2012 (11) TMI 13 - ITAT MUMBAI

Taxability of Income from insurance business - The dispute in this case is in adopting the amount of surplus or deficit as per actuarial valuation. - held that:- ‘actuarial valuation made in accordance with the Insurance Act, 1938’ do mean that the actuarial valuation done in accordance with the Insurance Act, 1938.

The action of AO in relying on the IRDA Regulations is not according to the law. Assessee had submitted its accounts, which are in accordance with the Insurance Act, 1938. Instead of examining these statements, just because assessee has shown total surplus in the accounts in similarly named Form-I( under Regulation 8), AO wants to tax the amount which is after taking into account the transfer of assets by way of fresh capital from shareholder’s account. This in a way is taxing fresh capital infused into business indirectly which cannot be done as this is not business surplus but infusion of capital directly.

The assessee working of actuarial surplus/ deficit is in accordance with Rule 2 of First Schedule. - Decided in favor of assessee.

Disallowance u/s 14A - held that:- the provisions of section 14A are not applicable. - section 44 has overriding effect.

Surplus of pension schemes - exemption u/s 10(23AAB) - 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. - held that:- exemption under Sec 10 allowed.

Taxability of incomes in Shareholder’s account - held that:- 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. - AO is directed to treat them as part of Life Insurance Business and tax them u/s 115B.

Regarding the issue of treating negative reserve and disallowing the amount. - held that:- The mathematical reserve is part of Actuarial valuation and the surplus as discussed in Form-I under Regulation 4 takes into consideration this mathematical reserve also. Therefore the order of the CIT(A) is approve. Moreover the Assessing Officer has no power to modify the amount after actuarial valuation was done, which was the basis for assessment under Rule 2 of 1st Schedule r.w.s. 44 of the I.T. Act.

Decided in favor of assessee and against the revenue.