TMI Blog2015 (11) TMI 1858X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral Insurance Corporation of India [ 2011 (12) TMI 70 - BOMBAY HIGH COURT] - we do not find any infirmity in the order of CIT(A) exempting the dividend income. Disallowance u/s 14A - HELD THAT:- As relying on M/S. RELIANCE GENERAL INSURANCE CO. LTD. VERSUS. THE DY. COMMISSIONER OF INCOME-TAX [ 2010 (4) TMI 1076 - ITAT MUMBAI] we do not find any merit in the action of lower authorities for disallowance made u/s.14A, which is not applicable to the Insurance Company. TDS u/s 194C or 194I - payment made to Hotel - HELD THAT:- We have considered rival contentions and found that the payment to Hotel is covered by the provision of Section 194I. Circular No.5 dated 30-7-2002 also supports the contention that while making payment to the Hotel tax is liable to be deducted u/s.194-I. Hon ble Bombay High Court in the case of East India Hotels Ltd. Anr. [ 2009 (3) TMI 8 - BOMBAY HIGH COURT] , held that in case of payment to Hotels tax is to be deducted at source as per provisions of Section 194-I and not as per the provisions of Section 194C. Respectfully following the decision of the Hon ble jurisdictional High Court vis- -vis the CBDT Circular, as discussed above, we do no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e : Manjunatha R. Swamy ORDER PER R.C. SHARMA (A.M): These are the cross appeals filed by the assessee and revenue against the order of CIT(A), Mumbai, for the assessment years 2006-07 to 2008-09, in the matter of order passed u/s.143(3) of the I.T Act. 2. Rival contentions have been heard and record perused. Facts in brief are that the assessee is engaged in the business of General Insurance. During the course of scrutiny assessment the AO disallowed assessee s claim for amortization of premium paid on investment/securities, amortization of pre-operative expenses, profit on sale of investment, exemption u/s.10(34) in respect of dividend income, disallowance u/s.14A, 40(a)(ia), expenditure on purchase of harddisk, ram, software, renewal of software licence etc. By the impugned order the CIT(A) deleted the addition/disallowance made under the head amortization of premium paid on purchase of investments, amortization of pre-operative expenses, profit on sale of investment, dividend income. 3. It was contended by ld. AR that all these grounds are covered by the order of Tribunal in assessee s own case. 4. We have gone through the orders of the Tribunal in as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in the above judgment was slightly different, but the words any expenditure or allowance which is not admissible under the provisions of sections 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 no specific prohibition against the expenditure or allowance in sections 30 to 43A, the departmental authorities were not justified in adding back the amount to 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 behalf of the Revenue. We, therefore, delete the addition of ₹ 1,91,33,945/- and allow the first ground. As the facts and circumstances during all the three years under consideration are same, respectfully following the order of the Tribunal, we confirm the action of the CIT(A) for allowing assessee s claim of amortization of premium paid on purchases of investment. 6. The second ground of revenue s appeal pertains to amortization of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second question, the High Court held at pages 762 and 763 as follows: - The second question referred to us proceeds on the footing that the answer to question No.1 is in the affirmative. Since we have answered the first question in the negative, no answer need be given to the second question. However, since we have held that the entire amount is allowable as revenue expenditure it is obvious that the entire amount should be allowed in the assessment year 1966-67 and no question of apportioning it over a series of years can at all arise. There can, therefore, be no question of allowing any deduction in respect of the whole or any part of this amount in the assessment year 1967-68 . This judgment of the Delhi High Court fully supports the assessee's claim. The facts of that case show that the entire amount paid to the collaborator was claimed as a deduction in the return filed for the assessment year 1966-67 though the payments were made before the business was set up. The facts further show that initially the assessee had claimed only 1/14th of the payment as a deduction but later revised its claim and claimed the entire payment as deduction in the assessment year 1966-6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of Shriram Refrigeration Industries Ltd. vs. CIT (supra), we uphold the assessee's claim and allow Ground No.2 As the facts and circumstances during the year 2006-07 are pari materia, respectfully following the order of the Tribunal in assessee s own case, we confirm the action of the CIT(A) for allowing assessee s claim for amortization of pre-operative expenses. 7. In ground No.4, the revenue is aggrieved in all the years under consideration for deleting the addition made on account of profit on sale of investment being chargeable to tax. This issue is also covered by the order of Tribunal for assessment year 2003-04 and the precise observation of the Tribunal in this regard is as under :- 18. We have carefully considered the rival contentions. There is no dispute that under the guidelines issued by the IRDA (Auditor's Report) Regulations of 2002, for preparation of financial statements, the profit on sale of investments is to be credited to the Profit and Loss Account of the insurance company. There is also no dispute that the assessee has credited the Profit and Loss Account with such profit. The question is whether such profit can be ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rescribe the method of taxation of such income; therefore the Revenue Department has no right to tax such an income in the absence - of any enabling provision. Naturally, such a deletion cannot be treated a superfluous action but this change had to give a definite judicial meaning. We have to ascribe a logical conclusion to the said deletion of sub rule (b) from Rule 5 and the natural meaning - is that after the deletion the income described therein is out of the purview of computation of insurance Business from the First schedule therefore consequently cannot -be-taxed--u/s44 of I. T.- Act - -After expressing this view we hereby dismiss the cross Objection of the revenue , 19: The aforesaid-order of the Pune Bench, which was in the case of a company carrying on general insurance business, was followed by the Mumbai Bench of the Tribunal in its order dated 17.09.2010, in the case - of HDFC ERGO General Insurance Company Ltd., in ITA No: 338IMum/2009 (assessment year 2004-05) as also in its order dated 30.04.2010, in the case of Reliance General Insurance Co. Ltd., in ITA No. 781/Mum/2007 (and 'other appeals). Copies of these orders have also been filed before us. In these or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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. 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 under clauses (15), (23G) and (33) of Section 10 is directly governed by the decision rendered by the Division Bench in Life Insurance Corporation v. Commissioner of Income-tax (supra) following the earlier decision in Commissioner of Income-tax v. New India Assurance Co. Ltd. (supra). The Assessing Officer could not have ignored the binding precedent contained in the two Division Bench decisions of this Court. Moreover, the Assessing Officer in allowing the benefit of the exemption in the order of assessment under Section 143(3) specifically relied upon the, view taken by the CBDT in its communication dated 21 February 2006 to the Chairman of IRDA. The communication clarifies that the exemption availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read with section 44 of the IT Act. 2(a) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that pre-operative expenses can be amortized and claimed over a period of several years when there is no provision in the IT Act to admit such allowance. 2(b) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the pre-operative amortized expenses without appreciating that same cannot be claimed as deduction in a previous year in which it had not been incurred. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that profit of ₹ 6,37,88,000/- on sale of investment is exempt in view of CBDT Circular No. 528 dt. 16-12-1988 without appreciating that the said Circular was specifically for General Insurance Corpn. Of India and its subsidiaries only which are wholly owned enterprises of Govt. of India and the assessee is not entitled to such benefit. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to reduce the dividend from the surplus as per 'Form I' as dividend is exempt u/s.10(34) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s capital in nature. The Appellant craves leave to add, alter, vary, omit, substitute or amend the grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the honourable Income-Tax Appellate Tribunal to decide this appeal according to law. 13. In the assessment year 2006-07 2008-09, disallowance made by the AO u/s.14A was confirmed by the CIT(A). The contention of ld. AR was that the provisions of Section 14A is not applicable in the case of Insurance Company. For this purpose reliance was placed in the decision of coordinate bench in the case of ICICI Lombard General Insurance Co. Ltd. Vs. ACIT, ITA No.4287 4374/M/2009, dated 18-9-2013. 14. We have gone through the order of the Tribunal in the case of ICICI Lombard General Insurance Co. Ltd (supra), wherein the Tribunal observed as under :- 5. Ground No. 2 regarding disallowance u/s 14A. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. The Ld. AR of the assessee has submitted that Rule 14A is not applicable in the case of Insurance Company. She has relied upon the decision of this Tribunal in case of ICICI Prudential Insurance Co. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... informed that this controversy in respect of insurance company set at rest by a decision of Tribunal, Delhi Bench verdict in the case of Oriental Insurance Co. Ltd. (ITA Nos. 5462 5463/Del/2003) asst. yrs. 2000-01 and 2001-02 order dt. 27th Feb.2009 [reported as Oriental Insurance Co. Ltd. v. Asstt. 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 . yrs. 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce is essentially to be at the amount of the balance of profits disclosed by the annual accounts as furnished in the Controller of Insurance. The actual computation 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 travel 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he re under. The adjustments do not refer to disallowance under s. 14A of the Act. (b) Profits and gains of business as refer red to in (a) above 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. 23. The learned Departmental Representative strongly justified the action 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 already been expressed by respected Co-ordinate 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gifts of business of insurance. It being a non obstnate provision, has to prevail over other provisions in the Act. It clearly provides that income from insurance business has to be computed in accordance with the rule contained in the First Schedule. It is not the case of the Revenue that the assessee has not computed the profits and gains of its insurance business in accordance with the said rules. Reliance was placed on the scope of s. 144, as held in the case of General Insurance Corporation of India v . CIT [1999] 156 eTR (Se) 425 : [1999] 240 ITR 139 (SC), wherein their Lordships of the apex Court have categorically held that the provisions of s. 44 being a special provision govern computation of taxable income earned from business of insurance. It mandates the tax authorities to compute the taxable income in respect of insurance business in accordance with the provisions of the First Schedule to the Act In the light of these, their Lordships of Delhi High Court have held that no question of law, much less a substantial question of law survives for their consideration. In other words, order of the Tribunal has been affirmed. Following the same reasoning, addition made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 145.12 crores and the total receipt shown by the assessee is ₹ 537.50 crores and the dividend income shown by the assessee is ₹ 1,12,87,020/-, therefore, the Assessing Officer worked out the ratio of dividend income at 0.208% of total income and at this rate, he worked out the expenses incurred by the assessee for earning dividend income at ₹ 30,18,496/- which he added to the total income of the assessee . On appeal, the ld. CIT(A) while relying on the decision of the Special Bench of the Tribunal in ITO vs. Daga Capital Management(P) Ltd. in ITA No.8057/Mum/2003 dated 20.10.2008 upheld the addition made by the Assessing Officer. 6. At the time of hearing the ld. Counsel for the assessee at the outset submits, that this issue is directly covered in favour of the assessee by the following orders of the Tribunal : 1) M/s. Oriental Insurance Co. Ltd. vs. ACIT 2009-TIOL-172-ITAT- Del (ITA No.5462 5463/del/03 for Assessment Year 2000-01 and 2001-02) order dated 27.2.2009. 2) Bajaj Allianz General Insurance Company Limited vs. Addl.CIT and vice versa in ITA No.1447/PN/07 and CO. No.52/PN/2007 order dated 31.8.2009 for the Assessment Year 2003-04. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT-DEL after discussing the identical issue at length has held that sec.44 provides for application of special provisions for computation of profits and gains of insurance business in accordance with Rule 5 of Schedule I and, therefore, it is not permissible to the Assessing Officer to travel beyond sec.44 and Schedule-I and make disallowance by applying sec.14A of the Act. The above order has consistently been followed by the Tribunal in the above three cases relied on by the ld. Counsel for the assessee. In the absence of any distinguishing feature brought on record by the ld. DR we respectfully, following the consistent view of the Tribunal hold that it is not permissible to the Assessing Officer to travel beyond sec.44 and Schedule-I and make disallowance by applying sec.14A of the Actand accordingly the disallowance of ₹ 30,18,496/- made by the Assessing Officer and sustained by the ld. CIT(A) is deleted. The ground taken by the assessee is therefore, allowed. 17. Similar view was also taken by the coordinate bench in the case of Reliance General Insurance Co.Ltd. Vs. DCIT, 2010-TIOL-ITAT-MUM. 18. Respectfully following the above judicial pronouncements, we do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as under :- 22. The appeal of the Department in ITA No: 2543/Mum/2009 raises only one issue, namely, the allowing of the software expenses of ₹ 49,30,679/-. We have considered the facts and the rival contentions. The details of the expenditure set out in paragraph 11 of the impugned order shows that the breakup of the expenditure is as below: - Description Amount (Rs.) Purchase of Software (MS Office, WIN for office application 38,45,379 Etrust Innoculate (Anti Virus Software) 8,07,433 Others 2,77,887 Total 49,30,699 In paragraph 12 the CIT(A) has noted that the assessee itself has capitalized software expenditure of the tune of ₹ 71,98,000/-. He has also noted that some of the software expenditure are with regard to virus prevention, MS office, etc. which are not long lasting and do not result in any benefit of enduring nature. According to him the expenses are allowable as revenue expenditure. The findings of the CIT(A) are not disputed. No enduring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 42,80,853/- u/s.40(a)(ia) for non deduction of TDS. This ground is dismissed. 28. Against the above order of CIT(A), assessee is in appeal before us. 29. Similar disallowance has also been made by the AO in the assessment year 2007-08 2008-09 and the same has been confirmed by the CIT(A) after having similar observation as given in the assessment year 2006-07, reproduced here in above. 30. It was contended by the ld. AR that assessee had entered into an arrangement with the co-insurers for sharing the risk premium as per the agreed ratio. It was pleaded that the coinsurers were not the agents of the assessee and that the transactions between the assessee and the co-insurers were on principal to principal basis. The said fact was stated to be evidenced by the arrangement between the two parties and therefore no withholding was required. It was further submitted that the essential characteristic of commission was payment to an agent. In the present case, the co-insurers were stated to be neither acting as an agent nor acting as broker for and on behalf of the assessee and therefore the payments of co-insurance fees could not be construed as commission as per the Act or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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