TMI Blog2015 (2) TMI 1323X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal including that of the assessee, we find that it has been consistently held that, provision of section 14A is not applicable in the cases of Insurance company which are governed by section 44, because it is non obstante provision wherein the income is to be computed as per P L account prepared under the Insurance Act 1938. Section 14A contemplates exception for deduction allowable under the act, whereas section 44 creates special application of provision of computation of profit as per the Insurance Act. Thus, no disallowance u/s 14A can be made and accordingly, ground no. 3 is allowed in favour of the assessee. Disallowance of amortization of premium - allowable revenue expenses - HELD THAT:- According to the terms of issue of the securities, the assessee was to get only the face value at the time of redemption or maturity. IRDA regulation prescribes, the accounting principle for preparation of financial statement, whereby the assessee is required to prepare the financial statements in the manner provided in the said regulation. The said regulation read with relevant rules given in the schedules therein, provides that debts securities including, Government securities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We will first take up the appeal for the A.Y. 2004-05. 3. At the outset, learned counsel, Shri Farrokh Irani submitted that out of various grounds of appeal as have been raised by the assessee, the COD has given approval for contesting ground no. 1, 2, 3, 5 11. The relevant grounds which are being contested are as under:- 2.a) The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer of taxing profit on sale of Investments of ₹ 406,81,17,320/- by treating as 'Business Income'. Your Appellant submits that the Profit on sale of Investments is exempt from tax. It is prayed that the addition of ₹ 406,81,17,320/- be deleted. b) Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer of treating the profit on sale of Investments as business income and not as capital gains. Your Appellant submits that the Assessing officer be directed to treat the profit on sale of Investments as Long Term Capital Gains and not as Business Income. 3. a) The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such a profit should not be taxed and in the alternative, it was submitted that such a profit was in the nature of long term capital gain on the sale of long term capital asset and therefore, it is not in the nature of income. The assessing officer held that assessee is governed by section 44 read with Rule 5 of the First schedule of the Income-tax Act and in this regard his relevant observations are as under:- 1.7 If, one analyses the provision, it starts with the wordings profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by annual account copies of which are required under the Insurance Act, 1938 to be furnished ..... . In the statement of income submitted alongwith the Return of Income, the assessee has taken the starting point for computing the income as the balance of the profit disclosed in the annual accounts of the relevant ale of investment a sum of ₹ 406,81,17,320/-. If, one analyses the adjustments required to be made from the profits disclosed in the annual account by virtue of sub clause (a) and (c) of Rule 5, it refers to any expenditure or allowance including in the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier year Ld. CIT(A) has decided this issue against the assessee in the A.Ys. 200203 and 2003-04 and held that First schedule read with section 44 does not provide for such exemption as claimed by the assessee. 7. Before us, learned counsel, Shri Farrokh Irani submitted that though in the A.Ys. 2002-03 and 2003-04, this issue has been decided against the assessee by the Tribunal vide order dated 19.11.2008, however, the said order of the Tribunal cannot be held to be applicable in the wake of catena of decisions rendered by the Tribunal in various cases of insurance companies, wherein it has been held that, there is no specific provision for making the adjustment on account of profits on sale of investment after removal of Clause 5(b) w.e.f. 01.04.1989 and till Clause 5(b) was inserted w.e.f. 01.04.2011. In support of his contention he filed compilation of 10 such decisions of the Tribunal in the case of General Insurance Corporation of India and others insurance companies on similar issue. He further submitted that, specific amendment in Rule 5 to First schedule, came w.e.f. 01.04.2011, wherein it has been specifically provided that any gain or loss on realization of investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was omitted to provide exemption of the profits earned by the General Insurance Corporation on the sale of investment. The relevant note nf clauses read as under:- Under the existing provisions of section 44 of the income-tax ct, the profits and gains of any insurance business is computed in accordance with the rule contained in First Schedule to the Act. In rule 5 of this schedule, profits and gains of any business of insurance, other than life insurance, are taken to be balance of profits disclosed in the annual accounts furnished to the Controller to insurance subject to certain adjustments. One of the adjustments provided therein respect of any amount either written off or reserved in the accounts to meet depreciation or loss on the realization of investment which is allowed as deduction. Similarly, any sum taken credit for in the account on account of appreciation of or gain on the realization of investments is taken as part of the profits and gains of the business. With a view to enable the General Insurance Corporation and its subsidiaries play a more active role in capital markets for the benefit of policy holders, it proposed to provide for exemption of the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 44 creates special application of provision of computation of profit as per the Insurance Act. Thus, no disallowance u/s 14A can be made and accordingly, ground no. 3 is allowed in favour of the assessee. 12. In ground no. 5 the assessee has challenged the disallowance of amortization of premium of ₹ 9,26,36,131/-. The assessee has claimed an amount of ₹ 9,26,36,131/- as revenue expenses, which represented premium paid on purchase of investment of securities amortized over the residual period of securities. The assessee claimed that such an amortization is as per IRDA regulations and the amount cannot be treated as part of the cost of the investment as the assessee cannot get more than the face value at the time of maturity of such investments. The assessing officer though admitted the fact that assessee does not get more than the face value at the time of maturity, however, he observed that such a premium paid on purchase of securities treated as investment would be allowable as deduction only at the time of sale/redemption/maturity of the security. These are capital cost incurred to the purchase of the securities at a premium. This he held that, is akin to the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Tata AIG General Insurance Company Ltd., in ITA No. 2597/Mum/2009 order dated 22.10.2010, wherein the Tribunal after discussing this issue in detail, has held that such an expenditure claimed on account of amortization of premium paid on the purchase of investment is to be allowed as there is no specific provision that it has to be disallow such an expenditure under provision of sections 30 to 43(b). 15. On the other hand, Ld. DR strongly relied upon the order of the AO as well as Ld. CIT(A). 16. We have heard the rival submissions and also perused the relevant finding given in the impugned orders. The assessee in the course of carrying of its insurance business, is required to invest its fund in specific debts securities of government or PSU bonds or other securities in accordance with the Insurance Act, 1938 and IRDA regulations. The assessee has purchased securities at a price which was slightly higher than the face value of the security because of accumulated interest on such securities According to the terms of issue of the securities, the assessee was to get only the face value at the time of redemption or maturity. IRDA regulation prescribes, the accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sub-rule has been explained by the Supreme Court to mean that there should be a specific prohibition against the expenditure or allowance in which case alone the Assessing Officer can add back the same to the balance of profits. It is common ground that there Is no such specific prohibition against, the allowance of the expenditure in the above sections-of the Act. It may be noted that though rule 5(a) of the First Schedule considered by the Supreme Court in the above judgment was slightly different, but the words any expenditure or allowance which is not admissible under the provisions of section 30 to 43A were present and the same words being present in the amended sub-rule, they have to be given the same meaning as was given by the Supreme Court. Therefore, even if the debit for amortization is considered as an expenditure or allowance, there being so specific prohibition against the expenditure or allowance in section 30 to 43B, the departmental authorities were not justified in adding back the amount of the balance of the profits. The judgment of the Supreme Court in the case of General Insurance Corporation of India (supra) takes care of all the arguments advanced on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in holding that profit of ₹ 11,336,10,10,144/- on sale of investment is liable for tax. (ii) The Ld. CIT(A) has erred in law and on facts in confirming the disallowance u/s 14A read with Rule 8D. (iii) The Ld. CIT(A) has erred in law and on facts in upholding the disallowance of ₹ 12,12,81,613/- which was claimed by the assessee as deduction on account of amortization premium of securities. (iv) The Ld. CIT(A) has erred in law and on facts in confirming the addition of ₹ 5,48,000/- u/s 69B. (v) The Ld. CIT(A) has erred in law in upholding the addition of ₹ 38,26,860/- on account of taxes paid by the assessee on foreign dividend. (vi) The Ld. CIT(A) has erred in law and on facts in upholding the addition to the book profit u/s 115JB with regard to disallowance u/s 14A and assessee s claim 35 DDA. Besides this assessee has also raised additional ground that provision of section 115JB is not applicable. 23. As admitted by both the parties the issues raised in ground no. (i), (ii) (iii) are similar to grounds raised in A.Y. 2004-05 and accordingly, the finding given therein will apply mutatis mutandis in this year also. Thus ground no. 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on foreign investment were as under:- Name of the company Gross dividend (Rs.) Net Dividend (Rs.) India International P. Ltd. 9920634.93 7936507.94 Kenindia Assurance 1625350.00 1462815.00 Prestige Assurance Nigeria 8954099 8058689 New India Assu (T T) 7847876.67 7063089 Total 28347960.6 24521100.94 The assessing officer on the basis of earlier order passed by the AO for the A.Y. 2004-05 held that, difference between gross dividend and the net dividend is to be added to the total income of the assessee and also held that assessee s claim for credit of TDS of ₹ 38,26,860/- is not allowable as there is no tax on dividend income in India. The Ld. CIT(A) confirmed the said disallowance on the ground that taxes paid on such dividend do not constitute expenditure. 28. After hearing both the parties, we find merit in the reasoning given by the AO as well ..... X X X X Extracts X X X X X X X X Extracts X X X X
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