2017 (6) TMI 1257 - AT - Income Tax

Actuarial valuation / actuarial surplus - taxability u/s 44 - computation of income - income of insurance business - transfer from Share Holders Account to Policy Holder s Account - 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) - additions towards negative reserve - Held that - The issue raised in ground (i) to (vii) above is squarely covered in favour of the assessee by the decision of the ITAT in assessee s own case for assessment year 2011-2012 2017 (3) TMI 1696 - ITAT MUMBAI as held that in 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. Assessing Officer has no power to modify the account after actuarial valuation is done. Decided in favor of assessee.

Issues:
1. Taxability of transfer from Share Holders Account to Policy Holder's Account under section 44 of the Income Tax Act.
2. Consolidation of surplus from Policy Holders Account and Share Holder's Account for taxation as income from Insurance Business.
3. Restoring the issue of taxing income arising from activity 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 the computation of total income under section 44.
6. Addition on account of negative reserve ignored in the calculation of liability for actuarial surplus.
7. Applicability of section 14A to income of insurance business computed under section 44.

Analysis:
1. The Tribunal addressed the first issue concerning the taxability of the transfer from Share Holders Account to Policy Holder's Account under section 44 of the Income Tax Act. It referred to a previous judgment related to a life insurance business and held that the transfer was not taxable as income from Insurance Business. The Tribunal dismissed grounds (i) to (iii) raised by the Revenue based on this precedent.

2. Regarding the consolidation of surplus from Policy Holders Account and Share Holder's Account for taxation as income from Insurance Business, the Tribunal relied on another judgment involving a life insurance company. It concluded that the surplus should be computed excluding certain reserves and losses, following the High Court's decision. Consequently, the Tribunal dismissed grounds (iv) to (vii) in favor of the assessee.

3. The issue of restoring the taxing of income arising from an activity unconnected with insurance business was not sustained by the Tribunal due to the consistent application of legal precedents and lack of change in facts or law.

4. The Tribunal also clarified the applicability of section 10 of the Income Tax Act to insurance business and the treatment of exempt income under section 10 in the computation of total income under section 44. It upheld the order of the CIT(A) based on established legal principles.

5. The Tribunal addressed the addition on account of a negative reserve ignored in the calculation of liability for actuarial surplus, following the High Court's judgment, and dismissed the relevant ground raised by the Revenue.

6. Lastly, the Tribunal considered the applicability of section 14A to income of insurance business computed under section 44. It upheld its decision that section 14A was not applicable based on the interpretation of relevant legal provisions and precedents.

In conclusion, the Tribunal partly allowed the Revenue's appeal while upholding the order of the CIT(A) based on the detailed analysis and application of legal principles and precedents in each issue raised.

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