JCIT, Special Range- 1, New Delhi V. Agriculture Insurance Company of India Pvt. Ltd., New Delhi

ITA 366/DEL/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 9952 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 11-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL GULATI
• Keywords: Diversion of income; Earning of tax free income; Rule 8D; Capital Gains
• Section: 43B; 14A; 201; 13; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER I.T.AS. NO.366 & 367/DEL/2018 ASSESSMENT YEARS: 2009-10 & 2014-15 JCIT, SPECIAL RANGE-1, NEW DELHI. VS. M/S. AGRICULTURE INSURANCE COMPANY OF INDIA LTD., 13 TH FLOOR, AMBADEEP, 14 K.G. MARG, CONNAUGHT PLACE, NEW DELHI. TAN/PAN: AAECA2874P (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SATPAL GULATI, CIT-DR. RESPONDENT BY: NONE DATE OF HEARING: 23 02 2021 DATE OF PRONOUNCEMENT: 17 03 2021 O R D E R PER AMIT SHUKLA, JM THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 11.09.2017, PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-XXXII, NEW DEL HI FOR THE QUANTUM OF ASSESSMENT PASSED U/S.143(3)/147 FOR THE ASSESSMENT YEAR 2009-10. THE ONLY GROUND RAISED BY THE REVENUE READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE , THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS.8,75,13 ,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INCOME EARNED ON INVESTMENT OF CORPUS FUND. I.T.AS. NO.366 & 367/DEL/2018 2 2. AT THE OUTSET, LD. COUNSEL SUBMITTED THAT THIS I SSUE RAISED BY THE REVENUE STANDS COVERED BY THE DECISIO N OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13 IN ITA NO.1279/DEL/2016 VIDE ORDER DATED 06.11.2019 . THE FACTS IN BRIEF ARE THAT THE ASSESSEE-COMPANY WAS SE T UP TO PROVIDE FINANCIAL SECURITY TO PERSONS ENGAGED IN AG RICULTURE AND ELITE ACTIVITIES, THROUGH INSURANCE PRODUCT AND OTHER SUPPORT SERVICES, AS PER DECLARED POLICY OF THE GOV ERNMENT OF INDIA. THE ASSESSEES CASE WAS REOPENED U/S.148 BY THE ASSESSING OFFICER ON THE GROUND THAT ASSESSEE HAS B EEN EARNING INCOME OF RS.875.13 LAC FROM INVESTING IN C ORPUS FUNDS WHICH WAS NOT CREDITED IN THE P&L ACCOUNT. IN RESPONSE, ASSESSEE HAD SUBMITTED THAT THE CORPUS FU ND PERTAINS TO THE GOVERNMENT AND THE INCOME THERE FRO M HAS BEEN CREDITED DIRECTLY TO THE CORPUS FUND. HOWEVER, THE LD. ASSESSING OFFICER HELD THAT ASSESSEE ENJOYS ALL THE RIGHTS OF AN OWNERSHIP OF THE FUND, AND THEREFORE, HE IS OBLIGED TO ACCOUNT THE RESULTANT REVENUE IN THE P&L ACCOUNT WHICH IS A LSO HIGHLIGHTED. THE DETAILS OF SUCH INCOME EARNED BY T HE ASSESSEE RIGHT FROM ASSESSMENT YEARS 2008-09 TO 201 2-13 AS UNDER: ASSESSMENT YEAR 2008-09 2009-10 2010-11 2011-12 2012-13 OPENING BALANCE 8649.09 9277.94 10305.60 10423.50 1 0327.22 RECEIPTS (FROM GOVT.) 0.00 152.53 117.18 3537.88 5029.87 DEBIT ADJUSTMENT (272.98) 0.00 (962.20) (4350.21) ( 14.11) I.T.AS. NO.366 & 367/DEL/2018 3 INCOME SHARE ON CORPUS FUND 901.83 875.13 962.92 716.05 862.47 CLOSING BALANCE 9277.94 10305.60 10423.50 10327.22 16205.45 3. THUS, HE HELD THAT ASSESSEE HAS BEEN EARNING INC OME FROM MANY YEARS AND IN ASSESSMENT YEAR 2009-10 IT H AS EARNED RS.875.13 LAC AS INCOME ON CORPUS FUND WHICH SHOULD HAVE BEEN SHOWN AND ROUTED THROUGH P&L ACCOUNT AND HELD THAT ASSESSEE HAS DIVERTING THE INCOME ON INVESTMEN T MADE OUT OF CORPUS FUND AFTER ITS RECEIPT, AND THEREFORE , THE GROSS REVENUE HAS BEEN UNDER REPORTED. ACCORDINGLY, HE AD DED SUM OF RS.875,13,000/-. 4. LD. CIT(A) HAS HELD THAT SIMILAR ISSUE HAS BEEN ADJUDICATED IN THE APPEAL FOR ASSESSMENT YEAR 2012- 13 BY THE LD. CIT(A) WHEREIN THIS ISSUE HAS BEEN DECIDED IN F AVOUR OF THE ASSESSEE AND FURTHER IN ASSESSMENT YEAR 2014-15 ALS O SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. 5. WE FIND THAT THIS TRIBUNAL IN ASSESSEES OWN CAS E HAVE NOTED THE FOLLOWING FACTS AND HAVE DECIDED THE ISSU E IN FAVOUR OF THE ASSESSEE IN THE FOLLOWING MANNER:- 10. AFTER DISCUSSING CERTAIN OTHER JUDICIAL DE CISIONS, THE LD. CIT(A) OBSERVED THAT THE INCOME RECEIVED FROM INVESTMENTS AND CREDITED TO THE CORPUS FUND HA S BEEN CREDITED AS PER THE DIRECTIONS OF THE GOVERNM ENT OF INDIA AND SUCH INCOME WAS EARNED OUT OF THE AMOUNT RECEIVED FROM THE CENTRAL GOVERNMENT AND STATE GOVERNM ENT IN THE I.T.AS. NO.366 & 367/DEL/2018 4 CORPUS FUND FOR SPECIFIED PURPOSES BY THE GO VERNMENT OF INDIA. ACCORDINGLY, HE DELETED THE ADDITION OF RS. 8,62,47,181/-. 11. BEFORE US, THE LD. DR VEHEMENTLY STATE D THAT THE APPELLANTS ACTIVITIES IN RESPECT OF INVESTMENT S OUT OF CORPUS FUND VIS A VIS OTHER INVESTMENTS ARE SAME FO R WHICH COMMON EXPENSES HAVE BEEN DEBITED IN THE PROFI T AND LOSS ACCOUNT. FURTHER, THE ASSESSEE HAS UTILIZED THE CORPUS FUNDS, OWNERSHIP/ RIGHT TO USE, VESTS WITH THE ASSESSEE. THE LD. DR FURTHER STATED THAT THE LD. CIT(A) HAS SIMPL Y REFERRED TO THE SUBMISSIONS OF THE ASSESSEE AND HAS DELETED THE ADD ITIONS WITHOUT ANY SPEAKING ORDER. THEREFORE, THE MATTER SHOULD BE RESTORED TO THE FILE OF THE LD. CIT(A) FOR FRESH AD JUDICATION. 12. PER CONTRA, THE LD. COUNSEL FOR THE A SSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORI TIES. IN SUPPORT, THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THE LETTER FROM GOVERNMENT OF INDIA, MINISTRY OF AGRICULTURE, DEPARTMENT AGRICULTURE AND CO-OPERATION, WHICH R EADS AS UNDER: I AM DIRECTED TO SAY THAT THE FUNDS UNDER THE CORP US FUND ARE PROVIDED BY THE CENTRAL AND STATE GOVERNMENTS ON 50 :50 BASIS. AS THE CORPUS FUND BELONGS TO THE CENTRAL AND STATE GOVERNMENT, THE INTEREST ACCRUED THEREON ALSO BELON G TO THE GOVERNMENT. THEREFORE, INTEREST ACCRUED ON THE COR PUS FUND IS REQUIRED TO BE ADDED IN THE CORPUS FUND. 13. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW AND HAVE CAREFULLY C ONSIDERED THE LETTER OF THE GOVERNMENT OF INDIA REFERRED TO HEREINABOVE. THE FACTS OF THE CASE, READ WITH THE A FORESAID LETTER OF THE GOVERNMENT, CLEARLY DEMONSTRATES T HAT THIS IS A I.T.AS. NO.366 & 367/DEL/2018 5 CASE OF DIVERSION OF INCOME BY OVERRIDING TIT LES. CONSIDERING THE FATS OF THE CASE IN THE LIGHT OF THE LETTER OF GOVERNMENT OF INDIA, WE FIND THAT THE RELIANCE BY THE LD. CIT( A) ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF ASSOCIATED POWER [SUPRA] IS WELL TAKEN. THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT HAS BEEN FOLLO WED IN VARIOUS JUDGMENTS, TO NAME A FEW, CIT VS. NEW HO RIZON SUGAR MILL PVT LTD 244 ITR 738, BIJLI COTTON MILL S [P] LTD 116 ITR 60, DALMIA CEMENT LTD 237 ITR 617, ETC. AL L THESE JUDICIAL DECISIONS HAVE BEEN DISCUSSED ELABORATELY BY THE LD. CIT(A) IN HIS ORDER. WE, THEREFORE, DO NOT FIND ANY ERROR OR INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY , GROUND NO. 1 OF THE REVENUE IS DISMISSED. 6. THUS, RESPECTFULLY FOLLOWING THE EARLIER YEAR PR ECEDENT, WE HOLD THAT AMOUNT OF RS.8,75,513/- CANNOT BE TREA TED AS INCOME OF THE ASSESSEE AS IT IS A DIVERSION OF INCO ME BY OVERRIDING TITLE IN VIEW OF LETTER FROM THE GOVERNM ENT OF INDIA, MINISTRY OF AGRICULTURE WHEREIN IT HAS BEEN CLEARLY STATED THAT THE CORPUS FUND BELONGS TO THE CENTRAL AND STATE GO VERNMENT AND THE INTEREST THERETO ALSO BELONGS TO THE GOVERN MENT, AND THEREFORE, INTEREST ACCRUED ON THE CORPUS FUND IS R EQUIRED TO BE ADDED IN THE CORPUS FUND ONLY. ACCORDINGLY, THE APPEAL OF THE REVENUE IS DISMISSED. 7. NOW WE TAKE UP THE APPEAL FOR THE ASSESSMENT YEA R 2014-15 WHEREIN THE FOLLOWING GROUNDS HAVE BEEN RAI SED BY THE REVENUE. I.T.AS. NO.366 & 367/DEL/2018 6 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.13, 64,83,292/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INCOME EARNED ON INVESTMENT OF CORPUS FUND. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,3 7,35,501/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLO WANCE U/S.14A R.W.R. 8D OF INCOME TAX RULES. 8. IN SO FAR AS GROUND NO.1 IS CONCERN, THE SAME IS SIMILAR TO THE GROUND RAISED IN THE APPEAL FOR THE ASSESSME NT YEAR 2012-13 AND IS ALSO COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE. 9. IN SO FAR AS THE DISALLOWANCE U/S.14A READ WI TH RULE 8D IS CONCERN, THE LD. ASSESSING OFFICER HAS OBSERVED THAT ASSESSEE-COMPANY HAS MADE INVESTMENT IN SUBSIDIARY COMPANIES, EQUITY SHARES IN MUTUAL FUNDS AND THE IN COME DERIVABLE FROM SUCH INVESTMENT IS NOT INCLUDABLE IN SUCH INCOME. HOWEVER, THERE IS NO FINDING AS TO WHETHER THE ASSESSEE HAD ANY EXEMPT INCOME OR NOT. HE PROCEEDED TO MAKE THE DISALLOWANCE UNDER RULE 8D AT RS.1,37,35,5 01/-. 9. LD. CIT(A) HAS DELETED THE SAID ADDITION, HOLDIN G THAT FIRSTLY; ASSESSING OFFICER HAS NOT RECORDED HIS SAT ISFACTION BEFORE EMBARKING ANY DISALLOWANCE U/S.14A READ WITH RULE 8D; AND SECONDLY, THE ASSESSING OFFICER HAS PRESUME D DIVIDEND INCOME U/S.14A AND THERE IS NO OBJECTIVE A NALYSIS OF THE APPARENT EXPENSES VIS--VIS THE ACCOUNT. ONE VE RY IMPORTANT FACT AND LEGAL POINT NOTED BY THE LD. CIT (A) IS THAT I.T.AS. NO.366 & 367/DEL/2018 7 THE ASSESSEE-COMPANY INCOME IS TO BE COMPUTED IN TE RMS OF SECTION 44 OF THE ACT WHICH IS NON OBSTANTE CLAUSE AND ONCE THE INCOME HAS COMPUTED U/S.14A THERE IS NO APPLICA BILITY OF SECTION 14A AS IT HAS BEEN OVERLOOKED BY THE SPECIF IC PROVISION OF SECTION 44 OF THE ACT. HE FURTHER RELI ED UPON THE APPELLATE ORDER FOR THE ASSESSMENT YEARS 2012-13 AN D 2013- 14, THIS ISSUE HAS BEEN DELETED. 10. WE FIND THAT THIS TRIBUNAL AFTER NOTING THE EARLIER ORDERS OF THE TRIBUNAL WHEREIN IT WAS HELD THAT ONC E THE ASSESSEES INCOME IS TO BE COMPUTED U/S.44 WHICH RE LATES TO ALL INSURANCE BUSINESS WHICH IS A NON OBSTANTE CLAUSE, THEREFORE DISALLOWANCE OF SECTION 14A CANNOT BE MAD E. THE RELEVANT OBSERVATION OF THE TRIBUNAL READS AS UNDER : WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THE COORDINATE BENCH IN ITA NO. 5779/DEL/2015 ORDER DATED 09TH NOV EMBER 2017. WE FIND THAT THE COORDINATE BENCH HAS FOLLOWED THE EARLIER ORDER OF THE COORDINATE BENCH IN ITA NO. 3115/DEL/2013. THE RELEVANT FINDINGS OF THE COORD INATE BENCH READ AS UNDER: WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORDS. THE PROVISIONS OF SECTION 44 READ AS U NDER. 'INSURANCE BUSINESS, - 44 : NOTWITHSTANDING A NYTHING TO THE CONTRARY CONTAINED IN THE PROVISIONS OF THIS AC T RELATING TO THE COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD 'INTEREST ON SECURITIES', 'INCOME FROM HOUSE PR OPERTY', 'CAPITAL GAINS' OR 'INCOME FROM OTHER SOURCES' OR PROFITS AND GAINS OF ANY BUSINESS OF INSURANCE, INCLUDING ANY S UCH I.T.AS. NO.366 & 367/DEL/2018 8 BUSINESS CARRIED ON BY A MUTUAL INSURANCE COMPANY OR BY A COOPERATIVE SOCIETY, SHALL BE COMPUTED IN ACCO RDANCE WITH THE RULES CONTAINED IN THE FIRST SCHEDULE. 23. THE ABOVE PROVISION MAKES IT VERY CLEAR THAT SECTION 44 APPLIES NOTWITHSTANDING ANYTHING TO THE CON TRARY CONTAINED WITHIN THE 'PROVISIONS OF THE INCOME -TAX ACT RELATING TO COMPUTATION OF INCOME CHARGEABLE U NDER DIFFERENT HEADS. WE AGREE WITH THE LEARNED COUNSE L THAT THERE IS NO REQUIREMENT OF HEAD-WISE BIFURCATION CALLED F OR WHILE COMPUTING THE INCOME U/S 44 OF THE ACT IN THE CASE OF A INSURANCE COMPANY: 'THE INCOME OF THE BUSINESS OF I NSURANCE IS ESSENTIALLY TO BE AT THE AMOUNT OF THE BALANCE O F PROFITS DISCLOSED BY THE ANNUAL ACCOUNTS AS FURNISHED TO THE CONTROLLER OF INSURANCE. THE ACTUAL COMPUTA TION OF PROFITS AND GAINS OF INSURANCE BUSINESS WILL HAVE TO BE COM PUTED IN ACCORDANCE WITH RULE 5 OF THE FIRST SCHEDULE. IN T HE LIGHT OF THESE SPECIAL PROVISIONS COUPLED WITH NON OBST ANTE CLAUSE THE AO IS NOT PERMITTED TO TRAVEL BEYOND THESE PROV ISIONS. 24. SECTION 14A CONTEMPLATES AN EXCEPTION FOR DEDUCTIONS AS ALLOWABLE UNDER THE ACT ARE THOSE CONTAINE D U/S 28 TO 43B OF THE ACT. SECTION 44 CREATES SPECIAL A PPLICATION OF THESE PROVISIONS IN THE CASES OF INSURANCE CO MPANIES. WE, THEREFORE, AGREE WITH THE ASSESSEE AND DELETE THE DISALLOWANCE MADE BY THE AO WHICH IS BASED ON THE APPLICATION OF SEC. 14A OF THE ACT AS ACCORDING T O US, IT IS NOT PERMISSIBLE TO THE AO TO TRAVEL BEYOND SE CTION 44 AND FIRST SCHEDULE OF THE INCOME-TAX ACT. RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT IN THE CASE OF ORIENTAL INSURANCE CO. LTD. (SUPRA), THE ADDITIONAL GROUND I.T.AS. NO.366 & 367/DEL/2018 9 RAISED BY ASSESSEE IS ALLOWED. ACCORDINGLY, IT IS H ELD THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE IN THE CASE OF ASSESSEE. THEREFORE, THE ADDITION OF RS. 23,31, 454/- STANDS DELETED. 4. RESPECTFULLY FOLLOWING THE ORDER IN ITA 3 115/DEL/2013, WE ALLOW THE APPEAL OF THE ASSESSEE. 17. IN THE LIGHT OF THE ABOVE, GROUND NO. 2 IS ALSO DISMISSED. 11. THUS, FOLLOWING THE AFORESAID DECISION AND THE PRINCIPLE UPHELD BY THE TRIBUNAL, WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS CONFIRMED. ACCORDINGLY GROUND NO.2 IS DISMISSED. 12. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH MARCH, 2021 SD/- SD/- [O.P. KANT] [AMIT SHUKLA] [ACCOUNTANT MEMBER] JUDICIAL MEMBER DATED: 17/03/2021 PKK: