TMI Blog2016 (11) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is in accordance with Rule 2 of the Insurance Act 1938, according to which only AO can base his computation. The Revenue has not contested that the working of actuarial surplus / deficit is not in accordance with Rule 2 of 1st Schedule. Accordingly we are of the view that the CIT(A) has rightly deleted the addition and we confirmed the same. This issue of Revenue‟s appeal is dismissed. Disallowance towards claim of assessee in non-participating linked pension business segment - claim for deficit from Pension business - Held that:- The object of inserting section 10(23AAB) as per the Board Circular No. 762, dated 18/02/1998 was to enable the assessee to offer attractive terms to the contributors. Thus, the object of inserting section 10(23AAB) was not with a view to treat the pension fund like jeevan Suraksha Fund outside the purview of insurance business but to promote insurance business by exempting the income from such fund. Therefore, even after insertion of section 10(23AAB), the loss incurred from the insurance business under section 44 of the Income-tax Act, 1961 cannot be faulted. See CIT Vs. LIC Of India [2011 (8) TMI 47 - BOMBAY HIGH COURT] - I.T.A No. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with provisions of section 44 read with First Schedule of the Act and it is not permissible to the assessing office to travel beyond the provisions of section 44 read with First schedule of the Act and make disallowance by applying section 14A of the Act Revenue has raised the following ground No. 1 in ITA No. 4130/Mum/2014:- 1. Whether on the facts and circumstances of the case and in law, the ld. CIT (A) was justified in allowing the deduction claimed on dividend income u/s. 10(34) of the Act amounting to ₹ 29,08,806/- without appreciating the fact that dividend income forms part of actuarial valuation for calculating the surplus or deficit in accordance with the Schedule 1 of the Income-tax Act which is considered as business income. 3. In regard to ground no.1 of assessee‟s appeal, the ld. counsel for the assessee argued that this issue is squarely covered in favour of the assessee by the decision of the co-ordinate bench of this tribunal ITAT, Mumbai in the case of ICICI Prudential Insurance Co. Ltd. Vs. ACIT [2012] 28 Taxmann.com 257(Mum), dated 14/09/2012, has decided the issue by following the Pune Bench decision in the case of Bajaj Allianz Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Asst t . 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 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 the plea of the assessee and in fact the issue went up to ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench the Hon'ble Delhi High Court in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrary 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 t ravel 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 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 s. 44 and First Schedule of the IT Act . 18. I t may not be out of place to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench 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 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. 21. 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 respected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law, the Tribunal is correct in allowing the dividend income of assessee as exempt 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?. According to Ld. Counsel, Hon‟ble High Court has confirmed the order of Tribunal and this question was not admitted. 6. We find that the Tribunal following the decision of Hon‟ble Bombay High Court in case of General Insurance Corp. of India Vs. CIT [2012] 2004 Taxmann.com 587 has dealt with the issue as under : 48. All the above three grounds are on the issue whether exemption under Sec 10 can be allowed when incomes are computed under Sec.44 of the IT Act. In arriving at the deficit from the insurance business, assessee claimed certain exempt incomes under section 10(23AAB) with reference to Pension Business and dividend under section 10(34). AO did not allow the amounts on the reason that these incomes are part of income of life insurance business and it is included as income by the actuary, therefore, they cannot be exempted. This issue is covered in favour of assessee and against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15, 23G, 34 and 38 of Section 10 and assessee challenged the issue by way of writ petition. The Hon'ble Bombay High Court not only disapproved the reopening of the assessment but gave the findings on merit also which are as under:- 11. Section 44 of the Income Tax Act, 1961 stipulates as follows: 44. 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 ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench from other sources , or in section 199 or in sections 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 cooperative society, shall be computed in accordance with the rules contained in the First Schedule . Section 44 provides that the profits and gains of any business of insurance of a mutual insurance company shall be computed in accordance with the rules in the First Schedule. Part 'A' of the First Schedule containing Rules 1 to 4 deals with profits of life insu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e otherwise admissible in the case of an assessee, computation of whose income is governed by the other provisions of the Act. The argument of Mr. Kolah for the Life Insurance Corporation is that unless there are express provisions which disable the Corporation from claiming the deductions referred to above, the Corporation cannot be deprived of the benefit of the provisions referred to in the questions Nos. 1 to 6. Section 44, which deals with computation of profits and gains of business of insurance, begins with a non- obstante clause, the effect of which is that the provisions of the 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 , do not apply in the case of computation of income from insurance business. The effect of the non-obstante clause so far as the earlier part of section 44 is concerned, therefore, is that the provisions of section 44 will prevail notwithstanding the fact that there are contrary provisions in the Act relating to computation of income chargeable under the four heads mentioned in section 44. The only other overriding effect of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The Division Bench held that upon the language of sub-section (7) of section 10 read along with rule 6 it was impossible to hold that the provisions relating to exemptions stood excluded from operation. In that context the Division Bench held as follows: It is only after the profits and gains of a business are computed that any question of granting exemptions arises and if the latter stage were intended to be excluded by the law we should have thought that a clearer provision than is made in sub-section (7) of section 10 and in rule 6 would have been made . In the subsequent judgment of the Division Bench in Life Insurance Corporation (supra), the Division Bench noted that there was a difference in the language of ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench section 10(7) of the Act of 1922 when compared with section 44 of the Act of 1961 since section 44 does not refer to the computation of tax but merely to the computation of profits and gains in the business of insurance. The Division Bench held that this would however not make any difference to the principle laid down by the Court in the earlier decision in the case of New India A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by the Division Bench in Life Insurance Corporation vs. Commissioner of Income-tax (Supra) following the earlier decision in Commissioner of Income-tax vs. New India Assurance Co. Ltd(supra). The Assessing Officer could not have ignored the binding precedent contained in the two Division Bench decisions of this Court. Moreover, the Assessing Officer in allowing the benefit of the exemption in the order of assessment under section 143(3) specifically relied upon the view taken by the CBDT in its communication dated 21 February 2006 to the Chairman of IRDA. The communication clarifies that the exemption available to any other assessee under any clauses of section 10 is also available to a person carrying on non-life insurance business subject to the fulfilment of the conditions, if any, under a particular clause of section 10 under which exemption is sought. It needs to be emphasized that it is not the case of the Assessing Officer that the assessee had failed to fulfil the condition which attached to the provisions of the relevant clauses of section 10 in respect of which the exemption was allowed. This of course is apart from clause (38) of section 10 where the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed before Hon‟ble Jurisdictional High Court in the case of CIT Vs. ICICI Prudential Insurance Co. Ltd. in ITA No. 711 688/2014 dated 20/07/2015 and Hon‟ble High Court has adjudicated the following question no. 6: 6. Whether on the facts and in the circumstances of the case and in law, the Tribunal is correct in failing to appreciate that negative reserve has an impact of reducing the taxable surplus‟ as per Form-I and therefore corresponding adjustment for negative reserve need to be made to arrive at taxable surplus? Ld. Counsel stated that Hon‟ble High Court has answered this question in its judgment vide para 4 as under: 4. So far as Question No. 6 is concerned, the grievance of the revenue is that the Tribunal after having taken total surplus as arrived by Actuarial valuation ought to have reduced negative reserve amount of ₹ 27.27 crores while determining respondent assessee‟s income under Section 44 of the Act. The impugned order records that the mathematical reserves is a part of the Actuarial valuation and the surplus takes into account the mathematical reserve also Besides the impugned order follows the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the fact that income from pension fund has been exempted under section 10(23AAB) of the Act, does not mean that pension fund ceases to be insurance business, so as to fall outside the purview of insurance business and the losses incurred from such pension fund had to be excluded while calculating taxable surplus from insurance business under section 44 of the Act. 2.2 The learned CIT(A) erred in ignoring the order of jurisdictional CIT(A) in the Appellant‟s own case for Asst. Year 2009-10, wherein the CIT(A) allowed the Appellant‟s claim for deficit from Pension business. At the outset, the ld. counsel for the assessee stated that this issue is squarely covered in favour of the assessee by the order of the co-ordinate bench of this Tribunal ITAT Mumbai in the case of ICICI Prudential Insurance Co. Ltd Vs. ACIT (2012) 28 taxmann.com 257 (Mum.), wherein the tribunal followed the order in the case of General Insurance Corporation of India vs. Addl. CIT in ITA No.3554/Mum/2011 dated 15/02/2012. The ld. counsel for the assessee also stated that the decision of the tribunal was affirmed by the Hon‟ble Jurisdictional Bombay High Court in the case of CIT Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act 1961 irrespective of the fact that the income from such fund are exempted, or not. Therefore, while determining the surplus from the insurance business, the actuary was justified in taking into consideration the loss incurred under Jeevan Suraksha Fund. 18. The object of inserting section 10(23AAB) as per the Board Circular No. 762, dated 18/02/1998 was to enable the assessee to offer attractive terms to the contributors. Thus, the object of inserting section 10(23AAB) was not with a view to treat the pension fund like jeevan Suraksha Fund outside the purview of insurance business but to promote insurance business by exempting the income from such fund. Therefore, in the facts of the present case, the decision of the Income-tax Appellate Tribunal in holding that even after insertion of section 10(23AAB), the loss incurred from the insurance business under section 44 of the Income-tax Act, 1961 cannot be faulted. Accordingly, questions(c) and (d) are answered in the affirmative, that is, in favour of the assessee and against the revenue. In the case of General Insurance Corporation of India vs. Addl. CIT in ITA No.3554/Mum/2011 dated 15/02/2012 the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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