ICICI LOMBARD GENERAL INSURANCE CO. LTD, MUMBAI V. ADDL CIT 10(1), MUMBAI

ITA 4287/MUM/2009

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71192 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 27-08-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 15-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: O P SINGH
• Keywords: Gift; Question of law
• Section: 43B; 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL I II I BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , . . . ! ! ! ! , ' ' ' ' #$ #$ #$ #$ BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & & & & SHRI SHRI SHRI SHRI N. K. BILLAIYA N. K. BILLAIYA N. K. BILLAIYA N. K. BILLAIYA, AM , AM , AM , AM ./ I.T I.TI.T I.T.A. NO. .A. NO. .A. NO. .A. NO.4287/MUM/2009 4287/MUM/2009 4287/MUM/2009 4287/MUM/2009 ( % % % % & & & & / ASSESSMENT YEAR:2004-05) ICICI LOMBARD GENERAL INSURANCE COMPANY LIMITED, ICICI BANK TOWERS, BANDRA-KURLA COMPLEX, BANDRA (EAST) MUMBAI-400051 / VS. THE ASSTT. COMMISSIONER OF INCOME TAX, RANGE 10(1), AAYAKAR BHAVAN, MUMBAI-400020 ( '( / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( )*'( / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.437 437 437 4374 44 4/MUM/2009 /MUM/2009 /MUM/2009 /MUM/2009 ( % % % % & & & & / ASSESSMENT YEAR:2004-05) THE ASSTT. COMMISSIONER OF INCOME TAX, RANGE 10(1), AAYAKAR BHAVAN, MUMBAI-400020 / VS. ICICI LOMBARD GENERAL INSURANCE COMPANY LIMITED, ICICI BANK TOWERS, BANDRA- KURLA COMPLEX, BANDRA (EAST) MUMBAI-400051 $' ' ./ + ./ PAN/GIR NO. : AAACI7904G ( '( / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( )*'( / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) '( '( '( '( , , , , / APPELLANT BY : SHRI O. P. SINGH )*'( )*'( )*'( )*'( - -- - , , , , /RESPONDENT BY : MS. AARTI VISSANJI - -- - .' .' .' .' / DATE OF HEARING : 27 TH AUGUST 2013 /0& /0& /0& /0& - -- -.' .' .' .' /DATE OF PRONOUNCEMENT: 18 TH SEPTEMBER 2013 #1 / O R D E R PER : , . . / VIJAY PAL RAO, JM THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 14.5.2009 FOR THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS IN THIS APPEAL: ITA NO. 4287 & 4374/M/2009 ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LAW, THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE IN RESPECT OF THE REDUCTION/EXEMPTION FOR GAINS ON SALE OF INVEST MENT AMOUNTING TO ` 7,08,51,044/- ON THE GROUND THAT PRO FITS FROM INSURANCE BUSINESS ARE TO BE TAKEN TO BE BALANCE OF THE PROFITS AS DISCLOSED BY ANNUAL ACCOUNTS, SUBJECT TO THE ADJ USTMENTS PROVIDED IN CLAUSE 5(A) TO (C) AND IT IS NOT OPEN T O THE APPELLANT TO REDUCE THESE PROFITS FROM ITS COMPUTAT ION OF INCOME IN VIEW OF THE NON-OBSTANTE CLAUSE B OF RULE 5 OF THE FIRST SCHEDULE TO THE ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND T HE LAW, THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE IN RESP ECT OF THE SECTION 14A OF THE ACT AMOUNTING TO ` 39,99,020/- O N THE GROUND THAT THE PROVISIONS OF SECTION 14A, BEING IN THE NATURE OF SPECIAL PROVISIONS, OVERRIDE THE PROVISIONS OF S ECTION 44. 3. GROUND NO. 1 REGARDING THE TAXABILITY OF GAIN ON SALE OF INVESTMENT. WE HAVE HEARD THE LD. AR AS WELL LD. DR AND CONSIDERED THE RELEANT MATERIAL ON RECORD. AT THE OUTSET WE NO TE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBU NAL FOR THE ASSESSMENT YEAR 2003-04 VIDE ORDER DATED 10.10.2012 IN ITA NO. 2398/M/2009 IN PARA 5 TO 5.4 AS UNDER: 5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THERE IS A SPECIA L PROVISION FOR COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAIN INTER-ALIA IN THE BUSINESS OF INSURANCE U NDER SECTION 44 OF THE I T ACT AND THE SAME SHALL BE COMPUTED IN ACCORDANCE WITH THE RULE CONTAINING IN FIRST SCHEDU LE OF THE ACT. THE PROFITS AND GAINS OF BUSINESS OF INSURANC E OTHER THAN THE LIFE INSURANCE SHALL BE COMPUTED AS PER RULE 5 OF FIRST SCHEDULE AS UNDER: 5. THE PROFITS AND GAINS OF ANY BUSINESS OF INSURA NCE OTHER THAN LIFE INSURANCE SHALL BE TAKEN TO BE THE PROFIT BEFORE TAX AND APPROPRIATIONS AS DISCLOSED IN THE PROFIT A ND LOSS ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE INSURANCE ACT, 1938 (4 OF 1938) OR THE RULES MA DE THEREUNDER OR THE PROVISIONS OF THE INSURANCE REGUL ATORY AND DEVELOPMENT AUTHORITY ACT, 1999 (4 OF 1999) OR THE REGULATIONS MADE THEREUNDER, SUBJECT TO THE FOLLOWI NG ADJUSTMENTS; ITA NO. 4287 & 4374/M/2009 ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. 3 A. SUBJECT TO THE OTHER PROVISIONS OF THIS RULE, ANY EXPENDITURE OR ALLOWANCE INCLUDING ANY AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT EITHER BY WAY OF A PROVISION FOR ANY TAX, DIVIDEND, RESERVE O R ANY OTHER PROVISION AS MAY BE PRESCRIBED WHICH IS NOT ADMISSIBLE UNDER THE PROVISIONS OF SECTIONS 30 TO 43B IN COMPUTING THE PROFITS AND GAINS OF A BUSINESS SHALL BE ADDED BACK; B. (I) ANY GAIN OR LOSS ON REALISATION OF INVESTMENTS SHALL BE ADDED OR DEDUCTED, AS THE CASE MAY BE, IF SUCH GAIN OR LOSS IS NOT CREDITED OR DEBITED TO THE PROFIT AND LOSS ACCOUNT; (II) ANY PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT DEBITED TO THE PROFIT AND LOSS ACCOUNT, SHALL BE ADDED BACK; C. SUCH AMOUNT CARRIED OVER TO A RESERVE FOR UNEXPIRED RISKS AS MAY BE PRESCRIBED IN THIS BEHALF SHALL BE ALLOWED AS A DEDUCTION. 5.1 THE BARE READING OF THE AMENDED PROVISIONS OF RULE 5 OF FIRST SCHEDULE MAKES IT CLEAR THAT THE PROFIT S AND GAINS SHALL BE TAKEN TO BE THE PROFIT BEFORE THE TAX AND APPROPRIATELY DISCLOSED IN THE P&L ACCOUNT PREPARED IN ACCORDAN CE WITH THE INSURANCE ACT, 1938 OR THE RULE MADE THERE UNDER OR THE PROVISIONS OF IRDA ACT. THERE IS NO DISPUTE THAT T HE ASSESSEE BEFORE US HAS INCLUDED THE PROFIT ON SALE OF INVEST MENTS IN THE PROFIT AND GAIN AS DECLARED IN THE ACCOUNTS PREPARE D IN ACCORDANCE WITH THE PROVISIONS OF INSURANCE ACT 193 8. IT IS ALSO NOT THE CASE OF THE ASSESSEE THAT THE PROFITS/ GAINS ON SALE OF INVESTMENTS IS NOT REQUIRED TO BE INCLUDED IN TH E P&L ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF INSURANCE ACT. THEREFORE, ONCE THE PROFIT ON SALE OF INVESTMENT IS REQUIRED TO BE INCLUDED IN THE P& L A CCOUNT IN ACCORDANCE WITH THE PROVISIONS OF INSURANCE ACT, TH EN AS PER THE RULE 5 OF FIRST SCHEDULE OF THE I T ACT, NO ADJ USTMENT IS REQUIRED TO BE MADE ON ACCOUNT OF THE AMOUNT OF PRO FITS ON SALE OF INVESTMENT ALREADY INCLUDED IN THE P&L ACCO UNT. THUS, WE FIND FORCE AND SUBSTANCE IN THE CONTENTION OF TH E LD DR THAT ONCE THE ASSESSEE HAS INCLUDED THE GAIN ON SALE OF INVESTMENTS IN THE P&L ACCOUNT PREPARED AS PER THE PROVISIONS OF THE INSURANCE ACT, 1938, THEN THE SAID AMOUNT CA NNOT BE REDUCED WHILE COMPUTING THE INCOME AS PER PROVISION S OF SEC. 44 R.W FIRST SCHEDULE OF THE I T ACT. 5.2 HOWEVER, IN THE SERIES OF DECISIONS OF THE TRI BUNAL A VIEW HAS BEEN TAKEN THAT THE AMENDMENT VIDE FINANCE ACT 1988 W.E.F 1.4.89, THE SUB RULE (B) OF RULE 5 OF FI RST SCHEDULE WAS OMITTED WITH THE PURPOSE TO GRAND EXEMPTION TO THE INSURANCE COMPANIES WITH REGARD TO THE PROFIT ON SA LE OF ITA NO. 4287 & 4374/M/2009 ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. 4 INVESTMENTS. THE TRIBUNAL HAS TAKEN NOTE OF THE FA CT THAT IN THE COROLLARY, IT HAS BEEN PROVIDED IN THE CIRCULAR NO.528 DATED 16.12.1988 THAT THE LOSS INCURRED BY THE GENERAL IN SURANCE COMPANIES ON REALIZATION OF INVESTMENT SHALL NOT B E ALLOWED AS DEDUCTION IN COMPUTING THE PROFIT CHARGEABLE TO TAX. 5.3 IN THE LATEST DECISION DATED 22.10.2010, THIS T RIBUNAL IN THE CASE OF TATA AIG GENERAL INSURANCE CO LTD VS A CIT IN ITA NO.2597/MUM/2009 AFTER CONSIDERING THE EARLIER DEC ISIONS OF THE TRIBUNAL HAS HELD IN PARAS 18 TO 20 AS UNDER: 18. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS. THERE IS NO DISPUTE THAT UNDER THE GUIDELINES ISSUE D BY THE IRDA (AUDITORS REPORT) REGULATIONS OF 2002, FOR PREPARATION OF FINANCIAL STATEMENTS, THE PROFIT ON SALE OF INVESTMENTS IS TO BE CREDITED TO THE PROFIT AND LOS S ACCOUNT OF THE INSURANCE COMPANY. THERE IS ALSO NO DISPUTE THAT THE ASSESSEE HAS CREDITED THE PROFIT A ND LOSS ACCOUNT WITH SUCH PROFIT THE QUESTION IS WHETHER SU CH PROFIT CAN BE EXCLUDED AND EXEMPTION CAN BE CLAIMED . RULE 5(B), AS IT STOOD BEFORE BEING OMITTED FROM 01 .04.1989, WAS AS FOLLOWS: - ANY AMOUNT EITHER WRITTEN OFF OR RESERVED IN THE ACCOUNTS TO MEET DEPREDATION OF OR LOSS ON THE REALIZATION OF INVESTMENTS SHALL BE ALLOWED AS A DEDUCTION, AND ANY SUMS TAKEN CREDIT FOR IN THE ACCOUNTS ON ACCOUNT OF APPRECIATION OF OR GAINS ON THE REALIZATION OF INVESTMENTS SHALL BE TREATED AS PART OF THE PROFITS AND GAINS; PROVIDED THAT THE ASSESSING OFFICER IS SATISFIED AB OUT THE REASONABLENESS OF THE AMOUNT WRITTEN OFF OR RESERVED IN THE ACCOUNTS, AS THE CASE MAY BE, TO ME ET DEPREDATION OF OR LOSS ON THE REALIZATION OF INVEST MENT. THE ARGUMENT ON BEHALF OF THE ASSESSEE PRIMARILY IS THAT WHEN THE RULES FOR PREPARATION OF THE FINAL ACCOUNT S PROVIDE THAT THE PROFIT ON SALE OF INVESTMENTS, SHOULD BE S HOWN IN THE CREDIT SIDE OF THE PROFIT AND LOSS ACCOUNT, THE N THERE WAS NO QUESTION OF RULE 5(B) BEING APPLICABLE AND T HAT WAS THE REASON WHY THE SAID RULE WAS OMITTED WITH EFFEC T FROM 01.04.1989 AND THE EFFECT OF THE OMISSION IS THAT W HERE THE PROFIT AND LOSS ACCOUNT ALREADY INCLUDES THE PROFIT ON SALE OF INVESTMENTS, THE SAME SHALL STAND EXCLUDED. THE EFFECT OF THE OMISSION OF THE RULE WAS CONSIDERED BY THE P UNS BENCH OF THE TRIBUNAL IN ITS ORDER DATED 31 AUGUST 2009, IN THE CASE OF BAJAJ ALLIANZ GENERAL INSURANCE COMPANY , IN ITA NO: 1447/PN12007 AND CO NO:521PN12007 (ASSESSMENT YEAR 2003-04). A COPY OF THE SAID ORDER HAS BEEN FI LED ITA NO. 4287 & 4374/M/2009 ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. 5 BEFORE US. THE TRIBUNAL HAS ALSO CONSIDERED THE CIR CULAR NO.528 DATED 16.12.1988. AFTER ANALYZING THE IMPACT OF THE OMISSION OF RULE 5(B) AND THE CIRCULAR, THE TRIBUNA L HELD AS UNDER. - 8. A CONCLUSION CAN BE DRAWN ON THE BASIS OF THE A BOVE ELABORATE DISCUSSION THAT THE DELETION OF SUB RULE (B) FROM RULE 5OF THE FIRST SCHEDULE WAS WITH A SPECIFI C PURPOSE. THIS SCHEDULE NOT ONLY PRESCRIBES THE METH OD OF COMPUTATION OF INCOME OF INSURANCE BUSINESS IN P ART (A) BUT ALSO PRESCRIBE THE METHOD OF COMPUTATION OF OTHER INSURANCE BUSINESS IN PART (B). RULE 5 IS WIT HIN PART (B) AND EARLIER IT HAS PRESCRIBED THE METHOD O F TAXATION OF PROFIT ON SALE OF INVESTMENTS WHICH WAS LATER ON SCRAPED. EVEN BY APPLYING A REVERSE LOGIC WE MUST ARRIVE AT THE SAME CONCLUSION THAT HAD THE IMPUGNED INCOME WAS EARLIER TAXABLE UNDER ONE SPECIFIC CLAUSE BUT EVEN ON ITS DELETION NO CLAUSE WAS INTRODUCED OR REPLACED TO PRESCRIBE THE METHOD OF TAXATION OF SUCH INCOME;. THEREFORE THE REVENUE DEPARTMENT HAS NO RIGHT TO TAX SUCH AN INCOME IN TH E ABSENCE OF ANY ENABLING PROVISION. NATURALLY, SUCH A DELETION CANNOT BE TREATED A SUPERFLUOUS ACTION BUT THIS CHANGE HAD TO GIVE A DEFINITE JUDICIAL MEANING. WE HAVE TO ASCRIBE A LOGICAL CONCLUSION TO THE SAID DE LETION OF SUB RULE (B) FROM RULE 5 AND THE NATURAL MEANING IS THAT AFTER THE DELETION THE INCOME DESCRIBED THEREI N IS OUT OF THE PURVIEW OF COMPUTATION OF INSURANCE BUSINESS FROM THE FIRST SCHEDULE THEREFORE CONSEQUENTLY CANNOT BE TAXED U/S 44 OF I T ACT. AF TER EXPRESSING THIS VIEW WE HEREBY DISMISS THE CROSS OBJECTION V F THE REVENUE. 19: THE AFORESAID ORDER OF THE PUNE BENCH, WHICH WA S IN THE CASE OF A COMPANY CARRYING ON GENERAL INSURANCE BUS INESS, WAS FOLLOWED BY THE MUMBAI BENCH OF THE TRIBUNAL IN ITS ORDER DATED 17.09.2010, IN THE CASE :OF HDFC ERGO G ENERAL INSURANCE COMPANY LTD., IN ITA NO: 338/MUM12009 (ASSESSMENT YEAR 2004- 05) AS ALSO IN ITS ORDER DAT ED 30.04.2010, IN THE CASE OF RELIANCE GENERAL INSURAN CE CO. LTD., IN :ITA NO. 781/MUM12007 (AND OTHER APPEALS). COPIES OF THESE ORDERS HAVE ALSO BEEN FILED BEFORE US. IN THESE ORDERS IT HAS BEEN HELD THAT THE PROFIT ON SALE OF INVESTMENT IN THE CASE OF AN ASSESSEE CARRYING ON GENERAL INSU RANCE BUSINESS CANNOT BE BROUGHT TO TAX AFTER THE OMISSIO N OF RULE 5(B) AND AS PER THE CIRCULAR CITED ABOVE. SINCE THE CONTROVERSY BEFORE US IS IDENTICAL, RESPECTFULLY FO LLOWING THE ORDERS OF THE PUNS AND MUMBAL BENCHES OF THE TRIBUN AL CITED ABOVE, WE DIRECT THE ASSESSING OFFICER TO EXC LUDE THE ITA NO. 4287 & 4374/M/2009 ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. 6 PROFIT OF Z47,45,699/- ON THE SALE OF INVESTMENTS F ROM THE ASSESSMENT V 20. THE LEARNED CIT DR, HOWEVER, ARGUED THAT THE EF FECT OF THE OMISSION OF RULE 5(B) IS JUST THE OPPOSITE OF W HAT THE ASSESSEE HAS CONTENDED. ACCORDING TO HIM, AFTER 01.04.1989 THE EXEMPTION WAS TAKEN AWAY. HE SUBMITT ED FURTHER THAT THE PROFIT ON SALE OF THE INVESTMENT H AS ALREADY BEEN INCLUDED IN THE PROFIT AND LOSS ACCOUNT AND TH ERE IS NO AUTHORITY TO TAKE IT OUT EVEN UNDER RULE 5(B) AS IT EXISTED BEFORE 01.04.1989. ACCORDING TO HIM, THERE WAS NO S COPE FOR APPLYING THE RULES OF INTERPRETATION WHEN THE S TATUTORY PROVISIONS ARE CLEAR. SINCE THE MATTER IS CONCLUDED BY THE ORDERS OF THE TRIBUNAL CITED SUPRA, WHERE ALL THESE ASPECTS HAVE BEEN CONSIDERED, WE ARE UNABLE TO TAKE A DIFFE RENT VIEW OF THE MATTER. THUS GROUND NO.4 IS ALLOWED. 5.4 SINCE THE TRIBUNAL HAS BEEN TAKING A CONSISTENT VIEW ON THIS ISSUE IN A SERIES OF DECISIONS AS RELIED UPON BY THE LD AR OF THE ASSESSEE; THEREFORE, TO MAINTAIN THE RULE OF CO NSISTENCY AND UNIFORMITY ON THIS ASPECT, WE DEICIDE THIS ISSU E IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 4. A SIMILAR VIEW WAS ALSO TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03. ACCORDINGLY B Y FOLLOWING THE EARLIER ORDERS OF THIS TRIBUNAL WE DECIDE THIS ISSU E IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 5. GROUND NO. 2 REGARDING DISALLOWANCE U/S 14A. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVAN T MATERIAL ON RECORD. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT RULE 14A IS NOT APPLICABLE IN THE CASE OF INSURANCE COMPANY. SHE HA S RELIED UPON THE DECISION OF THIS TRIBUNAL IN CASE OF ICICI PRUDENTI AL INSURANCE CO. LTD. VS ACIT 140 ITD 41. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT WHEN THE INCOME IS NON-ASSESSABLE TO TAX BEING EXEM PT THEN THE PROVISIONS OF SECTION 14A SHALL BE APPLIED. THIS IS SUE HAS BEEN ITA NO. 4287 & 4374/M/2009 ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. 7 CONSIDERED AND DECIDED BY THE TRIBUNAL IN CASE OF I CICI PRUDENTIAL INSURANCE CO. LTD. VS ACIT (SUPRA) IN PARA 46 AS UN DER: 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 GENERAL INSURANCE CORPORATION OF INDIA (SUPRA) V IDE PARA 9 IS AS UNDER: 9. ISSUE NO.6 NON APPLICABILITY OF PROVISIONS OF S ECTION 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 REFEREN CE TO THE APPLICABILITY OF SECTION 1 4A AND DISALLOWANCE OF EXPENDITURE IN RESPECT OF SALE OF INVESTMENT WHICH ARE NOT TAXED. WE HAVE HEARD THE RIVAL CONTENTIONS. WE ALSO NOTE THAT THIS ISSUE IS ALSO CONSIDERED BY THE COORDINAT E BENCH IN ASSESSEES OWN CASE FOR 2006-07 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 DECIDED BY THE PUNE BENCH OF THIS TR IBUNAL IN THE CASE OF BAJAJ ALLIANZ GENERAL INSURANCE COMP ANY LIMITED V. ADDL. CIT ITA NO.1447/PN/2007 FOR THE ASSESSMENT YEAR 2003-04 ORDER DATED 31.08.2009. THI S TRIBUNAL IN THE CASE OF JCIT V. M/S RELIANCE GENERA L INSURANCE CO. IN ITA NO.3085/MUM/2008 FOR THE ASSES SMENT YEAR 2005-06 VIDE ORDER DATED 26.2.2010 HAS CONSIDE RED THIS ISSUE AND DECIDED IN FAVOUR OF THE ASSESSEE. T HIS ORDER WAS FOLLOWED BY THIS TRIBUNAL WHILE DECIDING THE IS SUE IN ITA NO.781/MUM/2007 VIDE ORDER DATED 30.4.20 10. THUS, THIS ISSUE HAS BEEN CONSISTENTLY DECIDED IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE BY THIS TRIBUNAL. THE PUNE BENCH OF THIS TRIBUNAL IN THE CASE OF BAJAJ AL LIANZ GENERAL INSURANCE COMPANY LIMITED V. ADDL. CIT(SUPR A) HAS DECIDED THIS ISSUE IN PARAGRAPHS 17 TO 20 AS UNDER: 17. FINALLY THE QUESTION TO BE ANSWERED IS ABOUT T HE APPLICABILITY OF S. 14A IN RESPECT OF SALE OF INVES TMENT WHICH IS NOT TAXED UNDER THE SPECIAL CIRCUMSTANCES OF DEL ETION OF A SUB-RULE FROM THE STATUTE. IT IS NOT QUESTIONED T HAT THE IMPUGNED PROFIT WAS NON-TAXABLE PER SE RATHER THE ACCEPTED LEGAL POSITION IS THAT THE IMPUGNED PROFIT WAS VERY MUCH TAXABLE IN THE PAST. NOW IT HAS BEEN INFORMED THAT THIS CONTROVERSY IN RESPECT OF INSURANCE COMPANY SE T AT REST BY A DECISION OF TRIBUNAL, DELHI BENCH VERDICT IN T HE CASE OF ORIENTAL INSURANCE CO. LTD. (ITA NOS. 5462 & 5463/D EL ITA NO. 4287 & 4374/M/2009 ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. 8 /2003) ASST. YRS. 2000-01 AND 2001-02 ORDER DT. 27T H FEB.2009 [REPORTED AS ORIENTAL INSURANCE CO. LTD. V . ASSTT. CIT[2010] 130 TTJ (DELHI)388 : [2010] 38 DTR (DELHI ) 225- ED.]. THEREFORE CONSIDERING THE VEHEMENT RELIANCE O F LEARNED AUTHORIZED REPRESENTATIVE IT IS WORTH TO ME NTION AT THE OUTSET ITSELF THAT THE ISSUE NOW STOOD RESOLVED BY THIS LATEST DECISION OF DELHI, TRIBUNAL IN THE CASE OF O RIENTAL 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 ASSESSEES OWN CASE FOR AS ST. YR. 1985-86. THE TRIBUNAL ACCEPTED THE PLEA OF THE ASSE SSEE AND IN FACT THE ISSUE WENT UP TO THE HONBLE DELHI HIGH COURT IN ASST . YRS. 1986-87 TO 1988-89, WHICH IS R EPORTED 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 P ROFITS AND GIFTS OF BUSINESS OF INSURANCE. IT BEING A NON OBSTANTE PROVISION HAS TO PREVAIL OVER OTHER PROVISIONS IN T HE ACT. IT CLEARLY PROVIDES THAT INCOME FROM INSURANCE BUSINES S HAS TO BE COMPUTED IN ACCORDANCE WITH THE RULE CONTAINED I N THE FIRST SCHEDULE. IT IS NOT THE CASE OF THE REVENUE T HAT THE ASSESSEE HAS NOT COMPUTED THE PROFITS AND GAINS OF ITS INSURANCE BUSINESS IN ACCORDANCE WITH THE SAID RULE S. RELIANCE WAS PLACED ON THE SCOPE OF S. 144, AS HELD IN THE CASE OF GENERAL INSURANCE CORPORATION OF INDIA V. C IT [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 GOVER N COMPUTATION OF TAXABLE INCOME EARNED FROM BUSINESS OF INSURANCE. IT MANDATES THE TAX AUTHORITIES TO COMPU TE THE TAXABLE INCOME IN RESPECT OF INSURANCE BUSINESS IN ACCORDANCE WITH THE PROVISIONS OF THE FIRST SCHEDUL E TO THE ACT. IN THE LIGHT OF THESE, THEIR LORDSHIPS OF DELH I HIGH COURT HAVE HELD THAT NO QUESTION OF LAW, MUCH LESS A SUBS TANTIAL QUESTION OF LAW SURVIVES FOR THEIR CONSIDERATION. I N OTHER WORDS, ORDER OF THE TRIBUNAL HAS BEEN AFFIRMED. FOL LOWING THE SAME REASONING, ADDITION MADE BY THE AO IS DELE TED. 22. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GO NE THROUGH THE RECORDS. THE PROVISIONS OF S. 44 READ A S UNDER: 44. INSURANCE BUSINESS.-NOTWITHSTANDING ANYTHING T O THE CONTRARY CONTAINED IN THE PROVISIONS OF THIS ACT RE LATING TO THE COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIES. INCOME FROM HOUSE PROPER TY, CAPITAL GAINS OR INCOME FROM OTHER SOURCES, OR IN S. 199 ITA NO. 4287 & 4374/M/2009 ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. 9 OR IN SS. 28 TO 43B, THE PROFITS AND GAINS OF ANY B USINESS OF INSURANCE, INCLUDING ANY SUCH BUSINESS CARRIED ON B Y A MUTUAL INSURANCE COMPANY OR BY A COOPERATIVE SOCIET Y, SHALL BE COMPUTED IN ACCORDANCE WITH THE RULES CONT AINED IN THE FIRST SCHEDULE. 23. THE ABOVE PROVISION MAKES IT VERY CLEAR THAT S. 44 APPLIES NOTWITHSTANDING ANYTHING TO THE CONTRARY CO NTAINED WITHIN THE PROVISIONS OF THE IT ACT RELATING TO COM PUTATION OF INCOME CHARGEABLE UNDER DIFFERENT HEADS. WE AGREE W ITH THE LEARNED COUNSEL THAT THERE IS NO REQUIREMENT OF HEAD- WISE BIFURCATION CALLED FOR WHILE COMPUTING THE INC OME UNDER S. 44 OF THE ACT IN THE CASE OF AN INSURANCE COMPANY. THE INCOME OF THE BUSINESS OF INSURANCE IS ESSENTIA LLY TO BE AT THE AMOUNT OF THE BALANCE OF PROFITS DISCLOSED B Y THE ANNUAL ACCOUNTS AS FURNISHED IN THE CONTROLLER OF I NSURANCE. THE ACTUAL COMPUTATION OF PROFITS AND GAINS OF INSU RANCE BUSINESS WILL HAVE TO BE COMPUTED IN ACCORDANCE WIT H R. 5 OF THE FIRST SCHEDULE. IN THE LIGHT OF THESE SPECIA L PROVISIONS COUPLED WITH NON OBSTANTE CLAUSE THE AO IS NOT PERM ITTED 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 A CT AS ACCORDING TO US, IT IS NOT PERMISSIBLE TO THE AO TO TRAVEL BEYOND S. 44 AND FIRST SCHEDULE OF THE IT ACT. 18. IT MAY NOT BE OUT OF PLACE TO MENTION THAT THE RESPECTED CO-ORDINATE BENCH HAS DULY TAKEN THE NOTE OF AN EAR LIER 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, 3607TO3609/DEL/1990; 5035/DEL/19 98 AND 3910/DEL/2000NAMEDAS DY. CIT V. ORIENTAL GENERA L INSURANCE CO. LTD. [2005)92 TTJ (DELHI) 300. AS SEE N FROM THE PARAS REPRODUCED ABOVE ON DUE CONSIDERATION OF THE RELEVANT PROVISIONS AS APPLICABLE TO RESOLVE THIS I SSUE A CONCLUSION WAS DRAWN THAT SINCE THE COURTS HAVE HEL D, S. 44 CREATES A SPECIAL PROVISION IN THE CASES OF ASSESSM ENT OF INSURANCE COMPANIES THEREFORE IT WAS NOT PERMISSIBL E TO THE AO TO TRAVEL BEYOND S. 44 OF FIRST SCHEDULE OF IT A CT. 18.1 THE NEXT COMMON DISPUTE RELATES TO THE ORDER O F THE CIT (A) IN SUSTAINING THE ACTION OF AO IN ALLOWING ONLY 50 PER CENT OF THE MANAGEMENT EXPENSES BY INVOKING THE PROVISIONS OF S. 14A OF THE ACT. THE ADDITION IS MA DE BY THE AO ON THE PLEA THAT THE PROVISIONS OF S. 14A WAS IN SERTED BY FINANCE ACT, 2001 W.E.F. 1ST APRIL, 1962. IT IS STA TED THAT THE ITA NO. 4287 & 4374/M/2009 ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. 10 INVESTMENTS MADE BY THE ASSESSEE ARE BOTH TAXABLE A S WELL AS TAX FREE. AN ESTIMATED DISALLOWANCE OF 50 PER CE NT OUT OF THE MANAGEMENT EXPENSES INCURRED AND AS CLAIMED IN THE P&L A/C IS TREATED AS EXPENSES INCUR RED IN CONNECT ION 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 COM PUTED UNDER S. 44 R W R. 5 OF SCH. I OF THE IT ACT, SEC. 44 IS A NON OBSTANTE CLAUSE AND APPLIES NOTWITHSTANDING ANYTHIN G 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 COMPUT ED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROF ESSION. FOR COMPUTATION OF PROFITS 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 DON E IN ACCORDANCE WITH THE RULES PRESCRIBED IN FIRST SCHED ULE OF THE ACT, MEANING THEREBY SS. 28 TO 43B SHALL NOT AP PLY. 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 S S. 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 ESSENTI ALLY TO BE AT THE AMOUNT OF THE BALANCE OF PROFITS DISCLOSED BY T HE ANNUAL ACCOUNTS AS FURNISHED TO THE CONTROLLER OF I NSURANCE UNDER THE INSURANCE ACT, 1938. THE SAID BALANCE OF PROFITS IS SUBJECT ONLY TO ADJUSTMENTS THEREUNDER. THE ADJUSTM ENTS DO NOT REFER TO DISALLOWANCE UNDER S. 14A OF THE AC T. (B) PROFITS AND GAINS OF BUSINESS AS REFER RED TO IN (A ) ABOVE HAVE ONLY TO BE COMPUTED IN ACCORDANCE WITH R. 5 OF THE FIRST SCHEDULE. 22. SEC. 44 CREATES A SPECIFIC EXCEPT ION TO THE AP PLICABILITY OF SS. 28 TO 43B. THEREFORE, THE PURPOSE, OBJECT AN D PURVIEW OF S. 14A HAS NO APPLICABILITY TO THE PROFITS AND G AINS OF AN INSURANCE BUSINESS. 23. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGL Y JUSTIFIED THE ACT ION OF THE AO AND THAT OF 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-ORD INATE BENCH THEREFORE, WE HAVE NO REASON TO TAKE ANY OTHE R VIEW EXCEPT TO FOLLOW THE SAME. WITH THE RESULT WE HEREB Y ACCEPT THE ARGUMENT OF LEARNED AUTHORIZED REPRESENTATIVE T O THE EXTENT THAT IN THE PRESENT SITUATION THE PROVISIONS OF S. 14A ITA NO. 4287 & 4374/M/2009 ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. 11 NEED NOT TO APPLY WHILE GRANTING EXEMPT ION TO AN I NCOME EARNED ON SALE OF INVESTMENT PRIMARILY BECAUSE OF T HE REASON OF THE WITHDRAWAL OR DELETION OF SUB-R. 5(B) TO FIRST SCHEDULE OF S. 44 OF IT ACT. ONCE WE HAVE TAKEN THI S VIEW THEREFORE THE ENHANCEMENT AS PROPOSED BY LEARNED CI T(A) IS REVERSED AND THE DIRECTIONS IN THIS REGARD ARE S ET ASIDE. RESULTANTLY GROUND NO. 1 IS ALLOWED CONSEQUENT THER EUPON GROUND NO. 2 AUTOMATICALLY GOES IN FAVOUR OF THE AS SESSEE. ACCORDINGLY, BY FOLLOWING THE ORDERS OF THIS TRIBUN AL, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THEREF ORE, THE GROUND IS ALLOWED. RESPECTFULLY FOLLOWING THE SAME, WE MODIFY THE ORDE R OF THE CIT (A) AND DELETE THE ADDITION MADE BY AO. THE GRO UND AND ADDITIONAL GROUNDS ARE CONSIDERED AS ALLOWED. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL WE DE CIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 6. THE REVENUE HAS RAISED THE ONLY GROUND IN THIS A PPEAL AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTIN G TO ALLOW THE DEDUCTION FOR UNEXPIRED RISK RESERVE ON TERRORISM @ 100% WITHOUT APPRECIATING THAT THE URR WAS CREATED IN EX CESS OF THE AMOUNT PERMISSIBLE UNDER SECTION 64(V)(1)(II)(B) OF THE INSURANCE ACT. 7. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. DR HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD. AR HA S SUBMITTED THAT THERE IS ONLY MINIMUM LIMIT AS PROVIDED U/S 64V(1)( II)(B) OF THE INSURANCE ACT FOR CREATING UNEXPIRED RISK RESERVE ( URR) ON TERRORISM. THEREFORE, THE RESERVE CREATED BY THE ASSESSEE WHIC H IS MORE THAN THE MINIMUM LIMITE PROVIDED U/S 64V(1)(II)(B) IS NOT IN VIOLENCE OF THE PROVISIONS OF INSURANCE ACT. SHE HAS RELIED UPON TH E DECISION OF HONBLE SUPREME COURT IN CASE OF GIC VS CIT 240 ITR 139. ITA NO. 4287 & 4374/M/2009 ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. 12 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND CARE FUL PERUSAL OF THE RECORD WE NOTE THAT THE CIT(A) HAS CONSIDERED A ND ADJUDICATED THE ISSUE AFTER CONSIDERING SCHEDULE B OF THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY REGULATIONS 2002 AS WELL AS R ULE 6E(A) OF INCOME TAX RULES IN PARA 2.1 AS UNDER: 2.1 I HAVE PERUSED THE FACTS IN THIS CASE. THE URR ON TERRORISM HAS BEEN CREATED AT THE RATE OF 100% OF T HE UNEXPIRED PERIOD OF THE RISKS. SECTION 64V(L)(II)(B ) PROVIDES THAT RESERVE FOR UNEXPIRED RISKS ON FIRE AND MISCEL LANEOUS BUSINESS IS TO BE CREATED AT THE RATE OF 50% OF THE NET PREMIUM. THE APPELLANT HOWEVER, HAS CREATED THIS RE SERVE AT 100% IN KEEPING WITH PARA 2, OF PART 1, OF SCHEDULE B, OF THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (PRE PARATION OF FINANCIAL STATEMENT AND AUDITORS REPORT OF INSUR ANCE CO.) REGULATIONS, 2002. THE RELEVANT PORTION OITHE ABOVE CITED REGULATION, READS AS FOLLOWS: A RESERVE FOR UNEXPIRED RISKS SHALL BE CREATED AS THE AMOUNT REPRESENTING THAT PART OF/HE PREMIUM WRITTEN WHICH IS ATTRIBUTABLE TO, AND TO HE ALLOCATED TO THE SUCC EEDING ACCOUNTING PERIODS AND SHALL NOT BE LESS THAN AS RE QUIRED UNDER SECTION 64 V(L) (II) (B) OF THE ACT. FURTHER, INCOME TAX RULES 6E(A), READS AS FOLLOWS: IN THE COMPUTATION OF PROFITS AND GAINS OF ANY BUS INESS OF INSURANCE OTHER THAN LIFE INSURANCE, THE AMOUNT CAR RIED OVER TO A RESERVE FOR UNEXPIRED RISKS INCLUDING ANY AMOUNT CURRIED OVER TO ANY SUCH ADDITIONAL RESERVE WHICH I S TO HE ALLOWED AS A DEDUCTION UNDER CLAUSE (C) OF RULE 5 O F THE FIRST SCHEDULE, SHALL NOT EXCEED- (A) WHERE THE INSURANCE BUSINESS RELATES TO/IRE INS URANCE OR ENGINEERING INSURANCE AND WHICH PROVIDES INSURANCE/ OR TERRORISM RISKS, 100 PER CENT OF THE NET PREMIUM IN COME OF SUCH BUSINESS OF THE PREVIOUS YEAR; FROM A COMBINED READING OF THE ABOVE CITED PROVISIO NS, IT IS QUITE CLEAR THAT AS PER RULE 5, OF SCHEDULE I, READ WITH RULE 6E, THE APPELLANT IS ENTITLED TO CLAIM DEDUCTION FOR AN Y RESERVE FOR UNEXPIRED RISKS AT THE RATE OF 100% ON ACCOUNT OF T ERRORISM. THIS IS ALSO IN KEEPING WITH THE ABOVE CITED IRDA R EGULATIONS 2002. FURTHER I AM ALSO IN AGREEMENT WITH THE APPEL LANT THAT THE A.OS DISCRETION IS LIMITED TO THE ADJUSTMENTS PROVIDED IN RULE 5, TO SCHEDULE 1; OTHER THAN WHICH HE IS LIABL E TO ACCEPT ITA NO. 4287 & 4374/M/2009 ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. 13 THE FIGURES OF PROFIT AS COMPUTED UNDER THE INSURAN CE ACT. IN THE CIRCUMSTANCES, THIS GROUND OF APPEAL IS ALLOWED AND THE A.O IS DIRECTED TO ALLOW URR ON TERRORISM @ OF 100% . 9. IT IS CLEAR FROM FINDINGS OF THE CIT(A) THAT THE UNEXPIRED RISK RESERVE ON TERRORISM CREATED AT 100% OF THE NET PRE MIUM INCOME OF SUCH BUSINESS IS ALLOWABLE IN VIEW OF THE RULE 5 OF SCHEDULE 1 R.W.R. 6E OF THE INCOME TAX RULES. ACCORDINGLY, WE DO NOT FIN D ANY ERROR OR ILLEGALITY IN THE ORDER OF CIT(A) QUA THIS ISSUE WH EN THE ASSESSEE HAS PREPARED ITS ACCOUNT AS PER THE PROVISIONS OF INSUR ANCE ACT AS WELL INSURANCE REGULATIONS. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF SEPTEMBER 2013 SD/- SD/- ( . . ! ) ' #$ (N. K. BILLAIYA) ACCOUNTANT MEMBER ( ) % #$ (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 18 TH SEPTEMBER 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI