2018 (1) TMI 1585 - AT - Income Tax

Following orders of the higher appellate authorities to decide the issue, where such order not accepted by the Department - Issues decided relying on assessee's own case and identical issues were decided by the Tribunal in the case of ICICI Prudential s case 2012 (11) TMI 13 - ITAT MUMBAI - all grounds of appeal raised by the Revenue are covered in favour of the assessee - HELD THAT - As decided in AGARWAL WAREHOUSING AND LEASING LTD. (NOW ADMANUM FINANCE LTD.) 2002 (7) TMI 86 - MADHYA PRADESH HIGH COURT relying on KAMLAKSHI FINANCE CORPORATION case 1991 (9) TMI 72 - SUPREME COURT principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not acceptable to the Department - in itself an objectionable phrase and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessee and chaos in administration of tax laws. Hon ble Gujarat High Court in Sayaji Iron and Engineering Co. v. CIT 2001 (7) TMI 70 - GUJARAT HIGH COURT reiterated that no Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another bench of the same Tribunal on the same facts, and if a bench of a Tribunal on identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. We follow the decision of the Tribunal mentioned hereinbefore and dismiss all the grounds of appeal filed by the Revenue in its appeal. CIT(A) directed the AO to assessee the total income of the assessee in accordance with the order of the ITAT in ICICI Prudential Life Insurance Co. Ltd. and then give effect to the provisions of section 72 of the Act in respect of carry forward of losses - HELD THAT - As the above direction of the Ld. CIT(A) is based on facts and law, we uphold the same. Accordingly, we dismiss this ground of appeal. Reduction of provision for fringe benefit tax/wealth tax - assessee pleaded that the AO while determining the income in the Shareholder s Account(SHA), added back the amount being provision for fringe benefit tax/wealth tax - CIT(A) observed from the assessment order that no such amount has been added by the AO, while computing the total income of the assessee - HELD THAT - Assessee is governed by provisions of section 44 r.w. Rule 2 of the Act and both Policyholders Account ( PHA ) and SHA form part of life insurance business of the assessee. The assessee has offered its income including results in SHA while determining income as per section 44 r.w. Rule 2 of First Schedule to the Act. Thus, the provision made towards fringe benefit tax/wealth tax is an allowable expense while determining the assessee s income from life insurance business. We direct the AO to allow ₹ 7,69,438/- as an allowable expense while determining income/(loss) in SHA.

Summary

Issues Involved:

1. Interpretation of Section 44 of the Income Tax Act read with Rule 2 of the First Schedule.
2. Tax neutrality of transfers between Shareholders' Account and Policyholders' Account.
3. Incorporation of provisions of the Insurance Regulatory and Development Authority Act 1999 in Rule 2 of the First Schedule.
4. Adoption of IRDA Act as "legislation by reference" in Section 44 of the Income Tax Act.
5. Taxation of surplus in Shareholders' Account.
6. Carry forward of losses assessed under "Income from Other Sources."
7. Claim of 100% depreciation and its impact on actuarial surplus.
8. Adjustment for negative reserves in arriving at taxable surplus.
9. Deduction of provision for fringe benefit tax/wealth tax.

Detailed Analysis:

1. Interpretation of Section 44 of the Income Tax Act read with Rule 2 of the First Schedule:
The Revenue contended that the CIT(A) erred in relying on the ITAT's decision in ICICI Prudential Life Insurance Co. Ltd. for AY 2005-06 to AY 2008-09, interpreting Section 44 read with Rule 2 of the First Schedule. The ITAT found that this issue is covered in favor of the assessee by previous ITAT decisions, including IDBI Federal Life Insurance Co. Ltd. and HDFC Standard Life Insurance Co. Ltd. The principle of judicial discipline requires following higher appellate authorities' orders unreservedly unless suspended by a competent court. Thus, the ITAT dismissed this ground of appeal.

2. Tax neutrality of transfers between Shareholders' Account and Policyholders' Account:
The Revenue argued that the CIT(A) wrongly concluded that transfers between Shareholders' Account and Policyholders' Account are tax neutral. The ITAT referenced previous decisions, including ICICI Prudential Life Insurance Co. Ltd., confirming that such transfers are indeed tax neutral. Consequently, this ground of appeal was dismissed.

3. Incorporation of provisions of the Insurance Regulatory and Development Authority Act 1999 in Rule 2 of the First Schedule:
The Revenue claimed that the CIT(A) misinterpreted the omission of IRDA Act provisions in Rule 2 of the First Schedule. The ITAT upheld the CIT(A)'s reliance on previous ITAT decisions, which found that the Legislature consciously omitted these provisions. Therefore, this ground of appeal was dismissed.

4. Adoption of IRDA Act as "legislation by reference" in Section 44 of the Income Tax Act:
The Revenue contended that the CIT(A) failed to appreciate Section 28 of the IRDA Act, which implies adoption of the IRDA Act as "legislation by reference" in Section 44. The ITAT dismissed this ground, reaffirming that previous ITAT decisions support the CIT(A)'s interpretation.

5. Taxation of surplus in Shareholders' Account:
The Revenue argued that the CIT(A) erred in not taxing the surplus in the Shareholders' Account separately as "income from other sources." The ITAT upheld the CIT(A)'s decision, supported by previous ITAT rulings, that the surplus should be combined with the Policyholders' Account surplus and taxed under Section 115B. This ground was dismissed.

6. Carry forward of losses assessed under "Income from Other Sources":
The CIT(A) directed the AO to assess the total income in line with the ITAT's decision in ICICI Prudential Life Insurance Co. Ltd. and apply Section 72 for carry forward of losses. The ITAT found this direction based on facts and law, thus dismissing this ground of appeal.

7. Claim of 100% depreciation and its impact on actuarial surplus:
The Revenue contended that the CIT(A) erred in allowing 100% depreciation, impacting the actuarial surplus. The ITAT dismissed this ground, referencing previous ITAT decisions that support the CIT(A)'s stance.

8. Adjustment for negative reserves in arriving at taxable surplus:
The Revenue argued that negative reserves reduce the taxable surplus, necessitating adjustments. The ITAT dismissed this ground, relying on prior ITAT rulings favoring the assessee.

9. Deduction of provision for fringe benefit tax/wealth tax:
The assessee claimed that the AO ignored expenses for fringe benefit tax/wealth tax while determining income in the Shareholders' Account. The ITAT directed the AO to allow ?7,69,438 as an allowable expense, aligning with the assessee's contention and previous decisions.

Conclusion:

The appeal filed by the Revenue was dismissed, and the appeal filed by the assessee was partly allowed. The ITAT upheld the CIT(A)'s decisions based on consistent interpretations and previous ITAT rulings, emphasizing judicial discipline and the need to follow higher appellate authorities' orders. The ITAT directed necessary adjustments and allowances in line with established legal principles and facts.