2011 (8) TMI 47 - HC - Income Tax

Addition - on account of provision of solvency margin - The profits and gains of insurance business are liable to be computed as per section 44 read with the First Schedule to the Income-tax Act, 1961 - Revised return - it is not in dispute that the provision for solvency margin was made as per the directions given by the Insurance Development Regulatory Authority (IRDA) - Whether it constitutes ascertained or unascertained liability - Rule 2 of the First Schedule to the Income-tax Act, 1961 - Plain reading of the above rule makes it clear that the annual average of the surplus from the insurance business has to be arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938 - Held that In these circumstances, the decision of the Income-tax Appellate Tribunal in holding that the funds set apart as solvency margin have to be excluded while determining the distributable profits of the assessee cannot be faulted - Decided in favour of the assessee whether the loss incurred by the assessee from Jeevan Suraksha Fund is liable to be excluded in computing the actuarial valuation surplus in view of the fact that the income from Jeevan Suraksha Fund is exempt under section 10(23AAB) - 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 - the object of inserting section 10(23AAB) was not with a view to treat the pension fund like Jeevan Suraksha Fund outside the purview of insurance business but to promote insurance business by exempting the income from such fund - Held that even after insertion of section 10(23AAB), the loss incurred from the pension fund like Jeevan Suraksha Fund had to be excluded while determining the actuarial valuation surplus from the insurance business under section 44 of the Income-tax Act, 1961 cannot be faulted - Decided in favour of the assessee

Summary

Issues:
1. Whether the provision for solvency margin made as per the directions of IRDA constitutes an unascertained liability for inclusion in actuarial valuation surplus?
2. Whether the loss incurred from Jeevan Suraksha Fund is liable to be excluded in computing actuarial valuation surplus due to exemption under section 10(23AAB) of the Income-tax Act, 1961?

Analysis:
1. The first issue revolves around the provision for solvency margin directed by IRDA. The Tribunal held that the amounts set apart for solvency margin were ascertained liabilities as per IRDA regulations and should be excluded while computing actuarial valuation surplus. The Tribunal found no fault in the calculation and exclusion of the solvency margin, as it was mandatory for the assessee to set apart these funds. The provisions of the Insurance Act, 1938 were adhered to, and the Tribunal's decision was upheld in favor of the assessee.

2. The second issue concerns the loss from Jeevan Suraksha Fund and its impact on actuarial valuation surplus. The revenue argued that the loss should not be adjusted against taxable income due to exemption under section 10(23AAB). However, the Tribunal ruled that the fund, despite being exempted, remains part of the insurance business under section 44 of the Income-tax Act, 1961. The purpose of the exemption was to promote insurance business, not to exclude such funds from actuarial valuation. Therefore, the Tribunal's decision to include the loss in the actuarial valuation surplus was upheld, favoring the assessee.

In conclusion, the High Court dismissed all appeals, upholding the Tribunal's decisions on both issues. The provision for solvency margin directed by IRDA was deemed an ascertained liability and excluded from the actuarial valuation surplus. Similarly, the loss from Jeevan Suraksha Fund was considered part of the insurance business for actuarial valuation purposes, even with exemption under section 10(23AAB). The Court found no fault in the Tribunal's reasoning and ruled in favor of the assessee in both instances.