2010 (12) TMI 1191 - AT - Income Tax

Summary

Issues involved: Appeal against CIT(A) order for A.Y 2005-06 regarding applicability of sec. 14A and Rule 5(b) of First Schedule to Insurance Business.

Applicability of sec. 14A and Rule 5(b) of First Schedule:
The appeal was filed by the assessee against the CIT(A)'s order concerning the applicability of sec. 14A and Rule 5(b) of the First Schedule to Insurance Business u/s 44 of the Income Tax Act, 1961 for A.Y 2005-06. The Revenue also filed a Cross Objection (CO) challenging the interpretation and effects of the amendment to Rule 5(b). The Counsel for the assessee argued that the CIT(A) held that income from the sale of investments cannot be taxed for an assessee engaged in Insurance Business as per part B of the First Schedule, post deletion of Rule 5(b). Referring to a previous order, the Counsel highlighted that the Tribunal had previously ruled in favor of the assessee on similar issues. The Tribunal, after considering the arguments of both parties, directed the AO to compute the income of the assessee in accordance with the Tribunal's previous order for A.Y 2003-04, resulting in the dismissal of the Revenue's appeal and allowing the assessee's appeal.

Judicial Precedent and Tribunal's Decision:
The Tribunal referred to its earlier order in the assessee's case for A.Y 2003-04, where it was concluded that sec. 44 creates a special provision for Insurance Companies, and hence, sec. 14A need not apply to grant exemption on income from the sale of investments due to the deletion of sub rule 5(b) of the First Schedule of sec. 44. The Tribunal upheld the argument of the assessee, reversing the CIT(A)'s order and dismissing the Revenue's CO. The Tribunal emphasized the importance of following precedent and ruled in favor of the assessee based on the previous decision, thereby allowing the assessee's appeal and dismissing the Revenue's CO.

Conclusion:
The Tribunal's decision in the present case was based on the precedent set in the assessee's earlier case for A.Y 2003-04, where it was established that sec. 44 provides a special provision for Insurance Companies, exempting income from the sale of investments from sec. 14A. As a result, the Tribunal directed the AO to compute the assessee's income in line with the previous order, leading to the dismissal of the Revenue's appeal and the allowance of the assessee's appeal.