TMI Blog2013 (10) TMI 1130X X X X Extracts X X X X X X X X Extracts X X X X ..... ve (URR) on terrorism – Held that:- As per Rule 5, of Schedule I, read with Rule 6E, the appellant is entitled to claim deduction for any reserve for unexpired risks at the rate of 100% on account of terrorism. This is also in keeping with IRDA Regulations 2002 - A.O's discretion is limited to the adjustments provided in Rule 5, to schedule 1; other than which he is liable to accept the figures of profit as computed under the insurance Act. In the circumstances, this ground of appeal is allowed and the A.O is directed to allow URR on terrorism @ of 100% - Unexpired Risk Reserve on terrorism created at 100% of the net premium income of such business is allowable in view of the Rule 5 of Schedule 1 r.w.r. 6E of the Income Tax Rules – Decided in favor of Assessee. - I.T.A. No. 4287/Mum/2009, I.T.A. No. 4374 /Mum/2009 - - - Dated:- 18-9-2013 - Shri Vijay Pal Rao, JM And Shri N. K. Billaiya, AM,JJ. For the Appellant : Shri O. P. Singh For the Respondent : Ms. Aarti Vissanji ORDER Per : Vijay Pal Rao, JM. These cross appeals are directed against the order dated 14.5.2009 for the assessment year 2004-05. 2. The assessee has raised the following effective ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for any tax, dividend, reserve or any other provision as may be prescribed which is not admissible under the provisions of sections 30 to 43B in computing the profits and gains of a business shall be added back; b. (i) any gain or loss on realisation of investments shall be added or deducted, as the case may be, if such gain or loss is not credited or debited to the profit and loss account; (ii) any provision for diminution in the value of investment debited to the profit and loss account, shall be added back; c. such amount carried over to a reserve for unexpired risks as may be prescribed in this behalf shall be allowed as a deduction." 5.1 The bare reading of the amended provisions of Rule 5 of First Schedule makes it clear that the profits and gains shall be taken to be the profit before the tax and appropriately disclosed in the P L Account prepared in accordance with the Insurance Act, 1938 or the Rule made there under or the provisions of IRDA Act. There is no dispute that the assessee before us has included the profit on sale of investments in the profit and gain as declared in the accounts prepared in accordance with the provisions of Insurance Act 1938. It is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be allowed as a deduction, and any sums taken credit for in the accounts on account of appreciation of or gains on the realization of investments shall be treated as part of the profits and gains; Provided that the Assessing Officer is satisfied about the reasonableness of the amount written off or reserved in the accounts, as the case may be, to meet depredation of or loss on the realization of investment. The argument on behalf of the assessee primarily is that when the rules for preparation of the final accounts provide that the profit on sale of investments, should be shown in the credit side of the Profit and Loss Account, then there was no question of rule 5(b) being applicable and that was the reason why the said rule was omitted with effect from 01.04.1989 and the effect of the omission is that where the Profit and Loss Account already includes the profit on sale of investments, the same shall stand excluded. The effect of the omission of the rule was considered by the Puns Bench of the Tribunal in its order dated 31 August 2009, in the case of Bajaj Allianz General Insurance Company, in ITA No: 1447/PN12007 and CO No:521PN12007 (assessment year 2003-04). A copy of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing the orders Of the Puns and Mumbal Benches of the Tribunal cited above, we direct the Assessing Officer to exclude the profit of Z47,45,699/- on the sale of investments from the assessment V 20. The learned CIT DR, however, argued that the effect of the omission of rule 5(b) is just the opposite of what the assessee has contended. According to him, after 01.04.1989 the exemption was taken away. He submitted further that the profit on sale of the investment has already been included in the Profit and Loss Account and there is no authority to take it out even under rule 5(b) as it existed before 01.04.1989. According to him, there was no scope for applying the rules of interpretation when the statutory provisions are clear. Since the matter is concluded by the orders of the Tribunal cited supra, where all these aspects have been considered, we are unable to take a different view of the matter. Thus Ground No.4 is allowed." 5.4 Since the Tribunal has been taking a consistent view on this issue in a series of decisions as relied upon by the ld AR of the assessee; therefore, to maintain the rule of consistency and uniformity on this aspect, we deicide this issue in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and against the revenue by this Tribunal. The Pune Bench of this Tribunal in the case of Bajaj Allianz General Insurance Company limited v. Addl. CIT(supra) has decided this issue in paragraphs 17 to 20 as under: "17. Finally the question to be answered is about the applicability of s. 14A in respect of sale of investment which is not taxed under the special circumstances of deletion of a sub-rule from the statute. It is not questioned that the impugned profit was non-taxable per se rather the accepted legal position is that the impugned profit was very much taxable in the past. Now it has been informed that this controversy in respect of insurance company set at rest by a decision of Tribunal, Delhi Bench verdict in the case of Oriental Insurance Co. Ltd. (ITA Nos. 5462 5463/Del /2003) asst. yrs. 2000-01 and 2001-02 order dt. 27th Feb.2009 [reported as Oriental Insurance Co. Ltd. v. Asstt. CIT[2010] 130 TTJ (Delhi)388 : [2010] 38 DTR (Delhi ) 225- Ed.]. Therefore considering the vehement reliance of learned Authorized Representative it is worth to mention at the outset itself that the issue now stood resolved by this latest decision of Delhi, Tribunal in the case of Or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surance company or by a cooperative society, shall be computed in accordance with the rules contained in the First Schedule". 23. The above provision makes it very clear that s. 44 applies notwithstanding anything to the contrary contained within the provisions of the IT Act relating to computation of income chargeable under different heads. We agree with the learned counsel that there is no requirement of head- wise bifurcation called for while computing the income under s. 44 of the Act in the case of an insurance company. The income of the business of insurance is essentially to be at the amount of the balance of profits disclosed by the annual accounts as furnished in the Controller of Insurance. The actual computation of profits and gains of insurance business will have to be computed in accordance with r. 5 of the First Schedule. In the light of these special provisions coupled with non obstante clause the AO is not permitted to travel beyond these provisions, 24. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply. No other provision pertaining to computation of income will become relevant. According to the learned counsel, two presumptions that follow on a combined reading of ss. 14, 14A, 44 and r. 5 of the First Schedule are: (a) That no head-wise bifurcation is called for. The income, inter alia, of the business of insurance is essentially to be at the amount of the balance of profits disclosed by the annual accounts as furnished to the Controller of Insurance under the Insurance Act, 1938. The said balance of profits is subject only to adjustments thereunder. The adjustments do not refer to disallowance under s. 14A of the Act. (b) Profits and gains of business as refer red to in (a) above have only to be computed in accordance with r. 5 of the First Schedule. 22. Sec. 44 creates a specific except ion to the applicability of ss. 28 to 43B. Therefore, the purpose, object and purview of s. 14A has no applicability to the profits and gains of an insurance business. 23. The learned Departmental Representative strongly justified the act ion of the AO and that of the CIT(A) in the light of the clear provisions of s. 14A of the Act. Since the view has already been expressed by respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n para 2.1 as under: "2.1 I have perused the facts in this case. The URR on terrorism has been created at the rate of 100% of the unexpired period of the risks. Section 64V(l)(ii)(b) provides that reserve for unexpired risks on fire and miscellaneous business is to be created at the rate of 50% of the net premium. The appellant however, has created this reserve at 100% in keeping with para 2, of part 1, of Schedule B, of the Insurance Regulatory and Development Authority (Preparation of Financial Statement and Auditors Report of Insurance Co.) Regulations, 2002. The relevant portion oIthe above cited regulation, reads as follows: "A reserve for unexpired risks shall be created as the amount representing that part of/he premium written which is attributable to, and to he allocated to the succeeding accounting periods and shall not be less than as required under section 64 V(l) (ii) (b) of the Act." Further, income Tax Rules 6E(a), reads as follows: "In the computation of profits and gains of any business of insurance other than life insurance, the amount carried over to a reserve for unexpired risks including any amount curried over to any such additional reserve which is to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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