2015 (9) TMI 1718 - HC - Income Tax

Dividend income as exempt u/s.10 (34) - dividend income is considered as part of Income of the life Insurance Business and is included as an income by actuary - HELD THAT - We find that the impugned order of the ITAT has allowed the respondent-assessee's appeal by following the decision of this Court in General Insurance Corporation of India vs. Deputy Commissioner of Income Tax anr 2011 (12) TMI 70 - BOMBAY HIGH COURT and its own decision in the case of ICICI Prudential Insurance 2012 (11) TMI 13 - ITAT MUMBAI Revenue very fairly states that the revenue's appeal on this issue from the order of ITAT in ICICI Prudential Insurance Co.Ltd (supra) to this Court 2015 (7) TMI 972 - BOMBAY HIGH COURT in view of the above, question (A) does not raise any substantial question of law and accordingly dismissed. Whether negative reserve has an impact of reducing the taxable surplus as per Form-I and therefore, corresponding adjustment for negative reserve need to be made to arrive at taxable surplus? - HELD THAT - The issue stands covered in favour of the respondent-assessee by the decision of the Apex Court in LIC of India 1963 (12) TMI 5 - SUPREME COURT wherein it has inter alia been held that the Assessing Officer had no power to modify its accounts after Actuarial valuation is done. Accordingly, question (B) also does not give rise to any substantial question of law. Hence, dismissed.

Summary

Issues:
- Challenge to common impugned order of the Income Tax Appellate Tribunal (ITAT) for Assessment years 2007-08, 2008-09, and 2009-10.
- Identical questions of law raised by the revenue regarding dividend income and negative reserve adjustments.

Analysis:

1. The appeals under section 260A of the Income Tax Act, 1961, challenge the common impugned order of the ITAT for the mentioned assessment years. The primary contention revolves around the treatment of dividend income and negative reserve adjustments in the assessment process.

2. The revenue has raised two identical questions of law in all three appeals. The first question pertains to the treatment of dividend income as exempt under section 10(34) of the Income Tax Act, disregarding its inclusion in the income of the life insurance business. The second question concerns the impact of negative reserves on reducing taxable surplus and the necessity for corresponding adjustments in arriving at the taxable surplus.

3. Regarding the first question (A), the ITAT's decision to allow the respondent-assessee's appeal aligns with previous judgments, including the General Insurance Corporation of India case and the ICICI Prudential Insurance case. The revenue's appeal related to a similar issue was dismissed by the Court, indicating that question (A) does not pose a substantial question of law and is subsequently dismissed.

4. Moving to question (B) concerning negative reserve adjustments, the ITAT's decision in favor of the respondent-assessee is based on precedent, specifically the ICICI Prudential Insurance case for the assessment year 2006-07. The revenue's appeal on this matter was also dismissed by the Court due to the issue being covered by the decision in LIC of India vs. CIT. The Court held that the Assessing Officer lacks the authority to modify accounts post actuarial valuation, leading to the dismissal of question (B) for not raising a substantial question of law.

5. Consequently, all three appeals challenging the ITAT's order are dismissed, with no costs imposed. The judgment clarifies the treatment of dividend income and negative reserve adjustments in the context of the Income Tax Act, providing legal certainty on these matters based on established precedents and statutory provisions.