2017 (3) TMI 1696 - AT - Income Tax

Actuarial valuation - taxability u/s 44 - computation of income - transfer from Share Holders Account to Policy Holder s Account - Tribunal holding that surplus available both in Policy Holders Account and Share Holders Account is to be consolidated and only net surplus is to be taxed as income from Insurance Business - taxing income of assessee arising from activity unconnected with insurance business (consequent set off loss) - Held that - We find that the Hon ble Bombay High Court in the case of ICICI Prudential Insurance Co. Ltd. 2015 (7) TMI 972 - BOMBAY HIGH COURT has held that where assessee was carrying on life insurance business and Tribunal following a decision of Supreme Court while determining assessee s income under section 44 had taken into consideration total surplus as arrived at by actuarial valuation and further held that income from shareholders account was also to be taxed as a part of life insurance business there was no substantial question of law arising for consideration . Reference was made to the decision in LIC of India vs. CIT 1963 (12) TMI 5 - SUPREME COURT wherein held that the Assessing Officer has no power to modify the account after actuarial valuation is done. Income of assessee arising from activity unconnected with insurance business - determining actuarial valuation surplus from insurance business u/s 44 - Held that -(i) amount set apart by insurance company towards solvency margin as per the direction given by IRDA is to be excluded while computing actuarial valuation surplus and (ii) pension fund like Jeevan Suraksha Fund would continue to be governed by provisions of section 44 irrespective of the fact that income from such fund is exempted or not and therefore even after insertion of section 10(23AAB) loss incurred from pension fund like Jeevan Suraksha Fund has to be excluded while determining actuarial valuation surplus from insurance business u/s 44 of the Act. See case of LIFE INSURANCE CORPORATION OF INDIA LTD. 2011 (8) TMI 47 - BOMBAY HIGH COURT - revenue appeal dismissed.

Issues:
1. Taxability of transfer from Share Holders Account to Policy Holder's Account under section 44 of the Income Tax Act.
2. Tax treatment of surplus in Policy Holders Account and Share Holders Account.
3. Taxation of income arising from activities unconnected with insurance business.
4. Applicability of section 10 of the Income Tax Act to insurance business.
5. Treatment of exempt income under section 10 in computing total income from insurance business.
6. Addition of negative reserve ignored in actuarial surplus calculation.

Analysis:

1. The appeal addressed the taxability of transfers between Share Holders Account and Policy Holder's Account under section 44 of the Income Tax Act. The Tribunal concluded that such transfers were not taxable under section 44 read with Rule 2 of the First Schedule, as they constituted a transfer of capital assets. The Tribunal dismissed this ground of appeal following the decision of the Bombay High Court in a similar case.

2. The issue of tax treatment of surplus in Policy Holders Account and Share Holders Account was also considered. The Tribunal upheld the consolidation of the surplus in both accounts, taxing only the net surplus as income from the insurance business. This decision was based on the Tribunal's interpretation of relevant regulations and provisions under section 44 of the Act.

3. Regarding the taxation of income from activities unrelated to insurance business, the Tribunal restored the issue to the assessing officer for further consideration. The Tribunal did not provide reasons for this decision, but it was in line with procedural requirements under the Act.

4. The applicability of section 10 of the Income Tax Act to insurance business was discussed. The Tribunal affirmed that section 10 was relevant to insurance business, and the total income from insurance activities was governed independently under Schedule 1 of the Act, irrespective of computational provisions under section 44.

5. The treatment of exempt income under section 10 in computing total income from insurance business was analyzed. The Tribunal held that exempt income under section 10 could be reduced from the income chargeable to tax under section 44. This decision was based on the procedural requirements of the Act, emphasizing the sequential computation of income.

6. The addition of a negative reserve ignored in the actuarial surplus calculation was also addressed. The Tribunal did not confirm the addition made by the assessing officer, following the precedent set by the Bombay High Court in a similar case. The Tribunal dismissed this ground of appeal, upholding the decision of the Commissioner (Appeals).

In conclusion, the Tribunal upheld the order of the Commissioner (Appeals) and dismissed the appeal filed by the revenue, citing relevant legal precedents and interpretations of the Income Tax Act.

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