TMI Blog2021 (5) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... older might not continue with the insurance polity bought by him which would result in non-receipt of premium which was otherwise receivable by the insurance company. Therefore, the same could not be taxed. See LIFE INSURANCE CORPN. OF INDIA VERSUS ADDL. CIT [ 2013 (6) TMI 377 - ITAT MUMBAI] - Decided against revenue. - I.T.A. No.2715/Mum/2019 - - - Dated:- 7-4-2021 - Shri Shamim Yahya, AM And Shri Amarjit Singh, JM For the Assessee : Shri Ravikanth Pathak For the Revenue : Shri Vijay Kumar Menon (DR) ORDER PER AMARJIT SINGH, JM: The revenue has filed the present appeal against the order dated 22.02.2019 passed by the Commissioner of Income Tax (Appeals) -8, Mumbai [hereinafter referred to as the CIT(A) ] relevant to the A.Y.2013-14. 2. The revenue has raised the following grounds: - (1) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is correct in allowing exemption u/s 10(34) of the I. T. Act, 1961, on account of dividend income of ₹ 83,96,134/- denied by the AO, considering the fetters prescribed in Section 44 of the I. T. Act, 1961. 2. Whether on the facts and in the circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as per section 44 of the Act Therefore, the dividend income earned by the appellant is taxable. I have also considered the written submission filed by the appellant wherein appellant submitted that the question of categorizing the income comes when the income forms part of the total income, however; when the income does not form part of total income then, the question of categorizing the same does not come. Admittedly, the appellant has earned dividend on shares and securities on which the investee companies have paid dividend distribution tax as per section 1150 of the Act Therefore, dividend earned by the appellant does not constitute income as per section 10(34) of the Act. I find force in the contention of the appellant that the income which is otherwise not taxable cannot be brought to tax unless specifically stated in the act I am of the view that dividend income on which dividend distribution tax is paid, does not form part of total income; hence, the same is not governed by section 56 of the Act (Income from other source). Only taxable income has to be opted as per section 44 of the Act notwithstanding anything stated in the Act Therefore, the dividend income which taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in sections 28 to (43B), the profits and gains business of insurance, including any such business curried oil, a mutual insurance company or by a cooperative society, computed in accordance with the rules contained in the ,/ .b, 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 I to 4 deals with profits of life insurance business while Part B consisting of Rule 5 deals with computation of profits and gains of Other insurance business. Rule 5 provides as follows: 5. The profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts, copies of which are required under the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 assessee who carried on insurance business and in - whose case the provisions of rule 2 of the First Schedule are attracted. If the deductions which are claimed by the assessee do not fall within the provisions which are referred to in section 44, it will have to be held that the applicability of those provisions in the case of an assessee whose assessment is governed by section 44 read with rule 2 in the First Schedule- is not excluded . This judgment is sought to be distinguished by the Assessing Officer while disposing of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 riot make any difference to- the principle laid down by the Court in the earlier decision in the case of New India Assurance Co. Ltd. Accordingly, the decision of Life Insurance Corporation (Supra)could not have- been ignored by the Assessing- Officer on the supposition that the decision was rendered in the context of an assessee who occupied on life insurance business and was, therefore, not to an assessee which carries on general insurance General Insurance Corporation of India v. Commissioner of ncome-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 added back in the total income of the assessee for AY 1977-78. The Supreme Court held that a plain reading of rule 5(a) of the First Schedule made it clear that in order to attract the applicability of the provision the amount should firstly be an expenditure or allowance and secondly it should be one no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 original order of assessment under section 143(3). The Assessing Officer above all was bound by the communication of the CBDT. Having followed that in the order under section 143(3) he could not have taken a different view while purporting to reopen the assessment. Having applied his mind specifically to the issue and having taken a view on the basis of the communication noted earlier, the act of reopening the assessment would have to be regarded as a mere change of opinion which has also not been 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 Respectfully following the order of the Hon'ble jurisdictional High Court and taking note of the decision of the coordinating bench (F Bench in the case of ICICI Prudential Insurance Co.), we reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as noted that revenue had raised similar grounds for AYs 2006-07 2008-09 but the same was not admitted vide ITA Nos.711 of 2013 688 of 2013 order dated 20/07/2015 and therefore, facts being similar, same view was to be taken in the matter. Respectfully following the same, we would hold that the exemption u/s 10(34) could not be denied to the assessee. Further, as held in the cited decisions, the provisions of Sec.14A would not apply to insurance company. Ground, thus, raised, stands dismissed. 6. Since the issue has duly been covered by the decision of the Hon ble ITAT in the assessee s own case for the A.Y.2012-13 bearing ITA. No.6270/M/2018, therefore, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, this issue is being decided in favour of the assessee against the revenue. ISSUE NO.2 7. Under this issue the revenue has challenged the deleting the addition on account of negative reserves of ₹ 5,40,08,000/-. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:- 3.3.3 I have perused t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s action of taxing the negative reserves is grossly unjustified. My above view is supported by following decision. Life Insurance Corporation of India vs Addll CIT (ITA 6221/M/2012). 4.3.1. We are of the opinion that treatment given to negative reserves by actuary cannot be disturbed by the AO. Here, it would be useful to understand meaning of negative reserve in simple terms. While making actuarial valuation, requirement of reserve to service insurance policies issued is ascertained. Such reserve called mathematical reserve or value of liability) is equal to value of future benefits payable and future expenses to be less present value of future premium receivable. When the present value of future premium is more than the present of future benefits payable and future expenses to be incurred, this amount becomes negative, known as 'negative reserve'. In simple words, it means that the insurance contracts under consideration 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 ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned finding, we noticed that the CIT(A) has allowed the claim of the assessee on the basis of the earlier assessment of the assessee for the A.Y. 2012-13. However, the CIT(A) has also relied upon the decision of the Hon ble ITAT as well as Hon ble High Court. There is no need to discuss again. We also find that the revenue has challenged the decision of the CIT(A) before the Hon ble ITAT for the A.Y. 2012-13 which has been decided by Hon ble ITAT in favour of the assessee in ITA. No.6270/M/2018 dated 22-10-2020. The Hon ble ITAT has decided the issue in favour of the assessee. The relevant finding has been given in para no. 6 which is hereby reproduced as under.:- 6. We find that learned CIT(A) has clinched the issue in correct perspective. The factual matrix was squarely covered in assessee s favor by host of cited judicial decisions rendered in the case of similarly placed assessees. The Hon ble Bombay High Court in the case of Pr. CIT V/s ICICI Prudential Life Insurance Co. Ltd. for AYs 2010-11 2011-12 (ITA Nos.1305 1306 of 2015 dated 03/07/2018) refused to admit the ground raised by revenue on this issue wherein vide para-4, it was noted that revenue had raised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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