ACIT 1(2)(1), MUMBAI V. KOTAK MAHINDRA OLD MUTUAL LIFE INSURNCE LTD, MUMBAI

ITA 5655/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9342 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 17-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANADI VARMA
• Assessee Lawyers: CHETAN KAKKA
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, AN D SHRI N. K. PRADHAN, AM ./ I.T.A. NO. 5655/MUM/2015 ( / ASSESSMENT YEAR: 2012 - 13) ACIT 1(2) - 1, R. NO. 535, 5 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 / VS. M/S. KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. 4 TH FLOOR, VINAY BHAVYA COMPLEX, 159A, CST ROAD, KALINA, SANTACRUZ (E), MUMBAI - 400 098 ./ ./ PA N/GIR NO. AAACO 3983 B ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI ANADI VARMA / RESPONDENT BY : SHRI MADHUR AGRAWAL & SHRI CHETAN KAKKA / DATE OF HEARING : 26.09 .2017 / DATE OF PRONOUNCEMENT : 27 .09.2017 / O R D E R PER MAHAVIR SINGH, JM : THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE ORDER OF CIT(A) - 2 , MUMBAI, IN APPEAL NO. CIT(A) - 2/IT - 235/2014 - 15 DATED 01.09.2015 . THE ASSESSMENT WAS FRAMED BY ACIT - 1(2)(1) , MUMBAI FOR THE A.Y. 20 12 - 13 VIDE HIS ORDER DATED 29 .12.20 14 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961(HEREINAFTER THE ACT). 2 . THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING THE ADDITI ON MADE BY THE A.O. OF INCOME FROM SHAREHOLDERS ACCOUNT OF RS.32.23 CRORES. FOR THIS, THE REVENUE HAS RAISED THE FOLLOWING GROUND NO. 1: 2 ITA NO. 5655/MUM/2015 (A.Y. 2012 - 13) ACIT VS. M/S. KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. ' 1. WHETHER ON THE FACTS AND IN THE CIRC UMSTANCES OF THE CASE AND IN LAW , THE LD. CIT(A) IS CORRECT IN HOLDING THAT THE INCOME FROM SHARE HOLDERS ACCOUNT OF RS. 32.23 CRORES HAS TO BE TREATED ON PAR WITH THE INCOME FROM THE INSURANCE BUSINESS UNDER THE POLICY HOLDERS ACCOUN T TAXABLE U/S 44 OF THE IT. ACT. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THI S ISSUE IS SQUARELY COVERED IN ASSESSEES OWN CASE BY THE TRIBUNALS DECISION S IN ITA NO. 2551/MUM/2010 FOR A. Y. 2007 - 08, IN ITA NO. 2004 & 2233/MUM/2012 FOR A.Y. 2008 - 09 AND ITA NO. 6223/MUM/2014 FOR A.Y. 2011 - 12. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO ITA NO. 6223/MUM/2014 FOR A.Y. 2011 - 12 , VIDE ORDER DATED 20.12.2013 AND RELEVANT PARA 3, WHEREIN THE TRIBUNAL HAS CONSIDERED THAT THE SHAREHOLDERS FUNDS CONSTITUTED AN INTEGRAL AND INDIVISIBLE PART OF ASSESSEE S L IFE I NSURANCE B USINESS AND AS SESSEES SOLE BUSINESS PURPOSE WAS TO CARRY ON LIFE INSURANCE BUSINESS AS PER EXT A NT REGULATIONS AND, HENCE, THESE TWO ACCOUNTS FORMED PART AND PARCEL OF THE ASSESSEES BUSINESS. THE TRIBUNAL IN PARA 3 FOLLOWED EARLIER ORDERS AND OBSERVED AS UNDER: 3. AO NOTED THAT THE ASSESSEE WAS REQUIRED TO PREPARE TWO SEPARATE ACCOUNTS AS PER IRDA REGULATIONS, 2002 - REVENUE ACCOUNT OF THE POLICY HOLDERS (TECHNICAL ACCOUNT) AND PROFIT & LOSS ACCOUNT OF THE SHAREHOLDERS (NON TECHNICAL ACCOUNT). THE SHAREHOLDERS AC COUNT SHOWED A SURPLUS OF RS.21.79 CRORES WHEREAS POLICYHOLDERS ACCOUNT REFLECTED SURPLUS OF RS.79.62 CRORES. AO CONCLUDED THAT THE SURPLUS IN SHAREHOLDERS' ACCOUNT WAS ON ACCOUNT OF CARRYING ON 'BUSINESS ACTIVITY, OTHER THAN LIFE INSURANCE' AND THEREFORE, THE SAME DID NOT FORM PART OF INSURANCE BUSINESS AND HENCE BROUGHT FORWARD DEFICIT (LOSS) IN POLICY HOLDER ACCOUNT COULD NOT BE SET - OFF AGAINST THIS INCOME. THE STAND OF AO WAS ASSAILED BEFORE CIT(A) BY ASSESSEE ON THE GROUND THAT SHAREHOLDERS' FUNDS CONS TITUTED AN INDIVISIBLE PART OF THE ASSESSEE'S LIFE INSURANCE BUSINESS AND THE ASSESSEE'S SOLE BUSINESS PUR POSE WAS TO CARRY ON 'LIFE INSURANCE' BUSINESS AS PER EXTANT REGULATIONS TWO ACCOUNTS FORMED PART AND PARCEL OF ASSESSEE'S BUSINESS. CIT(A) 'THE DECI SIONS OF TRIBUNAL AS WELL AS ITS PREDECESSORS IN EARLIER YEARS CONCLUDED TWO ACCOUNTS COULD NOT BE TAXED SEPARATELY AND ALLOWED THE APPEAL OF THE ASSESSEE, WHICH HAS BEEN ASSAILED BY REVENUE BEFORE US BY RAISING GROUND NO. 1 . THE LD. AR, AT THE OUTSET DREW OUR ATTENTION TO THE FACT THAT CIT(A) CORRECTLY RELIED UPON THE DECISION IN ASSESSEE'S OWN CASE FOR EARLIER YEARS AND THE ISSUE WAS FAIRLY SETTLED IN ASSESSEE'S FAVOR SINCE PAST MANY YEARS, BY MUMBAI TRIBUNAL IN ITA NOS. 2551MUM/2010 ORDER DATED 22/03/201 3 FOR AY 3 ITA NO. 5655/MUM/2015 (A.Y. 2012 - 13) ACIT VS. M/S. KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. 2007 - 08 & ITA NOS. 2004 & 2233/M/2012 ORDER 4ATED 09/04/2015 FOR AY 2008 - 09. THE LD. DR FAIRLY CONCEDED THE POSITION. A PERUSAL OF THE CITED ORDERS OF THE TRIBUNAL VOUCH FOR THE AVERMENTS MADE BY THE LD. AR AND ACCORDINGLY, WE DISMISS THIS GROUND OF APPEAL BY HOLDING THAT BOTH ACCOUNTS CONSTITUTE PART OF LIFE INSURANCE BUSINESS AGAINST WHICH BROUGHT FORWARD DEFICIT COULD BE SET OFF. 4. RESPECTFULLY FOLLOWING THE TRIBUNALS DECISION IN THE ASSESSEES OWN CASE, WE DISMISS THIS GROUND OF REVENUE. 5. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) ALLOWING EXEMPTION U/S. 10(34) OF THE ACT OF DIVIDEND INCOME. FOR THIS, THE REVENUE HAS RAISED FOLLOWING GROUND NO S . 2(A), (B) AND (C): 2. (A) 'WHETHER ON THE FACTS AND IN THE CIRCU MSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED M DIRECTING TO REDUCE DIVIDEND INCOME (CLAIM BY THE ASSESSEE EXEMP T U/S. 10(34) OF THE ACT) FROM INCOME COMPUTED IN ACCORDANCE WITH SCHEDULE 1 R.W.S. 44 OF THE ACT, DESPITE THE FACT THAT INCOME IN SCHEDUL E J IS DETERMINED BY ACTUARY USING MATHEMATICAL FORMULAE AND PRINCIPLES AND DIVIDEND INCOME IS NOT PARTICULARLY INCLUDED IN THESE CALCULATIONS ? (B) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING TO REDUCE DIVIDEND INCOME (CLAIM BY THE ASSESSEE EXEMPT U/S. 10(34) OF THE ACT) FROM INCOME COMPUTED IN ACCORDANCE WITH SCHEDULE 1 R.W.S. 44 OF THE ACT, DESPITE THE FACT THAT INCOME IN SCHEDU LE DETERMINED UNDER NON - OBSTANTE CLAUSE OF SECTION 44 OF THE ACT.' (C) 'WHETHER THE LD. CIT(A) IS CORRECT IN HOLDING THAT THE PROVISIONS OF CHAPTER III OF THE LT, ACT PERTAINING TO EXEMPT INCOME AS PER SECTION 10 WAS AVAILABLE TO THE ASSESSEE DESPITE THE FACT THAT THE COMPUTATION OF TAXABLE INCOME OF THE ASSESSEE (LIFE I NSURANCE COMPANY) WAS GOVERNED BY NON - OBSTANTE PROVISION OF SECTION 44 OF THE IT. ACT WHICH INCLUDED EVEN DIVIDEND INCOME UNDER THE HEAD INCOME FROM OTHER SOURCE TO BE DEALT AS PER RULES CONTAINED IN THE FIRST SCHEDULE OF THE I.T. ACT ? 6. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT TH IS ISSUE IS COVERED IN ASSESSEES OWN CASE IN ITA NO. 6223/MUM/2014 FOR A.Y. 2011 - 12 VIDE ORDER DATED 20.12.2013 . HE DREW OUR ATTENTION TO RELEVANT PARA 4, WHEREIN THE TRIBUNAL HAD FOLLOWED EARLIER ORDERS AND OBSERVED AS UNDER: 4 ITA NO. 5655/MUM/2015 (A.Y. 2012 - 13) ACIT VS. M/S. KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. 4. THE ASSESSEE EARNED DIVIDEND OF RS, 39.85 CRORES FROM SHARES OF DOMESTIC COMPANIES AND CLAIMED THE SAME AS EXEMPT U/S 10(34). THE SAME WERE SOUGHT TO BE TAXED BY AO ON THE GROUND THAT THE PROVISIONS OF SECTION 44 IN RELATION TO COMPUTATION OF PROFITS & GAINS OF BUSINESS OF INSURANCE DID NOT EXCLUDE INCOME OTHERWISE EXEMPT U/S 10(34) OF THE ACT. BEFORE CJT(A), THE ASSESSEE CONTENDED THAT THE DIVIDEND HAD ALREADY SUFFERED DIVIDEND DISTRIBUTION TAX U/S 115 - O OF THE ACT AND THEREFORE , COMPLETELY EXEMPT U/S 10(34). FURTHER, SECTION 44 DID NOT OVERRIDE THE PROVISIONS OF SECTION 10(34) AND HENCE THE DIVIDEND SHOULD BE CONSIDERED AS EXEMPT INCOME. THE ISSUE WAS ALLOWED IN FAVOR OF ASSESSEE BY CIT(A) BY RELYING UPON ASSESSEE'S OWN CASE FOR EARLIER YEARS AND VARIOUS JUDICIAL PRONOUNCEMENTS, WHICH HAS BEEN ASSAILED BEFORE US BY WAY OF GROUND NOS. 2, 3 4. THE LD. AR DREW OUR ATTENTION TO DECISION OF MUMBAI TRIBUNAL IN ITA NOS 290 L/MUM/2010 ORDER DATED 30/09/2011 & ITA NOS. 2004 & 2I33/M/12, O RDER DATE 09/04/2015 FOR AY 2007 - 08 & 2008 - 09 RESPECTIVELY. WE HEREBY EXTRACT BELOW T RIBUNAL' S CONCLUSION IN ITA NO. 2901/M/2010: - 'SECTION 44 PROVIDES THAT COM PUTATION OF INCOME OF INSURANCE COMPANIES UNDER VARIOUS HEADS SHOULD BE AS PER THE FIRST SCHED ULE. BUT WHAT WE ARE CONSIDERING HERE IS AN INCOME FALLING UNDER CHAPTER III WHICH IS TO BE EXCLUDED FROM TOTAL INCOME. WE ARE OF THE OPINION THAT UNDER THE SCHEME OF THE ACT , INCOME FALLING WITHIN THE VARIOUS CLAUSES OF SEC . 10 OF THE ACT IS TO BE COMPULS ORILY EXCLUDED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE AND THE PROVISIONS OF SEC. 44 IN RELATION TO COMPUTATION OF PROFITS AND GAINS OF BUSINESS OF INSURANCE DO NOT INCLUDE INCOMES OTHERWISE EXEMPT U/S 10(34) . THEREFORE, THE DIVIDEND INCOME OF RS.6,7 8,13,292 IS TREATED AS EXEMPT U/S 10(34) OF THE ACT HAS TO BE EXCLUDED FROM THE COMPUTATION OF TOTAL INCOME OF THE ASSESSEE.' SIMILAR VIEW HAS BEEN EXPRESSED IN OTHER PRO NOUNCEMENTS CITED BY LD. AR. HENCE, THERE BEING NO. CHANGE IN FACTS OR CIRCUMSTANCES , WE ARE INCLINED TO FOLLOW THE SAME AND DISMISS ALL THE THREE GROUNDS OF REVENUE'S APPEAL. 7. WE FIND THAT THE TRIBUNAL CONSISTENTLY I S HOLDING THAT THE ASSESSEE HAS ALREADY SUFFERED DIVIDED DISTRIBUTION TAX U/S. 115O OF THE ACT AND, THEREFORE, IT IS EX EMPT U/S. 10(34) OF THE ACT. 8. WE, IN VIEW O F T H E ABOVE, DISMISS TH IS GROUND OF THE REVENUES APPEAL. 5 ITA NO. 5655/MUM/2015 (A.Y. 2012 - 13) ACIT VS. M/S. KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. 9. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE U/S. 14A R/W RULE 8D OF THE RULES. FOR THIS, T HE REVENUE HAS RAISED FOLLOWING GROUND NO. 3: 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS CORRECT IN DELETING THE DISALLOWANCE U/S. 14A OF THE ACT MADE BY THE ASSESSING OFFICER IN ACCORDANCE WITH THE RULE 3D?' 10. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSUE IS COVERED IN ASSESSEES OWN CASE IN ITA NO. 6223/MUM/2014 FOR A.Y. 2011 - 12 VIDE ORDER DATED 20.12.2013. THE LD. COUNSEL FOR THE ASSESSEE FINALLY DREW OUR ATTENTION TO PARA 5 , WHE REIN THE TRIBUNAL FOLLOWING THE EARLIER ORDERS STATED THAT NO DISALLOWANCE IS TO BE MADE IN INSURANCE COMPANIES WHICH ARE COVERED BY SPECIAL PROVISION S OF SECTION 44 OF THE ACT. THE TRIBUNAL IN PARA 5 HELD AS UNDER: 5. AS ASSESSEE EARNED EXEMPT DIVIDEND IN COME, IT SUFFERED SECTION 14A DISALLOWANCE FOR AN AMOUNT OF RS.14.94 CRORES BUT CIT(A) FOLLOWING EARLIER ORDERS OF VARIOUS AUTHORITIES IN ASSESSEE'S OWN CASE FOR PAST SEVERAL YEARS, DELETED THE SAME. OUR ATTENTION IS DRAWN TO ; TRIBUNAL'S ORDER IN ASSESSEE' S OWN CASE IN ITA NO. 2901/M/10 ORDER DATED 30/09/2011 FO R AY 2007 - 08 & ITA NOS. 2004 & 2233/M/12 ORDER DATED 09/04/2015 WHEREIN IT HAS BEE N SETTLED THAT SECTION 14A DISALLOWANCE DO NOT APPLY TO INSURANCE COMPANIES WHICH ARE COVERED BY SPECIAL PROVISIONS O F SECTION 44 AND HENCE, BY TAKING SAME VIEW, WE DIS MISS GROUND NO. 5 OF REVENUE'S APPEAL. 11. TAKING A CONSISTENT VIEW, WE DISMISS THIS APPEAL OF THE REVENUE. 12. IN THE RESULT, THE R EVENUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON SEPTEMBER 27 , 201 7 SD/ - SD/ - (N. K. PRADHAN ) (MAHAVIR SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 27 . 0 9 .201 7 6 ITA NO. 5655/MUM/2015 (A.Y. 2012 - 13) ACIT VS. M/S. KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI