DCIT 9(3)(2), MUMBAI V. FUTURE GENERALI INDIA LIFE INSURANCE CO.LTD, MUMBAI

ITA 4373/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7678 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 16-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA
• Keywords: Capital asset; Question of law; Revised return
• Section: 143(3); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 4373/MUM/2015 ASSESSMENT YEAR: 2011-12 DCIT 9(3)(2) VS. M/S. FUTURE GENERALI INDIA LIF E 2 ND FLOOR, AAYAKAR BHAVAN INSURANCE CO. LTD. M.K. ROAD, KNOWLEDGE HOUSE, GR. FLOOR, OFF MUMBAI 400020 JOGESHWARI VIKHROLI LINK ROAD, SHYAM NAGAR, MUMBAI 400060 PAN NO. AABCF0190Q (APPELLANT) (RESPONDENT) REVENUE BY: MS. S. PADMAJA, DR ASSESSEE BY : MR. VIPUL JOSHI, AR DATE OF HEARING : 30/0 3/2017 DATE OF PRONOUNCEMENT: 30/03/2017 ORDER PER BENCH THIS IS AN APPEAL FILED BY THE REVENUE. THE RELEVAN T ASSESSMENT YEAR IS 2011-12. THE APPEAL IS DIRECTED AGAINST THE ORDE R OF THE COMMISSIONER (APPEALS) 16, MUMBAI AND ARISES OUT OF ASSESSMENT MADE U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE REVENUE READ AS UNDER:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE TRIBUNAL WAS CORRECT IN CONCLUDING THAT TRANSFER FRO M SHARE HOLDERS ACCOUNT TO POLICY HOLDERS ACCOUNT AND SHOWN AS PART OF SURPLUS IN THE ACTUARIAL VALUATION WAS ONLY TRANSFER OF CAPITAL ASSET AND NOT TAXABLE U/S44 OF THE ACT READ WITH RULE 2 OF THE FIRST SCHED ULE. ITA NO. 4373/MUM/2015 2 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE HON'BLE TRIBUNAL WAS CORRECT IN ALLOWING THE RELIEF TO THE ASSESSEE BY HOLDING THAT SURPLUS AVAILABLE BOTH IN POLICY HOL DERS ACCOUNT AND SHARE HOLDERS ACCOUNT IS TO BE CONSOLIDATED AND ONLY NET SU RPLUS IS TO BE TAXED AS INCOME FROM INSURANCE BUSINESS. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE ITAT IS JUSTIFIED IN RESTORING TO ASSESSING OFFICER THE ISSUE OF TAXING INCOME OF ASSESSEE ARISING FROM ACTIVITY UNCONNECTED WITH I NSURANCE BUSINESS (CONSEQUENT SET OFF LOSS) WITHOUT ASSIGNING ANY REA SONS WHATSOEVER. 4. WHETHER ION THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE ITAT OUGHT TO HAVE HELD THE INCOME OF ASSESSEE ARISI NG FROM ACTIVITY UNCONNECTED WITH INSURANCE BUSINESS IS TAXABLE UNDER NORMAL PROVISION OF THE ACT TO THE EXCLUSION OF SECTION 44 OF THE INCOM E TAX ACT READ WITH SCHEDULE THERETO? 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, SECTION 10 OF I.T. ACT IS APPLICABLE TO INSURANCE B USINESS WHEN TOTAL INCOME OF INSURANCE ACTIVITY IS GOVERNED AND COMPUTED UNDER SC HEDULE 1 OF THE I.T. ACT INDEPENDENT OF VARIOUS COMPUTATIONAL PROVIS IONS AS PRESCRIBED U/S 44 OF THE ACT? 6. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, INCOME SPECIFIED TO BE EXEMPT U/S 10 CAN BE REDUCED FR OM INCOME OF INSURANCE BUSINESS CHARGEABLE TO TAX U/S 44 OF THE ACT READ WITH SCHEDULE 1 PARTICULARLY WHEN THE SECTION OF THE ACT HAVE TO BE GIVEN EFFECT TO IN SERIATIM, UNLESS SPECIFIED OTHERWISE AND CONSEQUENTLY HAVING ONCE COMPUTED INCOME U/S 44 PROCEDURALLY, ONE HAS TO MOV E AHEAD TO COMPUTE TOTAL INCOME AND NOT GO BACK TO SECTION 10 OF THE AC T. 7. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE ITAT IS JUSTIFIED IN NOT CONFIRMING THE ADDITION MADE B Y THE AO ON ACCOUNT OF NEGATIVE RESERVE IGNORED IN CALCULATION OF LIABI LITY TO ARRIVE AT ACTUARIAL SURPLUS? 3. BRIEFLY STATED, THE FACTS ARE THAT M/S. FUTURE GENE RALI INDIA LIFE INSURANCE CO. LTD. (FGILIC) FILED ITS RETURN OF INC OME FOR THE A.Y. 2011-12 ON 30.09.2011 DISCLOSING TOTAL LOSS OF RS. 300,45,37,4 30. SUBSEQUENTLY, IT FILED A REVISED RETURN OF INCOME ON 30.03.2012 DISCLOSING T OTAL LOSS OF RS. 320,16,20,117 FOLLOWING THE JUDGEMENT OF THE HON'BL E BOMBAY HIGH COURT IN THE CASE OF CIT VS. LIFE INSURANCE CORPORATION OF INDIA LTD . 338 ITR 212 (2011) IN RESPECT OF LOSS FROM PENSION BUSINESS U/S 10(23AAB) OF THE ACT. ITA NO. 4373/MUM/2015 3 FGLIC IS A COMPANY REGISTERED UNDER THE COMPANIES A CT, 1956 AND HAS OBTAINED LICENSE TO UNDERTAKE THE BUSINESS OF LIFE INSURANCE FROM INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA). FGILIC MAINTAINS ITS REGULAR BOOK OF ACCOUNTS IN ACCORDANCE WITH THE DIR ECTIONS ISSUED BY IRDA WHICH MANDATE PREPARATION OF POLICYHOLDERS ACCOUNT (CALLED REVENUE ACCOUNT) AND SHAREHOLDERS ACCOUNT (CALLED P&L A/C) SEPARATELY AND BALANCE SHEET FOR THE COMPANY AS A WHOLE. THE ASSES SING OFFICER (AO), WHILE MAKING AN ASSESSMENT U/S 143(3) OF THE ACT HAS MADE AN ADDITION OF RS. 5,83,46,630/- REPRESENTING THE SURPLUS AS DISCLOSED IN FORM 1. THE AO ALSO DISALLOWED THE CLAIM OF FGLIC OF RS. 19,70,82, 716/- ON ACCOUNT OF LOSS FROM PENSION BUSINESS. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE COMPANY FILED AN APPEAL BEFORE THE LEARNED CIT(A). WE FIND THAT THE LEARNED CIT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN THE CASE O F (I) ICICI PRUDENTIAL INSURANCE COMPANY LTD. VS. ASST. CIT (ITA NO. 6854/55/5659/MUMBAI/2010) & (ITA NO. 7765/66/6/MUMB AI/2010), (II) SBI LIFE INSURANCE COMPANY LTD. VS. JCIT (ITA NO. 3800 TO 3801, 1501,5670/MUM/2009 & ITA NO. 4139/MUM/2008,3346, 5759/MUM/2009 DATED 23 RD MAY, 2014) AND HELD THAT THE WORKING OF ACTUARIAL SURPLUS / DEFICIT IS IN ACCORDANCE WITH T HE RELEVANT REGULATIONS AS PER IRDA GUIDELINES AND THE LOSS DISCLOSED IN THE C OMPUTATION OF INCOME IS ACCORDING TO THE CORRESPONDING PROVISIONS OF SECTIO N 44 READ WITH RULE 2 OF THE FIRST SCHEDULE OF THE ACT. THEREFORE, THE LEARN ED CIT(A) DIRECTED THE AO TO DELETE THE ADDITION OF RS. 583,46,630/- ON ACCOU NT OF ACTUARIAL SURPLUS. IN RESPECT OF THE DISALLOWANCE OF CLAIM OF RS. 19,7 0,82,716/- MADE BY FGILIC, THE LEARNED CIT(A) FOLLOWED THE JUDGEMENT O F THE HON'BLE BOMBAY ITA NO. 4373/MUM/2015 4 HIGH COURT IN LIFE INSURANCE CORPORATION OF INDIA LTD. (SUPRA) WHEREIN IT IS HELD: THE FACT THAT INCOME FROM SUCH FUND HAS BEEN EXEMP TED UNDER SECTION 10(23AAB) WITH EFFECT FROM 1 ST APRIL, 1997 DOES NOT MEAN THAT PENSION FUND CEASES TO BE INSURANCE BUSINESS SO AS TO FALL OUTSIDE THE PURVIEW OF INSURANCE BUSINESS COVERED UNDER SECTION 44 OF THE INCOME TAX ACT, 1961. IN OTH ER WORDS, THE PENSION FUND LIKE JEEVAN SURAKSHA FUND WOULD CONTINUE TO BE GOVERNED BY THE PROVISIONS OF SECTION 44 OF THE INCOME TAX ACT, 1961 IRRESPECTIVE OF THE FACT THAT THE INCOME FROM SUCH FUND ARE EXEMPTED OR NOT. THEREFORE, WHILE DETERMINING THE SURPLUS FROM INSURANCE BUSINESS THE ACTUARY WAS JUSTIFIED IN TAKING INTO CO NSIDERATION THE LOSS INCURRED UNDER JEEVAN SURAKSHA FUND. THE LEARNED CIT(A) FOLLOWED THE ABOVE JUDGEMENT AND HELD THAT LOSS IN PENSION FUND IS ALLOWED TO BE ADJUSTED AGAINST T HE SURPLUS AMOUNT FROM INSURANCE BUSINESS. THUS THE LEARNED CIT(A) ALLOWE D THE APPEAL FILED BY FGILIC. 5. BEFORE US, THE LEARNED DR RELIES ON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL OF THE ASSESSEE RELIES ON (I) THE ORDER OF THE LEARNED CIT(A), (II) THE JUDGEMENT OF THE HON'BLE B OMBAY HIGH COURT IN CIT VS. ICICI PRUDENTIAL INSURANCE CO. LTD. (2016) 73 TAXMANN.COM 201 (BOM) AND LIFE INSURANCE CORPORATION OF INDIA LTD. (SUPRA) . 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE BEGIN WITH 1 ST , 2 ND & 3 RD GROUND OF APPEAL AS THEY ADDRESS A COMMON ISSUE. WE FIND THAT THE HON'BLE BO MBAY HIGH COURT IN THE CASE OF ICICI PRUDENTIAL INSURANCE CO. LTD. (SUPRA) HAS HELD THAT WHERE ASSESSEE WAS CARRYING ON LIFE INSURANCE BUSINESS AN D TRIBUNAL FOLLOWING A DECISION OF SUPREME COURT, WHILE DETERMINING ASSESS EES INCOME UNDER SECTION 44, HAD TAKEN INTO CONSIDERATION TOTAL SURP LUS AS ARRIVED AT BY ACTUARIAL VALUATION AND FURTHER HELD THAT INCOME FR OM SHAREHOLDERS ACCOUNT WAS ALSO TO BE TAXED AS A PART OF LIFE INSURANCE BU SINESS, THERE WAS NO SUBSTANTIAL QUESTION OF LAW ARISING FOR CONSIDERATI ON. REFERENCE WAS MADE ITA NO. 4373/MUM/2015 5 TO THE DECISION IN LIC OF INDIA VS. CIT (1964) 51 ITR 773, WHEREIN THE HON'BLE SUPREME COURT HAS HELD THAT THE ASSESSING O FFICER HAS NO POWER TO MODIFY THE ACCOUNT AFTER ACTUARIAL VALUATION IS DON E. THE ISSUES IN 1 ST , 2 ND & 3 RD GROUND OF APPEAL IN THE INSTANT CASE ARE SQUARELY COVERED BY THE ABOVE JUDGEMENT. RESPECTFUL LY FOLLOWING THE SAME, WE DISMISS 1 ST , 2 ND & 3 RD GROUND OF APPEAL FILED BY THE REVENUE. 6.1 NOW WE TURN TO 4 TH , 5 TH, 6 TH AND 7 TH GROUND OF APPEAL AS THEY ADDRESS A COMMON ISSUE. IN THE CASE OF LIFE INSURANCE CORPORATION OF INDIA LTD. (SUPRA), THE ASSESSEE WAS ENGAGED IN THE LIFE INSURANCE BUSI NESS. IN ITS RETURN OF INCOME FOR THE A.Y. 2002-03, IT COMPUTED ACTUARIAL VALUATION SURPLUS BY EXCLUDING THE PROVISION FOR RESERVE ON ACCOUNT OF S OLVENCY MARGIN AMOUNTING TO RS. 3,500 CRORES AND LOSS IN JEEVAN SU RAKSHA FUND. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE AND PASSED THE ASSESSMENT ORDER BY ADDING THE AMOUNT ON ACCOUNT OF THE PROVISION FOR S OLVENCY MARGIN AND LOSS FROM JEEVAN SURAKSHA FUND, INTER ALIA , ON THE GROUND THAT THE PROVISION FOR SOLVENCY MARGIN WAS NOT AN ASCERTAINED LIABILITY AN D THAT INCOME FROM JEEVAN SURAKSHA FUND BEING EXEMPT U/S 10(23AAB), TH E LOSS INCURRED FROM THE SAID FUND COULD NOT BE ADJUSTED AGAINST THE TAX ABLE INCOME. ON APPEAL, THE COMMISSIONER (APPEALS) CONFIRMED THE ADDITIONS MADE BY THE AO. ON SECOND APPEAL, THE TRIBUNAL DELETED THE SAID ADDITI ON. THE REVENUE FILED APPEAL AGAINST THE ORDER OF THE TRIBUNAL BEFORE THE HIGH COURT. THE HON'BLE HIGH COURT HELD THAT (I) AMOUNT SET APART BY INSURA NCE COMPANY TOWARDS SOLVENCY MARGIN AS PER THE DIRECTION GIVEN BY IRDA IS TO BE EXCLUDED WHILE COMPUTING ACTUARIAL VALUATION SURPLUS, AND (II) PEN SION FUND LIKE JEEVAN SURAKSHA FUND WOULD CONTINUE TO BE GOVERNED BY PROV ISIONS OF SECTION 44 IRRESPECTIVE OF THE FACT THAT INCOME FROM SUCH FUND IS EXEMPTED, OR NOT AND, THEREFORE, EVEN AFTER INSERTION OF SECTION 10(23AAB ), LOSS INCURRED FROM PENSION FUND LIKE JEEVAN SURAKSHA FUND HAS TO BE EX CLUDED WHILE ITA NO. 4373/MUM/2015 6 DETERMINING ACTUARIAL VALUATION SURPLUS FROM INSURA NCE BUSINESS U/S 44 OF THE ACT. WE FIND THAT THE ISSUES IN THE ABOVE GROUNDS OF AP PEAL ARE SQUARELY COVERED BY THE ABOVE JUDGEMENT OF THE HON'BLE BOMBA Y HIGH COURT. WE FOLLOW THE JUDGEMENT AND DISMISS 4 TH , 5 TH, 6 TH AND 7 TH GROUND OF APPEAL FILED BY THE REVENUE. 7. IN THE RESULT, WE UPHOLD THE ORDER OF THE L EARNED CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 30/03/2017 SD/- SD/- (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI: DATED: 30/03/2017 BISWAJIT, SR. P.S. 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 . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI