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2016 (4) TMI 125 - ITAT MUMBAI

2016 (4) TMI 125 - ITAT MUMBAI - TMI - Sale of investment - taxability in hands of assessee - Held that:- The profits on sale of investment in the years before us, which are year prior to the years with effect from which prospective amendment is made, are not taxable in the hands of the assessee. The taxability of income of insurance companies under the head ‘income from business and profession’ as governed by provisions of section 44 read with first schedule to the Income Tax Act, does not exte .....

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business relations and prospects. Therefore the payment of club fees was business expenditure not falling u/s. 40(a)(v) of the Act. See Otis Elevator Company (India) Limited Versus Commissioner Of Income-Tax [1991 (4) TMI 53 - BOMBAY High Court]. Hon’ble High Court of Delhi in the case of CIT Vs Samtel Color Ltd ( 2009 (1) TMI 26 - DELHI HIGH COURT ) has held that admission fee paid to Corporate Membership was an expenditure incurred wholly and exclusively for the purposes of business and not t .....

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ung Thai Bank PCL Vs DIT [2010 (9) TMI 18 - ITAT, MUMBAI ] directed the AO to exempt the assessee from the applicability of provisions of Sec. 115JB of the Act.- Decided in favour of assessee

Credit for Dividend Distribution Tax u/s. 115-0 - Held that:- We find considerable force in the contention of the assessee. It is the submission of the assessee that it had paid Dividend Distribution tax to the extent of ₹ 58.56 crores out of which ₹ 47 crores have been given credit. .....

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i Farrokh V. Irani ORDER PER C.N. PRASAD, JM: This appeal is filed by the Revenue against the order of the Ld. CIT(A)-2, Mumbai dated 21.03.2014 pertaining to assessment year 2010-11. 2. The Revenue has raised following grounds in its appeal: "1. On facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred in holding that profit on sale of investment are not liable to be taxed in the hands of the assessee in the assessment year under consideration. On facts and in the circu .....

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Ld.CIT(A) erred in allowing the club expenses without appreciating the fact that assessee failed to establish that these expenses are for business purposes. 4. On facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred in holding that the provisions u/s 115JB of the I.T. Act are not applicable to the assessee for A.Y. 2010-11. 5. On facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred in entertaining the ground of appeal regarding credit for Dividend Dis .....

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in other grounds are decided in favour of the assessee in assessee s own case for earlier assessment years. 4. With respect to ground No. 1 i.e. whether profit on sale of investment is liable to be taxed in the hands of the assessee or not, the Ld. Counsel for the assessee referring to page-1 of the compilation which is the order of the Co-ordinate Bench in assessee s own case for assessment years 2002-03 to 2004-05 in ITA Nos. 6500 to 6502/M/205 submits that the Co-ordinate Bench adjudicated t .....

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l Representative vehemently supports the orders of the AO. 6. We have perused the orders of the Co-ordinate Bench in assessee s own case for assessment year 2002-03 to 2004-05. The Co. ordinate Bench following the decision of the Pune Bench in the case of Bajaj Allianz General Insurance Company Limited (supra) held that profits on sale of investment prior to the amendment which has come into effect for assessment year 2011-12 are not taxable on sale of investments. It was further held that the a .....

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rst Schedule. It is an admitted position that there are no specific provisions for making an adjustment on account of profits on sale of investment after removal of clause 5(b) with effect from 1st April 1989 and till clause 5(b)(ii) was inserted with effect from 1st April 2011. Accordingly, there is no occasion to make an adjustment of profit on sale of investments in the profit disclosed by the annual accounts drawn up as per the Insurance Act, 1938. It is important to bear in mind the legal p .....

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ption of such profits. The question of exemption only arises when something is taxable, but, as we have noted above, the taxability of profits in the hands of the insurance companies is confined to profits as per annual accounts of such insurance companies drawn up in accordance with the Insurance Act. 6. What is taxable in the case of the insurance companies is, as we have noted above, is not commercial profit as per the normal rules of computation of business 9 General Insurance Corporation of .....

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made to such book profits in respect of these book profits. On a plain reading of the provisions of the law, such profits cannot be brought to tax in the first place. When these profits cannot be taxed in the first place, there is no need of any specific exemption provision. The principle of casus ommisus is not, therefore, relevant in the present context. 7. In the case of Bajaj Allianz (supra), the coordinate bench has, inter alia, observed as follows:- 6. The ld CIT (A) has called for a rema .....

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hole and sole purpose of a General Insurance Company is to carry on General Insurance Business. (b) The allegation of the AO that transaction in share and securities was one of the normal business activity of the assessee hence, liable for taxation. The contention was that though it was one of the activity to earn profit on sale on investment but the respected Parliament in his wisdom has decided not to tax the same. In support it was cited that the Insurance Company are governed by Rule 5 of a .....

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authority. As per the said regulation profits earned by a General Insurance Company on sale of redemption of investment has to be credited to the profit and loss account and not to be shifted to the balance sheet directly. It was wrong on the part of the AO through a suggestion that had the assessee ever intended to claim the exemption then he could have reflected the profit on sale of investment in the balance sheet directly instead of crediting in P & L account. The contention of the asses .....

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independently prescribed the mode and manner for assessment of Insurance Business. This section since contains non-obstante clause therefore notwithstanding anything contained in any of the sections of the Act, the profits and gains of Insurance Business including any such business carried on by a Mutual Insurance Company or by an Co-operative Society shall be computed in accordance with the rules contained in First Schedule. Accordingly, there could not be any other Income taxable other hand In .....

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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 .....

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ctive amendment, with effect from assessment year 2011-12, in Rule 5(b)(i) of first Schedule to the Income Tax Act. By the virtue of this amendment, profits on sale of investments, in the case of insurance companies will be taxable w e f 2011-12. Since the amendment so made in the statute, which cannot be inferred to be a superfluous amendment, is with effect from 2011-12, the conclusion arrived at by the Pune bench stands further fortified. This further fortifies the stand taken by the co ordin .....

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panies under the head income from business and profession as governed by provisions of section 44 read with first schedule to the Income Tax Act, does not extend to taxability of profits on sale of investments - So far as the assessment years before us are concerned. 10. For the reasons set out above, we direct the Assessing Officer to exclude profits on sale of investments from income of the assessee liable to be taxed. The assessee gets the relief accordingly . Respectfully following the said .....

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orders of the Co-ordinate Bench in assessee s own case for assessment year 2006-07 and we find that the Co-ordinate Bench decided the issue in favour of the assessee following various decisions of the Tribunal observing as under: Grounds of appeal no.4 regarding the expenditure u/s 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 C .....

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r 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 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 pe .....

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Therefore considering the vehement reliance of learned Authorised 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 Oriental Insurance Co. Ltd. (supra), the relevant portion reproduced below : "17. We have heard rival submissions of the parties and have gone through the material available on record. Identical issue arose in assessee's own case for asst. yr. 1985-86. The Tribunal accepted .....

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t. It clearly provides that income from insurance business has to be computed in accordance with the rule contained in the First Schedule. It is not the case of the Revenue that the assessee has not computed the profits and gains of its insurance business in accordance with the said rules. Reliance was placed on the scope of s. 144, as held in the case of General Insurance Corporation of India v. CIT [1999] 156 CTR (SC) 425 : [1999] 240 ITR 139 (SC), wherein their Lordships of the apex Court hav .....

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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 'Incom .....

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ifferent 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 t .....

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ond s. 44 and First Schedule of the IT Act." 18. It may not be out of place to mention that the respected Coordinate Bench has duly taken the note of an earlier decision of that very Bench decided in the case of that very assessee vide order dt. 29th Sept., 2004 bearing ITA Nos. 7815/Del/1989, 3607 to 3609/Del/1990; 5035/Del/ 1998 and 3910/Del/2000 named as Dy. CIT v. Oriental General Insurance Co. Ltd. [2005] 92 TTJ (Delhi) 300. As seen from the paras reproduced above on due consideration .....

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addition is made by the AO on the plea that the provisions of s. 14A was inserted by Finance Act, 2001 w.e.f. 1st April, 1962. It is stated that the investments made by the assessee are both taxable as well as tax free. An estimated disallowance of 50 per cent out of the management expenses incurred and as claimed in the P&L a/c is treated as expenses incurred in connection with the looking after tax-free investment. 19. The learned counsel for the assessee vehemently argued that the income .....

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e 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 a .....

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ted in accordance with r. 5 of the First Schedule. 22. Sec. 44 creates a specific exception 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. 21. The learned Departmental Representative strongly justified the action 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 respected Coordinate Bench theref .....

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ed CIT(A) is reversed and the directions in this regard are set aside. Resultantly ground No. 1 is allowed consequent thereupon ground No. 2 automatically goes in favour of the assessee. 9. Accordingly, by following the earlier orders of this Tribunal, we decide this issue in favour of the assessee . Respectfully following the order of the Co-ordinate Bench in assessee s own case we decide this issue in favour of the assessee. 9. The next issue in the appeal of the Revenue is that the Ld. CIT(A) .....

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further placing reliance on the decision of the Hon ble Bombay High Court in the case of Otis Elevator Co (India) Ltd Vs CIT (195 ITR 682) submits that the club expenses incurred by the assessee enables to improve the relations and prospects. The Ld. Counsel submits that it is impossible to keep record of every person visiting to the club and what kind of business dealings have been made from the visits of the club. Therefore, he submits that the expenses are definitely business expenses. 12. He .....

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d that admission fee paid to Corporate Membership was an expenditure incurred wholly and exclusively for the purposes of business and not towards capital account as it only facilitated the smooth and efficient running of a business enterprise and did not add to the profit earning apparatus of a business enterprise. Similar view has been taken by the Full Bench of of Punjab & Haryana High Court in the case of CIT Vs Groz Beckert Asia Ltd (351 ITR 196). In this case it was held that the Corpor .....

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for the assessment year 2007-08, the Coordinate Bench held that the MAT provisions are not applicable to the assessee, the General Insurance Company. 15. We have perused the orders of the Co-ordinate Bench for the assessment year 2007-08 in ITA No. 354 of 2011 dated 15.2.2012 and we find that the Co-ordinate Bench following the decision in the case of Krung Thai Bank PCL Vs DIT in ITA No. 3390 of 2009 directed the AO to exempt the assessee from the applicability of provisions of Sec. 115JB of th .....

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