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Income Tax Appellate Tribunal, “A” BENCH: MUMBAI
Before: Hon‟ble Shri Mahavir Singh, JM & Hon‟ble Shri Ramit Kochar, AM
ORDER Shri Mahavir Singh, Judicial Member: These cross appeals are arising out of the order of the CIT (A) in appeal No.IT- 193/12-13/434/1314 dated 20-03-2014. Assessment was framed by ACIT, Circle-3(1) Mumbai for the assessment year 2010-11 u/s 143(3) of the Income Tax Act, 1961 (hereinafter as „the Act‟) order dated 05-12-2012.
First common & interconnected issue in these cross appeals, raised by the assessee and the revenue, is as regards to the order of the CIT(A) in deleting the disallowance of deduction/exemption claimed by the assessee u/s. 10(34) of the Act in respect of dividend income of Rs. 29,08,806/- and confirming the disallowance of expenses relatable to the exempt income u/s. 14A of the Act r.w.r 8D of the I.T Rules 1962 (hereinafter as the „Rules‟). The assessee has challenged the confirmation of disallowance of expenses relatable to exempt income u/s. 14A r.w.r 8D of the Rules and the revenue has challenged against the deletion of disallowance of deduction of M/s Regon Religare Life Insurance Co.Ltd-A-JM 1 & 4130//M/14- dividend income u/s. 10(34) of the Act. The assessee in ITA No. 4110/Mum/2014 has raised the following ground No. 1:- “Ground No. 1: Disallowance of expenses under section 14A of the Act read with Rule 8D amounting to Rs.73,60,308. The learned CIT (A) has erred in holding that expenses incurred by the Appellant in earning exempt income will have to be disallowed under section 14A of the Act. While making the disallowance, the learned CIT (A) has also erred on the following grounds:- 1.1 The learned CIT(A) erred in not appreciating the fact that the provisions of section 14A of the Act are not applicable to an Insurance company as it is governed by section 44 read with First Schedule of the Act, which has an overriding effect on the provisions relating to computation of income chargeable under the four heads mentioned in section 44 of the Act. 1.2 The learned CIT(A) erred in disregarding the various Tribunal decisions (including that of Jurisdictional Tribunal) relied upon by the Appellant, wherein it has been held the taxable income of insurance companies shall be computed only in accordance with provisions of section 44 read with First Schedule of the Act and it is not permissible to the assessing office to travel beyond the provisions of section 44 read with First schedule of the Act and make disallowance by applying section 14A of the Act Revenue has raised the following ground No. 1 in
1. Whether on the facts and circumstances of the case and in law, the ld. CIT (A) was justified in allowing the deduction claimed on dividend income u/s. 10(34) of the Act amounting to Rs.29,08,806/- without appreciating the fact that dividend income forms part of actuarial valuation for calculating the surplus or deficit in accordance with the Schedule 1 of the Income-tax Act which is considered as business income. 3. In regard to ground no.1 of assessee‟s appeal, the ld. counsel for the assessee argued that this issue is squarely covered in favour of the assessee by the decision of the co-ordinate bench of this tribunal ITAT, Mumbai in the case of ICICI Prudential Insurance Co. Ltd. Vs. ACIT [2012] 28 Taxmann.com 257(Mum), dated 14/09/2012, has decided the issue by following the Pune Bench decision in the case of Bajaj Allianz General Insurance Co. Ltd. Vs. Addl. CIT in for AY 2003-04 dated 31/08/2009 wherein it has been held that in view of non obstante clause of Section 44 of the Act read with Rule 5 of Schedule 1 of the Act, provisions of Section M/s Regon Religare Life Insurance Co.Ltd-A-JM 2 ITA Nos.4110 & 4130//M/14- 14A of the Act, as no application to the profit and gains of insurance business. The tribunal held as under:
This issue is already decided by the Coordinate Benches in various cases. For the sake of record, the order in the case of General Insurance Corporation of India in vide Para 9 is as under: 9. "Issue No.6 Non applicability of provisions of section 14A. (Modified Ground of Appeal
No.3.1 to 3.4 - Original Ground of Appeal No.3.1 to 3.5) . The issue is with reference to the applicability of section 14A and disallowance of expenditure in respect of sale of investment which are not taxed. We have heard the rival contentions. We also note that this issue is also considered ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench by the Coordinate Bench in assessee's own case for 2006- 07 vide Para 7 to 9:
7. Grounds of appeal no.4 regarding the expenditure under section 14A.
8. We have heard the rival contentions and perused the relevant record. We note that this issue has been considered and decided by the Pune Bench of this Tribunal in the case of Bajaj Allianz General Insurance Company limited V/s Add. CIT in ITA No.1447/PN/2007 for the assessment year 2003- 04 order dated 31.08.2009. This Tribunal in the case of JCITV/s M/s Reliance General Insurance co. in ITA No.3085/Mum/2008 for the assessment year 2005-06 vide order dated 26.2.2010 has considered this issue and decided in favour of the assessee. This order was followed by this Tribunal while deciding the issue in ITA No.781/Mum/2007 vide order dated 30.4.2010. Thus, this issue has been consistently decided in favour of the assessee and against the revenue by this Tribunal. The Pune Bench of this Tribunal in the case of Bajaj Allianz General Insurance Company limited V/s Add. CIT (supra) has decided this issue in paragraphs 17 to 20 as under: "
17. Finally the quest ion to be answered is about the applicability of s. 14A in respect of sale of investment which is not taxed under the special circumstances of deletion of a sub-rule from the statute. It is not questioned that the impugned profit was non-taxable per se rather the accepted legal position is that the impugned profit was very much taxable in the past .Now it has been informed that this controversy in respect of insurance company set at rest by a decision of Tribunal , Delhi Bench verdict in the case of Oriental Insurance Co. Ltd. (ITA Nos. 5462 & 5463/Del /2003) asst. yrs. 2000-01 and 2001-02 order dt. 27th Feb. 2009 [reported as Oriental Insurance Co. Ltd. v. Asst t . CIT [2010] 130 TTJ (Delhi)388 : [2010] 38 DTR (Delhi ) 225--Ed. ] . Therefore considering the vehement reliance of M/s Regon Religare Life Insurance Co.Ltd-A-JM 3 ITA Nos.4110 & 4130//M/14- learned Authorized Representative it is worth to mention at the outset itself that the issue now stood resolved by this latest decision of Delhi, Tribunal in the case of Oriental Insurance Co. Ltd. (supra), the relevant portion reproduced below: "17. We have heard rival submissions of the parties and have gone through the material available on record. Identical issue arose in assessee's own case for asst. yr. 1985-86. The Tribunal accepted the plea of the assessee and in fact the issue went up to to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench the Hon'ble Delhi High Court in asst . yrs. 1986-87 to 1988-89, which is reported as CIT v. Oriental Insurance Co. Ltd. [2003] 179 CTR (Delhi ) 85 : [2002] 125 Taxman 1094 (Delhi ), decided the issue in favour of the assessee by holding that s. 44 of the Act is a special provision dealing with the computation of profits and gifts of business of insurance. It being a non obstinate provision has to prevail over other provisions in the Act. It clearly provides that income from insurance business has to be computed in accordance with the rule contained in the First Schedule. It is not the case of the Revenue that the assessee has not computed the profits and gains of its insurance business in accordance with the said rules. Reliance was placed on the scope of s. 144, as held in the case of General Insurance Corporation of India v. CIT [1999] 156 CTR (SC) 425 : [1999] 240 ITR 139 (SC), wherein their Lordships of the apex Court have categorically held that the provisions of s. 44 being a special provision govern computation of taxable income earned from business of insurance. I t mandates the tax authorities to compute the taxable income in respect of insurance business in accordance with the provisions of the First Schedule to the Act. In the light of these, their Lordships of Delhi High Court have held that no quest ion of law, much less a substantial quest ion of law survives for their consideration. In other words, order of the Tribunal has been affirmed. Following the same reasoning, addition made by the AO is deleted.
We have considered the rival contentions and gone through the records. The provisions of s. 44 read as under: "44. Insurance business.--Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head ' Interest on securities' . 'Income from house property' , 'Capital gains' or ' Income from other sources' , or in s. 199 or in ss. 28 to 43B, the profits and gains of any business ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench of insurance, including any such business carried on by a mutual insurance company or by a co operative society, shall be computed in accordance with the rules contained in the First Schedule"'.
M/s Regon Religare Life Insurance Co.Ltd-A-JM 4 & 4130//M/14-
The above provision makes it very clear that s. 44 applies notwithstanding anything to the contrary contained within the provisions of the IT Act relating to computation of income chargeable under different heads. We agree with the learned counsel that there is no requirement of head-wise bifurcation called for while computing the income under s. 44 of the Act in the case of an insurance company. The income of the business of insurance is essentially to be at the amount of the balance of profits disclosed by the annual accounts as furnished in the Controller of Insurance. The actual computation of profits and gains of insurance business will have to be computed in accordance with r. 5 of the First Schedule. In the light of these special provisions coupled with non obstante clause the AO is not permitted to t ravel beyond these provisions.
Sec. 14A contemplates an exception for deductions as allowable under the Act are those contained under ss. 28 to 43B of the Act. Sec. 44 creates special application of these provisions in the cases of insurance companies. We therefore, agree with the assessee and delete the act as according to us, it is not permissible to the AO to travel beyond s. 44 and First Schedule of the IT Act ." 18. I t may not be out of place to mention that the respected Co-ordinate Bench has duly taken the note of an earlier decision of that very Bench decided in the case of that very assessee vide order dt . 29th Sept. 2004 bearing 3607 to 3609/Del /1990; 5035/Del / 1998 and 3910/Del /2000 named as Dy. CIT v. Oriental General Insurance Co. Ltd. [2005] 92 TTJ (Delhi ) 300. As seen from the Paras reproduced above on due consideration of the relevant provisions as applicable to resolve this issue a conclusion was drawn that since the Courts have held, s. 44 creates a special provision in the cases of assessment of insurance companies therefore it was not permissible to the AO to ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench travel beyond s. 44 of First Schedule of IT Act . 18. The next common dispute relates to the order of the CIT (A) in sustaining the act ion of AO in al lowing only 50 per cent of the management expenses by invoking the provisions of s. 14A of the Act . The addition is made by the AO on the plea that the provisions of s.14A was inserted by Finance Act, 2001 w.e.f. 1st April, 1962. It is stated that the investments made by the assessee are both taxable as well as tax free. An estimated disallowance of 50 per cent out of the management expenses incurred and as claimed in the P&L a/c is treated as expenses incur red in connect ion with the looking after tax-free investment. 19. The learned counsel for the assessee vehemently argued that the income of the assessee is to be computed under s. 44 r/w r. 5 of Sch. 1 of the IT Act.
M/s Regon Religare Life Insurance Co.Ltd-A-JM 5 & 4130//M/14- Sec. 44 is a non obstinate clause and applies notwithstanding anything to the contrary contained within the provisions of the IT Act relating to computation of income chargeable under different heads, other than the income to be computed under the head 'Profit and gains of business or profession' . For computation of profits and gains of business or profession the mandate to the AO is to compute the said income in accordance with the provisions of ss. 28 to 43B of the Act. In the case of the computation of profits and gains of any business of insurance, the same shall be done in accordance with the rules prescribed in First Schedule of the Act, meaning thereby ss. 28 to 43B shall not apply. No other provision pertaining to computation of income will become relevant. According to the learned counsel, two presumptions that follow on a combined reading of ss. 14, 14A, 44 and r. 5 of the First Schedule are: (a)That no head-wise bifurcation is called for. The income, inter alia, of the business of insurance is essentially to be at the amount of the balance of profits disclosed by the annual accounts as furnished to the ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench Controller of Insurance under the Insurance Act, 1938. The said balance of profits is subject only to adjustments there under. The adjustments do not refer to disallowance under s. 14A of the Act. (b) Profits and gains of business as refer red to in (a) above have only to be computed in accordance with r. 5 of the First Schedule.
22. Sec. 44 creates a specific except ion to the applicability of ss. 28 to 43B. Therefore, the purpose, object and purview of s. 14A has no applicability to the profits and gains of an insurance business.
The learned Departmental Representative strongly justified the act ion of the AO and that of the CIT(A) in the light of the clear provisions of s. 14A of the Act . Since the view has already been expressed by respected Co-ordinate Bench therefore, we have no reason to take any other view except to follow the same. With the result we hereby accept the argument of learned Authorized Representative to the extent that in the present situation the provisions of s. 14A need not to apply while granting exempt ion to an income earned on sale of investment primarily because of the reason of the withdrawal or deletion of sub- r. 5(b) to First Schedule of s. 44 of IT Act. Once we have taken this view therefore the enhancement as proposed by learned CIT(A) is reversed and the directions in this regard are set aside. Resultantly ground No. 1 is allowed automatically goes in favour of the assessee".
M/s Regon Religare Life Insurance Co.Ltd-A-JM 6 & 4130//M/14- Accordingly, by following the orders of this Tribunal, we decide this issue in favour of the assessee. Therefore, the ground is allowed". Respectfully following the same, we modify the order of the CIT (A) and delete the addition made by AO. The ground and additional grounds are considered as allowed.”
Ld. Senior DR could not point out any adverse precedent and accordingly we are of the view that this issue is squarely covered in favour of assessee but Hon‟ble High Court in dated 20/07/2015 admitted substantial question of law on the issue, “ whether on the facts and in the circumstances of the case and in law, the Tribunal was justify in holding that provisions of section 14A of the Act did not apply to insurance business, even when the assessee has claimed exempted income u/s 10 of the I.T. Act and has also itself made some disallowance u/s 14A of the Act in the return?” We find that Hon‟ble High Court has admitted this as substantial question of law but still it is pending as stated by Ld. Counsel for the assessee. Once the Tribunal is consistently taking this view, according to us, this is a covered issue in favour of assessee. We hold accordingly. This issue is decided in favour of the assessee.
As regards to Revenue‟s issue of claim of deduction by assessee u/s 10(34) of the Act allowed by the CIT (A), Ld. Counsel for the assessee stated that the similar issue was raised before Hon‟ble Jurisdictional High Court in the case of CIT Vs. ICICI Prudential Insurance Co. Ltd. in & 688/2014 dated 20/07/2015 has adjudicated the following question no. 5 : “Whether on the facts and in the circumstances of the case and in law, the Tribunal is correct in allowing the dividend income of assessee as exempt u/s 10(34) of the I.T. Act, 1961, ignoring the fact that dividend income is considered as part of income of Life Insurance Business and is included as an „income‟ by the actuary?.”
According to Ld. Counsel, Hon‟ble High Court has confirmed the order of Tribunal and this question was not admitted.
M/s Regon Religare Life Insurance Co.Ltd-A-JM 7 & 4130//M/14-
We find that the Tribunal following the decision of Hon‟ble Bombay High Court in case of General Insurance Corp. of India Vs. CIT [2012] 2004 Taxmann.com 587 has dealt with the issue as under :
All the above three grounds are on the issue whether exemption under Sec 10 can be allowed when incomes are computed under Sec.44 of the IT Act. In arriving at the deficit from the insurance business, assessee claimed certain exempt incomes under section 10(23AAB) with reference to Pension Business and dividend under section 10(34). AO did not allow the amounts on the reason that these incomes are part of income of life insurance business and it is included as income by the actuary, therefore, they cannot be exempted. This issue is covered in favour of assessee and against the Revenue by the orders of the General Insurance Company of India in wherein the issue of deduction under section 10 have been considered and allowed following the Hon'ble Bombay High Court judgment in writ petition No.2560 of 2011 dated 1.12.2011. The order in the case of GIC of India in ITA No.3554/Mum 2011vide Para 7 to 8 is as under: ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench 7."Issue No.5: Availability of Section 10 Exemption (Modified Ground of Appeal
No.2 - Original Ground of Appeal No.2.1 & 2.2) -. The issue arises in a peculiar manner in this assessment year. While dealing with the issue of profit on sale of investments, the Assessing Officer proposed to differ from assessee stand and bring to tax the profit on sale of investment. The assessee alternately submitted that the deduction under section 10(38) in respect of long term capital gain was available. When this issue came up before the CIT (A), the CIT (A) not only rejected the claim under section 10(38) but also considered and elaborately discussed how and why the assessee was not eligible for deductions already allowed by the Assessing Officer in respect of 'interest on tax free bonds' amounting to `3,45,19,352/- under section 10(15) and dividend income amounting to `270,66,46,489/- under section 10(34). He has elaborately discussed this issue from Para 6 onwards and ultimately made an enhancement of income to an extent of `274,11,65,844/- the amount which was allowed by the Assessing Officer as exempt under section 10. The contention of the CIT (A) was that the assessee was not eligible for deduction under section 10, once the incomes are brought to tax under section 44 r.w. Rule 5 of First Schedule to the Income Tax Act, 1961.
M/s Regon Religare Life Insurance Co.Ltd-A-JM 8 & 4130//M/14-
There is no need to consider the arguments of the CIT (A) and how he has arrived at that conclusion in this order as this issue was decided by the Hon'ble Bombay High Court in favour of the assessee in writ petition No.2560 of 2011 in the assessee's own case dated 1.12.2011. Consequent to the findings of the CIT(A) in AY 2007-08 (impugned AY ) the Assessing Officer seems to have issued notice under section 148 for reopening the assessment for the AY 2006-07 on the reason that the assessee was not eligible for claiming income as exempt under sub-sections 15, 23G, 34 and 38 of Section 10 and assessee challenged the issue by way of writ petition. The Hon'ble Bombay High Court not only disapproved the reopening of the assessment but gave the findings on merit also which are as under:- "11. Section 44 of the Income Tax Act, 1961 stipulates as follows: "44. Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head "interest on securities", "Income from house property", "Capital gains" or "Income to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench from other sources", or in section 199 or in sections 28 to (43B), the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a cooperative society, shall be computed in accordance with the rules contained in the First Schedule". Section 44 provides that the profits and gains of any business of insurance of a mutual insurance company shall be computed in accordance with the rules in the First Schedule. Part 'A' of the First Schedule containing Rules 1 to 4 deals with profits of life insurance business while Part B consisting of Rule 5 deals with computation of profits and gains of other insurance business. Rule 5 provides as follows: "5. The profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts, copies of which are required under the Insurance Act, 1938 (4 of 1938), to be furnished to the Controller of Insurance subject to the following adjustments: (a) Subject to the other provisions of this rule, any expenditure or allowance (including any amount debited to the profit and loss account either by way of a provision for any tax, dividend, reserve or any other provision as may be prescribed) which is not admissible under the provisions of section 30 to (43B) in computing the profits and gains of a business shall be added back; (b) (.........) (c) Such amount carried over to a reserve for unexpired risks as may be prescribed in this behalf shall be allowed as a deduction".
M/s Regon Religare Life Insurance Co.Ltd-A-JM 9 & 4130//M/14- The Assessing Officer has in the reasons for reopening the assessment proceeded on the premise that in computing the profits and gains of business for an assessee who carries on general insurance business no other section of the Act would apply and that the computation could be carried out only in accordance with section 44 read with Rule 5 of the First Schedule. In Life Insurance Corporation of India, Bombay v. Commissioner of Income Tax Bombay City-III, a Division Bench of this Court construed the provisions of section 44 and of the First Schedule. The assessee in to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench that case which carried on life insurance business had made a claim to exemption under section 10(15) and section 19(1). In a reference before the Court, the questions referred included whether in computing the profits and gains of the business of insurance under section 44 read with the First Schedule certain items which were ordinarily not includible in the total income were rightly included in the taxable surplus. The Division Bench of this Court held as follows: "The question which essentially falls to be determined in this reference is whether, in view of the provisions in section 44 or rule 2 of the first Schedule, the Life Insurance Corporation will not be entitled to claim the deductions which are otherwise admissible in the case of an assessee, computation of whose income is governed by the other provisions of the Act. The argument of Mr. Kolah for the Life Insurance Corporation is that unless there are express provisions which disable the Corporation from claiming the deductions referred to above, the Corporation cannot be deprived of the benefit of the provisions referred to in the questions Nos. 1 to 6. Section 44, which deals with computation of profits and gains of business of insurance, begins with a non- obstante clause, the effect of which is that the provisions of the Act relating to the computation of income chargeable under the head "Interest on securities", "Income from house property", "Capital gains" or "Income from other sources", do not apply in the case of computation of income from insurance business. The effect of the non-obstante clause so far as the earlier part of section 44 is concerned, therefore, is that the provisions of section 44 will prevail notwithstanding the fact that there are contrary provisions in the Act relating to computation of income chargeable under the four heads mentioned in section 44. The only other overriding effect of section 44 is that its provisions operate notwithstanding the provisions of section 191 and of section 28 to 43A. Thus, the only effect of section 44 is that the operation of the provisions referred to therein is excluded in the case of an assessee who carried on insurance business and in whose case the provisions of rule 2 of the First Schedule are attracted. If the deductions which are claimed by the assessee do not fall within the provisions which are referred to in section 44, it will have to be held that the applicability of those provisions in the case of an assessee whose M/s Regon Religare Life Insurance Co.Ltd-A-JM 10 & 4130//M/14- assessment is governed by section 44 read with rule 2 in the First Schedule is not excluded". to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench This judgment is sought to be distinguished by the Assessing Officer while disposing of the objections on the ground that the decision was rendered in the context of an assessee which carried on life insurance business to whom Rules 1 to 4 of the First Schedule applied whereas in the case of the assessee in this case which carries on general insurance business Rule 5 could apply. According to the Assessing Officer, Rule 5 would not permit any adjustment to the balance of profit as per annual accounts prepared under the Insurance Act, and hence the judgment would not be applicable. The Assessing Officer has clearly not noticed that the decision in Life Insurance Corporation (supra) though rendered in the context of an assessee which carries on life insurance business, followed an earlier decision of a Division Bench of this Court in Commissioner of Income-Tax v. New India Assurance Co Ltd . That was a case of an assessee which carried on non life insurance business. In New India Assurance Co. Ltd. the Division Bench dealt inter alia with the provisions of section 19(7) of the Income Tax Act, 1922. The questions referred to this Court included whether the assessee was entitled to claim an exemption from tax under section 15B and15C (4) and in respect of interest on a government loan under a notification issued under section 60. Section 10(7) of the Income Tax Act, 1922 provided that notwithstanding anything to the contrary contained in section 8,9,10,12 or 18, the profits and gains of any business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in the Schedule to the Act. The Division Bench held that upon the language of sub-section (7) of section 10 read along with rule 6 it was impossible to hold that the provisions relating to exemptions stood excluded from operation. In that context the Division Bench held as follows: "It is only after the profits and gains of a business are computed that any question of granting exemptions arises and if the latter stage were intended to be excluded by the law we should have thought that a clearer provision than is made in sub-section (7) of section 10 and in rule 6 would have been made". In the subsequent judgment of the Division Bench in Life Insurance Corporation (supra), the Division Bench noted that there was a difference in the language of ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench section 10(7) of the Act of 1922 when compared with section 44 of the Act of 1961 since section 44 does not refer to the computation of tax but merely to the computation of profits and gains in the business of insurance. The Division Bench held that this would however not make any difference to the principle laid down by the Court in M/s Regon Religare Life Insurance Co.Ltd-A-JM 11 & 4130//M/14- the earlier decision in the case of New India Assurance Co. Ltd. Accordingly, the decision of Life Insurance Corporation (Supra) could not have been ignored by the Assessing Officer on the supposition that the decision was rendered in the context of an assessee who carried on life insurance business and was, therefore, not available to an assessee which carries on general insurance business.
12. In General Insurance Corporation of India v. Commissioner of Income- Tax, the Supreme Court considered in an appeal arising out of a judgment of the High Court the issue as to whether a sum of `3 crores, being a provision for redemption of preference shares, was not liable to be added back in the total income of the assessee for AY 1977-78?. The Supreme Court held that a plain reading of rule 5(a) of the First Schedule made it clear that in order to attract the applicability of the provision the amount should firstly be an expenditure or allowance and secondly it should be one not admissible under the provisions of section 30 to 43A. The Supreme Court held that the sum of `3 crores in that case which was set apart as a provision for redemption of preference shares could not have been treated as an expenditure and hence could not have been added back under rule 5(a). In that context the Supreme Court held as follows: "There is another approach to the same issue. Section 44 of the Income-tax At read with the rules contained in the First Schedule to the Act lays down an artificial mode of computing the profits and gains of insurance business. For the purpose of income-tax, the figures in the accounts of the assessee drawn up in accordance with the provisions of the First Schedule to the Income-tax Act and satisfying the requirements of the Insurance Act are binding on the Assessing Officer under the Income-tax Act and he has no general power to correct the errors in the accounts of an insurance business and undo the entries made therein". to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench The question whether an assessee who carries on general insurance business would be entitled to avail of an exemption under section 10 did not arise. The issue as to whether the assessee which carries on the business of general insurance would be entitled to the benefit of an exemption under clauses (15), (23G) and (33) of section 10 is directly governed by the decision rendered by the Division Bench in Life Insurance Corporation vs. Commissioner of Income-tax (Supra) following the earlier decision in Commissioner of Income-tax vs. New India Assurance Co. Ltd(supra). The Assessing Officer could not have ignored the binding precedent contained in the two Division Bench decisions of this Court. Moreover, the Assessing Officer in allowing the benefit of the exemption in the order of assessment under section 143(3) specifically relied upon the view taken by the CBDT in its communication dated 21 February 2006 to the Chairman of IRDA. The communication clarifies that the exemption M/s Regon Religare Life Insurance Co.Ltd-A-JM 12 & 4130//M/14- available to any other assessee under any clauses of section 10 is also available to a person carrying on non-life insurance business subject to the fulfilment of the conditions, if any, under a particular clause of section 10 under which exemption is sought. It needs to be emphasized that it is not the case of the Assessing Officer that the assessee had failed to fulfil the condition which attached to the provisions of the relevant clauses of section 10 in respect of which the exemption was allowed. This of course is apart from clause (38) of section 10 where the Assessing Officer had rejected the claim for exemption in the original order of assessment under section 143(3). The Assessing Officer above all was bound by the communication of the CBDT. Having followed that in the order under section 143(3) he could not have taken a different view while purporting to reopen the assessment. Having applied his mind specifically to the issue an having taken a view on the basis of the communication noted earlier, the act of reopening the assessment would have to be regarded as a mere change of opinion which has also not been based on any tangible material. Consequently, we hold that the reopening of the assessment is contrary to law. The Petition would have, therefore, to be allowed". Respectfully following the above, we hold that the assessee is entitled for exemption under section 10. The enhancement made by the CIT (A) is therefore, cancelled. Ground is accordingly allowed". ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench 49. In view of the above and respectfully following the same, we hold that assessee is entitled to exemption under section 10. Therefore, we do not see any reason to differ from the order of the CIT (A) where he has allowed assessee's claim of exemption under section 10(23AAB) of surplus of Participating Pension Business and also dividend under section 10(34). Accordingly Revenue ground on this issue is rejected.
Ld. Senior DR could not point out any adverse precedent, hence respectfully following Jurisdictional High Court as well as coordinate bench of this Tribunal in the case of ICICI Prudential Insurance Co. Ltd. (supra), we dismiss this issue of Revenue‟s appeal.
8. The next issue of revenue‟s appeal i.e. with regard to the order of the CIT (A) in deleting the addition made by the AO on account of negative reserve at M/s Regon Religare Life Insurance Co.Ltd-A-JM 13 & 4130//M/14- zero, the surplus of the assessee has been made less than the real actuarial valuation. 2. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 73,24,80,820/- made by the Assessing Officer on account of negative reserves without appreciating the fact that by taking the negative reserve at zero, the surplus of the assessee has been made less than the real actuarial valuation.”
At the outset Ld. Counsel for the assessee stated that the similar issue was raised before Hon‟ble Jurisdictional High Court in the case of CIT Vs. ICICI Prudential Insurance Co. Ltd. in ITA No. 711 & 688/2014 dated 20/07/2015 and Hon‟ble High Court has adjudicated the following question no. 6: “ 6. Whether on the facts and in the circumstances of the case and in law, the Tribunal is correct in failing to appreciate that negative reserve has an impact of reducing the „taxable surplus‟ as per Form-I and therefore corresponding adjustment for “negative reserve” need to be made to arrive at “taxable surplus? ” Ld. Counsel stated that Hon‟ble High Court has answered this question in its judgment vide para 4 as under:
4. So far as Question No. 6 is concerned, the grievance of the revenue is that the Tribunal after having taken total surplus as arrived by Actuarial valuation ought to have reduced negative reserve amount of Rs. 27.27 crores while determining respondent assessee‟s income under Section 44 of the Act. The impugned order records that the mathematical reserves is a part of the Actuarial valuation and the surplus takes into account the mathematical reserve also Besides the impugned order follows the decision of the Apex Court in LIC Vs. CIT 51 ITR 773, wherein the Apex court has held that the Assessing Officer has no power to modify the account after Actuarial valuation is done. It is also pertinent to note that for the Assessment Year 2007-08, the Assessing Officer had raised an identical issue during the assessment proceedings and thereafter by the assessment order dated 30 December 2009 held that no adjustment of the Actuarial valuation is to be done by following the decision of the Apex Court in LIC(supra). Therefore we find no substantial question of law arising for our consideration. In view of the fact that the impugned order has merely M/s Regon Religare Life Insurance Co.Ltd-A-JM 14 & 4130//M/14- followed the decision of the Apex Court, we see no substantial question of law for our consideration. Accordingly, Question No. 6 is not entertained.
We find that the assessee followed the IRDA Recommendations and accordingly prepared the actuarial valuation report including the surplus or deficit. The Rule 2 prescribes only actual valuation in accordance with Insurance Act 1938. Looking at the issue, we noticed that the computation made by the assessee is in accordance with Rule 2 of the Insurance Act 1938, according to which only AO can base his computation. The Revenue has not contested that the working of actuarial surplus / deficit is not in accordance with Rule 2 of 1st Schedule. Accordingly we are of the view that the CIT(A) has rightly deleted the addition and we confirmed the same. This issue of Revenue‟s appeal is dismissed.
Next issue of assessee‟s appeal is with regard to disallowance of Rs. 28,87,15,685 towards claim of assessee in non-participating linked pension business segment. For this, assessee has raised following Ground No. 2:
2. Ground No.2 Rejection of claim of Rs. 28,87,15,685/- being deficit incurred by the Appellant in Non-participating Linked Pension business segment. The CIT(A) erred in upholding the order of the AO rejecting the Appellant‟s claim of rs.28,87,15,685 being deficit incurred in Non-participating Linked Pension business segment. While rejecting the Appellant‟s claim, the learned CIT(A) erred on the following grounds: 2.1 The learned CIT(A) erred in disregarding the decision of jurisdictional High Court in the case of Life Insurance Corporation of India, relied upon by the Appellant, wherein it has been held that the fact that income from pension fund has been exempted under section 10(23AAB) of the Act, does not mean that pension fund ceases to be insurance business, so as to fall outside the purview of insurance business and the losses incurred from such pension fund had to be excluded while calculating taxable surplus from insurance business under section 44 of the Act. 2.2 The learned CIT(A) erred in ignoring the order of jurisdictional CIT(A) in the Appellant‟s own case for Asst. Year 2009-10, wherein the CIT(A) allowed the Appellant‟s claim for deficit from Pension business.
At the outset, the ld. counsel for the assessee stated that this issue is squarely covered in favour of the assessee by the order of the co-ordinate bench of this Tribunal ITAT M/s Regon Religare Life Insurance Co.Ltd-A-JM 15 & 4130//M/14- Mumbai in the case of ICICI Prudential Insurance Co. Ltd Vs. ACIT (2012) 28 taxmann.com 257 (Mum.), wherein the tribunal followed the order in the case of General Insurance Corporation of India vs. Addl. CIT in dated 15/02/2012. The ld. counsel for the assessee also stated that the decision of the tribunal was affirmed by the Hon‟ble Jurisdictional Bombay High Court in the case of CIT Vs. LIC Of India ltd. [2011] 12 taxmann.com 388 (Bom), wherein following question was answered by the Hon‟ble High Court:- “C. Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the addition made by the Assessing officer on account of loss from Jeevan ?Suraksha Fund ignoring the settled position of law that income includes loss and that the income from Jeevan Suraksha fund does not form part of the total income of the Assessee Corporation under section 10(23AAB) of the Income-tax Act, 1961 ? Ld. Counsel referred to para 15 to 18 vide which Hon‟ble High Court has answered the issue in favour of the assessee by observing as under: 15. As regard questions(c) and (d) are concerned, the dispute is whether the loss incurred by the assessee from Jeevan Suraksha Fund is liable to be excluded in computing the actuarial valuation surplus in view of the fact that the income from Jeevan Suraksha Fund is exempt under section 10(23AAB) of the Income-tax Act, 1961.
The argument of the revenue is that with the insertion of section 10(23AAB) by Finance (No. 2) Act, 1996 with effect from 1-4-1997, the profis as well as loss arising from Jeevan Suiraksha Fund would not be includible in the total income of the assessee and, therefore, while determining the distributable profits of the assessee, the loss from Jeevan Suraksha Fund ought not to be allowed to be adjusted against the taxable income.
It is not in dispute that the Jeevan Suraksha Fund is a pension fund approved by the Controller of Insurance appointed by the Central Government to perform the duties of the Controller of Insurance under the Insurance Act, 1938. The loss incurred in the Jeevan Suraksha fund has been considered by the actuary as a business loss, as per the valuation report as on the last day of the financial year, allowable under section 44 read with the First Schedule to the Income-tax Act, 1961. The fact that the income from such fund has been exempted under section 10(23AAB) with effect from 1st April 1997, does not mean that the pension fund ceases to be insurance business, so as to fall outside the purview of the insurance business covered under section 44 of the Income-tax Act, 1961. In other words, the pension fund like Jeevan Suraksha Fund would continue to be governed by the provisions of section 44 of the Income-tax Act 1961 irrespective of the fact that the income from such fund are M/s Regon Religare Life Insurance Co.Ltd-A-JM 16 ITA Nos.4110 & 4130//M/14- exempted, or not. Therefore, while determining the surplus from the insurance business, the actuary was justified in taking into consideration the loss incurred under Jeevan Suraksha Fund.
The object of inserting section 10(23AAB) as per the Board Circular No. 762, dated 18/02/1998 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 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. In the case of General Insurance Corporation of India vs. Addl. CIT in dated 15/02/2012 the WP No. 25/11 dated 1-12-2011 this issue is also in favour of the assessee. Respectfully following the Hon‟ble Bombay High Court, we allow the issue in favour of assessee and dismissed the ground of revenue‟s appeal.
In the result, the appeal of the assessee is allowed and that of the revenue is dismissed. Formatted: Centered Order pronounced in the open Court 12.09.2016 Sd/- Sd/- RAMIT KOCHAR MAHAVIR SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 12/09/2016 *PP /Sr.P.S./lkdeka M/s Regon Religare Life Insurance Co.Ltd-A-JM 17 ITA Nos.4110 & 4130//M/14- Copy of the order forwarded to:
1. 1. Appellant/Assessee: M/s. AEGON Religare Life Insurance Company Limited Building No. 3, 3rd Floor, Unit No. 1 Nesco IT Park, Western Express Highway, Goregaon (E), Mumbai-400063/ M/s. AEGON Religare Life Insurance Co.Ltd 1st Floor, Namura, B-Wing, DMart, Hirandani Business Park, Powai, Mumbai-400076 . 2 Respondent : The ACIT, Cir-3(1), Mumbai/The DCIT, Cir 3(1), Mumbai.