Exide Life Insurance Company Limited, Bangalore V. CIT, Bangalore

ITA 792/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5397 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T SURYANARAYANA
• Keywords: Business income; Transfer pricing; Source of fund; Valuation report
• Section: 143(3); 263; 28

Judgement Text

ITA.792/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T.A NO.792/BANG/2016 (ASSESSMENT YEAR : 2009-10) EXIDE LIFE INSURANCE CO. LTD, NO.3/1, 3 RD FLOOR, J. P. TECHNO PARK, MILLERS ROAD, BENGALURU 560 001 .. APPELLANT PAN : AAACI7940L V. DEPUTY COMMISSIONER OF INCOME-TAX, LARGE TAX PAYERS UNIT, BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. T. SURYANARAYANA, ADVOCATE REVENUE BY : SHRI. SANJAY KUMAR, CIT HEARD ON : 08.02.2017 PRONOUNCED ON :03.05.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE CIT, LTU, BENGALURU, DT.08.02.2016, FOR THE ASSESSMENT Y EAR 2009-10. 02. THE ASSESSEE IS IN THE BUSINESS OF LIFE INSURA NCE. FOR THE ASSESSMENT YEAR 2009-10, IT FILED ITS RETURN ON 29 -9-2009 BY DECLARING LOSS OF RS 183,52,00,500/-. THE ASSESSMEN T WAS CONCLUDED U/S 143(3) READ WITH SEC 144C ON 10-5-2013 DETERMINING THE TOTAL LOSS AT RS.181,03,33,672/-. ON PERUSAL OF THE ASSESSMENT RE CORDS, THE CIT, LTU, ITA.792/BANG/2016 PAGE - 2 BENGALURU , OBSERVED THAT THE LOSS IN THE POLICYH OLDERS ACCOUNT IS SET OFF AGAINST THE SURPLUS OF SHAREHOLDERS A/C AMO UNTING TO RS.10,52,02,173/- WHICH IS AGAINST THE PROVISIONS O F THE ACT AND HENCE THE SAME NEEDS TO BE WITHDRAWN. THUS, THE ASS ESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND HENCE INITIATED PROCEEDINGS U/S 263. AFTER CONSIDERING THE ASSESSEE EXPLANATION, THE CIT HELD THAT THE ASSESSEE IS EN GAGED IN THE LIFE INSURANCE BUSINESS HAS MAINTAINED THE FINANCIALS AS PER THE IRDA REGULATIONS. THE SURPLUS/DEFICITS IN THE SHAREHOLDE RS ACCOUNT AND THE POLICYHOLDERS ACCOUNT ARE SHOWN -SEPARATELY. DURIN G F Y 2000-09, THE ASSESSES HAS ARRIVED AT DEFICIT IN POLICYHOLDERS AC COUNT AT RS 194,04,02,725/- AND SURPLUS IN SHAREHOLDERS ACCOUNT FOR RS 10,52,02,173/-. THE NET LOSS IS SHOWN AT RS 183,52, 00,552/- WHICH IS THE TOTAL INCOME RETURNED. IN THE ASSESSMENT ORDER, ADJUSTMENTS ARE MADE ON TRANSFER PRICING AND THE LOSS IS DETERM INED AT RS 181 ,03,3322.-. AS PER SECTION 115B , THE PROF ITS AND GAINS OF LIFE INSURANCE BUSINESS IS TAXED AT TWO DIFFERENT RATES ON THE PROFITS EARNED BY THE LIFE INSURANCE BUSINESS AND ON THE PR OFITS EXCLUDING THE INCOME FROM LIFE INSURANCE BUSINESS. WHILE THE PROF ITS OF LIFE INSURANCE BUSINESS IS TAXED AT 12.5%, THE PROFITS FROM OTHER THAN LIFE INSURANCE BUSINESS IS TAXED AT NORMAL RATE OF TAX. IN VIEW OF THESE PROVISIONS, IT IS EVIDENT THAT THE TWO INCOMES, I.E . THE DEFICIT/SURPLUS OF THE POLICYHOLDERS ACCOUNT AND TH E DEFICIT/SURPLUS OF THE SHAREHOLDERS ACCOUNT ARE DIS TINCT ITA.792/BANG/2016 PAGE - 3 AND TAXED SEPARATELY. THE SET OFF OF LOSS FROM POL ICYHOLDERS ACCOUNT WHICH IS FROM THE LIFE INSURANCE BUSINESS C ANNOT BE SET OFF AGAINST THE INCOME FROM SHAREHOLDERS ACCOUNT. BY SE TTING OFF OF THE DEFICIT FROM THE POLICYHOLDERS ACCOUNT TO THE SURPL US OF THE SHAREHOLDERS ACCOUNT, THE ASSESSEE HAS NOT OFFERED THE INCOME AMOUNTING TO RS 10,52,02,173/- WHICH IS TAXABLE AT NORMAL RATE. BY ALLOWING THE SET OFF OF THE LOSSES AGAINST THE SURP LUS, THE ASSESSING OFFICER HAS ERRED IN PASSING AN ERRONEOUS ORDER WHICH IS PREJUDICIAL TO REVENUE AS THERE IS NON-TAXATION OF INCOME. HENCE, THE CIT HELD THAT THE SET OFF OF DEFICIT IN POLICYHOLDE RS ACCOUNT TO THE SURPLUS IN THE SHAREHOLDERS ACCOUNT IS WRONGLY DONE AGAINST THE PROVISIONS OF SEC 44 READ WITH SECTION 115B. THE C IT HELD THAT BY NOT APPLYING THE PROVISIONS OF THE ACT CORRECTLY, T HE AO HAS ERRED IN PASSING AN ERRONEOUS ORDER CAUSING LOSS OF REVENUE IN THIS CASE AND HENCE SET ASIDE THIS ISSUE IS TO THE ASSESSING OFFI CER TO RECONSIDER IT AFRESH. AGGRIEVED, THE ASSESSEE FILED THIS APPEA L WITH FOLLOWING GROUNDS : ITA.792/BANG/2016 PAGE - 4 ITA.792/BANG/2016 PAGE - 5 03. THE AR SUBMITTED THAT THE AO HAS PASSED THE I MPUGNED ORDER AFTER; MAKING RELEVANT ENQUIRIES, CONSIDERING RELEVANT A PPELLATE ORDERS AND AFTER CONSIDERING THAT THERE ARE NO ADVERSE RULINGS AVAI LABLE ON THIS ISSUE . THE CIT HAS NOT SATISFIED THE TWIN CONDITIONS VIZ., THERE SHOULD BE AN ERROR AND SUCH ERROR SHOULD BE PREJUDICIAL TO THE INTERES TS OF REVENUE AND HENCE THE ORDER PASSED U/S 263 SHOULD BE QUASHED. IN T HIS REGARD, HE INVITED OUR ATTENTION TO THE COPY OF THE ASSESSEES SUB MISSION FILED BEFORE THE CIT DT 21.01.2016 AND ITS ANNEXURE, A LETTER DT 2 9.01.2015 ADDRESSED TO THE AO. HE RELIED ON THIS TRIBUNAL DECISIONS IN TH E PNB METLIFE INDIA INSURANCE CO LTD DT 19.04.2016 & 22.09.2016 IN ITA NOS 756 & 1508 / BANG/2015 APART FROM THOSE DECISIONS RELIED ON BEFO RE THE AO & THE CIT . PER CONTRA, THE DR RELIED ON THE CIT ORDER. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH REL EVANT MATERIAL. THE RELEVANT PORTION OF THE ASSESSEES SUBMISSIO N, MADE BEFORE THE AO DT 29.01.2015, A COPY OF WHICH WAS SUBMITTED TO THE CI T DURING THE PROCEEDINGS U/S 263, IS EXTRACTED AS UNDER : 1. WRITE UP AS TO WHY SURPLUS FROM SHAREHOLDERS AC COUNT SHOULD NOT BE TAXED AS BUSINESS INCOME UNDER SEC/ION 28 OF THE AC T THE TAXATION OF THE INCOME FROM LIFE INSURANCE BUSI NESS IS GOVERNED BY SECTION 44 OF THE ACT. SECTION 44 OF THE ACT WHICH READS AS FOLLOWS: 'NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE PROVISIONS OF THIS ACT RELATING TO THE COMPUTATION OF INCOME CHARGEABLE UN DER THE HEAD 'INTEREST ON SECURITIES', 'INCOME FROM HOUSE PROPERTY', 'CAPI TAL GAINS' OR 'INCOME FROM OTHER SOURCES ' , OR IN SECTION 199 OR IN SECTIONS 28 TO 43B, THE P ROFITS AND GAINS OF ANY BUSINESS OF INSURANCE, INCLUDING ANY SUCH BUSIN ESS CARRIED ON BY A MUTUAL INSURANCE COMPANY OR BY A CO-OPERATIVE SOCIETY, SHA LL BE COMPUTED IN ACCORDANCE ITA.792/BANG/2016 PAGE - 6 WITH THE RULES CONTAINED IN THE FIRST SCHEDULE.' FURTHER, ACCORDING TO SECTION 44 OF THE ACT, PROVIS IONS REGARDING COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD 'INTEREST ON SECUR ITIES','INCOME FROM HOUSE PROPERTY', 'CAPITAL GAINS', INCOME FROM OTHER SOURCE' AND PROVISIONS OF SECTION 28 TO43B WOULD NOT APPLY TO ASSESSEE IN INS URANCE BUSINESS. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS ON AP PLICABILITY OF SECTION 44 OF THE ACT: GENERAL INSURANCE CORPN. OF INDIA V. CIT [1999] 106 TAXMAN 389 (SC) 'SECTION 44 IS A SPECIAL PROVISION GOVERNING COMPUT ATION OF TAXABLE INCOME EARNED FROM BUSINESS OF INSURANCE. IT OPEN S WITH A NON OBSTANTE CLAUSE AND, THUS, HAS AN OVERRIDING EFFECT OVER OTHER PROVISIONS CONTAINED IN THE ACT. IT MANDATES THE AS SESSING AUTHORITIES TO COMPUTE THE TAXABLE INCOME FROM BUSINESS OF INSURAN CE IN ACCORDANCE WITH THE PROVISIONS OF THE FIRST SCHEDULE.' LIFE INSURANCE CORPN. OF INDIA V. CIT [1964] 51 I TR 773 (SC) THERE IS NO OTHER PROVISION IN THE SCHEDULE WHICH A UTHORISES AN ITO TO MAKE ADJUSTMENTS IN THE ACTUARIAL VALUATION MADE BY THE ASSESSEE. WHEN ONE COMES TO RULE 3(B) ONE CAN FIND THAT THE FIRST PART OF IT LAYS DOWN THAT IT SHALL BE OBLIGATORY ON THE ITO TO ALLOW CERTAIN AMOUNTS WRITTEN OFF OR RESERVED BY THE ASSESSEE AS A DEDUCT ION AND TO INCLUDE IN THE SURPLUS ANY SUMS FOR WHICH CREDIT HAS BEEN TAKEN ON ACCOUNT OF APPRECIATION OR GAINS ON THE REALIZATION OF THE SECURITIES OR OT HER ASSETS. THIS PART OF THE RULE ONLY COMPELS THE ITO TO ALLOW CERTAIN AMOU NTS AS DEDUCTIONS AND TO INCLUDE CERTAIN AMOUNTS FOR WHICH CREDIT HAD BEEN T AKEN IN THE ACCOUNTS OF THE ASSESSEE. IT THEREFORE, DID NOT WARRANT WHAT T HE ITO DID, NAMELY, TO ADJUST THE ACCOUNTS ON THE BASIS OF A REVALUATION M ADE BY HIM. WE SUBMIT THAT THE COMPANY IS INTO THE BUSINESS OF LIFE INSURANCE AND DOES NOT CARRY ON ANY OTHER BUSINESS. FURTHER, THE COMPANY IS GOVERNED BY THE IRDA REGULATIONS WHICH RESTRICT THE COMPANY TO CARR Y ON ANY OTHER BUSINESS EXCEPT THE LIFE INSURANCE BUSINESS. ACCORDINGLY, INCOME OF THE COMPANY HAS TO BE COMPUT ED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 44 OF THE ACT READ WITH F IRST SCHEDULE TO THE ACT. ITA.792/BANG/2016 PAGE - 7 IT IS FURTHER SUBMITTED THAT MERELY BECAUSE SEPARAT E ACCOUNTS ARE MAINTAINED, THE INCOME IN SHAREHOLDER ACCOUNT DOES NOT BECOME SEPARATE FROM LIFE INSURANCE BUSINESS. AS PER THE I NSURANCE ACT, 1938 ALL INCOME ARE PART OF ONE BUSINESS ONLY AND THESE INCO ME ARE CONSIDERED AS PART OF THE SAME BUSINESS. THEREFORE, THE INCOME IN SHAREHO LDERS' ACCOUNT SHALL BE CONSIDERED AS ARISING OUT OF LIFE INSURANCE BUSINES S ONLY. THE ASSESSEE, IN SUPPORT OF THE ABOVE CONTENTION, W ISHES TO PLACE RELIANCE ON THE FOLLOWING DECISIONS WHEREIN IT WAS HELD THAT INCOME FROM THE SHAREHOLDERS' ACCOUNT CANNOT BE CONSIDERED AS SEPAR ATE FROM LIFE INSURANCE BUSINESS FOR THE PURPOSE OF TAXATION UNDER THE ACT AND HENCE IT SHALL BE CONSIDERED AS ARISING FROM THE LIFE INSURANCE BUSIN ESS ONLY. (A) DCIT V. ICICI PRUDENTIAL LIFE INSURANCE COMPANY LIMITED. (ITA/1563/MUM/2013) (B) HDFC STANDARD LIFE INSURANCE COMPANY LTD. V. DIT (I TA/3004/MUM/2012) A BRIEF SUMMARY OF THE ABOVE MENTIONED PRECEDENTS I S REPRODUCED BELOW FOR YOUR GOODSELFS READY REFERENCE: 'IRDA REGULATIONS SPECIFICALLY REQUIRE TO MAINTAIN THE POLICY-HOLDERS' ACCOUNT AND THE SHARE-HOLDERS' ACCOUNT SEPARATELY AND PERMI TS TRANSFER OF FUNDS FROM SHAREHOLDERS' ACCOUNT TO POLICY-HOLDERS' ACCOU NT AS AND WHEN THERE IS A DEFICIT IN POLICYHOLDERS' ACCOUNT. SINCE THE INSURA NCE BUSINESS WILL NOT YIELD THE REQUIRED PROFITS IN THE INITIAL 7 TO 10 YEARS, LOT OF CAPITAL HAS TO BE INFUSED SO AS TO BALANCE THE DEFICIT IN THE POLICY - HOLDER'S ACC OUNT. SINCE ASSESSEE IS HAVING ONLY ONE BUSINESS OF LIFE INSURANCE, THE ENT IRE TRANSACTIONS BOTH UNDER THE POLICY-HOLDERS' AND SHARE-HOLDERS' ACCOUNT DO P ERTAIN TO THE LIFE INSURANCE BUSINESS ONLY AS IT WAS NOT PERMITTED TO DO ANY OTH ER BUSINESS. ONCE ASSESSEE IS IN THE LIFT INSURANCE BUSINESS, THE COMPUTATION HAS TO BE MADE IN ACCORDANCE WITH THE RULE-2AS PER PROVISIONS OF SECT ION 44. THEREFORE, THERE IS A VALID ARGUMENT RAISED BY ASSESSEE THAT B OTH THE POLICY- HOLDERS' & SHARE-HOLDERS' ACCOUNT HAS TO BE CONSOLIDATED INTO ONE AND TRANSFER FROM ONE ACCOUNT TO ANOTHER IS TAX NEUTRAL. JUST BECAUSE SEPARATE ACCOUNTS ARE MAINTAINED THE I NCOMES IN SHARE- HOLDERS' ACCOUNT DOES NOT BECOME SEPARATE FROM LIFE INSURANCE 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. THEREFORE, THE INCOMES IN SHARE- HOLDERS' ACCOUNT ARE TO BE CONSIDERED AS ARISING OU T OF LIFE INSURANCE BUSINESS ONLY. MORE OVER SEC 44 MANDATES THAT ONLY FIRST SCH EDULE WILL APPLY FOR COMPUTING INCOMES AND EXCLUDES OTHER HEADS OF INCOM E 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 ITA.792/BANG/2016 PAGE - 8 GAINS OF INSURANCE BUSINESS SHALL BE COMPUTED IN AC CORDANCE WITH THE RULES CONTAINED IN FIRST SCHEDULE. THEREFORE, THE INCOMES IN SHARE-HOLDERS' 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. AG IS DIRECTED T O TREAT THEM AS PART OF LIFE INSURANCE BUSINESS AND TAX THEM U/S 115B.' IN VIEW OF THE ABOVE, WE SUBMIT THAT BOTH THE INCOM E FROM BOTH POLICYHOLDERS' AND SHAREHOLDERS' ACCOUNTS HAS TO BE TAXED AS PART OF L IFE INSURANCE BUSINESS IN ACCORDANCE WITH THE PROVISIONS OF THE FIRST SCHEDUL E TO THE ACT. TREATMENT GIVEN BY THE ASSESSEE IN RETURN OF INCOME FOR A Y 2011-12. WE SUBMIT THAT IN LINE WITH THE ABOVE SUBMISSIONS, THE ASSESSEE FOR AY 2011- 12, HAS AGGREGATED THE SURPLUS/DEFICIT ARISING FROM BOTH THE POLICYHOLDERS' ACCOUNT AND SHAREHOLDERS' ACCOUNT AND COMPUTED THE NET DEFICIT OF RS. 1,23,42,44,958/- IN THE RETURN OF INCOME. 04. THUS, IN THE ABOVE REPLY THE ASSESSEE HAD CLEAR LY BROUGHT OUT ITS UNDERSTANDING ON THE RULES OF AGGREGATION. ACCORDI NG TO IT, RULE 2 OF FIRST SCHEDULE OF INCOME-TAX ACT, PROVIDED FOR AGGREGATIO N OF PROFITS AS PER POLICY HOLDERS ACCOUNT AND SHAREHOLDERS ACCOUNT. NO DOUBT , ASSESSMENT ORDER PASSED BY THE AO WHICH HAS BEEN SUBJECTED TO 263 PR OCEEDINGS BEFORE US IS CRYPTIC WITHOUT ANY REFERENCE TO THE ABOVE MENTIONE D LETTER SUBMITTED BY THE ASSESSEE. HOWEVER, IT IS CLEAR FROM THE REP LY GIVEN BY THE ASSESSEE, AS EXTRACTED SUPRA, THAT THE AO HAD REQUIRED THE A SSESSEE TO EXPLAIN ITS STAND REGARDING AGGREGATION OF PROFITS / LOSS AS IT APPEARED IN POLICY HOLDERS ACCOUNT AND AS IT APPEARED IN SHAREHOLDERS ACCOUNT AND THE ASSESSEE HAD GIVEN AN EXPLANATION. WE CANNOT SAY THAT THE AO W AS NOT AWARE OF THE ISSUE OF AGGREGATION. ITA.792/BANG/2016 PAGE - 9 05. NOW , COMING TO THE VIEW TAKEN BY THE CIT THAT THESE TWO ACCOUNTS HAD TO BE CONSIDERED SEPARATELY, AND BENEFIT OF SEC TION 115B OF THE ACT, COULD BE GIVEN ONLY TO THE PROFITS FROM LIFE-INSURA NCE BUSINESS, THERE IS NO DISPUTE THAT ASSESSEE WAS DOING ONLY LIFE-INSURANCE BUSINESS AS REGULATED BY THE IRDA. THE CIT HIMSELF HAS MENTIONED THAT TH E ASSESSEE WAS ENGAGED IN LIFE-INSURANCE BUSINESS. QUESTION WHETH ER POLICY HOLDERS ACCOUNT AND SHAREHOLDERS ACCOUNT, IN THE CASE OF AN ASSESSEE CARRYING ON ONLY THE BUSINESS OF LIFE-INSURANCE BUSINESS WAS TO BE SEPARATED OR CONSOLIDATED, HAD COME BEFORE THE TRIBUNAL IN ICICI PRUDENTIAL LTD, (SUPRA). PARA 32 OF THIS ORDER DT.14.09.2012 IS REPRODUCED B ELOW : 32. IRDA REGULATIONS SPECIFICALLY REQUIRE TO MAINT AIN THE POLICYHOLDERS ACCOUNT AND THE SHAREHOLDERS ACCOUNT SEPARATELY AN D PERMITS TRANSFER OF FUNDS FROM SHAREHOLDERS ACCOUNT TO POLICYHOLDERS ACCOUNT AS AND WHEN THERE IS A DEFICIT IN POLICYHOLDERS ACCOUNT. AS RI GHTLY NOTED BY THE HON'BLE BOMBAY HIGH COURT, AS A POLICY, COMPANY IS TRANSFER RING FUNDS/ASSETS FROM SHAREHOLDERS ACCOUNT TO POLICYHOLDERS ACCOUNT EVE N DURING THE YEAR PERIODICALLY AS AND WHEN THE ACTUARIAL VALUATION WA S ARRIVED AT IN POLICYHOLDERS ACCOUNT. MOST OF THE COMPANIES ARE R EQUIRED TO SUBMIT QUARTERLY ACCOUNTS UNDER THE COMPANY LAW, THERE IS REQUIREMENT OF ACTUARIAL VALUATION REPORT PERIODICALLY AND ACCORDI NGLY ASSESSEE WAS TRANSFERRING FUNDS FROM THE SHAREHOLDERS ACCOUNT T O POLICYHOLDERS ACCOUNT. SINCE THE INSURANCE BUSINESS WILL NOT YIELD THE REQ UIRED PROFITS IN THE INITIAL 7 TO 10 YEARS, LOT OF CAPITAL HAS TO BE INFUSED SO AS TO BALANCE THE DEFICIT IN THE POLICYHOLDERS ACCOUNT. DURING THE YEAR AS ALRE ADY STATED ASSESSEE HAS ISSUED FRESH CAPITAL TO THE EXTENT OF `.250 CRORES AND TRANSFERRED FUNDS TO THE EXTENT OF `.233 CRORES FROM THE SHAREHOLDERS A CCOUNT TO POLICYHOLDERS ACCOUNT. SINCE ASSESSEE IS HAVING ONLY ONE BUSINESS OF LIFE INSURANCE, THE ENTIRE TRANSACTIONS BOTH UNDER THE POLICYHOLDERS A ND SHAREHOLDERS ACCOUNT ITA.792/BANG/2016 PAGE - 10 DO PERTAIN TO THE LIFE INSURANCE BUSINESS ONLY AS I T WAS NOT PERMITTED TO DO ANY OTHER BUSINESS. ONCE ASSESSEE IS IN THE LIFE IN SURANCE BUSINESS, THE COMPUTATION HAS TO BE MADE IN ACCORDANCE WITH THE R ULE-2 AS PER PROVISIONS OF SECTION 44. THEREFORE, THERE IS A VAL ID ARGUMENT RAISED BY ASSESSEE THAT BOTH THE POLICYHOLDERS & SHAREHOLDER S ACCOUNT HAS TO BE CONSOLIDATED INTO ONE AND TRANSFER FROM ONE ACCOUNT TO ANOTHER IS TAX NEUTRAL. WHAT AO HAS DONE IS TO TAX THE SURPLUS AFT ER THE FUNDS HAVE BEEN TRANSFERRED FROM SHAREHOLDERS ACCOUNT TO THE POLIC YHOLDERS ACCOUNT AT THE GROSS LEVEL WHILE IGNORING SUCH TRANSFER IN SHAREHO LDERS ACCOUNT, WHILE BRINGING TO TAX ONLY THE INCOMES DECLARED IN THE SH AREHOLDERS ACCOUNT THAT TOO UNDER THE HEAD OTHER SOURCES OF INCOME. IN FA CT WHILE GIVING THE FINDING THAT ASSESSEE IS IN THE LIFE INSURANCE BUSI NESS ONLY AND INCOMES ARE TO BE TREATED AS INCOME FROM LIFE INSURANCE BUSINES S, THE CIT (A) SURPRISINGLY IN SUBSEQUENT ASSESSMENT YEARS APPEALS ACCEPTED AOS CONTENTION THAT SURPLUS IN SHAREHOLDERS ACCOUNT IS TO BE TAXED AS OTHER SOURCES OF INCOME. BUT ONCE THE PROVISIONS OF SECTI ON 44 OF IT ACT ARE INVOKED ANYTHING CONTAINED IN THE HEADS OF INCOME L IKE INCOME FROM OTHER SOURCES, CAPITAL GAINS, HOUSE PROPERTY OR EVEN INTE REST ON SECURITIES DOES NOT COME INTO PLAY AND ONLY FIRST SCHEDULE HAS TO B E INVOKED TO ARRIVE AT THE PROFIT. THEREFORE, IN OUR OPINION BOTH THE POLI CYHOLDERS AND SHAREHOLDERS ACCOUNT HAS TO BE CONSOLIDATED FOR TH E PURPOSE OF ARRIVING AT THE DEFICIT OR SURPLUS. 06. THERE IS A CLEAR OPINION EXPRESSED BY THE MUMBA I BENCH THAT WHEN SECTION 44 OF THE ACT IS APPLIED, DISTINCTION BETWE EN VARIOUS HEADS OF INCOME PALED INTO INSIGNIFICANCE. THE ASSESSEE HAD IN IT S RETURN, SEPARATELY SHOWN THE REVENUE IN ITS SHAREHOLDERS ACCOUNT AND REVENUE DERIVED FROM ITS POLICY HOLDERS ACCOUNT. REVENUE ACCOUNT FOR POLICY HOLDER S ACCOUNT CLEARLY REFLECTED THE CHANGE IN VALUATION OF LIABILITY IN R ESPECT OF LIFE-POLICIES WHICH WERE ACCOUNTED. ITA.792/BANG/2016 PAGE - 11 07. THUS, IN OUR OPINION NOT ONLY WAS THE AO A WARE ABOUT THE METHOD OF AGGREGATION FOLLOWED BY THE ASSESSEE, HE HAD AL SO TAKEN A LAWFUL AND POSSIBLE VIEW. IN THE CIRCUMSTANCES, WE DO NOT FIN D ANY ERROR IN THE ORDER OF THE AO WHICH CAN BE VESTED BY A SECTION 263 JURI SDICTION. THE TWIN CONDITIONS VIZ., THERE SHOULD BE AN ERROR AND SUCH ERROR SHOULD BE PREJUDICIAL TO THE INTERESTS OF REVENUE ARE NOT SATISFIED. WE HAVE NO HESITATION IN SETTING ASIDE THE ORDER OF CIT. 08. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 3 RD DAY OF MAY, 2017. SD/- SD/- (VIJAY PAL RAO) (S. JAYARAMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR.