9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (5) TMI 511 - AT - Income TaxNature of income in shareholders account and policyholders account maintained by the assessee - Transfer from Shareholder s account to Policy Account And Shown As Part Of surplus in the actuarial valuation - only transfer of capital asset and not taxable u/s 44 of the Act read with Rule 2 of the First Schedule - HELD THAT - We find that similar findings have been rendered by the Co-ordinate Bench of the Tribunal in assessee s own case in preceding years and it was held that the assessee is engaged only in one line of business i.e. life insurance business and the two accounts i.e. shareholders account and policyholders account have been maintained separately for the purpose of meeting with the requirement of law. Therefore we find that this issue has consistently been adjudicated in favour of the assessee by the Co-ordinate Benches of the Tribunal and the income from the shareholders account was held to be taxable as income from life insurance business. Thus no infirmity in the findings of CIT(A) in directing the AO to compute the income arising from shareholders account as income from insurance business under the head Profits and Gains of Business or Profession . As a result the revised grounds of appeal no.1 raised by the Revenue is dismissed. Entitlement to claim exemption u/s 10(34) and section 10(23AAB) of the Act when its income is computed u/s 44 of the Act - HELD THAT - We find that in Life Insurance Corporation of India 1963 (12) TMI 5 - SUPREME COURT held that the applicability of only certain provisions is excluded by section 44 of the Act and other provisions which deal with allowable deduction will have to be held applicable unless they are expressly excluded. No infirmity in the findings of the learned CIT(A) in directing the AO to grant the exemption to the assessee claimed u/s 10(34) and section 10(23AAB) of the Act. Denial of exemption claimed by the assessee u/s 10(15) on the similar basis on which the exemption claimed u/s 10(34) and section 10(23AAB) - As in view of our findings rendered in respect of claim of the assessee for exemption under section 10(34) and section 10(23AAB) in Revenue s appeal for assessment year 2015- 16 we do not find any infirmity in the findings of the learned CIT(A) in also directing the AO to grant exemption to the assessee under section 10(15) of the Act.
The core legal questions considered by the Tribunal in this batch of appeals filed by the Revenue against the orders of the Commissioner of Income Tax (Appeals) pertain primarily to the tax treatment of income arising from different accounts maintained by a life insurance company, the applicability of exemptions under various sections of the Income Tax Act, 1961 ("the Act"), and the interplay between the special provisions governing computation of income from insurance business under section 44 of the Act and the general provisions relating to income computation and exemptions under sections 10 and others.
Specifically, the issues include:
Issue-wise Detailed Analysis 1. Tax Treatment of Income in Shareholders' Account versus Policyholders' Account Legal Framework and Precedents: Section 44 of the Income Tax Act, 1961, read with Rule 2 of the First Schedule, provides a special computation mechanism for income from life insurance business based on actuarial valuation. The Insurance Act, 1938, and IRDA Regulations mandate life insurance companies to maintain separate accounts for shareholders and policyholders. The Revenue contended that income in the shareholders' account is distinct and should be taxed as income from other sources, while the assessee argued that both accounts form integral parts of the same insurance business. Court's Interpretation and Reasoning: The Tribunal, following consistent precedents including the Co-ordinate Bench decision in ICICI Prudential Insurance Co. Ltd. vs. ACIT and its own earlier decisions in the assessee's case, held that the income in the shareholders' account cannot be treated separately from the life insurance business. The Tribunal emphasized that the statutory requirement to maintain separate accounts is for regulatory and solvency purposes and does not create separate businesses. The income in both accounts arises from the life insurance business and must be taxed accordingly under section 44. Key Evidence and Findings: The Tribunal noted that the assessee is engaged solely in life insurance business and is prohibited by statute from undertaking other business activities. The transfer of funds from shareholders' account to policyholders' account to meet deficiencies is a regulatory requirement and does not alter the nature of income. The Hon'ble Jurisdictional High Court upheld this view, affirming that income in shareholders' account is taxable as income from life insurance business under section 44. Application of Law to Facts: The Tribunal applied the non-obstante clause in section 44, which mandates computation of insurance business income as per the First Schedule, excluding other heads of income. Hence, income in shareholders' account is part of the insurance business income and taxable under section 44. Treatment of Competing Arguments: The Revenue's argument that shareholders' account income is separate and taxable under normal provisions was rejected as inconsistent with statutory framework and judicial precedents. The Tribunal also rejected reliance on Supreme Court decisions unrelated to the issue. Conclusion: Income in shareholders' account is taxable as income from life insurance business under section 44 of the Act. 2. Taxability of Transfers from Shareholders' Account to Policyholders' Account Legal Framework and Precedents: IRDA Regulations require transfer of funds to cover deficits in policyholders' account. The Tribunal relied on earlier decisions holding such transfers to be capital transfers within the same business and not taxable income. Court's Reasoning: The transfer is a movement of capital within the same entity and business, not a realization of income. Thus, it is tax neutral and not taxable under section 44 or otherwise. Conclusion: Transfers from shareholders' account to policyholders' account are not taxable income. 3. Applicability of Exemptions under Sections 10(34), 10(23AAB), and 10(15) Legal Framework and Precedents: Sections 10(34) (dividend income), 10(23AAB) (income of pension funds), and 10(15) (interest on securities) provide exemptions from tax. Section 44 contains a non-obstante clause excluding certain computation provisions but does not expressly exclude section 10 exemptions. Court's Interpretation: Following the decision of the Hon'ble Jurisdictional High Court in Life Insurance Corporation of India vs. CIT, and consistent Tribunal precedents, the Tribunal held that section 44 overrides provisions relating to computation of income under sections 28 to 43B but does not override section 10 exemptions. Therefore, income exempt under section 10 remains exempt even when income is computed under section 44. Key Findings: The Tribunal noted that the AO's denial of exemptions under sections 10(34) and 10(23AAB) was contrary to settled law. The CIT(A)'s direction to grant such exemptions was upheld. Application of Law to Facts: Dividend income, pension fund income, and interest on tax-free bonds claimed exempt under respective sections were held to be exempt despite computation under section 44. Treatment of Competing Arguments: The Revenue's contention that section 44 overrides section 10 exemptions was rejected as legally untenable and inconsistent with judicial precedent. Conclusion: The assessee is entitled to claim exemption under sections 10(34), 10(23AAB), and 10(15) even when income is computed under section 44. 4. Impact of Non-Obstante Clause in Section 44 on Other Provisions Legal Framework: Section 44 contains a non-obstante clause stating that the provisions relating to computation of income under certain heads do not apply to insurance business income computed under the First Schedule. Court's Reasoning: The Tribunal clarified that the non-obstante clause excludes sections 28 to 43B and related provisions but does not exclude section 10 exemptions. The non-obstante clause is limited in scope and does not create disharmony with other provisions unless expressly stated. Conclusion: Section 44's non-obstante clause does not exclude applicability of section 10 exemptions. 5. Other Grounds Raised by Revenue The Revenue raised various other grounds relating to the nature of income, eligibility criteria under the Insurance Act, treatment of negative reserves, and applicability of exemptions to insurance business income. The Tribunal found these issues either already adjudicated in favour of the assessee in earlier decisions or not arising from the facts of the present case. The Revenue did not pursue some grounds in revised appeals or submissions. Conclusion: These grounds were dismissed or deemed infructuous. Significant Holdings "Just because separate accounts are maintained the incomes in shareholders' account does not become separate from Life insurance business. 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." "Section 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." "Section 44 of the Act overrides sections 28 to 43B but not the provisions of section 10 of the Act. Therefore, exemption under section 10(34) and section 10(23AAB) claimed by the assessee is to be allowed." "The income earned on capital infused in business is integral part of Life Insurance business." "The transfer of funds from shareholders' account to policyholders' account is a transfer of capital asset and is tax neutral." Final determinations include dismissal of all Revenue appeals for assessment years 2015-16 to 2020-21, affirming that income in shareholders' account is taxable as income from insurance business under section 44, and that exemptions under sections 10(34), 10(23AAB), and 10(15) are applicable notwithstanding the special computation provisions of section 44.
|
