TMI Blog2013 (12) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... sub rule (b) from Rule 5 of the First Schedule was with a specific purpose. This schedule not only prescribe the method of computation of income of Insurance Business in Part (A) but also prescribe the method of computation of other Insurance Business in Part (B). Rule 5 is within Part(B) and earlier it has prescribed the method of taxation of profit on sale of investments which was later on scraped - The Revenue Department has no right to tax such an income in the absence of any enabling provision. Naturally, such a deletion cannot be treated a superfluous action but this change had to give a definite judicial meaning. We have to ascribe a logical conclusion to the said deletion of sub rule (b) from Rule 5 and the natural meaning is that after the deletion the income described therein is out of the purview of computation of Insurance Business from the First Schedule therefore consequently cannot be taxed u/s 44 of I.T. Act – Decided against Revenue. Applicability of section 14A – Sale of investment exempt u/s 44 - Held that:- Following DCIT vs. Oriental General Insurance Co. Ltd. [2004 (9) TMI 323 - ITAT DELHI-C] - Section 44 of the Act is a special provision dealing with the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had added back the above amount in the statement of income u/s.43B as the sum during the previous year but not paid on or before the date of furnishing the return of income. The assessee had also quoted the decision in the case of Siddheswar SSK Ltd. Vs. CIT reported in 139 Taxmann 434 (SC). However, the Assessing Officer rejected the contention of the assessee. Distinguishing the decision relied on by the assessee before him and following the decision of the Hon ble Supreme Court in the case of Goetz (India) Ltd. Vs. CIT reported in 284 ITR 323 according to which claim of deduction by way of application cannot be entertained by the Assessing Officer, the Assessing Officer rejected the claim of deduction under Environment Fund Liability. In appeal the Ld.CIT(A) upheld the action of the Assessing Officer. 3.1 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 4. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We find identical issue had come up before the Tribunal in assessee s own case during A.Y. 2006-07. We find the Tribunal v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn, therefore, respectfully following the decisions cited (Supra) we hold that the assessee can make the claim before the appellate authorities and the appellate authorities can entertain such a claim. We, therefore admit this ground and restore the matter to the file of the Assessing Officer with a direction to decide the issue afresh and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. This ground by the assessee is accordingly allowed for statistical purposes. 4.1 Respectfully following the decision of the Tribunal in assessee s own case for A.Y. 2006-07 on identical issue and in absence of any contrary material brought to our notice, we restore this issue to the file of the Assessing Officer with a direction to decide the issue afresh and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The ground raised by the assessee is accordingly allowed for statistical purpose. ITA No.1406/PN/2012 ( By Revenue) : 5. Grounds of appeal No.1 and 2 by the revenue read as under : 1. On the facts and in the circumstances of the case and in law, the Ld.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee by holding as under : 8. A conclusion can be drawn on the basis of the above elaborate discussion that the deletion of sub rule (b) from Rule 5 of the First Schedule was with a specific purpose. This schedule not only prescribe the method of computation of income of Insurance Business in Part (A) but also prescribe the method of computation of other Insurance Business in Part (B). Rule 5 is within Part(B) and earlier it has prescribed the method of taxation of profit on sale of investments which was later on scraped. Even by applying a reverse logic we must arrive at the same conclusion that had the impugned income was earlier taxable under one specific clause but even on its deletion no clause was introduced or replaced to prescribe the method of taxation of such income; therefore the Revenue Department has no right to tax such an income in the absence of any enabling provision. Naturally, such a deletion cannot be treated a superfluous action but this change had to give a definite judicial meaning. We have to ascribe a logical conclusion to the said deletion of sub rule (b) from Rule 5 and the natural meaning is that after the deletion the income described therein is out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in assessee s own case for A.Yrs. 2002-03, 2003-04 and 2004-05 has granted relief to the assessee. 8.1 Based on the arguments advanced by the assessee the Ld.CIT(A) allowed the claim of the assessee by holding as under : 5.3 I have carefully considered the facts of the case and the law. The appellant has raised numerous issues relating to disallowance made u/s.14A through Grounds No.2 and 3 as can be seen from the grounds quoted in Para 2 above. However, during the course of appeal it was pointed out that the Hon ble ITAT has held that Sec.14A will not apply in the case of assessments of the insurance companies made u/s.44 of the I.T. Act and therefore, many issues relating to the quantum etc. has become irrelevant. The appellant has claimed that the decision of the ITAT is binding on the subordinate judicial authorities and therefore, the same should be followed. Considering the same and following the judicial discipline laid by the High Courts and Supreme Courts to follow the judicial precedents within the jurisdiction of a judicial Court, I am allowing grounds No.2 and 3 of the appellant as decided by the Hon ble ITAT in A.Y. 2003-04 and other years quoted supra . 8.2 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision governing computation of taxable income earned from business of insurance. It opens with a non-obstante clause and thus has an overriding effect over other provisions contained in the Act. It mandates the assessing authorities to compute the taxable income for business of insurance in accordance with the provisions of the First Schedule. A plain reading of rule 5(1) of the First Schedule. There is another approach to the same issue. Section 44 of the Income-tax Act read with the Rules contained in the First Schedule to the Act lays down an artificial mode of computing the profits and gains of insurance business. For the purpose of income-tax, the figures in the accounts of the assessee drawn up in accordance with the provisions of the First Schedule to the income-tax Act and satisfying the requirements of the Insurance Act are binding on the Assessing Officer under the Income-tax Act and he has no general power to correct the errors in the accounts of an insurance business and undo the entries made therein. The amount set apart by the General Insurance Corporation for redemption of preference shares and treated as expenditure under rule 2(2)(a) of the General Insurance Busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nct or redundant for the reason only that these provisions should have been inserted in Chapter III and not in Chapter IV, after all both Chapter III and Chapter IV are integral part of the same enactment. For ready reference para 108 is reproduced verbatim below:- 108. The main provision of s. 14A inserted by the Finance Act, 2001, with retrospective effect from 1st April 1962 reads as under: 14A For the purposes of computing the total income under this chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act: On a plain reading of the above quoted provisions, we find that if any part of the expenditure claimed by the assessee as deduction against his income chargeable to tax is found or determined to have been incurred by the assessee in relation to income received by the assessee from the mutual funds, the expenditure claimed by the assessee as deduction against his income chargeable to tax has to be disallowed to that extent. We do not see much force in the contention of the assessee that while the provisions of s. 10(33) exempting the assessee s income on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o s. 14A having any application. It is not the case of reopening any closed matter. It is, therefore, open to us to take note of the retrospect provisions of s. 14A. Respectfully following the verdict of the Respected Five Member Special Bench we hereby disapprove the argument of Ld. AR that the provisions of sec. 14A are applicable only in respect of income fall within the purview of Chapter III of I. T. Act. 17. Finally the question to be answered is about the applicability of sec. 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 ITAT Delhi Bench verdict in the case of Oriental Insurance Company Limited (ITA No. 5462 5463/Del/03) A.Y. 2000-01 and 2001-02 order dated 27th February 2009.Therefore considering the vehement reliance of Ld. AR it is worth to mention at the outset itself that the issue now stood resolved by thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection with the looking after tax free investment. 19. The learned counsel for the assessee vehemently argued that the income of the assessee is to be computed u/s 44 read with Rule 5 of schedule 1 of the IT. Act Section 44 is a non-obstante clause and applies notwithstanding anything to the contrary contained within the provisions of the Income-tax Act relating to computation of income chargeable under different heads, other than the income to be computed under the head Profit and gains of Business or profession . For computation of profits and gains of business or profession the mandate to the AO is to compute the said income in accordance with the provisions of section 28 to 43B of the Act. In the case of the computation of profits and gain of any business of insurance, the same shall be done in accordance with the rules prescribed in First Schedule of the Act, meaning thereby section 28 to 43B shall not apply. 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 section 14, 14A, 44 and Rule 5 of the First Schedule are: (a) That no head-wise bifurcation is called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these provisions. 24. Section 14A contemplates an exception for deductions as allowable under the Act are those contained u/s 28 to 43B of the Act. Section 44 creates Special application of these provisions in the cases of insurance companies. We therefore, agree with the assessee and delete the act as according to us, it is not permissible to the AO to travel beyond section 44 and First Schedule of the Income-tax Act. 18. It may not be out of place to mention that the Respected co ordinate Bench has duly taken the note of an earlier decision of that very Bench decided in the case of that very assessee vide order dated 29th September 2004 bearing ITA Nos. 7815/Del/1989; 3607 to 3609/Del/1990; 5035/Del/1998 3910/Del/2000 named as DCIT vs. Oriental General Insurance Co. Ltd. reported in 92 TTJ 300 (Del). As seen from the paras reproduced above on due consideration of the relevant provisions as applicable to resolve this issue a conclusion was drawn that since the Courts have held, sec. 44 creates a special provision in the cases of assessment of Insurance Companies therefore it was not permissible to the A.O to travel beyond sec. 44 of First Schedule of I. T. Act. Since the vi ..... 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