2015 (11) TMI 1858 - AT - Income Tax

Claim of amortization of premium paid on purchases of investment - HELD THAT - In assessee s own case for the assessment year 2003-04 2010 (10) TMI 764 - ITAT MUMBAI wherein the issue with regard to amortization of premium paid on purchases of investments was allowed in favour of assessee. Amortization of pre-operative expenses - HELD THAT - As per assessee s own case for the assessment year 2003-04 2010 (10) TMI 764 - ITAT MUMBAI we confirm the action of the CIT(A) for allowing assessee s claim for amortization of pre-operative expenses. Addition made on account of profit on sale of investment being chargeable to tax - HELD THAT - As per assessee s own case for the assessment year 2003-04 2010 (10) TMI 764 - ITAT MUMBAI the profit on sale of investment in the case of an assessee carrying on general insurance business cannot be brought to tax after the omission of rule 5(b) and as per the Circular cited. Exempting dividend income - HELD THAT - This issue is also covered by the order of the Hon ble Bombay High Court in the case of General Insurance Corporation of India 2011 (12) TMI 70 - BOMBAY HIGH COURT - we do not find any infirmity in the order of CIT(A) exempting the dividend income. Disallowance u/s 14A - HELD THAT - As relying on M/S. RELIANCE GENERAL INSURANCE CO. LTD. VERSUS. THE DY. COMMISSIONER OF INCOME-TAX 2010 (4) TMI 1076 - ITAT MUMBAI we do not find any merit in the action of lower authorities for disallowance made u/s.14A which is not applicable to the Insurance Company. TDS u/s 194C or 194I - payment made to Hotel - HELD THAT - We have considered rival contentions and found that the payment to Hotel is covered by the provision of Section 194I. Circular No.5 dated 30-7-2002 also supports the contention that while making payment to the Hotel tax is liable to be deducted u/s.194-I. Hon ble Bombay High Court in the case of East India Hotels Ltd. Anr. 2009 (3) TMI 8 - BOMBAY HIGH COURT held that in case of payment to Hotels tax is to be deducted at source as per provisions of Section 194-I and not as per the provisions of Section 194C. Respectfully following the decision of the Hon ble jurisdictional High Court vis- -vis the CBDT Circular as discussed above we do not find any merit for disallowance of expenses on the plea that payment to Hotel is subject to deduction of tax u/s.194C of the IT Act. Accordingly the AO is directed to delete the disallowance so made. Nature of expense - expenditure on purchase of hard disk head sets RAM etc - revenue or capital expenditure - HELD THAT - The issue is directly covered by the decision in the case of Southern Roadways Ltd. 2006 (10) TMI 82 - MADRAS HIGH COURT wherein it was held that expenditure on replacement of machinery and expenditure on upgradation of computer are revenue in nature. In the instant case also the expenditure was incurred for upgradation of the computers by placing its hard disk RAM etc. Respectfully following the decision of Hon ble Madras High Court we do not find any merit in the AO s action for disallowing the expenditure on purchase of hard disk head sets RAM etc. on the plea that the same being capital in nature. Disallowance of expenditure pertaining to purchase of software/renewal of software licence considering the same to be capital in nature - HELD THAT - Respectfully following the order of the Tribunal in assessee s own case we direct the AO to delete the disallowance made on account of expenditure pertaining to purchase of software renewal of software licence. TDS u/s 194H - Disallowance of co-insurance fees u/s.40(a)(ia) of the Act for non-deduction of TDS - HELD THAT - In the present case the co-insurers were stated to be neither acting as an agent nor acting as broker for and on behalf of the assessee and therefore the payments of co-insurance fees could not be construed as commission as per the Act or in commercial parlance. The AR made detailed submissions to bring out how the provisions of Sec.194H were not applicable in their case. The AR also placed reliance on a number of judicial pronouncements the ratio of which is not applicable to the facts of this case. Considering totality of facts and circumstances of the case we are in agreement with the contention of ld. AR that no disallowance is warranted u/s.40(a)(ia) in respect of coinsurance fees paid by assessee.

Issues Involved:
1. Amortization of premium paid on investments
2. Amortization of pre-operative expenses
3. Taxability of profit on sale of investments
4. Exemption of dividend income under Section 10(34)
5. Disallowance under Section 14A
6. Disallowance under Section 40(a)(ia)
7. Capital vs. Revenue expenditure on purchase of hard disks, RAM, software, and renewal of software licenses

Detailed Analysis:

1. Amortization of Premium Paid on Investments:
The Tribunal confirmed the CIT(A)'s decision allowing the assessee's claim for amortization of premium paid on investments. The Tribunal referenced its own decision in the assessee's case for the assessment year 2003-04, where it was held that the amortization claim cannot be considered as an expenditure or allowance under Rule 5(a) of the First Schedule. The Supreme Court's judgment in General Insurance Corporation of India vs. CIT was cited, stating that there is no specific prohibition against allowing such an expenditure under Sections 30 to 43A.

2. Amortization of Pre-operative Expenses:
The Tribunal upheld the CIT(A)'s decision allowing the amortization of pre-operative expenses. This issue was also covered by the Tribunal's order for the assessment year 2003-04. The Tribunal noted that the expenses were incurred before the actual commencement of the business and referenced the Delhi High Court's judgment in Shriram Refrigeration Industries Ltd., which allowed similar pre-operative expenses as revenue expenditure in the year the business commenced.

3. Taxability of Profit on Sale of Investments:
The Tribunal confirmed the CIT(A)'s decision excluding the profit on the sale of investments from taxable income. This issue was covered by the Tribunal's order for the assessment year 2003-04, which held that the omission of Rule 5(b) from the First Schedule meant that such profits are no longer taxable. The Tribunal referenced its own decisions in Bajaj Allianz General Insurance Company and HDFC ERGO General Insurance Company, which supported this view.

4. Exemption of Dividend Income under Section 10(34):
The Tribunal upheld the CIT(A)'s decision exempting dividend income under Section 10(34). The Tribunal referenced the Bombay High Court's judgment in General Insurance Corporation of India, which held that the exemption under Section 10 is available to insurance companies subject to the fulfillment of conditions under the relevant clause of Section 10.

5. Disallowance under Section 14A:
The Tribunal deleted the disallowance made under Section 14A, stating that the provisions of Section 14A do not apply to insurance companies. The Tribunal referenced its own decision in ICICI Lombard General Insurance Co. Ltd., which held that Section 44, a special provision for insurance companies, overrides Section 14A. The Tribunal also cited decisions in Oriental Insurance Co. Ltd., Bajaj Allianz General Insurance Company, and Reliance General Insurance Co. Ltd., which supported this view.

6. Disallowance under Section 40(a)(ia):
The Tribunal deleted the disallowance made under Section 40(a)(ia) for non-deduction of TDS on co-insurance fees. The Tribunal agreed with the assessee's contention that the payments were made on a principal-to-principal basis and not as commission, thus not attracting TDS under Section 194H. The Tribunal referenced the Bombay High Court's decision in East India Hotels Ltd., which supported the view that payments to hotels are subject to TDS under Section 194-I, not Section 194C.

7. Capital vs. Revenue Expenditure on Purchase of Hard Disks, RAM, Software, and Renewal of Software Licenses:
The Tribunal held that the expenditure on the purchase of hard disks, RAM, and software renewal is revenue in nature. The Tribunal referenced the Madras High Court's decision in Southern Roadways Ltd., which held that expenditure on upgradation of machinery and computers is revenue in nature. The Tribunal also cited its own decision in the assessee's case for the assessment year 2003-04, which allowed similar expenditures as revenue expenditure.

Conclusion:
The Tribunal dismissed the appeals of the revenue and allowed the appeals of the assessee, confirming the CIT(A)'s decisions on all the issues involved. The Tribunal's decisions were consistent with its previous rulings and relevant High Court and Supreme Court judgments.

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