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TMI Blog2022 (12) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... the following grounds, each of which are without prejudice to one another. 1. Ground No. 1: Initiation of revision proceedings under section 263 of the Act. The learned CIT has erred in law and fact, inter alia, on the following grounds: 1.1. In disregarding the submission of the Appellant that the twin conditions contained in section 263 of the Act are not fulfilled prior to initiating proceedings under section 263 of the Act and initiating proceedings under section 263 of the Act. 1.2. In treating the order dated 26 December 2019 issued under section 143(3) of the Act by the Assistant Commissioner of Income-tax, Range -8(3)(1), Mumbai (hereinafter referred to as the 'learned AO') [hereinafter referred to as the 'Assessment Order] for AY 2017-18 as erroneous and prejudicial to the interest of the revenue. 1.3. In concluding that the learned AO has made no inquiry regarding the taxability of the income earned by the Appellant from life insurance business and from activities other than the life insurance business. 1.4. In disregarding the submissions of the Appellant on the merits of the case and not following the order issued by the Jurisdictional High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 31/03/2016. Further, assessee claimed exemption towards dividend income under section 10(34) of the Act and towards surplus from pension fund under section 10(23AAB) of the Act amounting to Rs.84,06,99,308/- and Rs.10,60,42,568/- respectively and also claimed deduction of Rs.56,40,583/- u/s 80JJAA of the Act. 3.2. The return of income filed by assessee was selected for scrutiny assessment proceedings and the ld. AO issued notices under section 143(2) and section 142(1) of the Act requesting assessee to furnish various information/ documents. In response to the same, the assessee vide various submissions filed the relevant factual information/ documentary evidences before the ld. AO. The ld. AO while passing the order computed total income of Rs. 599,51,63,800/- by adopting a different approach resulting into double taxation for the purpose of computing the taxable income. The learned AO combined the surplus as per the technical/ revenue and non-technical/ shareholder accounts as well as added the differential surplus as per New Form I of Rs.87,65,86,000/- (comprising of policyholder's profit) while computing the taxable income. Further, the learned AO proceeded to disallow t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical account as envisaged in Appendix 1 of the Act. In the case of a person who carries on or at any time in the previous year carried on life insurance business, the profits and gains of such person from that business shall be computed separately from his profits and gains from any other business. In other words, only income derived from Life insurance business carried by a company will attracts the concessional rate of tax and all other income of the company suffers the prevailing rates applicable to companies. The entire income is treated as an income from Life Insurance business and taxed @12.5%. However, a perusal of computation of Income reveals the followings: Gross income : 599,51,63,800-(A) Less: Surplus as per actuarial valuation 87,65,86,000 Less: Bonus to policy holders (other than pension fund) 350,16,26,177 Amount of income as life insurance business 437,82,12,177-(B) Balance other income after above deductions (A-B) 161,69,51,623-(C) In view of the above quoted provisions tax payable on life insurance business (b) above is @12.5% which works out to Rs.63,13,38,195 and on other than life insurance business (c) above @30%, which works out to Rs.55,95, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he IRDAI Act), and the rules and regulations thereunder. (ii) Assessee is permitted to do only life insurance business and no other business. Its life insurance business includes term insurance, linked business, pension business, etc. falling within the definition of the term 'life insurance business' defined under section 2(11) of the Insurance Act, 1938 (the Insurance Act'). Further, it is submitted that as per the provisions of section 3(4)(h) of the Insurance Act, the license granted by the IRDAI to assessee would be cancelled if it carries on any business other than life insurance business. As a consequence, assessee is precluded from having any other purpose or carrying on any other activity apart from the life insurance business. (iii) Section 44 of the Act, read with Rule 2 in the First Schedule thereto, lays down the manner in which the taxable income from life insurance business is to be determined, and the income so computed is taxable at the rate of 12.5%, as per section 1158 of the Act. (iv) In this regard, we have reiterated the relevant part of section 115B of the Act below for ready reference. (1) Where the total income of an assessee includes an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed as follows "It is clear that the Income-tax Act contemplates that the assessment of insurance companies should be carried out not according to the ordinary principles applicable to business concerns as laid down in section 10, but in quite a different manner. Insurance companies do not compute their profits in the ordinary way because premiums cover risks which run into future years and loss includes losses from previous years... Actuarial estimation plays an important part and surplus only results when there is an excess of the fund over the liability after all other charges are met." (viii). In the case of CIT v. The B. B. and C. I. Railway Co-operative Mutual Death Benefit Society for Indian Staff Ltd [1949) 17 ITR 509, the Bombay High Court held as follows, at page 512: "Therefore, the result of this provision is that instead of computing the income of an insurance company as laid down in various sections under Chapter III, you compute them in the manner laid down in the Schedule to the Act." "Therefore, it will be noticed that instead of an insurance company making its return of income under the various heads as laid down in Section 6, it has got to submit on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, the incomes in Shareholder's account are to be taxed as part of life insurance business only, as they are part of same business and Investments are made as part of solvency ratio of same business. The grounds are allowed. AO is directed to treat them as part of Life Insurance Business and tax them u/s 115B." (x). Where the said ground of appeal was preferred by the Revenue before the Hon'ble Bombay High court, the Hon'ble Bombay High Court [(2016) 73 taxmann.com 201 (Bom) did not entertain the same and ruled in favour of the assessee as under. "So far as Question No. 8 is concerned, the grievance of the revenue is that the income on shareholders' account has to be taxed as income from other sources. This on the ground that the income earned on shareholders' account is not an income which represents income on account of Life Insurance Business. Therefore, it is the revenue's contention that it has to be taxed as income from other sources. The impugned order while allowing the assessee's appeal holds that income earned on shareholders' amount has to be considered as arising out of Life Insurance Business. Moreover, in terms of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that surplus from Share Holders Account was only part of income from insurance business arrived at after "combining" surplus available in Share Holders Account with the surplus available in Policy Holders Account and then and taxing this 'net surplus' arrived at, at the rate specified u/s. 115B of the Act?" 3.6.1. The aforesaid question has been disposed of by the Hon'ble Jurisdictional High Court as under:- "5. So far as Question No. 8 is concerned, the grievance of the revenue is that the income on shareholders' account has to be taxed as income from other sources. This on the ground that the income earned on shareholders' account is not an income which represents income on account of Life Insurance Business. Therefore it is the revenue's contention that it has to be taxed as income from other sources. The impugned order while allowing the assessee's appeal holds that income earned on shareholders' amount has to be considered as arising out of Life Insurance Business. Moreover in terms of Section 44 of the Act, such income has to be taxed in accordance with First Schedule as provided therein. None of the authorities under the Act nor even before ..... X X X X Extracts X X X X X X X X Extracts X X X X
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