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M/s. Aegon Religare Life Insurance Company Limited Versus ACIT, Cir-3 (1) , Mumbai and D.C.I.T, Cir 3 (1) , Mumbai Versus M/s. Aegon Religare Life Insurance Company Limited

2016 (11) TMI 598 - ITAT MUMBAI

Applicability of section 14A on insurance business - Held that:- In view of non obstante clause of Section 44 of the Act read with Rule 5 of Schedule 1 of the Act, provisions of Section 14A of the Act, as no application to the profit and gains of insurance business. See Bajaj Allianz General Insurance Company Limited. Versus Additional Commissioner Of Income-Tax. [2009 (8) TMI 810 - ITAT PUNE-A] - Claim of exemption under section 10(23AAB) of surplus of Participating Pension Business and als .....

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s 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 .....

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AAB), 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. 4110/Mum/2014, I.T.A No. 4130/Mum/2014 - Dated:- 12-9-2016 - Shri Mahavir Singh, JM & Hon‟ble Shri Ramit Kochar, AM For The Assessee : Shri Niraj Sheth, CA, ld.AR For The Department : Shri Sunil Kumar Jha,ld.SR.DR ORDER Shri Mahavir Singh, Judicial Member: These cross appeals are arising out of the .....

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n respect of dividend income of ₹ 29,08,806/- and confirming the disallowance of expenses relatable to the exempt income u/s. 14A of the Act r.w.r 8D of the I.T Rules 1962 (hereinafter as the Rules‟). The assessee has challenged the confirmation of disallowance of expenses relatable to exempt income u/s. 14A r.w.r 8D of the Rules and the revenue has challenged against the deletion of disallowance of deduction of dividend income u/s. 10(34) of the Act. The assessee in ITA No. 4110/Mum .....

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section 14A of the Act are not applicable to an Insurance company as it is governed by section 44 read with First Schedule of the Act, which has an overriding effect on the provisions relating to computation of income chargeable under the four heads mentioned in section 44 of the Act. 1.2 The learned CIT(A) erred in disregarding the various Tribunal decisions (including that of Jurisdictional Tribunal) relied upon by the Appellant, wherein it has been held the taxable income of insurance compan .....

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n 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 .....

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on to the profit and gains of insurance business. The tribunal held as under: 46. This issue is already decided by the Coordinate Benches in various cases. For the sake of record, the order in the case of General Insurance Corporation of India in ITA No.3554/Mum/2011 vide Para 9 is as under: 9. "Issue No.6 Non applicability of provisions of section 14A. (Modified Ground of Appeal No.3.1 to 3.4 - Original Ground of Appeal No.3.1 to 3.5) . The issue is with reference to the applicability of s .....

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s 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 dec .....

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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 case of Oriental Insurance Co. Ltd. (ITA Nos. 5462 & 5463/Del /2003) asst. yrs. 2000-01 and 2001-02 order dt. 27th Fe .....

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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 asst . yrs. 1986-87 to 1988-89, which is reported as CIT v. Oriental Insurance Co. Ltd. [2003] 179 CTR (Delhi ) 85 : [2002] 125 Taxman 1094 (Delhi ), decided the issue in favour of the assessee by hold .....

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iance 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 have categorically held that the provisions of s. 44 being a special provision govern computation of taxable income earned from business of insurance. I t mandates the tax authorities to compute the taxable income in respect of insurance business in accordance with the provisions of the First Sch .....

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ained 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 ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench of insurance, including any such business carried on by a mutual insurance company or by a co operative societ .....

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e 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 deductio .....

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d 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 of the relevant provisions as applicable to resolve this issue a conclusion was drawn that since the Courts have held, s. 44 creates a special provision in the cases of assessment of insurance com .....

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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 incur red in connect ion 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 under s. 44 r/w r. 5 of Sch. 1 of the IT Act. Sec. 44 is a non obstinate claus .....

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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 ess .....

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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 Co-ordinate Bench therefore, we have no reason to take .....

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e directions in this regard are set aside. Resultantly ground No. 1 is allowed automatically goes in favour of the assessee". Accordingly, by following the orders of this Tribunal, we decide this issue in favour of the assessee. Therefore, the ground is allowed". Respectfully following the same, we modify the order of the CIT (A) and delete the addition made by AO. The ground and additional grounds are considered as allowed. 4. Ld. Senior DR could not point out any adverse precedent an .....

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allowance u/s 14A of the Act in the return? We find that Hon‟ble High Court has admitted this as substantial question of law but still it is pending as stated by Ld. Counsel for the assessee. Once the Tribunal is consistently taking this view, according to us, this is a covered issue in favour of assessee. We hold accordingly. This issue is decided in favour of the assessee. 5. As regards to Revenue‟s issue of claim of deduction by assessee u/s 10(34) of the Act allowed by the CIT (A .....

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sidered 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 u .....

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see and against the Revenue by the orders of the General Insurance Company of India in ITA No.3554/Mum/2011 wherein the issue of deduction under section 10 have been considered and allowed following the Hon'ble Bombay High Court judgment in writ petition No.2560 of 2011 dated 1.12.2011. The order in the case of GIC of India in ITA No.3554/Mum 2011vide Para 7 to 8 is as under: ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench 7."Issue No.5: Availability of Sect .....

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T (A), the CIT (A) not only rejected the claim under section 10(38) but also considered and elaborately discussed how and why the assessee was not eligible for deductions already allowed by the Assessing Officer in respect of 'interest on tax free bonds' amounting to ₹ 3,45,19,352/- under section 10(15) and dividend income amounting to ₹ 270,66,46,489/- under section 10(34). He has elaborately discussed this issue from Para 6 onwards and ultimately made an enhancement of inco .....

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Bombay High Court in favour of the assessee in writ petition No.2560 of 2011 in the assessee's own case dated 1.12.2011. Consequent to the findings of the CIT(A) in AY 2007-08 (impugned AY ) the Assessing Officer seems to have issued notice under section 148 for reopening the assessment for the AY 2006-07 on the reason that the assessee was not eligible for claiming income as exempt under sub-sections 15, 23G, 34 and 38 of Section 10 and assessee challenged the issue by way of writ petition. .....

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54 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 i .....

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e Insurance Act, 1938 (4 of 1938), to be furnished to the Controller of Insurance subject to the following adjustments: (a) Subject to the other provisions of this rule, any expenditure or allowance (including any amount debited to the profit and loss account either by way of a provision for any tax, dividend, reserve or any other provision as may be prescribed) which is not admissible under the provisions of section 30 to (43B) in computing the profits and gains of a business shall be added bac .....

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f the First Schedule. In Life Insurance Corporation of India, Bombay v. Commissioner of Income Tax Bombay City-III, a Division Bench of this Court construed the provisions of section 44 and of the First Schedule. The assessee in ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench that case which carried on life insurance business had made a claim to exemption under section 10(15) and section 19(1). In a reference before the Court, the questions referred included whether .....

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the deductions which are 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 .....

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erefore, 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 44 is that its provisions operate notwithstanding the provisions of section 191 and of section 28 to 43A. Thus, the only effect of section 44 is that the operation of the provisions referred to therein is excluded in the case of an ass .....

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IFE Mumbai F Bench This judgment is sought to be distinguished by the Assessing Officer while disposing of the objections on the ground that the decision was rendered in the context of an assessee which carried on life insurance business to whom Rules 1 to 4 of the First Schedule applied whereas in the case of the assessee in this case which carries on general insurance business Rule 5 could apply. According to the Assessing Officer, Rule 5 would not permit any adjustment to the balance of profi .....

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n New India Assurance Co. Ltd. the Division Bench dealt inter alia with the provisions of section 19(7) of the Income Tax Act, 1922. The questions referred to this Court included whether the assessee was entitled to claim an exemption from tax under section 15B and15C (4) and in respect of interest on a government loan under a notification issued under section 60. Section 10(7) of the Income Tax Act, 1922 provided that notwithstanding anything to the contrary contained in section 8,9,10,12 or 18 .....

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y 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 A .....

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he supposition that the decision was rendered in the context of an assessee who carried on life insurance business and was, therefore, not available to an assessee which carries on general insurance business. 12. In General Insurance Corporation of India v. Commissioner of Income-Tax, the Supreme Court considered in an appeal arising out of a judgment of the High Court the issue as to whether a sum of ₹ 3 crores, being a provision for redemption of preference shares, was not liable to be a .....

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could not have been treated as an expenditure and hence could not have been added back under rule 5(a). In that context the Supreme Court held as follows: "There is another approach to the same issue. Section 44 of the Income-tax At 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 prov .....

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ection 10 did not arise. The issue as to whether the assessee which carries on the business of general insurance would be entitled to the benefit of an exemption under clauses (15), (23G) and (33) of section 10 is directly governed by the decision 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 bi .....

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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 Officer had rejected the claim for exemption in the o .....

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based on any tangible material. Consequently, we hold that the reopening of the assessment is contrary to law. The Petition would have, therefore, to be allowed". Respectfully following the above, we hold that the assessee is entitled for exemption under section 10. The enhancement made by the CIT (A) is therefore, cancelled. Ground is accordingly allowed". ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench 49. In view of the above and respectfully following .....

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inate bench of this Tribunal in the case of ICICI Prudential Insurance Co. Ltd. (supra), we dismiss this issue of Revenue‟s appeal. 8. The next issue of revenue‟s appeal i.e. with regard to the order of the CIT (A) in deleting the addition made by the AO on account of negative reserve at zero, the surplus of the assessee has been made less than the real actuarial valuation. 2. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addi .....

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223;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. S .....

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s the decision of the Apex Court in LIC Vs. CIT 51 ITR 773, wherein the Apex court has held that the Assessing Officer has no power to modify the account after Actuarial valuation is done. It is also pertinent to note that for the Assessment Year 2007-08, the Assessing Officer had raised an identical issue during the assessment proceedings and thereafter by the assessment order dated 30 December 2009 held that no adjustment of the Actuarial valuation is to be done by following the decision of th .....

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valuation in accordance with Insurance Act 1938. Looking at the issue, we noticed that the computation made by the 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 a .....

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77; 28,87,15,685 being deficit incurred in Non-participating Linked Pension business segment. While rejecting the Appellant‟s claim, the learned CIT(A) erred on the following grounds: 2.1 The learned CIT(A) erred in disregarding the decision of jurisdictional High Court in the case of Life Insurance Corporation of India, relied upon by the Appellant, wherein it has been held that the fact that income from pension fund has been exempted under section 10(23AAB) of the Act, does not mean that .....

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d. 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 b .....

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ksha fund does not form part of the total income of the Assessee Corporation under section 10(23AAB) of the Income-tax Act, 1961 ? Ld. Counsel referred to para 15 to 18 vide which Hon‟ble High Court has answered the issue in favour of the assessee by observing as under: 15. As regard questions(c) and (d) are concerned, the dispute is whether the loss incurred by the assessee from Jeevan Suraksha Fund is liable to be excluded in computing the actuarial valuation surplus in view of the fact .....

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o be adjusted against the taxable income. 17. It is not in dispute that the Jeevan Suraksha Fund is a pension fund approved by the Controller of Insurance appointed by the Central Government to perform the duties of the Controller of Insurance under the Insurance Act, 1938. The loss incurred in the Jeevan Suraksha fund has been considered by the actuary as a business loss, as per the valuation report as on the last day of the financial year, allowable under section 44 read with the First Schedul .....

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