TMI Blog2017 (8) TMI 1566X X X X Extracts X X X X X X X X Extracts X X X X ..... d the decision of ICICI Prudential Insurance Co. Ltd. [ 2012 (11) TMI 13 - ITAT MUMBAI] and held that income arising in share holders account cannot be taxed as income from other sources but has to be assessed as income from business or profession considering the fact that the business carried out by the assessee is governed by the provisions of section 44. Since the learned Commissioner (Appeals) has decided the issue following the decision of the Tribunal cited supra, we do not find any infirmity in the order of the learned Commissioner (Appeals). This ground is dismissed. Transfer of money from share holders account to the policy holder s account - transfer of capital asset, hence and not taxable under section 44 - HELD THAT:- Notably, the aforesaid issue arose in assessee s own case for the preceding assessment years. While deciding the issue the Tribunal following its own order in the case of ICICI Prudential Insurance Co. Ltd [ 2012 (11) TMI 13 - ITAT MUMBAI] what assessee has done in reconciling the IRDA format with that of old Insurance Form is correct and accordingly the loss disclosed in the computation of income is according to the actuarial surplus/deficit under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar issue arose in assessee s own case in the preceding assessment years and the Tribunal while deciding the issue followed its own decision in ICICI Prudential Insurance Co. Ltd. [ 2012 (11) TMI 13 - ITAT MUMBAI] and held that since assessee s income is to be computed under section 44, no disallowance under section 14A can be made. Respectfully following the decision of Co ordinate Bench cited supra, we uphold the decision of the learned Commissioner (Appeals) on this issue. This ground is dismissed. Interest u/s 234B - HELD THAT:- While deciding the issue of chargeability of interest under section 234B, the learned Commissioner (Appeals) held that the levy of interest under section 234B is mandatory, hence, directed the Assessing Officer to revise the computation of interest leviable while giving effect to the appeal order. We fail to understand, how the Department can have any grievance against the aforesaid direction of Commissioner (Appeals). In any case of the matter, while deciding identical issue in assessee s own case for preceding assessment years, the Tribunal considered the fact that assessee used to calculate advanced tax on the basis of its return of income file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether on the facts and circumstances of the case and in law, the Ld . CIT(A) was correct in interpreting the provisions of Section 44 of the I . T . Act read with rule 2 of the First Schedule along with provisions of Insurance Act, 1938, Insurance Regulatory and Development Authority Act 1999 and regulation there under and accordingly allowing adjustment from the 'surplus' worked as per actuarial valuation (and as shown by the assessee in Form-11 in violation of the ratio of the Apex Court in the case of LIC Vs . CIT 51 ITR 778? 2 . Whether on the facts and circumstances of the case and in law, the LcICIT(A) was correct in interpreting that on account of legislation by incorporation , 'only' the un-amended insurance Act 1938 and the Regulations there under became part of Sectin 44 r . w . Rule 2 of the First Schedule of the LT . Rules . 3 . Whether on the facts and circumstances of the case and in law, the Ld . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w . Rule 2 of the First Schedule? 8 . Whether on the facts and circumstances of the case and in law, the Ld . CIT(A) was correct in allowing relief to the assessee by holding that surplus available both in Policy Holder's Account and Share Holders Account is to be consolidated and only 'net surplus' is to be taxed as income from Insurance Business 9 . Whether on the facts and circumstances of the case and in law, the Ld . CIT(A) was justified in holding that provisions of Secion 14A of the Act did not apply to insurance business, even when the assessee has claimed exempted income u/s . 10 of the I . T . Act . 10 . Whether on the facts and circumstances of the case and in law, the Ld . CIT(A) was justified in giving relief to the assessee on charge of interest u/s . 234B of the Act on its perception of peculiar circumstances of the case? 11 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctuarial valuation . As could be seen, identical issue arose in assessee s own case in assessment year 2008 09, the Tribunal following its own case in ICICI Prudential Insurance Co . Ltd . v/s ACIT, [2013] 140 ITD 41 (Mum . ) ( Trib . ) , held as under: 2 . 5 . 5 . Sixth Ground of appeal is about adjustment of earlier years‟surplus . While completing the assessment for the year under consideration,the AO assessed entire surplus appearing in the books of accounts as on 31 . 03 . 2008 without excluding the surplus determined as on the last day of the previous financial year i . e . on 31 . 03 . 2007 . Adjustment of earlier year‟s surplus,while computing income of a particular year was dealt by the Tribunal in the case of IPLCI as under: Rule-2 is the main computation provision which is applicable to the life insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince, the issue has already been decided in assessee s own case by the Tribunal and no contrary facts and material have been brought to our notice by the learned Departmental Representative, we are inclined to follow the decision of the Co ordinate Bench as referred to above and uphold the order of the learned Commissioner (Appeals) . 8 . In ground no . 5, the Revenue has challenged the decision of the learned Commissioner (Appeals) with regard to taxability of income arising in share holder s account . Notably, identical issue arose in assessee s own case as referred to above and while deciding the issue the Tribunal followed the decision of ICICI Prudential Insurance Co . Ltd . ( supra) and held that income arising in share holders account cannot be taxed as income from other sources but has to be assessed as income from business or profession considering the fact that the business carried out by the assessee is governed by the provisions of section 44 . Since the learned Commissioner (Appeals) has decided the issue following the decision of the Tribunal cited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d general balance sheet in Form-A . . . In our opinion what assessee has done in reconciling the IRDA format with that of old Insurance Form is correct and accordingly the loss disclosed in the computation of income is according to the actuarial surplus/deficit 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 Share-holders‟ 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 Share-holders‟ account) which is not at all correct . Respectfully following the order of the IPLCI(supra)we decide ground no . 4 in favour of the assessee . 10 . Since, the learned Commissioner (Appeals) has followed the aforesaid decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 233 crores from the Share-holders‟ account to Policy-holders‟ account in that year,that assessee was having only one business of life insurance, that the entire transactions both under the Policy-holders‟ and Share-holders‟ account pertained to the life insurance business only,that the assessee was not permitted to do any other business,that once assessee was in the life insurance business the computation had to be made in accordance with the Rule-2 as per provisions of section 44,that both the Policy-holders‟ and Share holder's account had to be consolidated into one and transfer from one account to another was tax neutral,that the AO had taxed the surplus after the funds had been transferred from Share -holder's account to the Policy-holders‟ account at the gross level while ignoring such transfer in share holder's account,that as per the provisions of section 44 of Act heads of income like income from other sources,capital gains, house property or even interest on securities did not come into play and only first schedule had to be invoked to arrive at the profit,that both accounts-the Policyholders‟ and Shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce against the aforesaid direction of the learned Commissioner (Appeals) . In any case of the matter, while deciding identical issue in assessee s own case for preceding assessment years, the Tribunal considered the fact that assessee used to calculate advanced tax on the basis of its return of income filed for the past years and the income likely to be earned in the impugned assessment year, had a bonafide belief that it was not liable to pay advance tax . Therefore, the Tribunal held that interest is not leviable under section 234B of the Act . Facts in the impugned assessment year are more or less identical . That being the case no interest under section 234B is leviable . This ground is dismissed . 17 . In ground no . 11, the Revenue has challenged the decision of the learned Commissioner (Appeals) in holding that negative reserve does not give rise to any surplus or taxable income at the hands of the assessee . 18 . Brief facts are, during the assessment proceedings, the Assessing Officer while verifying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not warrant any provision and is,in fact,an asset . However, in certain circumstances, such as for following IRDA guidelines, insurers may not treat policies as assets and they set any negative reserves to zero . For example,if an insurer had two policies,one with a reserve of 100 and the other with a reserve of - 10,it might think of its liabilities at100 rather than 90 to take into account the eventuality in case the second policy lapsed . This process is called eliminating negative reserves . As mentioned earlier,a policy which has a negative reserve is in nature of an asset . We find that in the case of ICICI Prudential Insurance Co . ( supra),AO had disallowed negative reserve related to Life Insurance business of the assessee . In appellate proceedings FAA allowed the appeal of the assessee . AO challenged the order of the FAA before the Tribunal . We find that AO has raised the following ground of appeal in the appeal filed by him for AY 2006-07 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m . / 2015 23 . The first common issue in both the cross objections are with regard to levy of interest under section 234B of the Act . While deciding ground no . 10 in Revenue s appeal following the order of the Tribunal in assessee s own case for preceding assessment year, we held that interest in the present case is not leviable . In that view of the matter, ground no . 1, in both the cross objections are allowed . 24 . The common issue raised in ground no . 2, in both the cross objection is relating to taxability of negative reserves . While deciding ground no . 11, of Department s appeal in the earlier part of the order, we held that negative reserves cannot be treated as income of the assessee . In view of the aforesaid, this ground raised in the cross objections being merely of academic interest do not require adjudication, hence, dismissed . 25 . In the result, cross objections are partly allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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