DCIT- CC - 1 (1), MUMBAI V. EDELWEISS TOKIO LIFE INSURANCE LTD., MUMBAI

ITA 6270/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4364 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 01-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT PRATAP SINGHLD
• Assessee Lawyers: JITENDRA JAIN LD
• Section: 143(3); 14A; 13; 22; 10

Judgement Text

ITA NO. 6270 /MUM/2018 M/S. EDELWEISS TOKIO LIFE INSURANCE LTD. ASSESSMENT YEAR :20 12 - 13 1 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, VP AND HONBLE SHRI MANOJ KUMA R AGGARWAL, AM (HEARING THROUGH VIDEO CONFER ENCING MODE) ./ I.T.A. NO. 6270 / MUM/ 2018 ( / ASSESSMENT YEAR : 2012 - 13 ) D CIT CENTRAL CIRCLE - 1(1) ROOM NO.903, 9 TH FLOOR OLD CGO (ANNEXE) M.K. ROAD , MUMBAI - 400 020. / VS. M/S. EDELWEISS TOKIO LIFE INS URANCE LTD. 4 TH FLOOR, EDEL WEISS HOUSE OFF C S T ROAD , KALINA SANTACRUZ (EAST) , MUMBAI - 400 098. ./ ./ PAN/GIR NO . AAACE - 2709 - H ( / APPELLANT ) : ( / RESPONDENT ) ASSESSEE BY : SHRI JITENDRA JAIN - LD.AR REV ENUE BY : SHRI AMIT PRATAP SINGH - LD. D R / DATE OF HEARING : 07/10/2020 / DATE OF PRONOUNCEMENT : 22/10/2020 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO A S AY] 20 12 - 13 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME - TAX (APPEALS) - 8 , MUMBAI, [IN SHORT REFERRED TO AS CIT(A)], APPEAL NO. CIT(A) - 8 /IT - 217 /2016 - 17 DATED 2 0 / 08 /201 8 ON FOLLOWING GROUNDS: - 1. 'WHETHER ON FA CTS AND CIRCU MSTANCE OF THE CASE AN D IN LAW, THE LD. CIT ( A), IS CORRECT IN ALLOWING EXEMPTIONS U/S. 10 ( 34) OF THE INCOME TAX ACT, 1961, AMOUNTING TO RS. 17,92,987 / - ON ACCOUNT OF DIVIDEND INCOME WHICH WAS DENIED BY THE ASSESSING OFFICER ON THE BASIS THE FETTERS PRESCRIB ED IN SECT ION 44 OF THE INCOME ITA NO. 6270 /MUM/2018 M/S. EDELWEISS TOKIO LIFE INSURANCE LTD. ASSESSMENT YEAR :20 12 - 13 2 TAX ACT, 1961 AND C IT ( A) IGNORING THE FACTS THAT THE REVENUE WAS CONTESTING THE CASE OF D CIT V/S. IDBL FEDERAL LIFE INSURANCE COMPANY LTD ( ITA 6282/MUM/2012) AND ACIT 1 ( 2) (1) , MUMBAI V/S. KOTAK MAHINDRA OLD MUTUAL LIFE INSUR ANCE LIMIT ED ( ITA 565 5/MUM/2015) IN BOMBAY HIGH COU RT. 2. WHETHER ON FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT ( A), IS CORRECT IN DELETING THE DISALLOWANCE U/S. 14 A OF THE INCOME TAX ACT, 1961, AMOUNTING TO RS. 39,388/ - , WHICH WAS MADE BY THE ASSES SING OF FICER ON THE BASIS THE FETTER PRES CRIBED IN SECTION 44 OF THE INCOME TAX ACT, 1961. 3. WHETHER ON FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT ( A), IS CORRECT IN DELETING THE ADDITION ON ACCOUNT OF NEGATIVE RESERVES AMOUNTIN G TO RS. 8, 41,35 ,000/ - , WHICH WAS MADE BY THE ASSESS ING OFFICER, AND CIT ( A) WITHOUT APPRECIATING THE PROVISION OF INSURANCE ACT, 1938 AND IRDA REGULATIONS & IGNORING THE FACT THAT REVENUE WAS CONTESTING THE CASE D CIT V/S. IDBI AND LIC OF INDIA V/S. A DDL.CIT (ITA/622/M UM/20 12) ( CIVIL APPEAL NO. 11278) IN BOMB AY HIGH COURT.' 2. THE LD. AUTHORI Z ED REPRESENTATIVE FOR ASSESSEE ( AR ), SHRI JITENDRA J A IN, DRAWING ATTENTION TO THE GROUNDS OF APPEAL, SUBMITTED THAT TH E ISSUES STOOD COVERED IN ASSESSEE S FAVO R BY FOL L OWING BIND ING JUDICIAL PRE CE DENTS: - I) PR. CIT VS . ICICI PRUDENTIAL LIFE INSURANCE CO. LTD. [2019] 415 ITR 389 DATED 03/07/2018 . II) LIFE INSURANCE CORPORATION OF INDIA VS. ADDL. CIT, (M UMBAI TRIBUNAL, I T A NO. 6221/MUM/2012 ORDER DA TED 03/04/2013. III) A CIT VS. KO TAK MAHINDRA OLD MUTUAL LIFE INSURANCE LT D. (MUMBAI TRIBUNAL ITA NO. 5655/MUM/2015 DATED 27/09/ 2017. TH E COPIES OF THE DECISIONS HAVE BEEN PLACED ON REC ORD. OUR AT TENTION HAS BEEN DRAWN TO THE FACT THAT LD. CIT(A) HAS FOLLOWE D THE SAME AND THERE FORE, TH E IMPU GNED ORDER WOULD NOT REQUIRE ANY INTE RFER ENCE ON OUR P ART. THE LD. DR , SH RI A M IT PRATA P S I NGH, ON THE OTHER HAND , SUBMITTED THAT THE ISSUES HAVE NOT ATTAINED FINALITY AND REVENUE IS CONTESTING THE SAME BEFORE HIGHER JUDICIAL AUTHORITIES . HOWE V ER, NO CO NTRA RY DECISION HAS BEEN PLACED ON RECORD . IN THE ABOVE BACKGROUND , OUR ADJUDICATION TO THE SUBJECT MA TTER OF APPEAL WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. ITA NO. 6270 /MUM/2018 M/S. EDELWEISS TOKIO LIFE INSURANCE LTD. ASSESSMENT YEAR :20 12 - 13 3 DIVID EN D INCOME & DISALLOWANCE U /S 14A 3.1 T HE ASSESSEE B EING R ESIDENT CORPORATE ASSE SSEE IS ST ATE D TO BE ENGAGED IN THE BUSINESS OF LIF E INSURANCE . AN ASSESSM ENT WAS FRAMED FOR THE YEAR UNDER CONSIDERATION U/S. 143(3) ON 31/03/2016, WHEREIN THE RETURNED LOSS OF RS.1575.40 LACS WAS REDUCED TO RS.716 .12 L ACS AFTE R CERTAIN ADDITIONS / DISALL OWANCES. 3.2 DU R ING ASSESSMENT PROCEEDINGS, I T TRANSPIRED THAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS.1 7.92 LACS AND CLAIMED THE SAME TO BE EXEMPT U/S.10(34). HOWEVER, THE LD. ASSESSING OFFICER OPINED THAT SINCE THE I NCOME IN C ASE OF INSURANCE BUSINES S WAS TO B E COMPU TED IN TERMS OF PROVISIONS OF SEC TION 44 , WHICH STARTS WITH NON - OBSTANTE CLAUSE , AND THEREFORE , D IVIDEND INCOME AS OFFERED UNDER THE HEAD INCOME FROM OTHER SOURCES C OULD NOT BE TAKEN AS SEPARATE FROM PROFIT AND GAIN S OF INSURANCE BUSINESS. HENCE, DI VIDEND INCOME WHICH FALLS UNDER THE HEAD INCOME FROM OTHER SOURCES C OU LD N OT BE COMPUTED SEPARATELY TO CLAIM EXEMPTIO N U/S. 10(34) AS IT WOULD VIOLATE THE PROVISIONS OF SEC.44. F URTHER, LIFE INSURANCE COMPANY NORMALLY ACCE PTS PREMIUM FROM POLICY H OLDERS AND INVEST S THE SAME BY WAY OF LOANS, DEPOSITS, BONDS, SHARES ETC. THE INCOME SO RECEIVED FROM THESE INVESTMENTS WOULD BE NOTHING BUT INCOME FROM NORMAL BUSINESS AND WAS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR P ROFESSION. THEREFORE, TH E EXEMPTIO N U/S. 10( 34) WAS IN CONTRADICTION WITH NON - OBSTANTE PROVISIONS OF S ECTION 44 AND THEREFORE, TH E SAME WOULD NOT BE ALLOWABLE TO THE ASSESSEE. IN THE ALTERNATIVE, LD. AO PROPOSED INDIRECT EXPENSE DISALLOWANCE U/S 14A ITA NO. 6270 /MUM/2018 M/S. EDELWEISS TOKIO LIFE INSURANCE LTD. ASSESSMENT YEAR :20 12 - 13 4 R. W.R. 8D(2)(III) , BEING 0.5% OF AVERAGE IN VESTMENTS WHICH WO RK ED OU T TO BE RS. 39,388/ - . 3.3 UPON FURTHER APPEAL, LD. CIT(A), RELYING UPON THE CITED ORDER OF MUMBAI TRIBUNAL IN LIFE INSURANCE CORPORATION OF INDIA VS. ADDL. CIT (SUPRA) HELD THAT TAXING THE DI VIDEND INCOME WOULD BE UN JUS TIFIED AND WO ULD RUN C ONTRARY TO THE PROVISIONS OF THE ACT. SIMILAR WAS THE RA TIO OF FOLLOWING DEC ISIONS: - (I) DCIT V /S IDBI FEDERAL LI FE INSURANCE COMPANY LTD. (ITA 6 282/MUM/2012) (II) GENERAL I NSURANCE COMPANY LTD. V/S DCIT ( 342 ITR 27 B OM ) (III) CIT V/ S NEW INDI A A SSURANCE COMPANY LTD. (71 ITR 761 BOM) (IV) LIFE INSURANCE CORPORA TION O F INDIA LTD. V/S CIT (115 ITR 45 BOM) THEREFORE , THE ACTI ON OF LD. AO IN TAXING THE DIVID EN D INCOME WAS REVERSED. 3.4 THE ALTERNATIVE DISALLO WANCE U/S 14A , AS PROPOS ED B Y LD. AO W AS DELETED BY OBSERVING THAT THE PROVISIONS OF SEC.14A W OULD NOT APPLY IN CASE OF INSURANCE COMPANIES AS HELD IN FOLLOWING JUDICIAL DECISIONS: - (I) A CIT V /S KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. (ITA NO. 5655/MUM/2015) (II) ACIT V/S IC ICI PRUDEN TIAL INSURANCE CO. L TD. (ITA N O S. 7765 - 7767/M/2010) (III) ACIT V/S ICICI PRUDENTIAL INSURANCE CO. LTD. (ITA N O . 5529 /M/201 3 ) AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. UP ON DUE CONSIDERATION, IT IS QUITE EVIDENT THAT LD . CIT(A) HA S RELIED U P ON HOST OF BINDING DECISIONS TO ARRIVE AT THE CONCLUSION THAT EXEMPTION U/S 10(34) WITH RESPECT TO DIVIDEND INCOME WOULD BE AVAILABLE TO THE ASSESSEE AND FURTHER , THE PROVISIONS OF SEC. 14A WOULD NOT APPLY TO INSURANCE COMPANY. N O CON TRA RY DECIS ION HAS BE EN PLACED BEFORE US . THE HON BLE BOMBAY HIGH C O URT IN THE CASE OF PR. CIT V/S ICICI ITA NO. 6270 /MUM/2018 M/S. EDELWEISS TOKIO LIFE INSURANCE LTD. ASSESSMENT YEAR :20 12 - 13 5 PRUDENTIAL LIFE INSURANCE CO. LTD . FOR AYS 2010 - 11 & 2011 - 12 (ITA NOS.1305 & 1306 OF 2015 DATED 03/07/2018) REFUSED TO ADMIT T HE GROUND RAISED BY REVENUE QUA ALLO WABILI TY O F DIVIDEND INCOME EXEMPTION U/S 10(34 ) WHEREIN VIDE PARA - 4, IT WAS NOTED THAT REVENUE HAD RAISED SIMI LAR GROUNDS FOR AY S 2006 - 07 & 200 8 - 09 BUT THE SAME WAS NOT ADMITTED VIDE ITA NOS. 711 OF 2013 & 688 OF 2013 ORDER DATED 20/07/2015 AND THEREFORE, F ACTS BE IN G SIMILAR, SAME VIEW WAS TO BE TAKEN IN THE MATTE R. RE SPECTFULLY FOLLOWING THE SAME , WE WOULD HOLD THAT THE EXEMPTION U/S 10(34) COULD NOT BE DENIED TO THE ASS ESSEE. FURTHER , AS HELD IN THE CITED DECISIONS, THE PROVI SIONS OF SEC.14A WOULD NOT APP LY TO IN SU RANCE COMPANY. GROUND , THUS, RAISED, S T ANDS DISMISSED . ADJUSTMENT OF NEGATIVE RESE R VES 5.1 THIS ISSUE A RISES D UE TO NEGATIVE RESERVES. UPON PERUSAL OF A CTUARIAL R EPORT IN F O R M - 1, IT WAS O BSERVED THAT ACTUARIAL VALUATION WAS ARRIVED AT BY IGNORIN G THE NE GA TIVE RESERVES OF RS.841.35 LACS. WHILE MAKING ACTUARIAL VALUATION, REQUIREMENT OF RESERVE TO SERVICE THE INSURA NCE POL ICIES ISSUED BY THE C OMPANY WAS TO BE ASCERTAINED. SUCH RESERVE (CALLED MATHEMATICAL RESERVE OR VAL UE OF LIA BILITY) WOULD BE EQU AL TO PR ES ENT VALUE OF FUTURE BENEFITS PAYABLE & FUTURE E XPENSES TO BE INCURRED LESS PRESENT V ALUE OF FUTURE PREMIUM PAYABLE. WHE N THE PRESENT VALUE OF FUTURE PREMIUM IS M ORE THAN THE PRESENT VALUE OF FUTURE BENEFIT S & FUTURE EXPENSES , THIS AMOUNT BECOMES NEGATIVE W HICH I S KNOWN AS NEGATIVE RESERVES . I N SIMPLE W ORDS, IT WOULD MEAN THAT THE INSURANCE CONT R ACT UNDER CONSIDERATION WOUL D NOT WARRANT ANY PROVISION AND IS, IN FACT, AN ASSET . HOWE VER, FOLLOWING IRDA GUIDELINES, IN SURERS MAY NOT ITA NO. 6270 /MUM/2018 M/S. EDELWEISS TOKIO LIFE INSURANCE LTD. ASSESSMENT YEAR :20 12 - 13 6 TREAT THE POLICIE S AS AN AS SET AND THE Y WOULD SET A NY NEGATIVE RESERVE TO ZE RO. THE LD. AO OPINED THAT IGNORING SUCH N EGATIVE RESERVES W OULD GIVE UN REALISTIC PICTURE AND UNDERSTATE THE SURPLUS . THOUGH THE ASSESSEE SUBMITTED THAT INCOME OF THE L IFE INSURANCE BUSINESS WAS TO BE ASSESS ED ON T HE BASIS OF ACTUARIAL VALUATION ONLY AND THE SU RPLUS WORKED OU T BY THE ACTUARY COULD NOT BE DISTURBED BY INCOME T AX AUTHORITY, HOWEVER, THE SAME COULD NOT CONVINCE LD. AO AND ACCORDINGLY , THE SURPLUS OF ACTUARIAL VALUATION W ERE INCREASED BY THE AMO UNT OF NEGATIVE RESERVES I.E. RS.841.35 LACS. IN OTHER WORDS, RETURNED LO SS WAS REDUCED TO THAT EXTENT. 5.2 UPON FURTHER APPEAL, LD. CIT(A) OBSERVED THAT ASSESSEE S INCOME WAS TO BE COMPUTED AS PER SEC. 44 OF THE AC T AND THE ASSESSEE WOULD BE RE QUIRED TO T A KE ACT UA RIAL VALUATION R EPORT IN ACCORDANCE WITH INSURANCE ACT, 1938. T HE NEGATIVE RESER VES WOULD BE NOTHING BUT PREMIUM RECEIVABLE BY THE INSURANCE COMPANY. HOWEVER, THERE WOULD ALWAYS BE A CHANCE THAT POLICYHOLDER MIGHT NOT CONTINUE WITH THE INSURANCE POLITY BOU GHT BY HI M WHICH WOULD RESULT IN NON - REC EIPT OF PREMIUM WHICH WAS OTHERWISE RECEIVABLE BY THE INSURANCE COMPANY . THEREFORE , THE SAME COULD NOT BE TAXED. REL ANC E WAS PLACED ON FOLLOW ING DECISIONS WHI LE ARRIVING AT ADJUDICATION : - ( I ) LI FE INSURAN CE CORPORA TION O F INDIA LTD. V/S ADDL. CIT ( ITA NO. 6221/MUM/2012 (II) ID BI FEDERAL LIFE INSURANCE COMPA NY LTD. (ITA NO. 6282/MUM/2012 ) ( II I) A CIT V /S KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. (ITA NO. 5655/MUM/2015) AGGRIEVED, THE REV ENUE IS IN FURTHE R APPEAL B EFORE US. ITA NO. 6270 /MUM/2018 M/S. EDELWEISS TOKIO LIFE INSURANCE LTD. ASSESSMENT YEAR :20 12 - 13 7 6 . WE FIND THAT LEARNED CIT(A) HAS CLINCHED THE ISSUE IN CORRECT PERSPECTIVE . THE FACTUAL MATRIX WAS SQUARELY COVERED IN ASSESSEE S FAVOR BY HOST OF CITED JUDICIAL DECISIONS RENDERED IN THE CASE OF SIMILARLY PLACED ASSESSEE S. THE HON BL E BOMBAY H IGH C O URT IN THE CASE OF PR. CIT V/S ICIC I PRUDENTIAL LIFE INSURANCE CO. LTD . FOR AYS 2010 - 11 & 2011 - 12 (ITA NOS.1305 & 1306 OF 2015 DATED 03/07/2018 ) REFUSED TO ADMIT T HE GROUND RAISED BY REVENUE ON THIS ISSUE WHEREIN VIDE PARA - 4, IT W AS NOTED T HAT REVENUE HAD RAISED SIMI LAR GROUNDS FOR AY S 2006 - 07 & 200 8 - 09 BUT T HE SAME WAS NOT ADMITTED VIDE ITA NOS. 711 OF 2013 & 688 OF 2013 ORDER DATED 20/07/2015 AND THEREFORE, F ACTS BEING SIMILAR, SAME VIEW WAS TO BE TAKEN IN THE MATTE R. THE CASE L AW S BEING RE LIED UP ON BY LD. CIT(A) WE RE S QUARELY APPLICABLE TO THE ASSESSEE S CAS E. NO CONTRARY DECISION IS ON RECORD. THEREFORE, R E SPECTFULLY FOLLOWING THE SAME , WE WOULD CONCUR WITH THE ADJUDICATION OF LD. CIT(A) ON THI S ISSUE . THIS GROUND STAND DISMISSED . CONCLU SION 7. THE APPEAL STAND S DIS MISSED. ORDER PRONOUNCED IN THE OPEN COUR T O N 22 ND OC TOBER, 2020. SD/ - SD/ - (MAHAVIR S INGH) (MANOJ KUMAR AGGARWAL) / VICE PRESIDENT / ACCOUN TANT MEMBER MUMBAI; DATED : 22/10/2020 SR.PS, JAISY VA RGHESE / COPY OF TH E ORDER FORWARDED TO : 1 . / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERN ED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE ITA NO. 6270 /MUM/2018 M/S. EDELWEISS TOKIO LIFE INSURANCE LTD. ASSESSMENT YEAR :20 12 - 13 8 / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MU MBAI.