer of Rs.76.07 crores from shareholders' account has been dealt by the Ld. CIT(A) in the following manner:- This sum of Rs.76.07 crores was the total deficit in 5 segments of business as shown in the statement giving details of Form I filed by the Appellant. The said sum comprised the following:
Rs.in 000 Par Policies (Pension u/s 10(23AAB) 40,348 NON PAR POLICIES Group Life 67,632 Credit Life 74,790 Non-par Policies (Pension) 95,411
8 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs Health Policies 19,912 Linked Policies 462,667 ------------- Total 7,60,760 -------------- A break up of Rs.76.07 crores shows that it comprised capital contribution of Rs.57.42 crores and income in shareholders' account of Rs 18.65 crores (net of transfer from policyholders' account of Rs 3.51 crores). Thus capital contribution of Rs 57.42 crores has also been taxed by adopting surplus as per Form 'I'.
7.1 The contention of the AR that capital contribution of Rs.57.42 crores needed to be reduced from the surplus of Rs.58.04 crores for working out the taxable income is accepted for the following reasons:
(a) If the AO's interpretation is accepted, an internal transfer which is not represented by any income but which is transfer out of capital infusion will result in taxable income. It is obvious that such an interpretation cannot be accepted.
(b) The AO's treatment of taxing the internal transfer is against the principle of taxation that a person cannot make a profit from itself, a principle established by the Supreme- Court in Kiabhai Premchand v CIT [19531 24 ITR 506 and since followed in a number of decisions including in Betts Hartley Huett & Co. Ltd. v. CIT, 116 ITR 425 (Cal) where the Court observed that debiting or crediting one account does not alter the legal position that no person can enter into a contract with oneself. Since in the present case, gain/loss is computed on account of transfer of funds from shareholders account to the policyholders revenue account, it amounts to a notional gain and hence cannot be taxed based on the aforesaid principle.
(c) Section 44 only overrides the provisions relating to computation under the various heads and does not create a charge to tax (as provided for in section 5). 1-lence, notwithstanding the special provisions relating to the computation of income of life insurance
9 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs business, the notional gain/loss arising on the transfer of funds from one fund to another is not liable to tax since there is no income at all.
(d) Courts have held that the amounts which are not income in nature cannot be taxed, whatever be the entries in the books of accounts. In this connection, the following decisions are relevant: Godhra Electricity Co. Ltd. v C17'[1997] 225 17'J? 746 (SC); CIT v Shoorji Vallabhdas & Co. /1962/46 ITR 144 (SC); and CIT v Birla Gwalior P) Ltd. /1973189 ITR 266 (SC)
In the present case also, the entries passed in the books of account lot- the transfer of funds from shareholders account to policyholders revenue account (to the extent of capital contributions) represent hypothetical income and not real income and hence, based on the above decisions, cannot be subject to tax.
(e) The Act envisages only one assessment on every assessee. There cannot be multiple assessments on the same assessee. Thus, there is only one assessment on the Appellant and hence, its entire income after considering internal adjustments alone is taxable. So far as the Act is concerned, there is no distinction between shareholders account and policy holders’ account.
(f) If the Assessing Officer's interpretation is accepted, by implication, transfers from policy holder’s account to shareholder’s account would also be allowable as a deduction.
7.2 Thus, it is held that the internal transfer of funds cannot be taxed since it is not income at all. At the same time the income in shareholders account is clearly taxable. If this approach is adopted, the computation will yield file following amount: Transfer from shareholder’s account to policyholder’s account: Rs.76.07 Crores Less:- Income in shareholders account (net of transfer from policy holder’s account): Rs.18.65 crores Net: Rs.57.42 crores
10 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs Accordingly, the AO is directed to reduce the capital contribution of Rs.57.42 crores form the surplus of Rs. 58.04 crores”.
During the year, Form 'I' included a surplus of Rs.4.24 crores on account of linked policies, which have lapsed. The AR contended that this amount has to be reduced for the purpose of computation of actuarial surplus under Rule 2 of the First Schedule. The main thrust of the AR's contention is that the amount represents a liability towards the policyholders and cannot be distributed to shareholders until the expiry of the revival period.
It is submitted by the AR that the said credit is merely a book entry which does not result in true surplus or true income, which will happen only subsequently when the policy will not at all be entitled for revival in the future. In the circumstances the said amount ought to be reduced from the surplus computed under Form I and should be considered as taxable only in the subsequent year.
9.1 I have considered the submissions of .he AR but do not find merit in them for the following reasons: (a) Rule 2 is an artificial mode of computation of income (as noted elsewhere in this order); it may not conform to the normal and classical cannons of computation. However, once the Legislature in its wisdom has prescribed the actuarial surplus as the basis of computation of income, the surplus as disclosed by Form 1 has to be respected unless the adjustment is otherwise permitted. In my view, this adjustment is not a permitted adjustment.
(b) A perusal of the IRDA circular in connection with lapsed policies under linked business shows that the IRDA has categorized the lapsed policies into three types: (i) Lapsed policies, which are entitled to be revived and might be revived in future. (ii) Lapsed policies, which are entitled to be revived and might not be revived in future.
11 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs (iii) Lapsed policies, which are not entitled to be revived in future. The amount of Rs.4.24 crores represents the amount in respect of category ('ii') above i.e. lapsed policies, which are entitled to be revived and might not be revived in future.
Thus there is a separate provision for policies which might be revived in future, namely category (i) which has been consciously considered by IRDA not to form part of actuarial surplus. At the same time the amount in category (ii)' has been consciously stipulated by IRDA that it should form part of surplus in Form 'I'. Having regard to this, it is held that merely because it cannot be distributed to shareholders, it cannot be considered as a hypothetical income or a mere book entry. Thus, it is held that the impugned amount has been rightly included by the AO in the surplus as per Form ‘I’. 10. Thus, ground no.1 is disposed off as partly allowed in terms of the directions given in the forgoing paragraphs.
(iv) GROUND NO.2: "Without prejudice, the Assessing Officer has erred in not deducting the previous year's surplus from the surplus of Rs.58,04,28,000/as on 31.03.2006 as per Form I."
11.1 During the appellate proceedings, the AR submitted that the AO erred in computing the surplus for the financial year ended 31.03.2006 by considering the entire amount of surplus as the profit of the life insurance business without reducing the amount of surplus pertaining to earlier Financial years. The AR submitted as follows: (a) As mentioned above, Rule 2 reads as follows: "The profits and gains of life insurance business shall be taken to be the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938 (4 of 1938), in respect of the last inter-valuation period ending before the commencement of the assessment
12 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs year, so as to exclude from it any surplus or deficit included therein which was made in any earlier inter-valuation period."
Thus, paraphrasing, the rule provides that profits & gains of life insurance business shall be surplus disclosed by the actu arial valu ation at the end of the year less surplus disclosed by the actuarial valuation in the earlier year. Thus, the rule itself envisages reduction of earlier year's surplus for determining the profits & gains.
(b) During the course of assessment proceedings for AY 2005-06. The assessing officer had adopted surplus as per Form 1 as the profits of life insurance business. However, the amount of surplus reflected in Form ‘I’ was inadvertently understated by Rs.30,17,82,000/-. Thus, the same was not brought to tax in the AY 2005-06. Though the surplus in Form ‘I’ was understated, the surplus as per the financials reflected the correct position and the same was offered to tax in the return of income filed for AY 2005-06.
(c) The Assessing Officer in AY 2006-07 mentioned as follows: "Further, without prejudice to the action taken in respect of previous year 04-05 relevant to AY 2005-06 for the b/f surplus of Rs.30,17,82,000/-. The same is taken as total income here on protective basis. The balance rice of Rs.27,86,46,000/- is treated as assessee's income from business on substantive basis" (para 4.11 I, pg. 15/16). Thus, while in the order, the AO has observed that he is treating Rs.27,86,46,000/- as business income on substantive basis, in the final computation. he made a protective assessment in the impugned order by taxing the full amount of surplus of Rs.58,04,28,000/- as per Form 'I' and did not reduce the preceding year's surplus of Rs.30, 17,82,000/-. The assessment for AY 2005-06 was reopened under section 147 and an amount of Rs.39,36,31,000/- (including the amount of Rs.30,17,82,000/- erroneously not disclosed in the actuarial abstract of AY 2005-06) has been be bi-ought to tax in AY 2005-06 itself.
13 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs 11.2 I have considered the facts of the issue and the submissions made by the AR and find merit in them. In view of the clear provisions of Rule 2, which requires deduction of the surplus of the earlier year and the fact that the said surplus has been taxed by the AG in the re-assessment under section 147, the AO is directed to reduce the amount of Rs30,17,82,000 brought forward from the earlier valuation period from the surplus of Rs.58.04 crores reflect l in Form 1 for assessment year 2006 - 07. This ground is allowed.
GROUNDN O4: “The Assessing Officer has erred in disallowing the exemption under 10(34) of the Act, in relation to the dividend income earned by the Appellant."
13.1 The AO made the impugned disallowance by observing as follows: "6.4.a In life insurance business, the assessee normally accepts premium from policyholder and invests it in the various .investments including loans, deposits, bonds, shares etc. The income received from these investments is nothing but income from its normal business and as such, it is to be assessed under the head "income front or profession". As stated by the assessee, the prescribed schedule of the (Form D to the third Schedule) of the Insurance Act. 1938 specifically shows the dividend as an income, Had the legislators intention was to exclude the dividend income of a Life Insurance Company from taxation, it would have amended the Form 'G' to the third Schedules of the Insurance Act, 1938. There was no such amendment to the Insurance Act. This shows that this income is a "business income" and hence it is taxable. The assessee,- does not have any right to alter the surplus determined by the Actuarial Valuation.
6.4.b. The judgment in LIC v. CIT (115 ITR 45) of the Hon’ble High Court of Mumbai is considered regarding dividend. In the said case, the High Court considered six points (deductions) together and decided it in fauour of the assessee. The first point was regarding the agricultural income and income from the post office deposits. The other five points were regarding the deductions which are allowable under Chapter-VIA of the Income Tax Act, 1961. As all the six points were considered together, the Hon'ble High Court took a combined view treating the exempted income similar to deduction under Chapter –VIA The assessee’s submission in respect of non applicability of ratio the Supreme Court decisions in the case of Goetz India Ltd. us. C 284 ITR 323 cannot be accepted." (pg. 18/19)
14 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs 13.2 During the appellate proceedings, the AR submitted as follows: (a) The AO has himself observed in para 5.6 (pg. 17) of his order ft since the surplus of pension scheme is not includible in the total income under section 10(23AAB), so the deficit too shall not included. Now, both section 10(23AAB) & section 10(34) fall under t same section. If the deficit under section 10(23AAB) cannot included, by the same logic, the income except under section 10(should also be excluded in computing the total income. (b) The decision in LIC v. CIT(1978) 115 ITR 45 (Born), CIT v. N India Assurance Co. Ltd. (1980) 122 ITR 633 (Born) and Lax Insurance Co. Ltd. v. CIT (1969) 72 ITR 474 (Del) that clearly hold U the amount can be reduced by tax free income. (c) The AO has disallowed the claim on the pretext that the divide income forms part of the income of the life insurance business. 'I learned AO contended that income received from in-vestments is taxable under the head "income from business & profession". It is submitted that whether the income is business income or not, section 10 covers all dividend income. (d) The exemption for the amount of dividend received under section 10(34) of the Act has not been claimed in the return of income filed. However, such claim was made before the Assessing Officer vide submissions dated 17.11.2008 wherein the AO was requested to consider Circular no. 14 (XL-35) dated 11.04.1955 and the decision of Supreme Court in the case of CIT v. Mahalaxmi Sugar Mills Ltd. 1160 ITR 920 (SC)). (e) The decision of Apex Court in the case of Goetze Ltd v CIT has been considered by the Mumbai Tribunal in the case of Chicago Pneumatic India Ltd. v. DCIT (15 SOT 252) where the Tribunal allowed the taxpayer's claim for deduction under sections 80HH and 80-1 of the Act during the course of assessment proceedings without filing a revised return. (f) The aforesaid principle of accepting the Circular No. 55 and allowing claims through letter has been followed by the Tribunal all over the country in the following cases (i) Dodsal Pvt. Ltd. v. DCIT, ITA No. 680/M/04 dt. 30.04.2007 (ii) ACIT v. Technofab Engg. Ltd. 2009 T.IOL 664 ITAT (Del) (iii) DCIT v. Essar Oil Ltd. ITA No. 4177/Mum/2000 (AY 1994-95) (iv) Kisan Discretionary Family Trust v ACIT [113 TTJ 918 (2007)[ (para. 39, 40) (power of the Trib unal to allo w c l aims )
(g) Finally in Balmukund Acharya v. DCIT,(2009) 310 ITR 310 (Born), the assessee had mistakenly offered higher income on which he was assessed by the Officer.
The Bombay High Court observed as follows: - "Tax can be collected or-only as provided under the Act. If any, assessee, under a mistake, misconceptions or on not being properly
15 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs instructed is over assessed, the authorities under the Act are required to assist 1-rim and ensure that only legitimate taxes due are collected (see S.R. Kosti v. CIT [20051 276 JTI'R 1651 (Guj.), CPA Yoosuf v. ITO 119701 77 ITR 237 (Ker.), CIT v. Bharat General Reinsurance Co. Ltd. [1971J 81 ITR 303 (Delhi) CIT v. Archana R. Dhanwatey 119821 136 JTR 3552 (Bom.).
If purchaser levy is not permitted under the Act, tax cannot be levied applying the doctrine of estoppel.* (See Dy. CST u. Sreeni Printers [1987] 67 SCC 279). 33. This Court in the case of Nirmala L. Mehta v. A. Balasubramaniam, C17'[20041 269 ITR 13 has held that there cannot be any estoppel against the statute. Article 265 of the Constitution of India in unmistakable terms provides that no tax shall be levied or collected except by authority of law. Acquiescence cannot take away from a party the relief that he is entitled to where the tax is levied or collected without authority of law. In the case on hand, it was obligatory on the part of the Assessing Officer to apply his mind to the facts disclosed in the return and assess the assessee keeping in mind the law 1101(1mg the field." It is submitted that the Appellant's case is better inasmuch as it had even made a claim before the Assessing Officer.
h) Further, where exemption under section 10(34) can be granted for the amount of dividend, no disallowance under section 14A of the Act could be made. In this regard, section 14A of the Act provides that no deduction shall be-allowed in respect of expenditure incurred in rotation to income which does not form a part of the total income. The Hon’ble Delhi Tribunal in the case of Oriental Insurance Company Limited v. ACIT, (2009-TIOL-172-ITAT- DEL) has held that no disallowance under section 14A of the Act could be made for insurance companies as its income would be computed under the specific provisions of section 44 read with the First Schedule of the Act. In the light of the aforementioned decision in the context of insurance companies, no disallowance is required to be made under section 14A of the Act. 13.3 I have considered the facts of the issue and the submissions made by the AR. Broadly there are three issues to be considered: A) Whether the Appellant could have made a claim for exemption, although not claimed in the return of income. B) If yes, whether the income exempt under section 10(34) is to be reduced from the surplus as per Form I. C) If yes, whether such reduction is subject to disallowance under section 14A.
16 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs In my view, the Appellant deserves to succeed on the preliminary issue as to whether it can make a claim for the first time before the AO during assessment proceedings in vie* of the circular no. 14 of 1955 dated 11.04.1955 and the ration laid down by the various Tribunals cited by the AR. Corporation, there is, no reason why the exemption should not be allowed in respect of dividend income exempted under section 10(34). This is especially so because the AO has rightly disallowed the loss in res In view of the direct judgment of the Jurisdictional High Court in LIC v. CIT (1978) 115 ITR 45 (Born) allowing an exemption under section 10 to Life Insurance pact of pension business, whose profits are exempted under section .1O(23AAB). So far as disallowance under section 14A is concerned, in view of the decisions of the Tribunal in case of Oriental Insurance (Supra), Bajaj Alliance General insurance Co. Ltd. vs. Add!. CIT [(2010) 130 TTJ 398 (Pune) (Trib.)] and Reliance general Insurance Co Ltd vs. Dy CIT 120101 (ITA No.781 /Mum/2007), it is held that section' 14A.. is not applicable to a Life Insurance Company. The AG is accordingly directed to reduce a sum of Rs.2,33,26,330/- from the surplus as per Form T. This ground is allowed.
Before us, the Ld. Senior Counsel submitted that the issues raised by the Revenue in their grounds of appeal are squarely covered by the decisions of the Co-ordinate Bench in the following cases:- Sr.No. Particulars (i) ICICI Prudential Insurance Company Limited v ACIT, Circle 6(1), Mumbai [2013] 140 ITD 41 (Mumbai Tribunal) (ii) HDFC Standard Life Insurance Company Limited v DCIT (OSD)-1(1) –ITA No. 2203/Mum/2012 and Others
On the other hand, Ld. DR strongly relied upon the order of the AO.
After considering the relevant finding given in the impugned order as well as the aforesaid decisions of the Tribunal, we agree with Ld. Counsel that all the three issues raised in the grounds raised by the revenue are covered in favour of the assessee and against the Department by the aforesaid decisions of the Tribunal. We find that the Tribunal
17 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs in the case of ICICI Prudential Insurance Co. Ltd. (supra) has dealt with all these issues in detail after considering the judgment of jurisdictional High Court; catena of other decisions and the relevant provisions of law. The relevant observations and the findings of the Tribunal in the case of ICICI Prudential Insurance Co. Ltd. (supra) on various points, paragraph wise are summarized as under:-
“24. Before analyzing the issue, it is necessary to discuss the principles of ‘incorporation’ of Insurance Act 1938 into the Income Tax Act 1961. As rightly pointed out by the learned Counsel, the reference to the Insurance Act 1938 in the Income Tax Act as such can only be considered as ‘legislation by incorporation’.
‘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 the Finance Act 2009 w.e.f. 1.4.2011 is also taken into consideration. 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 Insurance Act, 1938 only.
Further, we also notice that the Insurance Act itself was amended along with the introduction of IRDA Act 1999. Along with the said IRDA Act, there are various
18 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs amendments proposed in the Insurance Act in tune with IRDA Act by amending the relevant provisions of Insurance Act 1938. However, since the Rule 5 was amended in the First schedule by specifically referring to the IRDA Act 1999 or the Regulations made there under, we are of the opinion that the legislature intended not to modify or amend the Rule-2. This indicates the intention of legislature that the actuarial valuation has to be made in accordance with the unamended Insurance Act, 1938. We are of the firm opinion that the unamended provisions of Insurance Act 1938 were only incorporated into the Income Tax Act as far as life insurance businesses are concerned. Therefore, AO’s action in following the format prescribed under the Regulations of IRDA Act is not in accordance with the spirit of Rule-2 and provisions as made applicable under the Income Tax Act.
It is also noticed that the actuarial report and abstracts under the Insurance Act carrying on life insurance business shall, in accordance with the Regulations contained in Part I of the Fourth Schedule and in conformity with the requirements of Part II of that Schedule.
The First to Fourth Schedule of the Insurance Act 1938 was omitted by the Insurance Amendment Act 2002 after incorporation of the relevant schedules in the IRDA Act. Even though the said schedules were omitted from the Insurance Act, 1938, we are of the opinion that as far as Rule-2 is concerned by the principle of ‘Legislation by incorporation’ unamended Insurance Act, 1938 is applicable and the actuarial
19 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs valuation has to be made in accordance with the then existing Part-I of the Fourth Schedule and in conformity with the requirements of Part-II of that schedule. Therefore, assessee’s contention that the IRDA Regulations even though are applicable to assessee since it has commenced business after the commencement of the IRDA Act, 1999, for the purpose of Rule-2, the actuarial valuation has to be done in accordance with the Regulations contained in erstwhile Fourth schedule Part-I and Part II. This is what assessee is contending and merging the accounts of policyholder’s and shareholder’s account and arriving at the actuarial deficit, without taking into consideration the transfer of funds from the shareholder’s account to policyholder’s account.
After introduction of IRDA Act, the entire Regulation of insurance business has gone to the authority and in order to protect the interests of holders of insurance policies, to regulate, to promote and ensure orderly growth of insurance industry number of regulations have been prescribed by the IRDA. One such is, Insurance Regulatory and Development Authority (IRDA) (Actuarial Report and Abstract) Regulations 2000 by which method of preparation of actuaries report and abstracts were prescribed. An actuary is responsible for analyzing possible outcomes of the types of events that would potentially cost policy holders to make claims against their insurance policies. Insurance companies need to make sure that the money they are charging and collecting from policy holders is adequate to cover the costs of certain claims that might beneficially be made by policy holders as
20 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs well as their other expenses. In fact, the work that actuaries perform is crucial to an insurance company’s ability to remain in business. Actuaries are involved at all stages in product development and in the pricing risk assessment and marketing of the products. Their job involves making estimates of ultimate out-come of insurable events. In the business of insurance the product cost is an abstraction, depending on the timing issues, variability issues and risk parameters. One big function actuaries provide is making reserves to insure that insurance companies keep enough money on their balance sheets to make good of all the claims they will have to pay. This involves arriving at actuarial surplus or deficit depending on various factors. In order to ensure a fair play in the business, the IRDA prescribed regulations according to which various norms were prescribed in order to ensure that Life Insurance business (even other insurance business) are done according to healthy business practices. As per the above regulations, Regulation 4 prescribes number of abstracts and statements in respect of (a) linked business; (b) non-linked business and (c) health insurance business. As part of this Regulation 4(2) (d) item no. iv, Form-"I" was prescribed for the purpose of valuation results and to indicate the surplus or deficit in the life insurance business of a company. Apart from the above regulations, IRDA also prescribed Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations 2002. The surplus or deficit arrived at by the actuary in his valuation for the inter valuation period has to be
21 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs taken into consideration under the regulations in financial accounts as well.
IRDA Regulations specifically require maintaining 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
22 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs 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 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 life insurance business only and incomes are to be treated as income from life 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 shareholder’s account has to be consolidated for the purpose of arriving at the deficit or surplus.
Comparison of Forms-I under the Insurance Act and the IRDA Regulations. 33. Whether Assessing Officer’s action in adopting Form-I prescribed under the IRDA Regulations same as that of actuarial valuation made in accordance with the Insurance Act 1938. Even though Insurance Act 1938 also refers to Form-I, there is substantial difference in the formats. Both AO and the CIT (A) has given
23 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs credence to Form I without understanding that the old form-I prescribed under the Insurance Act 1938 is entirely different from new Form-I prescribed under the IRDA Regulations.
The department is asked to explain what the surplus is shown under Form I i.e. at column (a) above. Regulation 8 as shown above has Column (a) ‘surplus shown under Form I’. In Col.(e) one has to represent sum transferred from shareholder’s fund during the inter valuation period. Item (g) refers to the ‘total surplus’ after taking into account items (a) to (f). Under Col.(a) surplus shown in Form I is a deficit as per Form AR-A in the policyholder’s deficit account in this year. This corresponds the ‘actuarial valuation surplus or deficit’ referred to under the Insurance Act, 1938. This amount also tallies with Form I prescribed under Regulation 4. IRDA Regulations however, after arriving at the surplus or deficit in the Form I also prescribes a separate statement again as Form I with details of (a) to (f) under Regulation 8. As can be seen from these two forms, there is variation in the amounts are presented, as these forms serve different purposes. The Form I which was prescribed under Regulations 8 is after arriving at the distribution surplus under Regulations 6. The Regulations 6, 7 and 8 are as under: Thus as can be seen from above Regulations, the Form I under Regulation 8 represent the total surplus for the purpose of distribution of bonuses/ dividends to policy holders and does not represent surplus or deficit of actuarial valuation for the purposes of balance sheet. This amount is
24 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs represented in Form I prepared under Regulation 4 for the purpose of financial accounts.
Reconciliation of amounts:- 36. As seen from the orders of the authorities, the ‘Total surplus’ prepared under Regulation 8 was taken as basis ignoring the Form- I of Regulation 4. While accepting the department argument that for the purposes of Life insurance business the act provides for surplus of valuation to be taxed at lesser rate, we cannot accept the argument that surplus is Total surplus including Transfers from share holder’s account. Basically transfers are tax neutral as a credit in one account gets cancelled by debit in other account when accounts are consolidated. What the Rule.2 prescribed was only ‘average surplus’ arrived by adjusting the surplus disclosed in the actuarial valuation made with regard to the Insurance Act, 1938 in respect of inter valuation period. Assessee in the course of the assessment proceedings has furnished general balance sheet in Form-A.
The 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.
It is also on record that assessee followed the IRDA recommendations and accordingly prepared the actuarial valuation report including the surplus or
25 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs deficit. However, Rule-2 prescribes only actuarial valuation in accordance with the Insurance Act, 1938. Therefore, AO is duty bound to insist on actuarial valuation in accordance with the Insurance Act, 1938, so as to bring to tax the surplus or deficit. What we notice is that AO, ignoring Rule-2, has relied on the actuarial valuation report prescribed under the IRDA recommendations under Regulation 8 that too at ‘Total surplus’, which is at variance with the Insurance Act, 1938. Since no amendment was brought to Rule-2 to incorporate IRDA recommendations, we are of the opinion that the action of AO in relying on the IRDA Regulations is not according to the law. Assessee had submitted its accounts as stated above, which are in accordance with the Insurance Act, 1938. Instead of examining these statements, just because assessee has shown total surplus in the accounts in similarly named Form-I( under Regulation 8), AO wants to tax the amount which is after taking into account the transfer of assets by way of fresh capital from shareholder’s account. This in a way is taxing fresh capital infused into business indirectly which cannot be done as this is not business surplus but infusion of capital directly.
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
26 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs including transfer from shareholder’s account is not 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) (f) (total surplus after transfer from Shareholder’s account) which is not at all correct.
Conclusion:- 42. 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 ie. 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 modify the order accordingly”.
This decision has been followed by the Tribunal in the case of HDFC Standard Life Insurance Co. Ltd. (supra). Thus, following the same judicial precedence which would apply on the facts of the present case also, we decide the issues raised vide ground no. 1&2 in the department’s appeal in favour of the assessee and against the Department.
Similarly, with regard to the issue raised in ground No.3 also, the same is also covered by the same decision as incorporated above and accordingly, respectfully following the
27 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs same, we uphold the order of the CIT(A) and dismissed the ground raised by the Department.
Lastly, with regard to ground No.4, that is, disallowing exemption under section 10(34) with regard to the dividend income earned, we find that the Ld. CIT(A) after relying upon various decisions held that section 14A is not applicable to Life Insurance Company. The Tribunal has reiterated the same view in the above cases that provisions of section 14A will not apply to Insurance companies, whose income are strictly assessable in terms of Rules of the Insurance Act. Thus, respectfully following the same, we affirm the order of the CIT (A) and dismissed the ground raised by the revenue. Accordingly, grounds raised by the revenue are dismissed.
In the result, appeal of the revenue stands dismissed.
Now, we shall take-up Cross Objection No.56/Mum/2013 filed by the assessee, wherein, following grounds have been raised:- “On the facts and in the circumstances of the case the learned Deputy Commissioner of Income-tax 2(3) [“DCIT”];
erred in disregarding the net deficit of rs.448,811,261 declared in the return of income filed by the Appellant and adopting, instead, the surplus amounting to Rs.580,428,000 as per Form I.
erred in not allowing deduction from the actuarial surplus for the amount of bonus to policyholders of Rs.110,800,000. Without prejudice to this, where a deduction is not allowed in year 1, the learned DCIT erred
28 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs in not allowing a deduction for the amount of bonus to policyholders in year 2.
erred in adding back to the actuarial surplus the deficit amounting of Rs.40,348,000 in relation the pension scheme, the income from which qualifies for exemption under section 10(23AAB) of the act.
erred in not allowing deduction from the actuarial surplus, for the amount of transfer from linked fund (lapsed policies) of Rs.42,400,000.
The Appellant craves, to consider each of the above grounds of cross objection without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of cross objection”.
At the outset, it has been submitted that, ground No.2 and 4 are not pressed accordingly; the same are dismissed as not pressed.
So far as issues raised in Ground No. 1 & 3 are concerned, it has been admitted that, same are covered in favour of the assessee and against the Department by the aforesaid decisions of ITAT Mumbai Bench in the case of ICICI Prudential Life Insurance Co. Ltd (supra) and HDFC Standard Life Insurance Co. Ltd. (supra). Thus, respectfully following the same, ground No.1 & 3 is treated as allowed.
In the result, Cross Objection filed by the assessee stands partly allowed.
29 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs 16. It has been admitted by both the parties that grounds for other assessment years viz. AY 2002-03, 2003-04, 2004-05, 2005-06, 2007-08 & 2008-09 in the revenue’s appeals are identical and arising out of similar set of facts, therefore, the aforesaid finding following the earlier decisions of the Tribunal in the case of ICICI Prudential Life Insurance Co. Ltd (supra) and HDFC Standard Life Insurance Co. Ltd. (supra) will apply mutatis mutandis. For the sake ready reference, the grounds raised by the revenue for the above impugned years are reproduced here under:-
AY 2002-03:- “1. The order of CIT(A) is opposed to law and facts of the case.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to reduce the capital contribution of Rs.25.25 crores from the shareholder’s account to policy holder’s account while computing income u/s 44 read with First Schedule of the I T Act.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that surplus disclosed in Actuarial Report in Form I can be changed by way of adjustments.
For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored”. AY 2003-04:- “1. The order of CIT(A) is opposed to law and facts of the case.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to reduce the capital contribution of Rs.42.88 crores from the shareholder’s account to policy holder’s account while computing income u/s 44 read with First Schedule of the I T Act.
30 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that surplus disclosed in Actuarial Report in Form I can be changed by way of adjustments.
For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored”. AY 2004-05:- “1. The order of CIT(A) is opposed to law and facts of the case.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to reduce the capital contribution of Rs.63.06 crores from the shareholder’s account to policy holder’s account while computing income u/s 44 read with First Schedule of the I T Act.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that surplus disclosed in Actuarial Report in Form I can be changed by way of adjustments.
For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored”. AY 2005-06:- “1. The order of CIT(A) is opposed to law and facts of the case.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to reduce the capital contribution of Rs.49.59 crores from the shareholder’s account to policy holder’s account while computing income u/s 44 read with First Schedule of the I T Act.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that surplus disclosed in Actuarial Report in Form I can be changed by way of adjustments.
31 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to reduce the dividend of Rs.12,76,207/- from the surplus as per Form I as dividend is exempt u/s 10(34) without appreciating that income of the assessee was computed u/s 44 read with First Schedule of the I T Act in which dividend was not included hence there is no question of its exclusion.
For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored”. AY 2007-08:- “1. The order of CIT(A) is opposed to law and facts of the case.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to reduce the capital contribution of Rs.87.07 crores from the shareholder’s account to policy holder’s account while computing income u/s 44 read with First Schedule of the I T Act.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that surplus disclosed in Actuarial Report in Form I can be changed by way of adjustments.
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to reduce the dividend of Rs.43.44 crores from the surplus of Rs.134.55 crores reflected in Form ‘I’ without appreciating that no such provision for reduction has been provided u/s 44 of the I T Act, r.w. 1st Schedule of the I T Act. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directed the AO to reduce the dividend of Rs.27.65 lacs from the surplus as per Form I as dividend ix exempt u/s 10(34) without appreciating that income of the assessee was computed u/s 44 read with First Schedule of
32 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs the I T act in which dividend was not included hence there is no question of its exclusion.
For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored”. AY 2008-09:- “On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below: 1(a) On the facts and circumstances of the case and in law, the CIT(A) erred in holding that surplus disclosed in Actuarial Report in Form I can be changed by way of adjustments. 1(b) On the facts and in the circumstances of the case and in law, the CIT(A) erred in not adopting the Actuarial surplus amount to Rs.79,36,44,000/- as per Form I, as the income of the assessee in terms of section 44 r.w.r. 2 of First Schedule of the I.T. Act, 1961.
2(a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the AO to reduce the amount of opening surplus from the surplus reflected in Form I without appreciating that no such provision for reduction has been provided u/s 44 of the I.T. Act r.w. ‘First Schedule’ of I.T. Act.
2(b) On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the AO to reduce the capital contribution from the shareholders account to the policy holders account while computing income u/s 44 r.w.r First Schedule of the I.T. Act.
On the facts and in the circumstances of the case and in law, the CIT(A) erred in directed the AO to reduce the exempt income u/s 10(23AAB) and u/s 10(34) while computing income of insurance business of the assessee u/s 44.
33 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs 4. For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored”.
Accordingly, in view of our decision as given above for the AY 2006-07, all the appeals filed by the revenue are dismissed.
As far as the Cross Objections for various other years are concerned, the grounds raised are almost similar to the AY 2006-07. Like in AY 2006-07, the assessee has not pressed following grounds of appeal in the cross objections raised in the various assessment years:- i) AY 2002-03 Ground No.3 Not pressed ii) AY 2003-04 Ground No.3 Not pressed iii) AY 2004-05 Ground No.3 Not pressed iv) AY 2005-06 Ground No.2 Not pressed v) AY 2007-08 Ground No.2 Not pressed vi) AY 2008-09 Ground No.1 &2 Not pressed
As regards validity of reopening challenged under section 147, as taken in assessment years 2002-03, 2003-04 & 2004-95, it has been contended that since all the issues have been allowed on merits, therefore, the issue of validity of reopening should be kept open and academic. We agree with such a contention and hold that the issues relating to validity of reopening u/s 147 have been rendered academic and accordingly the same are dismissed as in-fructuous. Lastly, as regards the other grounds, the same are covered by the decisions of the Tribunal in the case of ICICI Prudential Life Insurance Co. Ltd (supra) and HDFC Standard Life Insurance
34 टाटा ए आई जी लाइफ इ�शुर�स कंपनी TATA AIG LIFE INSURANCE CO. LTD ITA 1039/Mum/2011 CO No. 56/Mum/2013 And 06 other Group appeals and COs Co. Ltd (supra). Thus, following the same, we allow ground no.2 for AYs 2002-03, 2003-04 & 2004-05 and Ground No. for AY 2005-06 & 2007-08 as allowed and Ground No.4 for AY 2003-04, 2004-05, Ground No.3 for AY 2005-06 and 2007-08 are treated as allowed.
In the result, all appeals of the revenue are dismissed and Cross objections are partly allowed.
Order pronounced in the open court on 21st September, 2016. Sd/- Sd/- (आर सी शमा�) (अिमत शु�ला) लेखा सद�य �याईक सद�य (R C SHARMA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 21st September, 2016. ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT (Appeal) –6, Mumbai. 4) The CIT -2, Mumbai 5) िवभागीय �ितिनिध “एच”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “H” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File. आदेशानुसार/By Order / / True Copy / /
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, मुंबई Dy. /Asstt. Registrar I.T.A.T., Mumbai *च�हान व.िन.स *Chavan, Sr.PS