2019 (10) TMI 1469 - AT - Income Tax

Assessment of income from life insurance business - surplus arising from shareholder account as separate income and not as income arising from life insurance business - assessee contended that merely because surplus from shareholders account and policy holders account is disclosed separately in the financial statements the income in shareholders account should not be treated as distinct income separated from life insurance business - HELD THAT - We noticed that the ld CIT(A) has followed the decision rendered by the coordinate bench in the assessee s own case relating to asst. year 2009-10 2017 (5) TMI 1769 - ITAT BA NGALORE and also decision rendered in the case of PNB Met Life 2016 (7) TMI 12 - ITAT BANGALORE . Since the ld CIT(A has followed the decision rendered by Tribunal on this issue we do not find any necessity to interfere with the order passed by him. Claim of set off of loss computed under the Pension account against business income - HELD THAT - We noticed that the coordinate bench has examined an identical issue and decided the same in favour of the assessee by following the decision rendered by Bombay High Court in the case of LIC of India Ltd. 2011 (8) TMI 47 - BOMBAY HIGH COURT held as rightly contended by the ld counsel for the assessee it would be the case when income is computed under the normal provisions of the Act. However in the case of Assessee s engaged in life insurance business Income has to be computed as laid down u/s 44 of the Act. Section 44 of the Act starts with a non obstante clause and overrides the provisions of the Act relating to computation of income under the various heads of income including income under the head profit and gains of business of insurance. Therefore we are of the view that stand taken by the DRP cannot be accepted. We therefore direct that loss from pension fund which is exempt u/s10(23AAB) be excluded while determining surplus as per actuarial valuation surplus u/s 44 of the Act. Ground raised by the assessee is allowed.

Summary

Issues:
1. Treatment of surplus from Shareholder's funds as income from life insurance business under Section 44 of the IT Act.
2. Determination of profits of the Life Insurance business as per financial accounts versus surplus reflected in Form I of 'Actuarial Valuation' under Section 44 of the IT Act.
3. Exclusion of loss in the pension account under Section 10(23AAB) of the IT Act from the computation of Total Income.

Issue 1:
The first issue revolved around the treatment of surplus from Shareholder's funds as income from life insurance business under Section 44 of the IT Act. The Revenue contended that the surplus from Shareholder's funds should be considered distinct from income arising from the life insurance business. However, the assessee argued that both the surplus from Shareholder's account and policy holders' account are integral parts of the life insurance business as per the Insurance Act. The ld CIT(A) agreed with the assessee's stance, citing various judicial pronouncements, including decisions from the jurisdictional ITAT and other cases. The Tribunal upheld the ld CIT(A)'s decision, emphasizing that the surplus from Shareholder's account, although disclosed separately, remains connected to the life insurance business.

Issue 2:
The second issue involved the determination of profits of the Life Insurance business either as per financial accounts or the surplus reflected in Form I of 'Actuarial Valuation' under Section 44 of the IT Act. The Revenue argued for the profits to be determined based on financial accounts, while the assessee advocated for considering the surplus reflected in Actuarial Valuation. The ld CIT(A) aligned with the assessee's position, supported by the decision of the coordinate bench and the Bombay High Court. The Tribunal concurred with the ld CIT(A)'s decision, emphasizing that Section 44 of the IT Act prevails over other provisions for computing income in the life insurance business.

Issue 3:
The final issue pertained to the exclusion of a loss in the pension account, exempt under Section 10(23AAB) of the IT Act, from the computation of Total Income. The assessee sought to set off the loss against business income, citing precedents and legal provisions. The Tribunal referenced the decision of the Bombay High Court and previous rulings in favor of the assessee. It concluded that the loss from the pension fund, exempt under Section 10(23AAB), should be excluded while determining the surplus as per Actuarial Valuation under Section 44 of the IT Act. The Tribunal upheld the ld CIT(A)'s decision, finding it in line with legal principles and previous judgments.

In summary, the judgment addressed the issues related to the treatment of surplus from Shareholder's funds, determination of profits in the life insurance business, and the exclusion of losses in the pension account for computing Total Income. The Tribunal upheld the ld CIT(A)'s decisions, emphasizing legal provisions, precedents, and the overriding nature of Section 44 of the IT Act in computing income for the life insurance business.