TMI Blog2014 (5) TMI 1067X X X X Extracts X X X X X X X X Extracts X X X X ..... ability of provisions of Section 14A on insurance Companies - dis-allowance of expenditure related to exempted income - Held that:- in view of the special provisions applicable to the insurance companies, we are of the opinion that the provisions of section 14A r.w.r. 8D were held not applicable to the insurance companies i.e., ICICI Prudential Insurance, HDFC Standard Life Insurance Company. Therefore, the SBI Life Insurance Company Limited (assessee in the present case should not be any exception. Considering the settled nature of the issue vide the decisions of the Tribunal’s orders - Decided in favor of assessee. - ITA No. : 3800/Mum/2008, ITA No. : 3801/Mum/2008 ,ITA No. : 1501/Mum/2009, ITA No. : 5670/Mum/2009, ITA No. : 4139/Mum/2008, ITA No. : 3346/Mum/2009, ITA No. : 5759/Mum/2009 - - - Dated:- 23-5-2014 - SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER For the Appellant : Shri F V Irani Shri Manoj Purohit For the Respondent : Shri S D Srivastava O R D E R PER D. KARUNAKARA RAO, AM: There are 7 appeals under consideration. Out of them, assessee-SBI Life Insurance Company Limited filed an appeal for AY 2003- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ie. 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 directed to modify the order accordingly. Ground Nos.1 to 3 are considered allowed. 55. We have heard the rival contentions. As briefly discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds, he mentioned that ground no.1, 2, 3 and 4 for the A Ys 2003-04; 2004-05 and 2005-06 and grounds no.1 and 2 of AY 2006-07 are one and the same. All these grounds stand covered by the above extracted ratio of the judgments. ITA 3800/Mum/2008- Assessee s Appeal Therefore, for the sake of reference, the latest grounds raised by the assessee with regard to the AY 2003-04 vide appeal ITA 3800/Mum/2008 are reproduced here under: Ground No 1 That the Learned CIT(A) erred in holding that there was actuarial surplus amounting to ₹ 81,000/-, which was utilized for declaration of bonus, ignoring the fact that such a surplus is not the real surplus but the surplus created by transfer of profit from within the enterprise i.e. from the Profit and Loss Account to the Revenue account. It was erroneously ignored that the actual profit/Loss of the appellant is the combined Profit / Loss reflected in Revenue account and P L A/c and inter-account transfers neutralize themselves when the result of two accounts are combined. If the effect of the transfer from one account to another within the same enterprise is eliminated to arrive at the total profit / loss of an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equirement which does not change the real nature and character of the income. Income in Shareholders account also constitutes income from life insurance business subject to the provisions of Section 44 read with Schedule I and to the special rate prescribed in Section 115B for income of Insurance Business. In fact prior to the setting up of the institution of IRDA, there was no requirement of preparing two accounts separately. A common P L Account was prepared in accordance with the requirements of the Insurance Act. The legal provisions remaining the same, the directions of IRDA alter the form only without making any change in the substance. Ground No. 4 That from the aforesaid reasons the Learned CIT(A) went wrong in substituting only the Revenue account income by the income envisaged in Section 44 of the Income Tax Act. In the correct view of the matter, it is the entire income of the company that was required to be substituted by the income as computed in accordance with the provisions of Section 44 for taxation purposes. Ground 5: The appellant crave leave to add any other ground of appeal or amend any other ground during the course of hearing of appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds 1 to 4 are allowed and ground 5 being general does not need any specific adjudication. 7. In the result, the appeal of the assessee for the AY 2004-05 are allowed. 8. Next we shall attend to the appeal of the revenue for the AY 2004-05. Revenue raised three effective issues namely, (i) transfer of funds to the revenue account is not allowable as deduction; (ii) set off of losses arising from profits other than insurance against surplus from revenue account; and (iii) allowance of club expenses and provision of gratuity without confirming whether it relates to insurance business or not. In this regard, it is the submission of the assessee s counsel that the first issue being connected one to the core issue already adjudicated above in favour of the assessee, has to be dismissed. On hearing the parties, ground 1 of the revenue being connected and consequential, we dismiss the same. The regarding the second and third issues, Ld Counsel submitted that while the second issues has to be dismissed considering its connectivity to the ground 1-4 of the assessee s appeal, the third and final issue relating to the club expenses and provision of gratuity stands covered by the cit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re specific adjudication. They are: (a). transfer of funds to revenue account is not allowable as deduction; (b). set off of losses arising from profits other than insurance against surplus from revenue account; (c). exclusion from total income the exempted income u/s 10(34) and 10(38) and 10(23AAB) of the Act. In connection with issues mentioned at (a) and (b) above, both parties agreed that these issues are identical to the ones raised by the revenue for the AY 2004-05. We have already adjudicated the same and therefore, we direct the AO follow the same for this year also after granting reasonable opportunity of being heard to the assessee. In connection with issue at (c) above, it is the claim of the assessee, that the same is required to be adjudicated considering the decisions of the Tribunal in the case of ICICI Prudential Insurance and LIC, supra. These decisions are not in existence at the relevant point of time. Considering these new developments, we direct the AO to readjudicate the same after considering the said decisions and the after granting reasonable opportunity of being heard to the assessee. Accordingly, we partly allow the relevant grounds for statistical purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arding the expenditure under section 14A. 8. We have heard the rival contentions and perused the relevant record. We note that this issue has been considered and decided by the Pune Bench of this Tribunal in the case of Bajaj Allianz General Insurance Company limited V/s Add. CIT in ITA No.1447/PN/2007 for the assessment year 2003-04 order dated 31.08.2009. This Tribunal in the case of JCITV/s 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/s Add. 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 subrule from the statute. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ips of Delhi High Court have held that no quest ion of law, much less a substantial quest ion of law survives for their consideration. In other words, order of the Tribunal has been affirmed. Following the same reasoning, addition made by the AO is deleted. 22. We have considered the rival contentions and gone through 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. The learned counsel for the assessee vehemently argued that the income of the assessee is to be computed under s. 44 r/w r. 5 of Sch. 1 of the IT Act. Sec. 44 is a non obstinate clause and applies notwithstanding anything to the contrary contained within the provisions of the IT 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 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 called for. The income, inter alia, of the business of insurance is essentia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the FAA. Dissatisfied with the order of the FAA, AO has submitted that he (FAA) should have restored the order back to the AO to make disallowance as per the decision delivered by the Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing Company Ltd (234 ITR 1). 13.1. Before us, DR supported the order of the AO. AR submitted that issue is covered in favour of the assessee by the order of ICPLI. While deciding the appeal for the AY 2008-2009, we have held that provisions of section 14A of the Act did not apply to the assessee carrying of insurance business. As the assessee is engaged in the business of Life Insurance so provisions of section 14A r.w.r 8D of Rules (supra) cannot be applied in its case. We have already decided, while adjudicating the appeal for the AY 2008-2009 that proportionate expenses cannot be disallowed u/s 14A in case of company doing the business of the Life Insurance. Following the same, ground no.2 is decided against the AO. 16. Per contra, Ld DR is of the opinion that these decisions were taken relying on another Coordinate Bench decision of the ITAT, Pune in the case of Bajaj Allianz General Insurance Company Limited vs. Addl. CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al purpose. 19. In the result, the appeal of the assessee is allowed partly. 20. In connection with the revenue s appeal for the AY 2006-07, the parties mentioned that there are four main issues that require specific adjudication. They are: (a). transfer of funds to revenue account is not allowable as deduction; (b). set off of losses arising from profits other than insurance against surplus from revenue account; (c). exclusion from total income the exempted income u/s 10(23AAB) of the Act; (d) addition of negative reserve to the actuarial surplus for determining the profit from business of life insurance; and (e) disallowance u/s 14A of the Act. In connection with issues mentioned at (a) to (c) and (e) above, both parties agreed that these issues are identical to the ones raised by the revenue for the AYs 2004-05 and 2005-06. We have already adjudicated the same and therefore, we direct the AO follow the same for this year also after granting reasonable opportunity of being heard to the assessee. In connection with issue at (d) above, it is the claim of the assessee, that the same is required to be adjudicated considering the decisions of the Tribunal in the case of ICICI Pr ..... 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