TMI Blog2019 (11) TMI 1463X X X X Extracts X X X X X X X X Extracts X X X X ..... alongwith life cover, therefore presumption drawn by Ld. CIT(A) is not proper and accordingly direction given by the Ld. CIT(A) to enhance assessment is accordingly dismissed. Rule 5 applicability to income from Health Schemes, Group schemes and others treated as non-life insurance schemes - HELD THAT:- All the basic policy are offered by the assessee in term basis insurance plan or life based insurance plan and these plans are offered alongwith additional benefits of saving, health, etc. Most of these plans are approved by IRDA and are term basis alongwith tax benefits includes deduction u/s 80C not u/s 80D. The schemes referred by Ld. CIT(A) are all those schemes which are not term based and it does not have life cover whereas these schemes are purely on health based and covering a short tenure of one year or two year alongwith having a tax benefit u/s 80D. These are the distinguishing features for the insurance plans which one can distinguish from the type of schemes offered by the insurance companies. Plans offered by the assessee are of term basis and life cover with the extended benefit of health and savings, etc. Therefore, these schemes can only be classified as life ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are allowed Subjecting negative reserve to tax - HELD THAT:- As decided in own case [ 2012 (11) TMI 13 - ITAT MUMBAI] examining the method of accounting and the mandate given by regulations to appoint Actuarial on the concept of mathematical reserves, we do not see any reason to interfere with the order of the CIT(A). The mathematical reserve is part of Actuarial valuation and the surplus as discussed in Form-I under Regulation 4 takes into consideration this mathematical reserve also. Therefore the order of the CIT(A) is approve. Moreover the Assessing Officer has no power to modify the amount after actuarial valuation was done, which was the basis for assessment under Rule 2 of 1st Schedule r.w.s. 44 of the I.T. Act. Disallowance u/s 14A - HELD THAT:- As decided in own case [ 2012 (11) TMI 13 - ITAT MUMBAI] we hereby accept the argument of learned Authorized Representative to the extent that in the present situation the provisions of s. 14A need not to apply while granting exempt ion to an income earned on sale of investment primarily because of the reason of the withdrawal or deletion of sub- r. 5(b) to First Schedule of s. 44 of IT Act. Once we have taken this view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue against the order of Commissioner of Income Tax (Appeals)-14, Mumbai, dated 07.11.14 for AY 2012-13 respectively. 2. Since the issues raised in both the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed of by this consolidated order. I.T.A. No. 384/Mum/2015 (AY 2012-13) 3. First of all we take up assessee s appeal in I.T.A. No. 384/Mum/2015 for AY 2012-13 on the grounds mentioned herein below:- 1) The CIT (A) erred in not accepting the basis of computation adopted by the Appellant in the return filed for the relevant year. 2) The CIT (A) erred in not following the ITAT order in Appellant's own case for assessment years 2005-06 to 2008-09. 3) The CIT (A) erred in holding that Income from annuity is similar to Pension Business and loss from Pension Scheme is not adjustable against taxable business income. 4) The CIT (A) erred in holding that Rule 5 is applicable to income from Health Schemes, Group Schemes and others treated as non-life insurance schemes. 5) The CIT (A) erred in holding that the appellant also carries on investment activity and activities other than life insurance, the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee. 6. Now before us, the assessee has preferred appeal by raising the above grounds. Ground No. 1 2 7. These grounds raised by the assessee are inter related and inter connected and relates to challenging the order of Ld. CIT(A) in not accepting the basis of computation adopted by the assessee in the returned filed for the relevant year and also not following the order of ITAT in assessee s own case for AY 200506 to 2008-09, therefore we thought it fit to dispose of the same by this common order. 8. At the outset, Ld. AR appearing on behalf of the assessee submitted before us that these ground are squarely covered by the consolidate order of Coordinate Bench of Hon ble ITAT for AY 2005-06 to 2008-09, 2009-10, 2010-11 2011-12 in assessee s own case on merits. 9. On the other hand, Ld. DR fairly conceded that these grounds are covered by the order of ITAT. 10. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77,589 Share Premium Int. Dividend and Rents accrued but not due 1,86,899 1,48,778 Property Revaluation Reserve Amount due from other persons or bodies carrying on Insurance Business Investment Reserve Sundry Debtors, Advances and Deposits 2,95,504 1,78,792 Property Insurance Reserve Fixed Assets 6,30,124 5,48,131 Profit Loss Appropriate A/c Cash: At Bankers on Deposit Account 3,00,000 44,900 Balance of funds 2,78,28,554 95,97,898 At Bankers on Notice Deposit Account Debenture stock At Bankers on cur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consideration for Annuities granted, less reinsurance Bonuses in reduction of premiums 56,434 17,904 Interest, Dividends and Rents 6,92,979 6,27,033 Other benefit Fees and Charges 23,629 2,348 Expenses of Management: Linked Income 4,92,380 3,61,463 Commission 17,79,564 8,65,104 Other income 1,055 1,098 Other operating Expenses 46,20,211 29,79,714 Registration fees ~ Bad Debts Loss transferred to Profit Loss A/c UK, Indian, Dominion and foreign taxes T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th return of income: ICICI Prudential Life Insurance Company Limited FY 2004-05/ AY 2005-06: Reconciliation of Form-I Surplus with Return of Income Particulars Amount (Rs.) Amount (Rs.) Form-I Surplus as on 31.3.2005 (Page-14B 35,86,96,280 Less Form I Surplus as at 31.3.2004 - Surplus for FY 2004-05/AY 2005-06 35,86,96,280 Less: Shareholder's funding Deficit funding transfers from shareholder's fund (Page 8PB) 2,33,34,74,000 ) Advance funding based on estimates (Note 1) 4,12,09,280 (2,37,46,82,280) Less: Round off (12,808) Deficit in account (2,01,59,99,808) Surplus for participating business 10,41,05,196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able mutatis mutandis in the present case, we allow these grounds raised by the assessee. Ground No. 3 12. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in holding that income from annuity is similar to Pension Business and loss from Pension Scheme is not adjustable against taxable business. 13. The brief facts relating to this ground are, the Ld. CIT(A) directed the AO to compute exemption u/s 10 (23AAB) after considering the loss under annuity schemes and also to take remedial action for earlier year assessments. He observed that the assessee has deficit in PHA of annuity non-participating business of ₹ 1,24,33,93,000/-, the premium for which is eligible for deduction u/s 80CCC of the Act, therefore both pension schemes and annuity schemes are similar in nature and premium in both the cases is eligible for deduction u/s 80CCC of the Act. Hence, income of the assessee from both the schemes would be exempt u/s 10(23AAB) of the Act. Further, he observed that assessee has claimed the income from pension funds as exemption, but adjusted the loss from annuity schemes against taxable business income and as per law, the income inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registration for the particular class of business is obtained. The Appellant has been granted a certificate under 3(1) of the Insurance Act to carry on life insurance business (pg.1 of the paper book). It is therefore not open to the Appellant to carry on any other class of insurance business as held by the CIT(A). Under section 3(4)(h) of the Insurance Act, IRDA (the regulatory authority established under the Insurance Regulatory Act, 1999) is empowered to cancel the registration of an insurer if the insurer carries on any business other than that allowed by the license. In fact, all products introduced by the Appellant require prior approval of the IRDA. 2. Meaning of Life Insurance Business: The term 'life insurance business' has not been defined in the Income Tax Act, 1961 ('the Act') which makes it necessary to refer to the Insurance Act 1938 ('Insurance Act'). Section 2(11) of the Insurance Act defines life insurance businesses under: life insurance business means the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only) or the ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of 'life insurance business' it is clear that the said products fall within either one or both the limbs of the definition in sec.2(11) of the Insurance Act namely, payment of money assured (a) on death and/or (b) on the happening of any contingency dependent upon human life, the contingency being a life threatening illness. These products have been filed with IRDA prior to their launch as required by its circular CIRCULAR NO. IRDA/ACTL/FUP/VER 1.0/ NOV 2000 dated November 01, 2000 (Pg no- 46 to 52). The CIT(A) is therefore incorrect in his conclusion that these products are not life insurance products. Had that been so, the IRDA would not have permitted the Appellant to introduce the said products. In view of the above, the CIT(A)'s conclusion in paragraph 5.14, pg. 16 that the surplus from the health schemes of the Appellant is assessable under Rule 5 of the First Schedule is erroneous. 5. Additional reasons why Rule 5 of the First Schedule is not applicable: The additional reasons set out herein below also support the Appellant's submission that the surplus realised by the Appellant from the class of products referred to in paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y sec.2(11) are excluded from miscellaneous insurance business. Hence the surplus/deficit from these products is assessable as part of the life insurance business under Rule 2 of the First Schedule. 6. Appellant's entire business is one and profit from some products cannot be carved out and assessed separately as directed by CIT(A) : The Appellant further submits that it has disclosed the profits from the Policyholders' Account under Rule 2 of the First Schedule and the same has been assessed as such. A substantial part of the expenses incurred by the Appellant are common to its entire business which includes all types of life insurance products. Actuarial principles are applied in preparation of the Policyholders Account which will not match with the provisions of Rule 5. Therefore, the CIT(A)'s direction to carve out and compute profits of one class of products of the Appellant applying the provisions of Rule 5 is not possible. 7. Principle of consistency: Further the profits/deficit disclosed by the Appellant have, in the preceding as well as subsequent years, been assessed under Rule 2 of the First Schedule. The well-settled principle of consist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed. Ground Nos. 5, 7(a), 7(b) and 8. 20. These grounds raised by the assessee are inter related and inter connected and relates to challenging the order of Ld. CIT(A) in holding that assessee also carries on investment activity and activities other than life insurance and in not accepting the principle laid down by the Hon ble Tribunal in assessee s own case, therefore we thought it fit to dispose of the same by this common order. 21. At the outset, Ld. AR appearing on behalf of the assessee submitted before us that this ground is squarely covered by the consolidate order of Coordinate Bench of Hon ble ITAT for AY 2005-06 to 2008-09, 2009-10, 2010-11 2011-12 in assessee s own case on merits. 22. On the other hand, Ld. DR fairly conceded that these grounds are covered by the order of ITAT. 23. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that the identical ground raised in the present appeal has already been decided by the Coordinate Bench of Hon ble ITAT for AY 2005-06 to 200809, 2009-10, 2010-11 2011-12 in assessee s own case on me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act while giving the finding that assessee is in the life insurance business only and incomes are to be treated as income from life insurance business, the CIT (A) surprisingly in subsequent assessment years appeals accepted AO's contention that surplus in shareholder's account is to be taxed as other sources of income. But once the provisions of section 44 of IT Act are invoked anything contained in the heads of income like income from other sources, capital gains, house property or even interest on securities does not come into play and only first schedule has to be invoked to arrive at the profit. Therefore, in our opinion both the policyholder's and shareholder's account has to be consolidated for the purpose of arriving at the deficit or surplus. 24. After having gone through the aforementioned orders, we find that the identical issue has already been decided by the Coordinate Bench of Hon ble ITAT in AY 2005-06 to 2008-09, 2009-10, 2010-11 2011-12 in assessee s own case on merits. Therefore, respectfully following the decision of the coordinate bench of Hon ble ITAT which is applicable mutatis mutandis in the present case, we allow these grounds raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holder's account. This in a way is taxing fresh capital infused into business indirectly which cannot be done as this is not business surplus but infusion of capital directly. 40. 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 partA. 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 shareholder's 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 Shareholder's account) which is not at all correct. 41. Learned Counsel in the course of the argument also placed reconciliation of the various figures as under: Table: Statement of deficit in policyholder's account (PHA), Shareholder account (SHA) funding and Net deficit: S.No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosed by the actuarial valuation is more than the surplus disclosed in the financials: The surplus as per financials Add Excess funding done Surplus as per actuarial valuation 31.74 4.12 Page 8 Revenue account (surplus/ deficit) Page 70 Part of Actuarial Report excess funding disclosed by way of a note (Amount not mentioned) Page 14 - Actuarial Valuation in Form-I 35.86 42. In view of the above, looking at the issue in any way what we notice is that the computation made by assessee is in accordance with Rule-2 of the Insurance Act 1938 according to which only AO can base his computation. This also corresponds to the way incomes were assessed in earlier years ie. the correct method as per Rule 2 and Sec 44 of IT ACT. In view of the discussion above and after analyzing the Forms, Regulations and Provisions we have no hesitation to hold that the assessee working of actuarial surplus/ deficit is in accordance with Rule 2 of First Schedule. Therefore, assessee grounds on this issue are allowed and AO is directed to modify the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vel of benefits shall take into account the reasonable expectations of policyholders (with regard to bonuses, including terminal bonuses, if any) and any established practices of an insurer for payment of benefits. (3) The valuation method shall take into account the cost of any options that may be available to the policyholder under the terms of the contract. (4) The determination of the amount of liability under each policy shall be based on prudent assumptions of all relevant parameters. The value of each such parameter shall be based on the insurer's expected experience and shall include an appropriate margin for adverse deviations (hereinafter referred to as MAD) that may result in an increase in the amount of mathematical reserves. (5) (1) The amount of mathematical reserve in respect of a policy, determined in accordance with sub-para (4), may be negative (called negative reserves ) or less than the guaranteed surrender value available (called guaranteed surrender value deficiency reserves ) at the valuation date. The appointed actuary shall, for the purpose of section 35 of the Act, use the amount of such mathematical reserves without any modification. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly not treat negative reserve as taxable. Sub-Rule 4 mandates Appointed Actuary to have prudent assumption of all relevant parameters and to include an appropriate margin for adverse deviations that may result in an increase in the amount of mathematical reserves. 58. The CIT(A), in his brief order vide para 17, considered the detailed explanation above and accepted that the negative reserve disclosed in Form-I does not give rise to distributable surplus. Accordingly he disallowed the same. 59. After considering the rival submissions and examining the method of accounting and the mandate given by regulations to appoint Actuarial on the concept of mathematical reserves, we do not see any reason to interfere with the order of the CIT(A). The mathematical reserve is part of Actuarial valuation and the surplus as discussed in Form-I under Regulation 4 takes into consideration this mathematical reserve also. Therefore the order of the CIT(A) is approve. Moreover the Assessing Officer has no power to modify the amount after actuarial valuation was done, which was the basis for assessment under Rule 2 of 1st Schedule r.w.s. 44 of the I.T. Act. The principles laid down by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of the Hon'ble Bombay High Court in the case of Godrej Boyce vs. DCIT dated on 12/08/2010 directed AO to workout on a reasonable basis. Assessee has raised the additional ground of appeal as under: Ground: AO and the CIT (A) erred in invoking the provisions of section 14A of the Income Tax Act 1961 and disallowing expenses attributable to earning exempted income, without appreciating the fact that the provisions of section 14A are not applicable to Insurance Companies . 44. The learned Counsel submitted that in view of the provisions of section 44, the provisions of section 14A are not applicable. He relied on the orders of Bajaj Alliance General Insurance Co. vs. Addl.CIT in ITA No.1447/Mum/2007 dated 31/08/2009, JCIT vs. Reliance General Insurance Company in ITA No.3085/Mum/2008 and other cases wherein the Coordinate Bench have already decided the provisions of section 14A are not applicable. He also placed on reliance in the case of General Insurance Corporation of India vs. Addl. CIT in ITA No.3554/Mum/2011 dated 15/02/2012 to submit that the provisions of section 14A does not apply to the Insurance business. 45. The learned DR however, relied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el /2003) asst. y₹ 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 the Hon'ble Delhi High Court in asst. y₹ 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 holding that s. 44 of the Act is a special provision dealing with the computation of profits and gifts of business of insurance. It being a non obstinate provision, has to prevail over other provisions in the Act. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation 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. It may not be out of place to mention that the respected Co-ordinate 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 of the relevant provisions as applicable to resolve this issue a conclusion was drawn that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 al ready been expressed by respected Coordinate Bench therefore, we have no reason to take any other view except to follow the same. With the result we hereby accept the argument of learned Authorized Representative to the extent that in the present situation the provisions of s. 14A need not to apply while granting exempt ion to an income earned on sale of investment primarily because of the reason of the withdrawal or deletion of sub- r. 5(b) to First Schedule of s. 44 of IT Act. Once we have taken this view therefore the enhancement as proposed by learned CIT(A) is reversed and the directions in this regard are set aside. Resultantly ground No. 1 is allowed automatically goes in favour of the assessee . Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... integral part of Life Insurance business. The LD. CIT(A) gives a finding that assessee is exclusively in Life Insurance business. However, since he gave primacy to Form I proforma he concluded that other incomes are not of Life Insurance business. We have already considered and decided that assessee was mandated to maintain separate accounts by IRDA Regulations. Just because separate accounts are maintained the incomes in Shareholder's account does not become separate from Life insurance business. As per Insurance Act 1938 all incomes are part of one business only and these incomes are considered as part of same business. Therefore, the incomes in Shareholder's account are to be considered as arising out of Life insurance business only. More over Sec 44 mandates that only First Schedule will apply for computing incomes and excludes other heads of income like, Interest on Securities, income from house property, Capital gains or Income from other sources. Being non-obstante clause, sec. 44 mandates that the profits and gains of insurance business shall be computed in accordance with the rules contained in First Schedule. Therefore, the incomes in Shareholder's account ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld CIT(A) erred in giving relief to the assessee, following the decision of Hon'ble IT AT in assessee own case for the earlier years, wherein Hon'ble Tribunal held that the Legislature consciously omitted incorporation of the provision of Insurance Regulatory and Development Authority Act 1999 and Regulations made thereunder in section 44 of the I.T. Act r.w. Rule 2 of the First Schedule which 'refers' only to un-amended Insurance Act 1938 and Regulations made there under; when an appeal against this order of /TAT has been filed is pending with High Court, Bombay? 5. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in giving relief to the assessee, following the decision of Hon'ble /TAT in assessee own case for the earlier years, wherein Hon'ble Tribunal failed to take note that Section 28 of Insurance Regulatory and Development Authority Act 1999 clarifies that provisions of IRDA Act are in addition and not in derogation of Insurance Act 1938, which means IRDA Act and its regulation has been adopted in Section 44 of the I.T. Act r.w. Rule 2 of the First Schedule by way of legislation by reference ; and when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable in Share Holders Account with the surplus available in Policy Holders Account and then taxing this 'net surplus' arrived at, at the rates specified u/s. 115B of the Act ? 11. The appellant prays that the order of the Ld CIT(A) on the above grounds be set aside to the file of the AO or confirm the order of the AO. 12. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. Ground No. 1 to 12 47. All the grounds raised by the revenue are inter connected and inter related and relates to challenging the order of Ld. CIT(A), therefore we thought it fit to dispose of the same by this common order. 48. At the outset, Ld. AR appearing on behalf of the assessee submitted before us that these grounds are squarely covered by the consolidate order of Coordinate Bench of Hon ble ITAT for AY 2005-06 to 2008-09, 2009-10, 2010-11 2011-12 in assessee s own case on merits. 49. On the other hand, Ld. DR fairly conceded that these grounds are covered by the order of ITAT. 50. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r.w.Rule 2 of the First Schedule which 'refers' only to un-amended Insurance Act 1938 and Regulations made there-under; when an appeal against this order of ITAT has been filed is pending with High Court, Bombay? 5. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in giving relief to the assessee, following the decision of Hon 'ble ITAT in assessee own case for the earlier years, wherein Hon ble Tribunal failed to take note that Section 28 of Insurance Regulatory and Development Authority Act 1999 clarifies that provisions of IRDA Act are in addition and not in derogation of Insurance Act 1938, which means IRDA Act and its regulation has been adopted in Section 44 of the I.T. Act r.w. Rule 2 of the First Schedule by way of legislation by reference ; and when an appeal against this order of ITAT has been filed is pending with High Court, Bombay? 6. Whether on the facts and in the circumstances of the case and in law, the LD CIT(A) erred in allowing the relief to the assessee by holding that surplus available both in Policy Holders Account and Share Holder's Account is to be consolidated; and only 'net surplus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record. The issue involved in ground No.1 to 6 of the revenue s appeal have been considered by this Tribunal in assessee s own case for the assessment year 2005- 06 to 2008-09 in 140 ITD 41 in para nos. 23, 27, 32, 38, 40 and 42 which are as under :- 27. Respectfully following the above principles and examining the provisions of IT Act, we are of the opinion that the 'actuarial valuation made in accordance with the Insurance Act, 1938' do mean that the actuarial valuation done in accordance with the Insurance Act, 1938. In arriving at the above decision we have also taken into consideration that Rule-5 in Part-B of the first schedule with reference to 'other insurance business' did incorporate the IRDA and its Regulations as amended by the Finance Act 2009 w.e.f. 1.4.2011 which is as under: B- Other Insurance Business: Computation of profits and gains of other insurance business. 5. The profits and gains of any business of insurance other than life insurance shall be taken to be the profit before tax and appropriations as disclosed in the Profit Loss A/c prepared in accordance with the provisions of the Insurance Act, 1938 (4 of 1938) or the rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... life insurance, the entire transactions both under the policyholder's and shareholder's account do pertain to the life insurance business only as it was not permitted to do any other business. Once assessee is in the life insurance business, the computation has to be made in accordance with the Rule-2 as per provisions of section 44. Therefore, there is a valid argument raised by assessee that both the policyholder's shareholder's account has to be consolidated into one and transfer from one account to another is tax neutral. What AO has done is to tax the surplus after the funds have been transferred from shareholder's account to the policyholder's account at the gross level while ignoring such transfer in shareholder's account, while bringing to tax only the incomes declared in the shareholder's account that too under the head 'other sources of income'. In fact while giving the finding that assessee is in the life insurance business only and incomes are to be treated as income from life insurance business, the CIT (A) surprisingly in subsequent assessment years appeals accepted AO's contention that surplus in shareholder's account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al we do not find any error or illegality in the impugned order of the ld. CIT(A) qua this issue. Accordingly ground Nos. 1 to 6 are dismissed. 6. Ground No.7 is regarding the taxability of surplus of both policy and share holders account. 6.1 We have heard the ld. DR as well as the ld. AR and considered the relevant material on record. We find that this issue was decided by this Tribunal in assessee s own case for the assessment year 2005-06 and assessment year 2008-09 in para no.55 as under :- 55. We have heard the rival contentions. As briefly discussed while deciding the issue of taxing surplus, assessee is in life Insurance business and it is not permitted to do any other business. All activities carried out by assessee are for furtherance of Life Insurance business. Maintaining adequate capital is necessary to comply with IRDA (Assets, Liabilities and Solvency margin of insurers) Regulations, 2000. Income earned on capital infused in business is integral part of Life Insurance business. The LD. CIT(A) gives a finding that assessee is exclusively in Life Insurance business. However, since he gave primacy to Form I proforma he concluded that other incomes are not of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e originally capitalized in the books and being eligible for 100% depreciation they are written off. The CIT(A), after considering the submissions, accepted the contention as under: - 19. The appellant has to prepare its accounts as per the formats prescribed by the IRDA under the Insurance Act, 1938. These accounts have accordingly been prepared by the appellant and have been subject to statutory audit. Further, the accounting policy of claiming 100% depreciation in its financial statements has been consistently followed by the appellant and has also been duly accepted by the IRDA. The appellant has stated that the assets on which depreciation has been claimed have been initially capitalized in the books and then 100% depreciation has been claimed on these assets. Taxation of Life Insurance is presumptive taxation with only the surplus as disclosed by Form I being subjected to tax. In my view, as per the provisions of law only those adjustments which are expressly not prohibited under section 44 of the Act could be made. Consequently depreciation which has been debited in the audited accounts as per the consistently followed and accepted accounting policy need not be disallowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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