SBI LIFE INSURANCE CO. LTD, MUMBAI V. CIT(A)-XXI, MUMBAI

ITA 3800/MUM/2008

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78977 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2014
• Appeal Filed By: Assessee
• Bench Allotted: J
• Next Hearing Date: 07-04-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 30-05-2008
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Assessee Lawyers: F V IRANI; MANOJ PUR OHIT
• Keywords: Gift; Opportunity of being heard
• Section: 43B; 14A; 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI . , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO. : 3800/MUM/2008 (ASSESSMENT YEAR: 2003-04) ITA NO. : 3801/MUM/2008 (ASSESSMENT YEAR: 2004-05) ITA NO. : 1501/MUM/2009 (ASSESSMENT YEAR: 2005-06) ITA NO. : 5670/MUM/2009 (ASSESSMENT YEAR: 2006-07) SBI LIFE INSURANCE COMPANY LIMITED , STATE BANK BUILDING/BHAVAN, MADAM CAMA ROAD, NARIMAN POINT, MUMBAI -400 021 VS JT. CIT (OSD), RANGE 1(3), MITTAL COURT, B WING, R. NOS. 13 & 14, 3 RD FLOOR, NARIMAN POINT, MUMBAI -400 021 (APPELLANT) (RESPONDENT) ITA NO. : 4139/MUM/2008 (ASSESSMENT YEAR: 2004-05) ITA NO. : 3346/MUM/2009 (ASSESSMENT YEAR: 2005-06) ITA NO. : 5759/MUM/2009 (ASSESSMENT YEAR: 2006-07) DY./ASST. CIT/JT. CIT (OSD), RANGE 1(3), ROOM NO. 540/564, 4 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, NEW MARINE LINES, MUMBAI -400 020 VS SBI LIFE INSURANCE COMPANY LIMITED , MUMBAI -400 021 PAN: AAFCS 2530 P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI F V IRANI & SHRI MANOJ PUROHIT RE VENUE BY : SHRI S D SRIVASTAVA /DATE OF HEARING : 07-04-2014 /DATE OF PRONOUNCEMENT : 23-05 2014 O R D E R . , : PER D. KARUNAKARA RAO, AM : THERE ARE 7 APPEALS UNDER CONSIDERATION. OUT OF THEM, ASSESSEE- SBI LIFE INSURANCE COMPANY LIMITED FILED AN APPEAL FOR AY 2003-04 AGAINST ORDER OF CIT(A), MUMBAI, DATED 31.03. ASSESSEE ALSO FILE D APPEALS FOR THE AYS 2004-05 TO 2006-07 AND THEY ARE CROSS-APPEALS AND THEY ARE DIRECTED AGAINST DIFFERENT OTHERS ORDERS OF THE CIT(A), MUMB AI. CONSIDERING THE SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 2 COMMONALITY OF THE GROUNDS AND CONNECTED ISSUES IN ALL THESE APPEALS, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD TOGETH ER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. APPEAL WISE AND GROU ND WISE ADJUDICATION IS GIVEN IN THE SUCCEEDING PARAGRAPHS. 2. CORE ISSUE COMMON IN AYS UNDER CONSIDERATION- INCOM E NATURE OF THE FUNDS TRANSFERRED FROM SHAREHOLDERS ACCOUNT S TO THE POLICYHOLDERS ACCOUNT TO MEET OUT THE DEFICIENCIES : DURING THE PROCEEDINGS BEFORE US AND AT THE OUTSET, IN CONNECT ION WITH THE APPEALS OF THE ASSESSEE, F.V. IRANI AND SHRI MANOJ PUROHIT, LD COU NSELS FOR THE ASSESSEE STATED THAT THE ASSESSEE IN THE PRESENT CASE IS AN INSURANCE COMPANY AND THE PROVISIONS OF SECTION 44 OF THE INCOME TAX ACT ARE APPLICABLE HERE. FURTHER, BRINGING OUR ATTENTION TO THE CORE ISSUE RAISED IN ALL THE GROUNDS 1 TO 4 OF THE APPEAL FOR THE AY 2003-04, WHICH IS COMMON IN ALL T HE AYS UNDER CONSIDERATION, HE MENTIONED THAT UNDER THE PROVISIO NS OF IRDA ACT, THE ASSESSEE IS UNDER OBLIGATION TO MAINTAIN SEPARATE A CCOUNTS NAMELY POLICY HOLDERS ACCOUNT AND THE SHAREHOLDERS ACCOUNT . IN CASE, THERE IS INCOME DEFICIENCY IN POLICY HOLDERS ACCOUNT, THE FUNDS ARE TRANSFERRED FROM THE SHAREHOLDERS ACCOUNT OTHERWISE, BOTH THESE ACCOUNTS ARE PART OF THE BUSINESS OF THE ASSESSEE AND IT IS CASE OF TRAN SFER OF FUNDS FROM ONE HAND TO THE OTHER OF THE SAME PERSON. SUCH TRANSFER OF FUNDS TO POLICY HOLDERS ACCOUNTS SHOULD NOT BE TREATED AS INCOME AS IT IS A CASE OF TRANSFER OF FUNDS FROM ONE HAND TO THE OTHER. IT IS A TAX NEUT RAL TRANSACTION. THIS ISSUE IS NOW SETTLED BY THE DECISIONS OF THE TRIBUNAL IN THE CASE OF ICICI PRUDENTIAL INSURANCE VS. ACIT VIDE ITA NOS.6854 TO 6856, 6509, 7765 AND 7213/MUM/2010. HE BROUGHT OUR ATTENTION TO PARA 40 , 42, AND 55 OF THE SAID ORDER OF THE TRIBUNAL WHICH READ AS UNDER: 40. IN OUR OPINION WHAT ASSESSEE HAS DONE IN RECON CILING THE IRDA FORMAT WITH THAT OF OLD INSURANCE FORM IS CORRECT AND ACCO RDINGLY THE LOSS DISCLOSED IN THE COMPUTATION OF INCOME IS ACCORDING TO THE AC TUARIAL SURPLUS/DEFICIT UNDER THE INSURANCE ACT, 1938 PRESCRIBED UNDER RULE 2 OF THE FIRST SCHEDULE PART-A. IN VIEW OF THIS, WE ARE OF THE OPINION THAT INSISTENCE BY AO TO BRING TO TAX THE ENTIRE AMOUNT SHOWN UNDER THE NEW REGULATIO NS INCLUDING TRANSFER FROM SHAREHOLDERS ACCOUNT IS NOT CORRECT. INSTEAD OF AO IN TAKING THE SURPLUS SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 3 AT REGULATION 8(1)(A) WHICH IS THE ACTUARIAL SURPLU S / DEFICIT FOR THE YEAR TOOK THE AMOUNT AS DISCLOSED AT REGULATION 8 (1) (F) (TO TAL SURPLUS AFTER TRANSFER FROM SHAREHOLDERS ACCOUNT) WHICH IS NOT AT ALL COR RECT. 42. IN VIEW OF THE ABOVE, LOOKING AT THE ISSUE IN A NY WAY WHAT WE NOTICE IS THAT THE COMPUTATION MADE BY ASSESSEE IS IN ACCORDA NCE WITH RULE-2 OF THE INSURANCE ACT 1938 ACCORDING TO WHICH ONLY AO CAN B ASE HIS COMPUTATION. THIS ALSO CORRESPONDS TO THE WAY INCOMES WERE ASSES SED IN EARLIER YEARS IE. THE CORRECT METHOD AS PER RULE 2 AND SEC 44 OF IT A CT. IN VIEW OF THE DISCUSSION ABOVE AND AFTER ANALYZING THE FORMS, REG ULATIONS AND PROVISIONS WE HAVE NO HESITATION TO HOLD THAT THE ASSESSEE WOR KING OF ACTUARIAL SURPLUS/ DEFICIT IS IN ACCORDANCE WITH RULE 2 OF FIRST SCHED ULE. THEREFORE, ASSESSEE GROUNDS ON THIS ISSUE ARE ALLOWED AND AO IS DIRECTE D TO MODIFY THE ORDER ACCORDINGLY. GROUND NOS.1 TO 3 ARE CONSIDERED ALLOW ED. 55. WE HAVE HEARD THE RIVAL CONTENTIONS. AS BRIEFLY DISCUSSED WHILE DECIDING THE ISSUE OF TAXING SURPLUS, ASSESSEE IS IN LIFE IN SURANCE BUSINESS AND IT IS NOT PERMITTED TO DO ANY OTHER BUSINESS. ALL ACTIVITIES CARRIED OUT BY ASSESSEE ARE FOR FURTHERANCE OF LIFE INSURANCE BUSINESS. MAINTAI NING ADEQUATE CAPITAL IS NECESSARY TO COMPLY WITH IRDA( ASSETS, LIABILITIES AND SOLVENCY MARGIN OF INSURERS)REGULATIONS,2000. INCOME EARNED ON CAPITAL INFUSED IN BUSINESS IS INTEGRAL PART OF LIFE INSURANCE BUSINESS. THE LD. C IT(A) GIVES A FINDING THAT ASSESSEE IS EXCLUSIVELY IN LIFE INSURANCE BUSINESS. HOWEVER, SINCE HE GAVE PRIMACY TO FORM I PROFORMA HE CONCLUDED THAT OTHER INCOMES ARE NOT OF LIFE INSURANCE BUSINESS. WE HAVE ALREADY CONSIDERED AND DECIDED THAT ASSESSEE WAS MANDATED TO MAINTAIN SEPARATE ACCOUNTS BY IRDA REGULATIONS. JUST BECAUSE SEPARATE ACCOUNTS ARE MAINTAINED THE INCOME S IN SHAREHOLDERS ACCOUNT DOES NOT BECOME SEPARATE FROM LIFE INSURANC E BUSINESS. AS PER INSURANCE ACT 1938 ALL INCOMES ARE PART OF ONE BUSI NESS ONLY AND THESE INCOMES ARE CONSIDERED AS PART OF SAME BUSINESS. TH EREFORE, THE INCOMES IN SHAREHOLDERS ACCOUNT ARE TO BE CONSIDERED AS ARISI NG OUT OF LIFE INSURANCE BUSINESS ONLY. MORE OVER SEC 44 MANDATES THAT ONLY FIRST SCHEDULE WILL APPLY FOR COMPUTING INCOMES AND EXCLUDES OTHER HEADS OF I NCOME LIKE, INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAI NS OR INCOME FROM OTHER SOURCES. BEING NON-OBSTANTE CLAUSE, SEC. 44 MANDATE S THAT THE PROFITS AND GAINS OF INSURANCE BUSINESS SHALL BE COMPUTED IN AC CORDANCE WITH THE RULES CONTAINED IN FIRST SCHEDULE. THEREFORE, THE INCOMES IN SHAREHOLDERS 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 S OLVENCY RATIO OF SAME BUSINESS. THE GROUNDS ARE ALLOWED. AO IS DIRECTED T O TREAT THEM AS PART OF LIFE INSURANCE BUSINESS AND TAX THEM U/S 115B. 3. FURTHER, LD COUNSEL ALSO BROUGHT OUR ATTENTION T O THE ANOTHER DECISIONS OF THE TRIBUNAL IN THE CASES OF (I) M/S. KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD VIDE ITA NO.2551/M/2010; (II) HDFC STANDARD LIFE INSURANCE COMPANY LTD S. DCIT VIDE ITA NO.2203/MUM/2012 (PARA 2.5); (III) LIC VS. CIT, 51 ITR 773 AND MANY OTHERS TO STRENGTHEN THE ABOVE VIEWS. IN THIS REGARD, LD COUNSEL FILED A COMPOSITE CHART INVOLVING THE GROUNDS OF ALL THE APPEALS OF THE ASSESSEE AS WELL AS THE REVENUE AND, FOR CONSOLIDATED ADJUDICATION OF THE COMMON GROUNDS, HE MENTIONED TH AT GROUND NO.1, 2, 3 SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 4 AND 4 FOR THE A YS 2003-04; 2004-05 AND 2005-06 AND GROUNDS NO.1 AND 2 OF AY 2006-07 ARE ONE AND THE SAME. ALL THESE GROUNDS STAND COVERED BY THE ABOVE EXTRACTED RATIO OF THE JUDGMENTS. ITA 3800/MUM/2008- ASSESSEES APPEAL THEREFORE, FOR THE SAKE OF REFERENCE, THE LATEST GR OUNDS RAISED BY THE ASSESSEE WITH REGARD TO THE AY 2003-04 VIDE APPEAL ITA 3800/MUM/2008 ARE REPRODUCED HERE UNDER: GROUND NO 1 THAT THE LEARNED CIT(A) ERRED IN HOLDING THAT THERE WAS ACTUARIAL SURPLUS AMOUNTING TO RS. 81,000/-, WHICH WAS UTILIZED FOR DECLARATION OF BONUS, IGNORING THE FACT THAT SUCH A SURPLUS IS NOT THE REAL SURPLUS BUT THE SURPLUS CRE ATED BY TRANSFER OF PROFIT FROM WITHIN THE ENTERPRISE I.E. FROM THE PROFIT AND LOSS ACCOUN T TO THE REVENUE ACCOUNT. IT WAS ERRONEOUSLY IGNORED THAT THE ACTUAL PROFIT/LOSS OF THE APPELLANT IS THE COMBINED PROFIT / LOSS REFLECTED IN REVENUE ACCOUNT AND P&L A/C AND INTER-ACCOUNT TRANSFERS NEUTRALIZE THEMSELVES WHEN THE RESULT OF TWO ACCOUNTS ARE COMBINED. IF THE EFFECT OF THE TRANSFER FROM ONE ACCOUNT TO ANOTHER WITHIN THE SAME ENTERPRISE IS ELIMINATED TO ARRIVE AT THE TOTAL PRO FIT / LOSS OF AN ENTITY, THERE WILL BE AN ACTUARIAL DEFICIENCY OF RS. 20,79,22,000/- AGAINST THE SURPLUS OF RS. 81,000/- SUBJECTED TO TAX AS PROFIT FROM INSURANCE. GROUND NO. 2 THAT THE LD. CIT(A) ERRED IN HOLDING THAT WHAT IS R EFLECTED IN REVENUE ACCOUNT IS ALONE THE PROFIT FROM BUSINESS OF INSURANCE. THE APPELLAN T SUBMITS THAT THE COMPANY VIZ SBI LIFE, AS A WHOLE, IS ENGAGED IN THE BUSINESS OF INS URANCE AND THE TOTAL PROFIT / LOSS AS CONTAINED IN REVENUE ACCOUNT AND P&L A/C IS THE PROFIT FROM BUSINESS OF INSURANCE WHICH IS SUBJECT TO THE SPECIAL PROVISION OF SECTIO N 44 OF THE I.T. ACT. THE LD. CIT(A) HAS NOT CORRECTLY UNDERSTOOD THE PURPOSE OF MAINTAINING TWO SEPARATE ACCOUNTS VIZ REVENUE ACCOUNT AND P&L A/ C WHICH IS DIRECTED BY THE IRDA TO ASSURE THE POLICYHOLDERS-WITH WHOM THE COMPANY STANDS IN A FIDUCIARY RELATIONSHIP ABOUT THE CAPABILITY OF THE INSURER TO FULFILL THE LONG-TERM COMMITMENTS MADE TO THEM. THE IRDA DIRECTIONS ARE NOT DESIGNED TO SEGREGATE THE TOTAL PROFIT OF THE INSURER BETWEEN INSURANCE PROFIT AND NON-INSURANCE PROFIT. FURTHER, THE LD. CIT(A), WHILE HOLDING THAT REVENU E ACCOUNT ALONG REFLECTS THE PROFIT FROM INSURANCE, IGNORED THE FOLLOWING RELEVA NT PROVISIONS OF INSURANCE ACT, THE IRDA ACT AND THE DIRECTIONS ISSUED THERE UNDER: (I) AN INSURANCE COMPANY IS DEBARRED FROM CARRYING ON A NY OTHER BUSINESS. [CLAUSE (C) OF SECTION 2(7A) OF THE INSURANCE ACT] (II) ALL THE ASSETS OF THE INSURANCE COMPANY WHETHER I N POLICYHOLDERS ACCOUNT (VIZ REVENUE ACCOUNT) OR IN SHAREHOLDERS ACCOUNT (VIZ PR OFIT AND LOSS ACCOUNT) DETERMINE THE SOLVENCY RATIO REQUIRED TO BE MAINTAINED [FROM AA TO IRDA ASSETS, LIABILITY AND SOLVENCY MARGIN OF INSURERS, REGULATIONS. 2000] (III) IRDA REGULATES THE MODE AND MANNER OF VALUATION OF ALL THE ASSETS AND LIABILITIES OF THE BUSINESS IRRESPECTIVE OF WHETHER THEY ARE HELD IN REVENUE OR P & L A/C. (IV) IRDA PRESCRIBES THE MANNER AND AVENUES OF INVESTMEN T OF ALL THE FUNDS OF THE COMPANY IRRESPECTIVE OF THE ACCOUNT IN WHICH TH EY ARE HELD. ALL THE FUNDS ARE HELD AS CONTROLLED FUNDS [SECTION 27 AND 27A OF INSURA NCE ACT, 1938] (V) OBSERVANCE OF MINIMUM CAPITAL REQUIREMENT AND SOLVE NCY MARGINS IS DETERMINED BY ALL THE ASSETS OF INSURER. GROUND NO. 3 SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 5 THAT THE AFORESAID PROVISIONS MAKES IT ABUNDANTLY C LEAR THAT PREPARATION OF REVENUE ACCOUNT AND P & L A/C SEPARATELY IS ONLY AN ACCOUNTING REQUIREMENT WHICH DOES NOT CHANGE THE REAL NATURE AND CHARACTER OF THE INC OME. INCOME IN SHAREHOLDERS ACCOUNT ALSO CONSTITUTES INCOME FROM LIFE INSURANCE BUSINESS SUBJECT TO THE PROVISIONS OF SECTION 44 READ WITH SCHEDULE I AND TO THE SPECIAL RATE PRESCRIBED IN SECTION 115B FOR INCOME OF INSURANCE BUSINESS. IN FACT PRIOR TO THE SETTING UP OF THE INSTITUTION OF IRDA, THERE WAS NO REQUIREMENT OF PREPARING TWO ACCOUNTS SEPARATELY. A COMMON P&L ACCOUNT WAS PREPARED IN ACCORDANCE WITH THE REQUIRE MENTS OF THE INSURANCE ACT. THE LEGAL PROVISIONS REMAINING THE SAME, THE DIRECTIONS OF IRDA ALTER THE FORM ONLY WITHOUT MAKING ANY CHANGE IN THE SUBSTANCE. GROUND NO. 4 THAT FROM THE AFORESAID REASONS THE LEARNED CIT(A) WENT WRONG IN SUBSTITUTING ONLY THE REVENUE ACCOUNT INCOME BY THE INCOME ENVISAGED IN SECTION 44 OF THE INCOME TAX ACT. IN THE CORRECT VIEW OF THE MATTER, IT IS THE ENTIRE INCOME OF THE COMPANY THAT WAS REQUIRED TO BE SUBSTITUTED BY THE INCOME AS COM PUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 44 FOR TAXATION PURPOSES. GROUND 5: THE APPELLANT CRAVE LEAVE TO ADD ANY OTHER GROUND OF APPEAL OR AMEND ANY OTHER GROUND DURING THE COURSE OF HEARING OF APPEAL . 4. BRINGING OUR ATTENTION TO THE ABOVE GROUNDS, LD COUNSEL MENTIONED GROUND 5 IS GENERAL AND FURTHER HE DEMONSTRATED THA T THE CORE ISSUE RELATES TO THE CHARACTER OF THE FUNDS TRANSFERRED FROM ONE ACC OUNT TO THE OTHER OF THE SAME ASSESSEE WHEN THERE IS DEFICIT AND IF SUCH TRA NSFERRED SUMS AMOUNT TO THE INCOME TAXABLE UNDER THE ACT. LD CIT-DR FAIRLY MENTIONED THAT THE ISSUE IS CERTAINLY ADJUDICATED IN PRINCIPLE AND HOWEVER, HE IS OF THE VIEW THE MATTER MAY BE REMANDED TO THE FILES OF THE AO FOR THE LIMI TED PURPOSE OF EXAMINING THE FACTS AND FIGURES OF THE PRESENT APPEALS. PER C ONTRA, IT IS THE CASE OF THE ASSESSEE, SINCE THE ISSUES ARE EXACTLY IDENTICAL, T HE MATTERS MAY BE DECIDED BY THE TRIBUNAL. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED DECISIONS OF THE T RIBUNAL. WE HAVE CAREFULLY EXAMINED THE GROUNDS RAISED IN THE APPEALS QUA THE CONCLUSIONS OF THE TRIBUNAL IN THE ABOVE REFERRED CASES IN GENERAL AND ICICI PRUDENTIAL INSURANCE (SUPRA) IN PARTICULAR. ON PERUSAL OF THE SAME, WE FIND THAT IT IS THE CONCLUSION OF THE SAID DECISIONS THAT THE SUMS TRANSFERRED FRO M ACCOUNT TO THE OTHER OF THE SAME ASSESSEE TO MEET THE DEFICIT IF ANY DO NOT AMOUNTS TO THE CHARGEABLE INCOME OF THE ASSESSEE THE INSURANCE COMPANY. RELE VANT EXTRACTS FROM THE SAID ORDERS FO THE TRIBUNAL ARE ALREADY INCORPORATE D IN THE PARAGRAPHS ABOVE. THUS, IN PRINCIPLE, THE ISSUES RAISED BY THE ASSESS EE IN ITS GROUNDS STAND SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 6 COVERED. ACCORDINGLY, THE GROUNDS 1 TO 4 RAISED IN THE APPEAL FOR THE AY 2003- 04 ARE ALLOWED AND GROUND 5, BEING GENERAL IN NATURE, DOES NOT NE ED ANY SPECIFIC ADJUDICATION. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE ARE ALLOWED . ITA 3801/MUM/2008- A Y 2004-05 - ASSESSEES APPEAL ITA 4139/MUM/2008- A Y 2004-05 REVENUES APPEAL 6. FIRST, WE SHALL TAKE UP THE ASSESSEES APPEAL . THE GROUNDS OF ASSESSEES APPEAL ARE FOUND IDENTICAL AND OF COURSE , THE FIGURES ARE DIFFERENT. CONSIDERING THE COMMONALITY OF THE ISSUE IE THE NA TURE OF THE FUNDS TRANSFERRED FROM ONE ACCOUNT OF THE ASSESSEE TO THE OTHER OF THE SAME ASSESSEE TO MEET THE DEFICIT REQUIREMENTS, THE ISS UE STANDS COVERED IN FAVOUR OF THE ASSESSEE. THE CONTENTS OF PARAGRAPH ABOVE OF THIS ORDER ARE RELEVANT. ON HEARING THE PARTIES, WE ACCORDINGLY TREAT THE IS SUES RAISED IN THE APPEAL STAND COVERED IN FAVOUR OF THE ASSESSEE. ACCORDINGL Y, THE GROUNDS 1 TO 4 ARE ALLOWED AND GROUND 5 BEING GENERAL DOES NOT NEED ANY SPECI FIC ADJUDICATION. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR TH E AY 2004-05 ARE ALLOWED . 8. NEXT WE SHALL ATTEND TO THE APPEAL OF THE REVENU E FOR THE AY 2004-05. REVENUE RAISED THREE EFFECTIVE ISSUES NAMELY, (I ) TRANSFER OF FUNDS TO THE REVENUE ACCOUNT IS NOT ALLOWABLE AS DEDUCTION; (II) SET OFF OF LOSSES ARISING FROM PROFITS OTHER THAN INSURANCE AGAINST SURPLUS F ROM REVENUE ACCOUNT; AND (III) ALLOWANCE OF CLUB EXPENSES AND PROVISION OF G RATUITY WITHOUT CONFIRMING WHETHER IT RELATES TO INSURANCE BUSINESS OR NOT. IN THIS REGARD, IT IS THE SUBMISSION OF THE ASSESSEES COUNSEL THAT THE FIRST ISSUE BEING CONNECTED ONE TO THE CORE ISSUE ALREADY ADJUDICATED ABOVE IN FAVO UR OF THE ASSESSEE, HAS TO BE DISMISSED. ON HEARING THE PARTIES, GROUND 1 OF T HE REVENUE BEING SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 7 CONNECTED AND CONSEQUENTIAL, WE DISMISS THE SAME. THE REGARDING THE SECOND AND THIRD ISSUES, LD COUNSEL SUBMITTED THAT WHILE T HE SECOND ISSUES HAS TO BE DISMISSED CONSIDERING ITS CONNECTIVITY TO THE GROUN D 1-4 OF THE ASSESSEES APPEAL, THE THIRD AND FINAL ISSUE RELATING TO THE C LUB EXPENSES AND PROVISION OF GRATUITY STANDS COVERED BY THE CITED DECISION IN TH E CASE OF THE LIC, (ITR 115 ITR 45, 51 ITR 773 AND 119 ITR 900). AFTER HEARING THE PARTIES, AS STATED IN THE COURT, WE DIRECT THE AO TO EXAMINE THESE ISSUES IN THE LIGHT OF THE ABOVE MENTIONED CITATIONS AND ALSO AFTER GRANTING OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THESE TWO ISSUES ARE REMANDE D PRO-TANTO . 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSE. ITA 1501/MUM/2009- A Y 2005-06 - ASSESSEES APPEAL ITA 3346/MUM/2009- A Y 2005-06 REVENUES APPEAL 10. THESE ARE CROSS APPEALS AND FIRST WE SHALL TAKE UP ASSESSEES APPEAL CONSIDERING THE COVERED NATURE OF GROUNDS 1 TO 4 OF THE APPEAL. GROUND 6 IS FOUND GENERAL AND IT DOES NOT CALL FOR SPECIFIC ADJ UDICATION. IN CONNECTION WITH GROUNDS 1-4 OF THE APPEAL, BOTH PARTIES MENTIONED T HAT THE ISSUES RAISED IN THESE APPEAL ARE EXACTLY IDENTICAL TO THE ONES RAIS ED IN THE APPEALS FOR THE AYS 2003-04 AND 2004-05. THE CORE ISSUE RELATES TO THE INCOME NATURE OF THE FUNDS TRANSFERRED FROM ONE ACCOUNT TO THE OTHER OF THE SAME ASSESSEE AND THE SAME IS DECIDED IN FAVOUR OF THE ASSESSEE CONSIDERI NG THE CONCLUSIONS OF THE TRIBUNAL IN MANY CASES REFERRED TO ABOVE. ON HEARIN G THE PARTIES AND ON PERUSAL OF THE RELEVANT ORDERS AND THE DOCUMENTS, W E FIND THE ISSUES ARE ALREADY DECIDED BY US IN FAVOUR OF THE ASSESSEE FOR THE SAID AYS 2003-04 AND 2004-05 AND WE FIND NO REASON TO DEVIATE FROM THE S AME. ACCORDINGLY, WE ALLOW GROUNDS 1 TO 4 OF THE ASSESSEES APPEAL. SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 8 11. REGARDING GROUND 5 OF THE ASSESSEE APPEAL FOR THE AY 2005-06, LD COUNSEL MENTIONED THAT IT RELATES TO THE ALLOWABILITY OF CLAIM OF STAMP DUTY EXPENDITURE INCURRED IN EQUITY SHARE CAPITAL. IN THIS REGARD, BOTH PARTIES MENTIONED THAT THE AO/CIT(A) ARE OF THE OPINION THA T THE SAID EXPENDITURE IS NOT ALLOWABLE CONSIDERING THE CAPITAL NATURE OF THE M. HOWEVER, NOW THIS ISSUE HAS TO BE REDECIDED CONSIDERING THE ORDER OF THE TR IBUNAL IN THE CASE OF HDFC STANDARD LIFE INSURANCE CO LTD (ITA 3004/M/2012 AND LIC, SUPRA. ON HEARING THE PARTIES, WE REMAND THIS ISSUE TO FILE OF THE AO FOR FRESH ADJUDICATION AFTER GRANTING REASONABLE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. ACCORDINGLY, RELEVANT CONCLUSIONS OF THE CIT(A) ARE SET ASIDE AN D GROUND 5 IS REMANDED . 12. IN CONNECTION WITH THE REVENUES APPEAL FOR THE AY 2005-06, THE PARTIES MENTIONED THAT THERE ARE FOUR MAIN ISSUES T HAT REQUIRE SPECIFIC ADJUDICATION. THEY ARE: (A). TRANSFER OF FUNDS TO REVENUE ACCOUNT IS NOT ALLOWABLE AS DEDUCTION; (B). SET OFF OF LOSSES ARIS ING FROM PROFITS OTHER THAN INSURANCE AGAINST SURPLUS FROM REVENUE ACCOUNT; (C) . EXCLUSION FROM TOTAL INCOME THE EXEMPTED INCOME U/S 10(34) AND 10(38) AN D 10(23AAB) OF THE ACT. IN CONNECTION WITH ISSUES MENTIONED AT (A) AN D (B) ABOVE, BOTH PARTIES AGREED THAT THESE ISSUES ARE IDENTICAL TO THE ONES RAISED BY THE REVENUE FOR THE AY 2004-05. WE HAVE ALREADY ADJUDICATED THE SAM E AND THEREFORE, WE DIRECT THE AO FOLLOW THE SAME FOR THIS YEAR ALSO AF TER GRANTING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN CONN ECTION WITH ISSUE AT (C) ABOVE, IT IS THE CLAIM OF THE ASSESSEE, THAT THE SA ME IS REQUIRED TO BE ADJUDICATED CONSIDERING THE DECISIONS OF THE TRIBUN AL IN THE CASE OF ICICI PRUDENTIAL INSURANCE AND LIC, SUPRA. THESE DECISION S ARE NOT IN EXISTENCE AT THE RELEVANT POINT OF TIME. CONSIDERING THESE NEW D EVELOPMENTS, WE DIRECT THE AO TO READJUDICATE THE SAME AFTER CONSIDERING THE S AID DECISIONS AND THE AFTER GRANTING REASONABLE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. ACCORDINGLY, WE PARTLY ALLOW THE RELEVANT GROUNDS FOR STATISTICA L PURPOSE. SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 9 ITA 5670/MUM/2009- A Y 2006-07 - ASSESSEES APPEAL ITA 5759/MUM/2009- A Y 2006-07 REVENUES APPEAL 13. THESE ARE CROSS APPEALS AND FIRST, WE SHALL TAK E UP ASSESSEES APPEAL CONSIDERING THE COVERED NATURE OF GROUNDS 1 TO 2 OF THE APPEAL . IN CONNECTION WITH THESE TWO GROUNDS OF THE APPEAL, BO TH PARTIES MENTIONED THAT THE ISSUES RAISED IN THESE APPEAL ARE EXACTLY IDENT ICAL TO THE ONES RAISED IN THE APPEALS FOR THE AYS 2003-04 TO 2005-06. THE CORE IS SUE RELATES TO THE INCOME NATURE OF THE FUNDS TRANSFERRED FROM ONE ACCOUNT TO THE OTHER OF THE SAME ASSESSEE AND THE SAME IS DECIDED IN FAVOUR OF THE A SSESSEE CONSIDERING THE CONCLUSIONS OF THE TRIBUNAL IN MANY CASES REFERRED TO ABOVE. ON HEARING THE PARTIES AND ON PERUSAL OF THE RELEVANT ORDERS AND T HE DOCUMENTS, WE FIND THE ISSUES ARE ALREADY DECIDED BY US IN FAVOUR OF THE A SSESSEE FOR THE SAID AYS AND WE FIND NO REASON TO DEVIATE FROM THE SAME. ACC ORDINGLY, WE ALLOW GROUNDS 1 AND 2 OF THE ASSESSEES APPEAL. 14. G ROUND NO.3 OF THE ASSESSEES APPEAL IN ITA NO.5673/M/2009 FOR THE AY 2006-2007 , RELATING TO THE APPLICABILITY OF PROVISIONS OF SE CTION 14A OF THE ACT. IN THIS REGARD, IT IS THE CASE OF THE ASSESSE E THAT THIS ISSUE ALSO STANDS COVERED IN FAVOUR OF THE ASSESSEE AS THE PROVISIONS OF SECTION 14A HAVE NO APPLICATION TO THE INSURANCE COMPANIES WHICH ARE GO VERNED BY THE PROVISIONS OF SECTION 44 OF THE INCOME TAX ACT, 1961 AND THE S AME IS HAVING OVER RIDING EFFECT ON THE NORMAL PROVISIONS OF THE ACT. IN THI S REGARD, HE RELIED ON THE COORDINATE BENCH DECISION OF THE ITAT IN THE CASE O F ICICI PRUDENTIAL INSURANCE (SUPRA) AND PARA 46 OF THE SAID ORDER OF THE TRIBUNAL IS RELEVANT IN THIS REGARD. 46. THIS ISSUE IS ALREADY DECIDED BY THE COORDINAT E BENCHES IN VARIOUS CASES. FOR THE SAKE OF RECORD, THE ORDER IN THE CASE OF GE NERAL INSURANCE CORPORATION OF INDIA IN ITA NO.3554/MUM/2011 VIDE PARA 9 IS AS UNDER: 9. ISSUE NO.6 NON APPLICABILITY OF PROVISIONS OF SECTI ON 14A . (MODIFIED GROUND OF APPEAL NO.3.1 TO 3.4 ORIGINAL GROUND OF APPEAL NO.3.1 TO 3.5). THE ISSUE IS WITH REFERENCE TO THE APPLICABILITY OF SECTION 14A AND DISALLOWANCE OF EXPENDITURE IN RESPECT OF SALE OF INVESTMENT WHI CH ARE NOT TAXED. WE HAVE SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 10 HEARD THE RIVAL CONTENTIONS. WE ALSO NOTE THAT THIS ISSUE IS ALSO CONSIDERED BY THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR 200 6-07 VIDE PARA 7 TO 9: 7. GROUNDS OF APPEAL NO.4 REGARDING THE EXPENDITURE UNDER SECTION 14A. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT RECORD. WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED AND DECIDE D BY THE PUNE BENCH OF THIS TRIBUNAL IN THE CASE OF BAJAJ ALLIANZ GENERAL INSURANCE COMPANY LIMITED V/S ADD. CIT IN ITA NO.1447/PN/2007 FOR THE ASSESSM ENT YEAR 2003-04 ORDER DATED 31.08.2009. THIS TRIBUNAL IN THE CASE OF JCIT V/S M/S RELIANCE GENERAL INSURANCE CO. IN ITA NO.3085/MUM/2008 FOR THE ASSES SMENT YEAR 2005-06 VIDE ORDER DATED 26.2.2010 HAS CONSIDERED THIS ISSU E AND DECIDED IN FAVOUR OF THE ASSESSEE. THIS ORDER WAS FOLLOWED BY THIS TRIBU NAL WHILE DECIDING THE ISSUE IN ITA NO.781/MUM/2007 VIDE ORDER DATED 30.4. 2010. THUS, THIS ISSUE HAS BEEN CONSISTENTLY DECIDED IN FAVOUR OF THE ASSE SSEE AND AGAINST THE REVENUE BY THIS TRIBUNAL. THE PUNE BENCH OF THIS TR IBUNAL IN THE CASE OF BAJAJ ALLIANZ GENERAL INSURANCE COMPANY LIMITED V/S ADD. CIT (SUPRA) HAS DECIDED THIS ISSUE IN PARAGRAPHS 17 TO 20 AS UNDER: 17. FINALLY THE QUEST ION TO BE ANSWERED IS ABOUT THE APPLICABILITY OF S. 14A IN RESPECT OF SALE OF INVES TMENT WHICH IS NOT TAXED UNDER THE SPECIAL CIRCUMSTANCES OF DELETI ON OF A SUB- RULE FROM THE STATUTE. IT IS NOT QUESTIONED THAT TH E IMPUGNED PROFIT WAS NON-TAXABLE PER SE RATHER THE ACCEPTED L EGAL POSITION IS THAT THE IMPUGNED PROFIT WAS VERY MUCH TAXABLE I N THE PAST. NOW IT HAS BEEN INFORMED THAT THIS CONTROVERSY IN R ESPECT OF INSURANCE COMPANY SET AT REST BY A DECISION OF TRIB UNAL , 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 INSU RANCE CO. LTD. V. ASSTT . CIT [2010] 130 TTJ (DELHI)388 : [20 10] 38 DTR (DELHI ) 225ED. ] . THEREFORE CONSIDERING THE VEHE MENT RELIANCE OF LEARNED AUTHORIZED REPRESENTATIVE IT IS WORTH TO MENTION AT THE OUTSET ITSELF THAT THE ISSUE NOW STO OD RESOLVED BY THIS LATEST DECISION OF DELHI, TRIBUNAL IN THE C ASE OF ORIENTAL INSURANCE CO. LTD. (SUPRA), THE RELEVANT PORTION RE PRODUCED 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 PROVISION DEALING WITH THE COMPUTATION OF PROFITS AND GIFTS OF BUSINESS OF INSURANCE. IT BEIN G A NON OBSTINATE 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 SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 11 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 CTR (SC) 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. I T 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 QUEST ION OF LAW, MUCH LESS A SUBSTANTIAL QUEST ION OF LAW SURVIVES FOR THEIR CONSIDERATION. IN OTHER WORDS, ORDER OF THE TRIBUNAL HAS BEEN AFFIRMED. FOLLOWING THE SAME REASONING, ADDITION MADE BY THE AO IS DELETED. 22. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GO NE THROUGH THE RECORDS. THE PROVISIONS OF S. 44 READ AS UNDER: 44. INSURANCE BUSINESS.NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE PROVISIONS OF THIS ACT RELATING TO THE COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD ' INTEREST ON SECURITIES' . 'INCOME FROM HOUSE PROPERTY' , 'CAPIT AL GAINS' OR ' INCOME FROM OTHER SOURCES' , OR IN S. 199 OR IN SS. 28 TO 43B, THE PROFITS AND GAINS OF ANY BUSINESS OF INSURANCE, INCLUDING ANY SUCH BUSINESS CARRIED ON BY A MUTUAL INSURANCE COMPANY OR BY A CO OPERATIVE SOCIETY, SHALL BE COMPUTED IN ACCORDANCE WITH THE RULES CONTAINED IN THE FIRST SCHEDULE'. 23. THE ABOVE PROVISION MAKES IT VERY CLEAR THAT S. 44 APPLIES NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED WITHIN THE PROVISIONS OF THE IT ACT RELATING TO COMPUTATION OF INCOME CHARGEABLE UNDER DIFFERENT HEADS. WE AGREE WITH THE LEARNED COUNSEL THAT THERE IS NO REQUIREMENT OF HEAD-WISE B IFURCATION CALLED FOR WHILE COMPUTING THE INCOME UNDER S. 44 O F THE ACT IN THE CASE OF AN INSURANCE COMPANY. THE INCOME OF THE BUSINESS OF INSURANCE IS ESSENTIALLY TO BE AT THE AMOUNT OF THE BALANCE OF PROFITS DISCLOSED BY THE ANNUAL ACCOUNTS AS FURNISH ED IN THE CONTROLLER OF INSURANCE. THE ACTUAL COMPUTATION OF PROFITS AND GAINS OF INSURANCE BUSINESS WILL HAVE TO BE COMPUTE D 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 DEDUCTIO NS AS ALLOWABLE UNDER THE ACT ARE THOSE CONTAINED UNDER S S. 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 FIR ST SCHEDULE OF THE IT ACT .' SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 12 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. AS SEEN FROM THE PARAS REPRODUCED ABOVE ON DUE CONSIDERATION OF THE RELEVANT PROVISIONS AS APPLICABLE TO RESOLVE THIS ISSUE A CONCLUSION WAS DRAWN THAT SINCE THE COURTS HAVE HELD, S. 44 CREATES A SPECIAL PROVISION IN THE CASE S OF ASSESSMENT OF INSURANCE COMPANIES THEREFORE IT WAS NOT PERMISSIBLE TO THE AO TO TRAVEL BEYOND S. 44 OF FIRST SCHEDULE OF IT ACT . 18. THE NEXT COMMON DISPUTE RELATES TO THE ORDER OF THE CIT (A) IN SUSTAINING THE ACTION OF AO IN AL LOWING ONLY 50 PER CENT OF THE MANAGEMENT EXPENSES BY INVOKING THE PROVISIONS OF S. 14A OF THE ACT . THE ADDITION IS MADE BY THE AO ON THE PLEA THAT THE PROVISIONS OF S.14A WAS INSERTED BY FINANCE ACT, 2001 W.E.F. 1ST APRIL, 1962. IT IS STATED THAT THE INVESTMENTS MADE BY THE ASSESSEE ARE BOTH TAXABLE AS WELL AS TAX FREE. AN ESTIMATED DISALLOWANCE OF 50 PER CENT OUT OF THE MANAGEMENT EXPENSES INCURRED AND AS CLAIMED IN THE P&L A/C IS TREATED AS EXPENSES INCUR RED IN CONNECTION WITH THE LOOKING AFTER TAX-FREE INVESTMENT. 19. THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE INCOME OF THE ASSESSEE IS TO BE COMPUTED UNDER S. 44 R/W R. 5 OF SCH. 1 OF THE IT ACT. SEC. 44 IS A NON OBSTINATE CLAUSE AND APPLIES NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED WITHIN THE PROVISIONS OF THE IT ACT RELATING TO COMPUTATION OF INCOME CHARGEABLE UNDER DIFFERENT HEADS, OTHER THAN THE INCOME TO BE COMPUTED UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSION' . FOR COMPUTATION OF PROFIT S AND GAINS OF BUSINESS OR PROFESSION THE MANDATE TO THE AO IS TO COMPUTE THE SAID INCOME IN ACCORDANCE WITH THE PROVISIONS OF SS. 28 TO 43B OF THE ACT . IN THE CASE OF THE COMPUTATION OF PROFITS AND GAINS OF ANY BUSINESS OF INSURANCE, THE SAME SHALL BE DONE IN ACCORDANCE WITH THE RULES PRESCRIBED IN FIRST SCHEDULE OF THE ACT, MEANING THEREBY SS. 28 TO 43B SHALL NOT APPLY. NO OTHER PROVISION PERTAINING TO COMPUTATION OF INCOME WILL BECOME RELEVANT. ACCORDING TO THE LEARNED COUNSEL, TWO PRESUMPTIONS THAT FOLLOW ON A COMBINED READING OF SS. 14, 14A, 44 AND R. 5 OF THE FIRST SCHEDULE ARE: (A) THAT NO HEAD-WISE BIFURCATION IS CALLED FOR. TH E INCOME, INTER ALIA, OF THE BUSINESS OF INSURANCE IS ESSENTIALLY TO BE AT THE AMOUNT OF THE BALANCE OF SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 13 PROFITS DISCLOSED BY THE ANNUAL ACCOUNTS AS FURNISHED TO THE CONTROLLER OF INSURANCE UNDER THE INSURANCE ACT, 1938. THE SAID BALANCE OF PROFITS IS SUBJECT ONLY TO ADJUSTMENTS THERE UNDER. THE ADJUSTMENTS DO NOT REFER TO DISALLOWANCE UNDER S. 14A OF THE ACT. (B) PROFITS AND GAINS OF BUSINESS AS REFER RED TO I N (A) ABOVE HAVE ONLY TO BE COMPUTED IN ACCORDANCE WITH R. 5 OF THE FIRST SCHEDULE. 22. SEC. 44 CREATE S A SPECIFIC EXCEPT ION TO THE APPLICABILITY OF SS. 2 8 TO 43B. THEREFORE, THE PURPOSE, OBJECT AND PURVIEW OF S. 14A HAS NO APPLICABILITY TO THE PROFI TS AND GAINS OF AN INSURANCE BUSINESS. 21. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY JUSTIFIED THE ACT ION OF THE AO AND THAT O F 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 AND THE DIRECTIONS IN THIS REGARD ARE SET ASIDE. RESULTANTL Y GROUND NO. 1 IS ALLOWED CONSEQUENT THEREUPON GROUND NO. 2 AUTOMATICALLY GOES IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, BY FOLLOWING THE ORDERS OF THIS TRIBUN AL, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THEREFORE, TH E GROUND IS ALLOWED. RESPECTFULLY FOLLOWING THE SAME, WE MODIFY THE ORDE R OF THE CIT (A) AND DELETE THE ADDITION MADE BY AO. THE GROUND AND ADDITIONAL GROUNDS ARE CONSIDERED AS ALLOWED. 15. FURTHER, LD COUNSEL ALSO BROUGHT OUR ATTENTION TO ANOTHER DECISION OF THE ITAT IN THE CASE OF HDFC STANDARD LIFE INSURANCE COMPANY LTD VS. DCIT (OSD) VIDE ITA NOS. 2203, 2204, 2205, 2206, 22 07/M/2012 AND OTHERS, ORDER DATED 20.9.2013 AND READ OUT PARA 13 AND PARA 13.1 OF THE SAID ORDER OF THE TRIBUNAL WHICH READ AS UNDER: 13. GROUND NO.2 IS ABOUT DISALLOWANCE MADE U/S 14A R.W.R 8D OF THE RULES, DURING THE ASSESSMENT PROCEEDINGS, AO HAD MA DE CERTAIN ADDITIONS U/S 14A THAT WAS CHALLENGED BEFORE THE FAA. DISSATISFI ED WITH THE ORDER OF THE FAA, AO HAS SUBMITTED THAT HE (FAA) SHOULD HAVE RES TORED THE ORDER BACK TO THE AO TO MAKE DISALLOWANCE AS PER THE DECISION DEL IVERED BY THE HONBLE SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 14 BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MANUF ACTURING COMPANY LTD (234 ITR 1). 13.1. BEFORE US, DR SUPPORTED THE ORDER OF THE AO. AR SUBMITTED THAT ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER O F ICPLI. WHILE DECIDING THE APPEAL FOR THE AY 2008-2009, WE HAVE HELD THAT PROV ISIONS OF SECTION 14A OF THE ACT DID NOT APPLY TO THE ASSESSEE CARRYING OF I NSURANCE BUSINESS. AS THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LIFE INSURAN CE SO PROVISIONS OF SECTION 14A R.W.R 8D OF RULES (SUPRA) CANNOT BE APPLIED IN ITS CASE. WE HAVE ALREADY DECIDED, WHILE ADJUDICATING THE APPEAL FOR THE AY 2 008-2009 THAT PROPORTIONATE EXPENSES CANNOT BE DISALLOWED U/S 14A IN CASE OF COMPANY DOING THE BUSINESS OF THE LIFE INSURANCE. FOLLOWING THE SAME, GROUND NO.2 IS DECIDED AGAINST THE AO. 16. PER CONTRA, LD DR IS OF THE OPINION THAT THESE DECISIONS WERE TAKEN RELYING ON ANOTHER COORDINATE BENCH DECISION OF THE ITAT, PUNE IN THE CASE OF BAJAJ ALLIANZ GENERAL INSURANCE COMPANY LIMITED VS. ADDL. CIT VIDE ITA NO.600/PN/08 (AY 2004-05). OTHERWISE, THIS ISSUE O N THE APPLICABILITY OF SECTION 14A IS REQUIRED TO BE ADJUDICATED IN THE LI GHT OF THE BINDING JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GOD REJ & BOYCE MFG. CO LTD. IN RESPONSE, LD COUNSEL MENTIONED THAT SUCH ARGUMENT C AME UP EARLIER IN THE CASES CITED ABOVE AND THE ARGUMENTS OF THE CONCERN ASSESSES WERE ALLOWED IN FAVOUR OF THE ASSESSEE. 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE DECISIONS OF THE TRIBUNA L CITED BEFORE US. ON PERUSAL OF THE DECISION OF THE ITAT IN THE CASE OF ICICI PR UDENTIAL INSURANCE (SUPRA) AS WELL AS ANOTHER DECISION IN THE CASE OF HDFC STA NDARD LIFE INSURANCE COMPANY (SUPRA), WE FIND REVENUE RAISED THE ARGUMEN TS REVOLVING AROUND THE APPLICABILITY OF THE JUDGMENT IN THE CASE OF GODREJ & BOYCE MFG CO LTD, SUPRA. DESPITE THE SAME, THE TRIBUNAL CONSIDERED THE SAID JUDGMENT AND STILL ALLOWED THE CLAIM OF THE ASSESSES. THEREFORE, IN VIEW OF TH E SPECIAL PROVISIONS APPLICABLE TO THE INSURANCE COMPANIES, WE ARE OF T HE OPINION THAT THE PROVISIONS OF SECTION 14A R.W.R. 8D WERE HELD NOT A PPLICABLE TO THE INSURANCE COMPANIES I.E., ICICI PRUDENTIAL INSURANCE, HDFC ST ANDARD LIFE INSURANCE COMPANY. THEREFORE, THE SBI LIFE INSURANCE COMPANY LIMITED (ASSESSEE IN THE PRESENT CASE SHOULD NOT BE ANY EXCEPTION. CONSIDER ING THE SETTLED NATURE OF SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 15 THE ISSUE VIDE THE DECISIONS OF THE TRIBUNALS ORDE RS (SUPRA), GROUND NO.3 RAISED BY THE ASSESSEE FOR THE AY 2006-2007 IS ALLOWED . 18. GROUND 4 RELATES TO THE DISALLOWANCE OF THE FRINGE BENEFIT TAX . IT IS THE CASE OF THE ASSESSEE THAT THE PROVISIONS OF THE FBT ARE NOT ATTRACTED THE ASSESSEE BEING AN INSURANCE COMPANY, WHOSE PROFITS ARE DETERMINABLE UNDER SPECIAL PROVISIONS OF SECTION 44 OF THE ACT. PER CO NTRA, THE REVENUE HELD THAT SINCE THE FBT RELATES TO SHAREHOLDERS ACCOUNTS, DI SALLOWANCE OF IT IS NEEDED IN VIEW OF THE AOS FINDING THAT THE SHARE HOLDERS ACC OUNTS IS TO BE TAXED AS INCOME FROM OTHER THAN INSURANCE BUSINESS. BEFORE US, IT IS THE CASE OF THE ASSESSEE THAT THE ISSUE STANDS COVERED BY THE DECIS ION OF THE TRIBUNAL IN THE CASE OF HDFC STANDARD LIFE INSURANCE CO LTD, SUPRA AND LIC, SUPRA. REVENUE ARGUES THAT THE MATTER MAY BE EXAMINED BY THE AO IN THE LIGHT OF THE CITED DECISIONS OF THE TRIBUNAL. WE ACCORDINGLY DIRECT TH E AO. ACCORDINGLY, GROUND 4 IS ALLOWED FOR STATISTICAL PURPOSE. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED PARTLY. 20. IN CONNECTION WITH THE REVENUES APPEAL FOR THE AY 2006-07, THE PARTIES MENTIONED THAT THERE ARE FOUR MAIN ISSUES T HAT REQUIRE SPECIFIC ADJUDICATION. THEY ARE: (A). TRANSFER OF FUNDS TO REVENUE ACCOUNT IS NOT ALLOWABLE AS DEDUCTION; (B). SET OFF OF LOSSES ARIS ING FROM PROFITS OTHER THAN INSURANCE AGAINST SURPLUS FROM REVENUE ACCOUNT; (C) . EXCLUSION FROM TOTAL INCOME THE EXEMPTED INCOME U/S 10(23AAB) OF THE ACT ; (D) ADDITION OF NEGATIVE RESERVE TO THE ACTUARIAL SURPLUS FOR DETER MINING THE PROFIT FROM BUSINESS OF LIFE INSURANCE; AND (E) DISALLOWANCE U/ S 14A OF THE ACT. IN CONNECTION WITH ISSUES MENTIONED AT (A) TO (C) A ND (E) ABOVE, BOTH PARTIES AGREED THAT THESE ISSUES ARE IDENTICAL TO T HE ONES RAISED BY THE REVENUE FOR THE AYS 2004-05 AND 2005-06. WE HAVE AL READY ADJUDICATED THE SAME AND THEREFORE, WE DIRECT THE AO FOLLOW THE SAM E FOR THIS YEAR ALSO AFTER GRANTING REASONABLE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. IN CONNECTION SBI LIFE INSURANCE COMPANY LIMITED & 06 OTHERS GROUP CASES ITA 3800/MUM/2008 16 WITH ISSUE AT (D) ABOVE, IT IS THE CLAIM OF THE ASS ESSEE, THAT THE SAME IS REQUIRED TO BE ADJUDICATED CONSIDERING THE DECISION S OF THE TRIBUNAL IN THE CASE OF ICICI PRUDENTIAL INSURANCE, SUPRA AND LIC, SUPRA . THESE DECISIONS ARE NOT IN EXISTENCE AT THE RELEVANT POINT OF TIME. CON SIDERING THESE NEW DEVELOPMENTS, WE DIRECT THE AO TO RE-ADJUDICATE THE SAME AFTER CONSIDERING THE SAID DECISIONS AND THE AFTER GRANTING REASONABL E OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, WE PARTLY ALLOW THE RELEVANT GROUNDS FOR STATISTICAL PURPOSE. 21. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED AS ABOVE. ORDER IS PRONOUNCED IN OPEN COURT ON 23 RD MAY, 2014 SD/- SD/- (SANJAY GARG) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMB ER MUMBAI; 23.05.2014 . . ./ OKK , SR. PS !' #$ %& #'! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! ( ) / THE CIT(A)- 4. ! / CIT 5. '#$ %& , %& , / DR, ITAT, MUMBAI 6. $'( ) / GUARD FILE. ' //TRUE COPY// ( / BY ORDER, )$ / * $ (DY./ASSTT. REGISTRAR) %$ , %-. , / ITAT, MUMBAI