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TMI Blog2018 (12) TMI 1939X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance of expenses under section 14A of the Act read with Rule 8D of the Rules amounting to Its. 3,84,65,018/- The learned CIT(A) erred in holding that expenses incurred by the Appellant in earning exempt income will have to be disallowed under section 14A of the Act. While making the disallowance, the learned ClT(A) has also erred on the following counts: 1.1 The learned CIT(A) erred in not appreciating the fact that the provisions of 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 tribunal decision in Appellant's own case for AY 2010-I1 and various other tribunal decisions (including that of jurisdictional tribunal) relied upon by the Appellant, wherein it has been held the taxable income of insurance companies shall be computed only in accordance with provisions of section 44 read with First Schedule of the Act and it is not permissible to the assessing oil-ice to travel beyond the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 14A. 8. We have heard the rival contentions and perused the relevant record. We note that this 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 deciding the issue in ITA No.781/Mum/2007 vide order dated 30.4.2010. Thus, this issue has been consistently decided in favour of the assessee and against the revenue by this Tribunal. The Pune Bench of this Tribunal in the case of Bajaj Allianz General Insurance Company limited V/s Add. CIT (supra) has decided this issue in paragraphs 17 to 20 as under: "17. Finally the quest ion to be answered is about the applicability of s. 14A in respect of sale of investment which is not taxed under the special circumstances of deletion of a sub-rule from the statute. It is not questioned that the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dule to the Act. In the light of these, their Lordships of Delhi High Court have held that no quest ion of law, much less a substantial quest ion of law survives for their consideration. In other words, order of the Tribunal has been affirmed. Following the same reasoning, addition made by the AO is deleted. 22. We have considered the rival contentions and gone through the records. The provisions of s. 44 read as under: "44. Insurance business.--Notwithstanding anything to the contrary contained 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 society, shall be computed in accordance with the rules contained in the First Schedule"'. 23. The above provision makes it very clear that s. 44 applies notwithstanding anything to the contrary contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 clause and applies notwithstanding anything to the contrary contained within the provisions of the IT Act relating to computation of income chargeable under different heads, other than the income to be computed under the head 'Profit and gains of business or profession' . For computation of profits and gains of business or profession the mandate to the AO is to compute the said income in accordance with the provisions of ss. 28 to 43B of the Act. In the case of the computation of profits and 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue, " whether on the facts and in the circumstances of the case and in law, the Tribunal was justify in holding that provisions of section 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 and has also itself made some disallowance 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." 4. Respectfully following Tribunal's decision in assessee's own case cited supra, this issue of assessee's appeal is allowed. 5. The next issue in assessee's appeal is against the order of CIT(A) in deleting the disallowance made by the AO on account of carry forward of losses of Rs. 11,52,53,672/- from pension business. For this, Revenue has raised following Ground No.4: - "Ground No. 2: Rejection of claim of Its. 11,52,53,672 being deficit incurred by the Appellant in pension business segment. The CIT(A) er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 that the income from Jeevan Suraksha Fund is exempt under section 10(23AAB) of the Income-tax Act, 1961. 16. The argument of the revenue is that with the insertion of section 10(23AAB) by Finance (No. 2) Act, 1996 with effect from 1-4-1997, the profis as well as loss arising from Jeevan Suiraksha Fund would not be includible in the total income of the assessee and, therefore, while determining the distributable profits of the assessee, the loss from Jeevan Suraksha Fund ought not to be allowed to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een made less than the real actuarial valuation. For this Revenue has raised following ground No. 1: - "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that the negative reserve has an impact of reducing the taxable surplus as per Form 1 and therefore corresponding adjustment for negative reserve" need to be made to arrive at 'taxable surplus'." 9. At the outset Ld. Counsel for the assessee stated this issue is squarely covered in favour of the assessee by the following the assessee's own case in ITAs No. 4110/Mum/2014 & 4130/Mum/2014 vide order dated 12.09.2016, wherein Tribunal held as under: - ""9. At the outset Ld. Counsel for the assessee stated that the similar issue was raised before Hon‟ble Jurisdictional High Court in the case of CIT Vs. ICICI Prudential Insurance Co. Ltd. in ITA No. 711 & 688/2014 dated 20/07/2015 and Hon‟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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed. 2. The next issue in this appeal of Revenue is as regards to the order of the CIT(A) in deleting the disallowance of deduction/exemption claimed by the assessee u/s. 10(34) of the Act in respect of dividend income. For this Revenue has raised the following ground: - "2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the dividend income of assessee as exempt u/s 10(34) of the I T Act, 1961. ignoring the fact, that dividend income is considered as part of income of Life Insurance Business and is included as an income by the actuary." 11. We have heard rival contentions and gone through the facts and circumstances of the case. In this regard, the ld. counsel for the assessee argued that this issue is squarely covered in favour of the assessee by the following the assessee's own case in ITAs No. 4110/Mum/2014 & 4130/Mum/2014 vide order dated 12.09.2016, wherein Tribunal has considered the issue as under: - "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), Ld. Counsel for the assessee stated that the similar issue was raised before Hon'ble Jurisdictional High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 3,45,19,352/- under section 10(15) and dividend income amounting to Rs. 270,66,46,489/- under section 10(34). He has elaborately discussed this issue from Para 6 onwards and ultimately made an enhancement of income to an extent of Rs. 274,11,65,844/- the amount which was allowed by the Assessing Officer as exempt under section 10. The contention of the CIT (A) was that the assessee was not eligible for deduction under section 10, once the incomes are brought to tax under section 44 r.w. Rule 5 of First Schedule to the Income Tax Act, 1961. 8. There is no need to consider the arguments of the CIT (A) and how he has arrived at that conclusion in this order as this issue was decided by the Hon'ble 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r reopening the assessment proceeded on the premise that in computing the profits and gains of business for an assessee who carries on general insurance business no other section of the Act would apply and that the computation could be carried out only in accordance with section 44 read with Rule 5 of 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 in computing the profits and gains of the business of insurance under section 44 read with the First Schedule certain items which were ordinarily not includible in the total income were rightly included in the taxable surplus. The Division Bench of this Court held as follows: "The question which essentially falls to be determined in this reference is whether, in view of the provisions in sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arries on general insurance business Rule 5 could apply. According to the Assessing Officer, Rule 5 would not permit any adjustment to the balance of profit as per annual accounts prepared under the Insurance Act, and hence the judgment would not be applicable. The Assessing Officer has clearly not noticed that the decision in Life Insurance Corporation (supra) though rendered in the context of an assessee which carries on life insurance business, followed an earlier decision of a Division Bench of this Court in Commissioner of Income-Tax v. New India Assurance Co Ltd . That was a case of an assessee which carried on non life insurance business. In 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, the profits and gains of any business of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision for redemption of preference shares 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 provisions of the First Schedule to the Income-tax Act and satisfying the requirements of the Insurance Act are binding on the Assessing Officer under the Income-tax Act and he has no general power to correct the errors in the accounts of an insurance business and undo the entries made therein". ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench The question whether an assessee who carries on general insurance business would be entitled to avail of an exemption under section 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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