TMI Blog2015 (1) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1st Schedule of the Income tax Act, 1938 - Held that:- The computation made by assessee is in accordance with Rule-2 of the Insurance Act 1938 according to which only AO can base his computation. This also corresponds to the way incomes were assessed in earlier years i.e. the correct method as per Rule 2 and Sec 44 of IT ACT. In view of the discussion above and after analyzing the Forms, Regulations and Provisions we have no hesitation to hold that the assessee working of actuarial surplus/ deficit is in accordance with Rule 2 of First Schedule. - Decided in favour of assessee and AO is directed to modify the order accordingly. Taxability of surplus of both policy and share holders account - Held that:- 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. More over Sec 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-obstant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The CIT (Appeals) has erred in holding that the provisions of Section 14A are applicable to the appellant. 4. Without prejudice to the above, The CIT (Appeals) erred in holding that disallowance should be computed by applying Rule 8D, estimating the expenses attributable towards dividend income as 0.5% (i.e. ₹ 85.43 crores) of average investment, without giving any reason for disregarding the calculations filed by way of submissions, detailing the method of computing expenses attributable to such exempt income. 2. Ground No.1 is regarding non adjudication of this issue by the CIT(A), i.e. regarding the computation adopted by the assessee in the return of income . 2.1 We have heard the ld. AR as well as the ld. DR and considered the relevant material on record. At the outset we note that an identical issue has been considered and decided by this Tribunal in assessee s own case for the assessment year 2005-06 to 2008-09 in the case of (ICICI Prudential Insurance Co. Ltd.) 140 ITD 41 in para 42 as under :- 42. In view of the above, looking at the issue in any way what we notice is that the computation made by assessee is in accordance with Rule-2 of the Insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year 2003-04 order dated 31.08.2009. This Tribunal in the case of JCIT v. M/s Reliance General Insurance co. in ITA No.3085/Mum/2008 for the assessment year 2005-06 vide order dated 26.2.2010 has considered this issue and decided in favour of the assessee. This order was followed by this Tribunal while deciding the issue in ITA No.781/Mum/2007 vide order dated 30.4.2010. Thus, this issue has been consistently decided in favour of the assessee 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 quest ion 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the records. The provisions of s. 44 read as under: 44. Insurance business.-Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head 'Interest on securities'. 'Income from house property' , 'Capital gains' or 'Income from other sources' , or in s. 199 or in ss. 28 to 43B, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co operative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 ss. 28 to 43B of the Act. In the case of the computation of profits and gains of any business of insurance, the same shall be done in accordance with the rules prescribed in First Schedule of the Act, meaning thereby ss. 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 ss. 14, 14A, 44 and r. 5 of the First Schedule are: (a) That no head-wise bifurcation is cal led 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 there under. The adjustments do not refer to disallowance under s. 14A of the Act. (b) Profits and gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case and in law, the Ld CIT(A) erred in al lowing the rel ief to the assessee by holding that 'surplus available both in Policy Holders Account and Share Holder's Account is to be consol idated and only net surplus is to be taxed as income from Insurance Business? 3. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in giving relief to the assessee, following the decision of Hon'ble ITAT in assessee own case for the earlier years, wherein Hon ble tribunal held that on account of 'legislation by incorporation' , 'only' the unamended Insurance Act 1938 and the Regulat ions there under became part of Section 44 r.w Rule 2 of the First Schedule of the IT. Rules; when an appeal against this order of ITAT has been filed is pending with High Court, Bombay? 4. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in giving relief to the assessee, following the decision of Hon 'ble ITAT in assessee own case for the earlier years, wherein Hon 'ble Tribunal held that the Legislature consciously omitted incorporation of the provision of Insurance Regulato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt u/s. 10(34) of the I.T. Act , 1961, ignoring the fact that dividend income is considered as part of income of Life Insurance Business and is included as an income by the actuary? 10. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in allowing relief to the assessee by holding that surplus avai lable in Share Holders Account is not to be taxed separately as ' income f rom other sour ces ' and at the normal corporate rate and holding that surplus from Share Holders Account was only part of income from insurance business arrived at after combining' surplus available in Share Holders Account wi th the surplus avai lable in Pol icy Holders Account and then and taxing this 'net surplus' arr ived at , at the rates specified u/s. 1 15B of the Act? 11. The appellant prays that the order of Ld. CIT(A) on the above grounds be set aside to file of AO or confirm the order of the AO. 12. The appel lant craves leave to amend or alter any ground or add a new ground which may be necessary. 5. Ground No.1 to 6 regarding interpretation of the provision of section 44 of the Income tax Act r.w. Rule 2 of the 1st Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act 1938 only. .. 32. IRDA Regulations specifically require to maintain the policyholder's account and the shareholder's account separately and permits transfer of funds from shareholder's account to policyholder's account as and when there is a deficit in policyholder's account. As rightly noted by the Hon'ble Bombay High Court, as a policy, company is transferring funds/assets from shareholder's account to policyholder's account even during the year periodically as and when the actuarial valuation was arrived at in policyholder's account. Most of the companies are required to submit quarterly accounts under the Company Law, there is requirement of actuarial valuation report periodically and accordingly assessee was transferring funds from the shareholder's account to policyholder's account. Since the insurance business will not yield the required profits in the initial 7 to 10 years, lot of capital has to be infused so as to balance the deficit in the policyholder's account. During the year as already stated assessee has issued fresh capital to the extent of ₹ 250 crores and transferred funds to the extent of ₹ 233 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eficit under the Insurance Act, 1938 prescribed under Rule 2 of the first schedule part-A. In view of this, we are of the opinion that insistence by AO to bring to tax the entire amount shown under the new Regulations including transfer from shareholder's account is not correct. Instead of AO in taking the surplus at Regulation 8(1)(a) which is the actuarial surplus / deficit for the year took the amount as disclosed at Regulation 8 (1) (f) (total surplus after transfer from Shareholder's account) which is not at all correct. . .. 42. In view of the above, looking at the issue in any way what we notice is that the computation made by assessee is in accordance with Rule-2 of the Insurance Act 1938 according to which only AO can base his computation. This also corresponds to the way incomes were assessed in earlier years i.e. the correct method as per Rule 2 and Sec 44 of IT ACT. In view of the discussion above and after analyzing the Forms, Regulations and Provisions we have no hesitation to hold that the assessee working of actuarial surplus/ deficit is in accordance with Rule 2 of First Schedule. Therefore, assessee grounds on this issue are allowed and AO is direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stments are made as part of solvency ratio of same business. The grounds are allowed. AO is directed to treat them as part of Life Insurance Business and tax them u/s 115B. 6.2 Following the earlier order of this Tribunal we do not find any error or illegality in the impugned order of the ld. CIT(A) and decide this issue against the revenue and in favour of the assessee. 7. Ground No.8 is regarding the claim of 100% depreciation on fixed assets. 7.1 We have heard the ld. DR as well as the ld. AR. Considered the relevant material on record. We find that this issue was decided by this Tribunal in assessee s own case for the assessment year 2005-06 and assessment year 2008-09 in para nos. 60 to 62 as under :- 60. Ground No. 2 is about deletion of addition made on account of claim of 100% depreciation of ₹ 15,79,707/-. It was the contention of the Revenue that the CIT(A) ignored the actuarial surplus determined on the basis of the total assets if the company and therefore not capitalized in the above assets. The assets of assessee to that extent are not stated, therefore, it has an impact of reducing the total surplus. 61. Before the CIT(A) it was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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