2014 (5) TMI 729 - AT - Income Tax

Book adjustments u/s 115JB - Insurance company - Minimum alternate tax (MAT) - Reduction/exemption from gains on sale of investment Held that - Following ICICI LOMBARD GENERAL INSURANCE CO. LTD. Versus ASSTT COMMISSIONER OF INCOME TAX, RANGE-10(1), MUMBAI 2012 (11) TMI 587 - ITAT MUMBAI - the amended provisions of Rule 5 of First Schedule makes it clear that the profits and gains shall be taken to be the profit before the tax and appropriately disclosed in the P&L Account prepared in accordance with the Insurance Act, 1938 or the Rule made thereunder or the provisions of IRDA Act - once the profit on sale of investment is required to be included in the P& L account in accordance with the provisions of Insurance Act, then as per the Rule 5 of First Schedule of the Act, no adjustment is required to be made on account of the amount of profits on sale of investment already included in the P&L Account - the Tribunal has been taking a consistent view on the issue in a series of decisions, thus, to maintain the rule of consistency and uniformity on this aspect, the matter has been decided in favour of Assessee. Addition on account of premium deficiency Computation of book profits u/s 115JB of the Act Held that - Following ICICI LOMBARD GENERAL INSURANCE CO. LTD. Versus ASSTT COMMISSIONER OF INCOME TAX, RANGE-10(1), MUMBAI 2012 (11) TMI 587 - ITAT MUMBAI - even if an Insurance Company does not disclose any matter in the Balance Sheet and P&L account because the same is not required to be disclosed by the Insurance Act shall not be treated non-disclosure of a true and fair view of the state of affairs of the company as the condition has been relaxed by sub sec 5 of sec 211 of the Companies Act - when the insurance companies, banking companies and electricity generation and distributions companies are treated in the same class as per the provisions of sec. 211 of the Companies Act in preparing their final accounts, then these companies cannot be treated differently for the purpose of sec. 115JB and accordingly, the provisions of sec. 115JB are not applicable in the case of the assessee Decided in favour of Assessee.

Issues Involved:
1. Exemption for gains on the sale of investment.
2. Addition on account of premium deficiency for computing book profit under section 115JB.
3. Computation of book profits for the purposes of MAT under section 115JB.
4. Applicability of section 115JB to insurance companies.

Issue-wise Detailed Analysis:

1. Exemption for Gains on Sale of Investment:
The assessee contested the disallowance of Rs. 6,94,628 on gains from the sale of investments, arguing that profits from insurance business should be computed as per the annual accounts, subject to adjustments in Rule 5 of the First Schedule of the IT Act. The Tribunal referred to its previous decision in the assessee's case for AY 2003-04, which emphasized that the profits and gains of insurance business, other than life insurance, should be computed as per Rule 5 of the First Schedule. The Tribunal noted that the profit on sale of investments was included in the P&L account as per the Insurance Act, 1938. Consequently, no adjustment was required for the amount already included in the P&L account. The Tribunal upheld the view that the deletion of Rule 5(b) from the First Schedule by the Finance Act 1988 was intended to exempt insurance companies from taxation on profits from the sale of investments. Therefore, the Tribunal ruled in favor of the assessee, allowing the exemption for gains on the sale of investments.

2. Addition on Account of Premium Deficiency for Computing Book Profit under Section 115JB:
The assessee challenged the addition of Rs. 5,15,00,000 on account of premium deficiency, arguing that it was an unascertained provision not allowable under clause (c) to Explanation 1 of section 115JB(2). The Tribunal did not provide a separate detailed analysis for this issue within the judgment text provided. However, it appears the Tribunal's decision on the applicability of section 115JB to insurance companies (discussed under Issue 4) rendered this specific ground moot.

3. Computation of Book Profits for the Purposes of MAT under Section 115JB:
The assessee contested the CIT(A)'s direction to compute book profits for MAT purposes under section 115JB by allowing the URR to the extent allowable under Rule 6E of the IT Rules. The Tribunal, referencing its prior decision for AY 2003-04, reiterated that insurance companies are not required to prepare accounts as per Part II & III of Schedule VI of the Companies Act, 1956. The Tribunal upheld that the provisions of section 115JB, as amended by the Finance Act 2012, do not apply to insurance companies for periods before 1.4.2013. Therefore, the Tribunal ruled in favor of the assessee, deciding that the provisions of section 115JB are not applicable, and thus, the computation of book profits for MAT purposes under section 115JB was not required.

4. Applicability of Section 115JB to Insurance Companies:
The assessee raised an additional ground challenging the applicability of section 115JB, arguing that it prepares its accounts as per IRDA regulations and not as per the Companies Act. The Tribunal agreed, stating that insurance companies, along with banking and electricity companies, are exempt from preparing accounts as per Part II & III of Schedule VI of the Companies Act. The Tribunal referenced the Hyderabad Bench decision in State Bank of Hyderabad and the Mumbai Tribunal decision in Krung Thai Bank, which held that section 115JB does not apply to such companies. Consequently, the Tribunal ruled that section 115JB is not applicable to the assessee, an insurance company, for periods before 1.4.2013.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, ruling in favor of the assessee on all grounds, and dismissed the revenue's appeal. The Tribunal held that the gains on the sale of investments are exempt, section 115JB does not apply to insurance companies, and thus, the computation of book profits for MAT purposes under section 115JB was not required.

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