2015 (7) TMI 1346 - HC - Income Tax

Dividend income as exempt u/s.10(34) - Whether dividend income is considered as part of income of Life Insurance Business and is included as an 'income' by the actuary? - HELD THAT - Appeal by the revenue in respect of Assessment Year 2005- 06 2015 (7) TMI 972 - BOMBAY HIGH COURT was not entertained by us today. Accordingly, Question No.5 is not entertained. Surplus available in Share Holders Account - to be taxed as income from other sources - HELD THAT - The impugned order while allowing the assessee's appeal holds that income earned on shareholders' amount has to be considered as arising out of Life Insurance Business. Moreover, in terms of Section 44 of the Act, such income has to be taxed in accordance with First Schedule as provided therein. None of the authorities under the Act nor even before us is it urged that the assessee is carrying on separate business other than life insurance business. Accordingly, the impugned order holding that the income from shareholders' account is also to be taxed as a part of life insurance business cannot be found fault with in view of the clear mandate of Section 44 of the Act. Accordingly Question No.8 also does not raise any substantial question of law. Thus not entertained. Appeals admitted on Question Nos. 1, 2, 3, 4 and 6.

Summary

Issues:
Interpretation of legislation by incorporation in the Income Tax Act, 1961 regarding the Insurance Act 1938 and Regulations made thereunder; Application of Section 44 r.w. Rule 2 of the First Schedule to the IT Rules; Taxation of surplus in Policy Holders Account and Share Holder's Account as income from Insurance Business; Applicability of Section 14A of the Act to Insurance business; Taxation of dividend income as exempt under Section 10(34) of the IT Act; Treatment of 100% depreciation claim on Actuarial surplus; Taxation of surplus in Share Holders Account as income from other sources or part of income from insurance business.

Interpretation of Legislation by Incorporation:
The appeal by the revenue under Section 260A of the Income Tax Act, 1961 challenged the order of the Income Tax Appellate Tribunal related to the Assessment Years 2007-08. The questions of law raised included the correct interpretation of the incorporation of the unamended Insurance Act 1938 and Regulations under Section 44 r.w. Rule 2 of the First Schedule of the IT Rules. The Tribunal's interpretation of the legislative omission of the provisions of the Insurance Regulatory and Development Authority Act 1999 was also questioned.

Taxation of Surplus in Policy Holders and Share Holder's Account:
The Tribunal's decision to consolidate the surplus available in both Policy Holders Account and Share Holder's Account and tax only the net surplus as income from Insurance Business was challenged. The issue revolved around whether the surplus should be taxed in its entirety or only the net surplus after consolidation.

Applicability of Section 14A and Taxation of Dividend Income:
The Tribunal's decision regarding the applicability of Section 14A of the Act to Insurance business, especially when the assessee had claimed exempted income under Section 10 and made disallowances under Section 14A, was contested. Additionally, the treatment of dividend income as exempt under Section 10(34) of the IT Act, despite being considered part of the income of Life Insurance Business, was a point of contention.

Treatment of 100% Depreciation Claim and Taxation of Surplus in Share Holders Account:
The Tribunal's deletion of the addition made on account of a claim of 100% depreciation, based on the argument that Actuarial surplus is determined on the total assets of the company, raised questions about the impact on the surplus calculation. Furthermore, the Tribunal's decision to tax the surplus in Share Holders Account as part of income from insurance business rather than as income from other sources was challenged by the revenue.

Conclusion:
While certain questions were not entertained based on previous decisions, appeals were admitted on various issues for further consideration. The judgment highlighted the complexities surrounding the interpretation of tax laws in the context of insurance business operations, emphasizing the need for a thorough analysis of legislative provisions and their application in determining taxable income.