Deputy Commissioner of Income Tax Circle-2(1)(2), Bangalore V. M/s Exide Life Insurance Company Limited , Bangalore

ITA 1961/BANG/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6455 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 07-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T SURYANARAYANA
• Keywords: Business income; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI B.R BASKARAN , ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO.1961/BANG/2018 ASSESSMENT YEARS : 2012-13 THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1)(2), BENGALURU. VS. M/S EXIDE LIFE INSURANCE COMPANY LTD., (FORMERLY KNOWN AS ING VYSYA LIFE INSURANCE COMPANY LTD.,) NO.3/1, 3 RD FLOOR, JP TECHNO PARK, MILLERS ROAD, BENGALURU-560 001. PAN AAACI 7940 L . APPELLANT RESPONDENT APPELLANT BY : SHRI T SURYANARAYANA, ADVOCATE RESPONDENT BY : SHRI PRADEEP KUMAR, CIT (DR) DATE OF HEARING : 21.10.2019 DATE OF PRONOUNCEMENT : 23.10.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 15/3/2018 PASSED BY THE LD CIT(A)-2, BENGALUR U AND IT RELATES TO ASST. YEAR 2012-13. 2. THE GROUNDS OF APPEAL URGED BY THE REVENUE READ AS UNDER:- 1. CIT(A) ERRED IN HOLDING THE SURPLUS FROM SHAREHOLDER'S FUNDS AS INCOME FROM LIFE INSURANCE BUSINESS U/S 44 OF THE IT ACT, DESPITE THE FACT THA T THE NATURE OF THIS INCOME IS COMPLETELY DIFFERENT F ROM ITA NO.1961 /BANG/2018 PAGE 2 OF 9 THE PREMIUM INCOME UNDER POLICY HOLDER FUND, WHICH IS THE ONLY INCOME FROM THE LIFE INSURANCE BUSINESS TO HE DETERMINED U/S 44 OF THE IT ACT. HONBIE SUPREME COURT HAS ALREADY ADMITTED THE SLP OF DEPARTMENT ON THIS ISSUE IN THE CASE OF CIT VS ICICI PRUDENTIA L LIFE INSURANCE CO. LTD. (2016) 242 TAXMAN 97 (SC). 2. CIT(A) ERRED IN HOLDING THAT THE PROFITS OF THE LIFE INSURANCE BUSINESS WOULD BE DETERMINED AS PER THE FINANCIAL ACCOUNTS AND NOT AS PER THE SURPLUS REFLECTED IN FORM I OF 'ACTURIAL VALUATION' AS PER THE PROVISIONS OF SECTION 44 OF THE IT ACT READ WITH TH E FIRST SCHEDULE. 3. CIT(A) ERRED IN NOT EXCLUDING THE LOSS OF RS. 93,39,11,564/- IN THE PENSION ACCOUNT, WHICH IS EXEMPT U/S 10(23AAB) OF IT ACT, AND WHICH SHOULD HAVE BEEN EXCLUDED FROM THE COMPUTATION OF TOTAL INCOME. 3. THE FIRST TWO GROUNDS RELATE TO THE ISSUE OF TRE ATING THE SURPLUS ARISING FROM SHAREHOLDER ACCOUNT AS SEPAR ATE INCOME AND NOT AS INCOME ARISING FROM LIFE INSURANCE BUSINESS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN SURPLUS OF RS.32.11 CRORES IN SHAREHOLDERS ACCOUNT AND THE SAME WAS NO T TREATED AS INCOME FROM LIFE INSURANCE BUSINESS. ACCORDINGLY, IT WAS ASSESSED SEPARATELY BY THE AO. 4. BEFORE LD CIT(A), THE ASSESSEE CONTENDED THAT MERELY BECAUSE SURPLUS FROM SHAREHOLDERS ACCOUNT AND POLICY HOLDER S ACCOUNT IS DISCLOSED SEPARATELY IN THE FINANCIAL STATEMENTS, T HE INCOME IN SHAREHOLDERS ACCOUNT SHOULD NOT BE TREATED AS DIST INCT INCOME SEPARATED FROM LIFE INSURANCE BUSINESS. IT WAS FUR THER SUBMITTED THAT AS PER THE INSURANCE ACT, INCOME FROM SHAREHOL DERS ACCOUNT AS ITA NO.1961 /BANG/2018 PAGE 3 OF 9 WELL AS POLICY HOLDERS ACCOUNT CONSTITUTES PART AN D PARCEL OF LIFE INSURANCE BUSINESS ONLY. THE ASSESSEE ALSO PLACED RELIANCE ON THE FOLLOWING CASE LAWS IN SUPPORT OF ITS CONTENTIONS:- 1. ORDER OF ITAT BANGALORE IN APPELLANTS CASE FOR THE ASST. YEAR 2009-10 (ITA NO.792/BANG/2016) 2. PNB METLIFE INDIA INSURANCE CO. LTD., VS. CIT (ITA NO.179/BANG/2017) (BANGALORE ITAT) 3. PNB METLIFE INDIA INSURANCE CO. LTD., VS. CIT (ITA NO.1508/BANG/2017) (BANGALORE ITAT 4. PNB METLIFE INDIA INSURANCE CO. LTD., VS. CIT (ITA NO.756/BANG/2017) (BANGALORE ITAT 5. ICICI PRUDENTIAL INSURANCE CO. LT6D. VS. ACIT (29 TAXMANN.COM 257 (MUMBAI ITAT) WHICH WAS SUBSEQUENTLY UPHELD BY BOMBAY HIGH COURT IN (73 TAXMANN.COM 2011) 5. THE LD CIT(A) WAS CONVINCED WITH THE CONTENTION OF THE ASSESSEE AND ACCORDINGLY, BY FOLLOWING THE ABOVE SA ID DECISIONS, HELD AS UNDER:- HAVING CONSIDERED THE SUBMISSIONS, IT IS OBSERVED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED B Y THE ABOVE JUDICIAL PRONOUNCEMENTS INCLUDING THAT, O F THE JURISDICTIONAL ITAT IN THE CASE OF THE APPELLANT FO R THE ASST, YEAR 200010 IN ITA NO,792/BANG/2016) I BANGALORE ITATI AND ALSO IN THE CASE OF PNB MET.LIF E IN ITA NO 1508/BANG/2015) [BANGALORE TAT] AY 2011-12 & FFA NO, 179/BANG/2017) AY 2012-13. THE FACTS AND CIRCUMSTANCES OF THE MATTER UNDER CONSIDERATION ARE SIMILAR TO THAT OF THE FACTS IN THE CASES CONSIDERE D BY THE HON'BLE BANGALORE ITAT IN THE DECISIONS CITED S UPRA. UNDER THE CIRCUMSTANCES, RESPECTFULLY FOLLOWING THE ITA NO.1961 /BANG/2018 PAGE 4 OF 9 DECISIONS OF THE HONBLE ITAI, I AM OF THE VIEW THA T THE SURPLUS HORN SHAREHOLDERS ACCOUNT. THOUGH DISCLOSED SEPARATELY IN THE FINANCIAL STATEMENT, DOES NOT BE COME SEPARATE FROM LIFE INSURANCE BUSINESS. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 6. WE HEARD THE PARTIES AND PERUSED THE RECORD. WE NOTICED THAT THE LD CIT(A) HAS FOLLOWED THE DECISION RENDER ED BY THE COORDINATE BENCH IN THE ASSESSEES OWN CASE RELATI NG TO ASST. YEAR 2009-10 AND ALSO DECISION RENDERED IN THE CASE OF P NB MET LIFE (SUPRA) SINCE THE LD CIT(A HAS FOLLOWED THE DECISI ON RENDERED BY TRIBUNAL ON THIS ISSUE, WE DO NOT FIND ANY NECESSI TY TO INTERFERE WITH THE ORDER PASSED BY HIM. 7. THE GROUND NO.3 RELATES TO CLAIM OF SET OFF OF L OSS OF RS.93.39 CRORES COMPUTED UNDER THE PENSION ACCOUNT AGAINST B USINESS INCOME. THE LD AR SUBMITTED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE COORDINATE BENCH IN THE ASSESSEES OWN CASE IN ASST. YEAR 2009-10 AND THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. 8. WE HEARD THE LD DR AND PERUSED THE RECORD. WE NO TICED THAT THE COORDINATE BENCH HAS EXAMINED AN IDENTICAL ISSU E AND DECIDED THE SAME IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION RENDERED BY BOMBAY HIGH COURT IN THE CASE OF LIC OF INDIA LTD., (2011) 12 TAXMANN.COM 388 (BOM). FOR THE SAKE OF C ONVENIENCE, WE EXTRACT BELOW THE RELEVANT PORTION OF THE ORDER PASSED BY THE TRIBUNAL IN IT(TP)A NO.335, 338/BANG/2014 AND IT(TP )A NO.243/BANG/2015 ITA NO.1961 /BANG/2018 PAGE 5 OF 9 47. THE NEXT GRIEVANCE PROJECTED BY THE ASSESSEE IN GROUND NO.II COMPRISING OF GROUND 1 TO 6 IS WITH REGARD TO ACTION OF THE REVENUE AUTHORITIES IN NOT ALLOWING LOSS INCURRED FROM PENSION FUND WHICH IS EXEMPT U/S 10(23AAB) OF THE ACT AMOUNTING TO RS.87, 85,43,000/- WHILE DETERMINING THE ACTUARIAL VALUATION SURPLUS U/S 44 OF THE ACT. WE HAVE ALREA DY SEEN THAT IN ASST. YEAR 2009-10 THIS CLAIM WAS ALLO WED BY THE CIT(A). AS FAR AS PRESENT ASST. YEAR IS CONCERNED, THE ASSESSEE MADE A CLAIM ON ITS DEDUCTION BY LETTER DATED 17/4/2013. COPY OF WHICH IS AT PAGE 366 OF THE ASSESEES PAPER BOOK. THOUGH TH E CLAIM WAS NOT MADE IN RETURN OF INCOME OR REVISED RETURN. SIMILARLY IN ASST. YEAR 2009-10 ALSO CLAIM WAS MADE BEFORE THE AO IN LETTER DATED 22/3/2013. COPY OF WHICH IS AT PAGE 76 OF THE ASSESSEES PAPER BOOK . THE AO DID NOT CONSIDER THE CLAIM OF THE ASSESSEE. THE DRP ALSO REFUSED THE CLAIM OF THE ASSESSEE FOR THE FOLLOWING REASONS:- 7.1 IN THIS GROUND, THE ASSESSEE HAS CLAIMED THAT THE LOSS INCURRED FROM PENSION FUND EXEMPT U/S 10 (23AAB) OF RS. 87,85,43,000 IS TO BE EXCLUDED WHILE DETERMINING THE ACTUAL VALUATION SURPLUS U/S 44. IT IS ADMITTED THAT NO CLAIM IN THIS REGARD HAS BEEN MADE BY WAY OF A RETURN OR REVISED RETURN OF INCOME. THE CLAIM WAS MADE IN THE COURSE OF SUBMISSIONS IN THE ASSESSMENT PROCEEDINGS AND HAS NOT BEEN CONSIDERED IN THE DRAFT ASSESSMENT ORDER. ASSESSEE HAS RELIED ON THE DECISION OF THE HONORABLE BOMBAY HIGH COURT IN 338ITR212 IN THE CASE OF LIC OF INDIA IN THIS REGARD. 7.2 WE HAVE EXAMINED THE ISSUE BEFORE US. IT IS NOTED THAT THE A.O HAS NOT HAD THE OCCASION TO EXAMINE THE FACTUAL BASIS OF THE QUANTIFICATION OF LOSS AS THE CLAIM HAS NOT BEEN MADE BY WAY OF A RETURN OR REVISED RETURN. IT WOULD BE RELEVANT TO POINT OUT THAT THE ASSESSE ITSELF HAS NOT MADE THE ITA NO.1961 /BANG/2018 PAGE 6 OF 9 CLAIM IN THE RETURN AND PERHAPS RIGHTLY SO. AS REGARDS THE RELIANCE ON THE DECISION OF [IC (SUPRA) OF THE HON'BLE BOMBAY HIGH COURT, IN OUR RESPECTFUL VIEW THE FOLLOWING DECISION OF THE APEX COURT WHICH HAS LAID DOWN THE LAW ON LOSSES ARISING FROM AN EXEMPT SOURCE IS MORE APPROPRIATE. 7.3. THE HONORABLE SUPREME COURT IN THE CASE OF HARPRASAD 99 ITR 118 HAS HELD THAT WHEN ANY INCOME IS EXEMPT AT SOURCE, THE LOSS WOULD NOT CONSEQUENTLY ENTER INTO COMPUTATION OF INCOME. THE RELEVANT PORTION IS AS FOLLOWS- IT MAY BE REMEMBERED THAT THE CONCEPT OF CARRY FORWARD OF LOSS DOES NOT STAND IN VACUO. IT INVOLVES THE NOTION OF SET-OFF ITS SOLE PURPOSE IS TO SET OFF THE LOSS AGAINST THE PROFITS OF A SUBSEQUENT YEAR. IT PRE-SUPPOSES THE PERMISSIBILITY AND POSSIBILITY OF THE CARRIED- FORWARD LOSS BEING ABSORBED OR SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF THE SUBSEQUENT YEAR SET OFF IMPLIES THAT THE TAX IS EXIGIBLE AND THE ASSESSEE WANTS TO ADJUST THE LOSS AGAINST PROFIT TO REDUCE THE TAX DEMAND. IT FOLLOWS THAT IF SUCH SET-OFF IS NOT PERMISSIBLE OR POSSIBLE OWING TO THE INCOME OR PROFITS OF THE SUBSEQUENT YEAR BEING FROM A NON-TAXABLE SOURCE, THERE WOULD BE NO POINT IN ALLOWING THE LOSS TO BE 'CARRIED FORWARD'. CONVERSELY, IF THE LOSS ARISING IN THE PREVIOUS YEAR WAS UNDER A HEAD NOT CHARGEABLE TO TAX, IT COULD NOT BE ALLOWED TO BE CARRIED FORWARD AND ABSORBED AGAINST INCOME IN A SUBSEQUENT YEAR FROM A TAXABLE SOURCE. 7.4 IN VIEW OF THE ABOVE DECISION WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE NOT LEGALLY TENABLE. AS THE INCOME FROM PENSION FUNDS IS CONGENITALLY EXEMPT THERE IS NO QUESTION OF ALLOWING SET OFF OF LOSSES FROM SUCH EXEMPT SOURCE. THIS OBJECTION REJECTED. ITA NO.1961 /BANG/2018 PAGE 7 OF 9 48. AGGRIEVED BY THE ORDER OF THE CIT(A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 49. WE HAVE HEARD AND CONSIDERED THE RIVAL SUBMISSIONS. IN OUR VIEW THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT(A) VS. LIC OF INDIA LTD., (2011) 12 TAXMANN.COM 388 (BOM) AS EXPLAINED WHILE DEALING WITH SIMILAR ISSUE IN AY 2009-10 IN THE EARLIER PART OF THIS ORDER. THE CONTENTION OF THE REVENUE IN THIS REGARD IS THAT TH E HONBLE SUPREME COURT IN THE CASE OF HARPRASAD (SUPRA) HAS HELD THAT WHEN ANY INCOME IS EXEMPT AT SOURCE, THE LOSS WOULD NOT ALSO CONSEQUENTLY ENTER INTO COMPUTATION OF INCOME. AS RIGHTLY CONTENDED BY THE LD COUNSEL FOR THE ASSESSEE IT WOULD BE THE CAS E WHEN INCOME IS COMPUTED UNDER THE NORMAL PROVISIONS OF THE ACT. HOWEVER, IN THE CASE OF ASSESSEES ENGAGED IN LIFE INSURANCE BUSINESS INCOME HAS TO BE COMPUTED AS LAID DOWN U/S 44 OF TH E ACT. SECTION 44 OF THE ACT STARTS WITH A NON OBSTA NTE CLAUSE AND OVERRIDES THE PROVISIONS OF THE ACT RELA TING TO COMPUTATION OF INCOME UNDER THE VARIOUS HEADS OF INCOME INCLUDING INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OF INSURANCE. THEREFORE, WE ARE OF THE VIEW THAT STAND TAKEN BY THE DRP CANNOT BE ACCEPTED. WE, THEREFORE, DIRECT THAT LOSS FROM PENS ION FUND WHICH IS EXEMPT U/S10(23AAB) BE EXCLUDED WHILE DETERMINING SURPLUS AS PER ACTUARIAL VALUATIO N SURPLUS U/S 44 OF THE ACT. GROUND II RAISED BY THE ASSESESE IS ALLOWED. 9. WE NOTICED THAT THE LD CIT(A) HAS FOLLOWED THE D ECISION RENDERED BY THE BOMBAY HIGH COURT IN THE CASE OF LI C OF INDIA (SUPRA). ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. ITA NO.1961 /BANG/2018 PAGE 8 OF 9 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER, 2019. SD/- (PAVAN KUMAR GADALE) JUDICIAL MEMBER SD/- (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 23 OCTOBER, 2019. / VMS / COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.