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2015 (1) TMI 694 - AT - Income TaxComputation adopted for filing return of income - non adjudication of the issue by the CIT(A) - Held that:- The computation made by assessee is in accordance with Rule-2 of the Insurance Act 1938 according to which only AO can base his computation. This also corresponds to the way incomes were assessed in earlier years i.e. the correct method as per Rule 2 and Sec 44 of IT ACT. AO is directed to compute the income of the assessee in accordance with the Rule-2 of the Insurance Act, 1938. Decided in favour of assessee. Disallowance under section 14A - Held that:- 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. Decided in favour of assessee. Interpretation of the provision of section 44 of the Income tax Act r.w. Rule 2 of the 1st Schedule of the Income tax Act, 1938 - Held that:- The computation made by assessee is in accordance with Rule-2 of the Insurance Act 1938 according to which only AO can base his computation. This also corresponds to the way incomes were assessed in earlier years i.e. the correct method as per Rule 2 and Sec 44 of IT ACT. In view of the discussion above and after analyzing the Forms, Regulations and Provisions we have no hesitation to hold that the assessee working of actuarial surplus/ deficit is in accordance with Rule 2 of First Schedule. - Decided in favour of assessee and AO is directed to modify the order accordingly. Taxability of surplus of both policy and share holders account - Held that:- As per Insurance Act 1938 all incomes are part of one business only and these incomes are considered as part of same business. Therefore, the incomes in Shareholder's account are to be considered as arising out of Life insurance business only. More over Sec 44 mandates that only First Schedule will apply for computing incomes and excludes other heads of income like, Interest on Securities, income from house property, Capital gains or Income from other sources. Being non-obstante clause, sec. 44 mandates that the profits and gains of insurance business shall be computed in accordance with the rules contained in First Schedule. Therefore, the incomes in Shareholder's account are to be taxed as part of life insurance business only, as they are part of same business and investments are made as part of solvency ratio of same business. The grounds are allowed. AO is directed to treat them as part of Life Insurance Business and tax them u/s 115B. - Decided in favour of assessee. Claim of 100% depreciation on fixed assets - Held that:- As per the provisions of law only those adjustments which are expressly not prohibited under section 44 of the Act could be made. Consequently depreciation which has been debited in the audited accounts as per the consistently followed and accepted accounting policy need not be disallowed. - Decided in favour of assessee. Treating / excluding negative reserve for considering the taxable surplus - Held that:- ssessee 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). -- Decided in favour of assessee.
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