2017 (3) TMI 1904 - AT - Income Tax

Addition of income from shareholder s funds credited directly to the shareholder s Account - Whether CIT-A erred in his interpretation of Act the Insurance Act 1938 the IRDA Act and the IRDA (preparation of Financial Statements and Auditor s Report of Insurance Companies) Regulations 2002 the IRDA (Assets Liabilities and Solvency Margin of Insurers) Regulations 2000? - HELD THAT - Issue decided against the assessee by the decision of this Tribunal in assessment year 2009-10 2013 (6) TMI 377 - ITAT MUMBAI basic question to be decided in that appeal was whether the assessee could be said to be in default u/s.115-Q of the Act on account of non-payment of tax on distributed profits u/s.115-O of the Act in respect of payment made to central government out of the surplus profit. After discussing facts of the case and the provisions of the sections 115-O and 115-Q of the Act Tribunal held that payment made by the assessee to the Central Government could not be treated as dividend within the ambit of definition clause 2(22) of the Act that provisions of section 115-O of the Act were not applicable that assessee could not be declared as assessee in default u/s.115 Q of the Act. In our opinion in the case relied upon by the AR of the assessee question of taxability of particular items of income under the head income from other sources was not before the Tribunal. Therefore upholding the order of the FAA we decide Ground of appeal against the assessee.

Summary

Issues:
1. Addition of income from shareholder's funds
2. Interpretation of relevant Acts and Regulations
3. Interest charged under section 234D of the Act

Analysis:
1. The first issue pertains to the addition of income from shareholder's funds directly credited to the shareholder's account. The Tribunal referred to the previous year's decision and concluded that the income earned by the assessee and transferred to the shareholders' account should not be treated as a charge on profit but as an application of income. The Tribunal highlighted that the income earned from dividend and interest, in a strict sense, cannot be considered as income from the insurance business. The Tribunal emphasized that the initial capital contribution by the Government of India does not make all subsequent income as income of the Sovereign. Therefore, the Tribunal upheld the decision of the Ld. CIT-A regarding this issue.

2. The second issue revolves around the interpretation of Acts and Regulations, including the Insurance Act 1938, the IRDA Act, and the IRDA Regulations. The Tribunal analyzed the provisions of the LIC Act, specifically section 28, to determine the allocation of profit between shareholders and the Government of India. The Tribunal emphasized that income transferred to policyholders' account was considered a charge on income and excluded from taxation. Additionally, the Tribunal discussed a previous case related to taxability under different sections of the Act and held that the payment made by the assessee to the Central Government could not be treated as dividend. The Tribunal upheld the decision against the assessee based on these interpretations.

3. The final issue concerns the interest charged under section 234D of the Act. The Ld. Counsel for the assessee decided not to press for this ground, leading to its dismissal. The Tribunal, following the precedent and identical facts, upheld the decision of the Ld. CIT-A regarding this issue. Consequently, the appeal filed by the assessee was dismissed, and the order was pronounced in the Open Court on 07.03.2017.