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TMI Blog2025 (5) TMI 511X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered as a lead case, and the decision rendered therein shall apply mutatis mutandis to other appeals filed by the Revenue. 3. In its appeal for assessment year 2015-16, 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) was correct in concluding that transfer from Shareholder's account to Policy Account And Shown As Part Of 'surplus' in the actuarial valuation was only transfer of capital asset and not taxable u/s 44 of the Act read with Rule 2 of the First Schedule? 2. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) was correct in allowing 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' is to be taxed as income from Insurance Business? 3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in upholding the claim of the assessee that its dividend income is exempt under section 10(34) of the I.T. Act 1961. 4. Whether, on the facts and in the circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Pr.CIT-1, Mumbai. The revised grounds of appeal raised by the Revenue vide the aforesaid application are reproduced as follows: - "1. Whether the shareholders account is subjected to the 'eligibility criteria' within the meaning of Rule -2 read with Rule - 7 of the First Schedule of the Act? If yes, whether the shareholders funds is subjected to any contract with policyholders within the meaning of Section 2(11) of the Insurance Act read with Rule - 2 read with Rule-7 of the First Schedule of the Act? 2. "Whether the nature and character of income accrued to and claimed exempt by assessee u/s 10(38) of the Act is 'capital gains'"? 3. " Whether the nature and character of the income accrued to and claimed by assessee u/s 10(15) or 10(25) or as defined u/s 2(228) viz. interest on securities and income accrued to and claimed exempt by assessee u/s 10(38) viz. dividend is 'income from other sources' under provisions of the Act." 4. "Whether the income claimed by assessee from business of insurance under section 44 of the Act read with Rule 2 read with Rule 7 of the First Schedule of the Act read with section 2(11) of Insurance Act, 1938 (4 of 1938) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding revised grounds of appeal no.1 raised by the Revenue is immaterial. 8. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is carrying on the business of life insurance, including life annuity linked, non-linked term, whole term assurance, pension business, long term health insurance, family insurance, group insurance, etc. For the year under consideration, the assessee filed its original return of income on 29.11.2015, declaring a total income of Rs. 445,83,69,050/-. The assessee subsequently filed its return of income on 01.12.2015, declaring a total income of Rs. 445,83,69,050/-. The return filed by the assessee was selected for scrutiny under CASS, and statutory notices under section 143(2) and section 142(1) were issued and served on the assessee. During the assessment proceedings, it was observed that the assessee has income in the shareholders' account but treated the same as income from the insurance business. Accordingly, the assessee was asked to show cause as to why the net profit from shareholders' account should not be taxed as income from business activities rather than income from insurance busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the assessee is not permitted to do any business activity other than life insurance, the income in shareholders' account is taxable under the head "Income from Other Sources". The AO held that the income from policyholders' accounts is the income from life insurance business and is taxable as per section 44 of the Act r.w. Rule 2 of Schedule-1. However, the income from the shareholders' account is not the income of the assessee from life insurance business, and it is the income of the assessee from the investment of funds available to it in the shareholders' account. Thus, it was held that the income of the assessee earned in the shareholders' account is different and distinct from the income in the policyholders' account, and the same has to be taxed separately and under the normal provisions of the Act and not under section 44 of the Act. Accordingly, the income of the assessee as per the shareholders' account, without giving the benefit of deduction on account of transfer of funds from the shareholders' account to the policyholders' account, was held to be taxable as income of the assessee under the head "Income from Other Sources" at normal rates. As a result, an inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surance business only, as they are part of the same business and the investments are made as part of the solvency ratio of the same business. The relevant findings of the Co-ordinate Bench, in the aforesaid decision, are reproduced as follows: "54. Ground no 4 and 7 is on the issue of treating incomes in shareholders account as income from other sources. This issue arises for the first time in this year. The assessing officer was of the view that policy holders account represent life insurance business to be taxed u/s 44 whereas shareholders account is separate investment account of assessee and incomes are to be taxed under the head 'income from other sources'. An amount of Rs. 27,33,67,000, adjusted by assessee in deficit in policy holders account, was brought to tax separately, while considering the Total surplus in Life insurance business. The CIT(A) upheld the same stating that income of Life insurance activity is to be computed as per Form I and since there is income from other activities not included in Form I, same should be subjected to tax as income from other sources. 55. We have heard the rival contentions. As briefly discussed while deciding the issue of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders' 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 us is it urged that the assessee is carrying on separate business other than life insurance business. Accordingly, the impugned order holding that the income from shareholders' account is also to be taxed as a part of life insurance business cannot be found fault with in view of the clear mandate of Section 44 of the Act. Accordingly Question No.8 also does not raise any substantial question of law. Thus not entertained." 13. We find that when the similar issue came up for consideration in assessee's own case in SBI Insurance Co. Ltd. vs. JCIT, in ITA No.3800/Mum/2008, etc., for the assessment years 2003-04 to 2006-07, the Co-ordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urplus after transfer from Shareholder's account) which is not at all correct. 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 le. 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 accordingly. Ground Nos. 1 to 3 are considered allowed. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in assessee's own case in preceding years and it was held that the assessee is engaged only in one line of business, i.e., life insurance business and the two accounts, i.e., shareholders' account and policyholders' account have been maintained separately for the purpose of meeting with the requirement of law. Therefore, we find that this issue has consistently been adjudicated in favour of the assessee by the Co-ordinate Benches of the Tribunal and the income from the shareholders' account was held to be taxable as income from life insurance business. 15. Vide its written submission dated 20.01.2025, the learned Departmental Representative ("learned DR") submitted that the assessee be directed to compute the income from insurance business as per the decision of the Hon'ble Supreme Court in Life Insurance Corporation of India vs. CIT, reported in (1964) 51 ITR 773 (SC). From the perusal of the aforesaid decision, we find that the issue under consideration before the Hon'ble Supreme Court was whether the AO has the power to make adjustments to the accounts of the Life Insurance Company on the basis that its securities are undervalued. Thus, we find that the issue unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration under section 10(34) of the Act. The assessee submitted that the manner of computation of profits and gains of any business of insurance as provided under section 44 of the Act overrides the normal provisions of law for computation of income from business, and since income which falls under the provisions of section 10 are not included in total income of a person, hence such income would not be included in total income of the assessee. The assessee further submitted that the dividend income is not exempted by virtue of any provision relating to any head of income or as contained in sections 28 to 43B of the Act. Thus, the assessee submitted that the dividend is exempted by virtue of provisions of section 10(34) of the Act, which is independent of the provisions relating to head of income or sections 28 to 43B of the Act and the same is not overridden by the provisions of section 44 of the Act. 19. The AO, vide assessment order, disagreed with the submission of the assessee and held that an amount which is credited to the Profit and Loss account of the assessee engaged in the business of insurance, being either profit on sale of shares or dividend cannot be take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notwithstanding the provisions of section 191 or sections 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 carries 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." 22. We find that following the aforesaid decision of the Hon'ble Jurisdictional High Court, the Co-ordinate Bench of the Tribunal in assessee's own case in SBI Life Insurance Company Ltd. vs. ACIT, in ITA No.4066/Mum/2011 etc., for the assessment years 2007-08 to 2010-11, vide order dated 23.12.2016, observed as follows: - "32. We have considered the submissions made by both the sides, facts of the case, earlier order of the Tribunal as well as Order Giving Appeal Effect passed by the AO as was brought before us. It is noted that identical issue came up be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, we do not find it necessary to interfere in the finding of Ld. CIT(A) and therefore, the order of the Ld. CIT(A) is upheld. These Grounds raised by the Revenue are dismissed." 23. Therefore, respectfully following the decisions cited supra, we do not find any infirmity in the findings of the learned CIT(A) in directing the AO to grant the exemption to the assessee claimed under section 10(34) and section 10(23AAB) of the Act. 24. From the perusal of revised grounds of appeal no.2 to 7 filed by the Revenue, we find that apart from challenging the findings of the learned CIT(A) granting exemption to the assessee claimed under section 10(34) and section 10(23AAB) of the Act, the Revenue has raised various other grounds pertaining to various other aspects and exemption provided in other provisions of section 10 of the Act, which we find do not arise from the facts and circumstances of the present case for the assessment year 2015-16. As noted above, exemption claimed under section 10(34) and section 10(23AAB) of the Act was only denied by the AO vide assessment order, which was overturned by the learned CIT(A) following the judicial precedent in assessee's own case an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of exemption by the assessee under section 10(15) of the Act in its appeal for the assessment years 2016-17 and 2017- 18 become relevant in the facts of these two appeals as they arise from the facts and circumstances of these years. However, in view of our findings rendered in respect of claim of the assessee for exemption under section 10(34) and section 10(23AAB) in Revenue's appeal for assessment year 2015- 16, we do not find any infirmity in the findings of the learned CIT(A) in also directing the AO to grant exemption to the assessee under section 10(15) of the Act. 30. Insofar as other issues are concerned, our findings/conclusions/observations as rendered in Revenue's appeal for the assessment year 2015-16 shall apply mutatis mutandis to the Revenue's appeal for assessment years 2016-17 and 2017-18, and the revised grounds of appeal filed by the Revenue are dismissed. 31. In the result, the Revenue's appeal for the assessment years 2016-17 and 2017-18 are dismissed. 32. In its appeal for the assessment years 2018-19, 2019-20 and 2020-21, the Revenue though has not filed any application seeking admission of revised grounds of appeal, however, we find that in its orig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. "Whether on the facts and in circumstances of the case and in Law, Sec. 10 of IT Act is applicable to Insurance business when total income of Insurance activity is governed and computed under Schedule 1 of the / T Act independent of various computational provisions as prescribed u/s 44 of the Act.?" 9. Whether the shareholders account is subjected to the 'eligibility criteria' within the meaning of Rule -2 read with Rule - 7 of the First Schedule of the Act? If yes, whether the shareholders funds is subjected to any contract with policyholders within the meaning of Section 2(11) of the Insurance Act read with Rule -2 read with Rule-7 of the First Schedule of the Act? 10. "Whether the nature and character of income accrued to and claimed exempt by assessee u/s 10(38) of the Act is 'capital gains. 11. "Whether the nature and character of the income accrued to and claimed by assessee u/s 10(15) or 10(25) or as defined us 2(228) viz. interest on securities and income accrued to and claimed exempt by assessee u/s 10(38) viz. dividend is 'income from other sources' under provisions of the Act." 12. " Whether the income claimed by assessee from business o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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