2021 (10) TMI 1419 - AT - Income Tax

Taxability of profits of life insurance business - transfer from Share Holders Account to Policy Holder s Account and shown as part of surplus in the actuarial valuation - Whether was only transfer asset and not taxable u/s 44 of the act read with Rule 2 of the First Schedule? - HELD THAT - Said position qua the issue in question as decided by co-ordinate bench of Tribunal vide order 2017 (3) TMI 1696 - ITAT MUMBAI has not been controverted by DR we are of the considered view that when undisputedly the assessee is carrying on life insurance business its income is to be determined u/s 44 of the Act by taking into account total surplus as arrived at by actuarial valuation and further income from share holder account was also to be taxed as part of the life insurance business. So finding no illegality or perversity in the impugned findings returned by CIT(A) grounds 1 2 raised by the Revenue are dismissed. Addition u/s 10(23AAB) - Loss from Pension Fund - HELD THAT - As we are of the considered view that Ld.CIT(A) has rightly deleted the addition made by the Assessing Officer on account of loss from Pension Fund being exemption under section 10(23AAB) of the Act. So we find no scope to interfere into the finding by Ld.CIT(A).

Summary

Issues Involved:

1. Deletion of addition made by the AO on account of Surplus disclosed in Form No. 1 of Actuarial Report.
2. Deletion of addition made by the AO on account of loss from pension fund under section 10(23AAB).
3. Ignoring the non obstante clause in section 44 not extended to section 10(23AAB).

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Surplus Disclosed in Form No. 1 of Actuarial Report:

The Revenue challenged the deletion of the addition made by the AO on account of the surplus disclosed in Form No. 1 of the Actuarial Report. The AO had added Rs. 30,95,34,000/- to the total income, asserting that the surplus should be offered for tax without modification. The CIT(A) deleted this addition, relying on the Hon’ble Tribunal's decisions in the assessee's own case for prior assessment years (2010-11, 2011-12, 2012-13, and 2014-15). The Tribunal had consistently held that the surplus or deficit should be computed after considering both the Shareholder Account and Policyholder Account, as per the old Form I under the Insurance Act, 1938, rather than the new Form I under IRDA regulations. It was noted that the AO’s reliance on the new Form I was incorrect as the computation should align with Rule 2 of the First Schedule of the Income Tax Act, 1961, which had not been amended to incorporate IRDA recommendations. The Tribunal upheld the CIT(A)’s decision, stating that the computation of actuarial surplus/deficit was in accordance with Rule 2 of the First Schedule, and thus, the addition made by the AO was not justified.

2. Deletion of Addition on Account of Loss from Pension Fund under Section 10(23AAB):

The Revenue also contested the deletion of the addition of Rs. 83,000/- made by the AO on account of loss from the pension fund. The CIT(A) allowed the loss, referencing the Hon’ble Tribunal’s decisions in the assessee’s own case for previous years. The Tribunal had held that the pension fund business is part of the life insurance business, and losses from the pension business should be considered in the actuarial valuation of the surplus/deficit. This view was supported by the Bombay High Court in the case of Commissioner of Income Tax-1, Mumbai vs. Life Insurance Corporation of India Ltd., which stated that pension funds like Jeevan Suraksha Fund are governed by section 44 of the Income Tax Act, 1961, irrespective of the exemption under section 10(23AAB). Therefore, the loss from the pension fund was rightly included in the actuarial valuation, and the CIT(A)’s decision to delete the addition was upheld by the Tribunal.

3. Ignoring the Non Obstante Clause in Section 44 Not Extended to Section 10(23AAB):

The Revenue argued that the CIT(A) ignored the fact that the non obstante clause in section 44 is not extended to section 10(23AAB). However, the Tribunal found that the CIT(A) had correctly applied the law by considering the actuarial valuation, which includes the pension fund business as part of the life insurance business. The Tribunal noted that the CIT(A) had relied on judicial precedents that supported the inclusion of pension fund losses in the actuarial valuation. Consequently, the Tribunal upheld the CIT(A)’s decision, dismissing the Revenue’s appeal on this ground as well.

Conclusion:

The Tribunal upheld the CIT(A)’s order, which relied on earlier Tribunal decisions and judicial precedents, confirming that the actuarial surplus/deficit should be computed considering both the Shareholder and Policyholder Accounts and that losses from the pension fund should be included in the actuarial valuation. The Revenue’s appeal was dismissed in its entirety.