9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (9) TMI 172 - HC - Income TaxIncome earned on sale/redemption of investment - insurance business - Whether investments could be considered as stock-in-trade? - Held that - There is no option with a company carrying on general insurance business, like the Assessee, to treat any part of its investment as stock-in-trade as is sought to be contended by the Revenue before the Court. These investments are, at best, floating assets . The argument that these constitute stock-in-trade is ingenious but does not find resonance in the provisions of the IA. Profits on sale/redemption of investments - Held that - As already noticed, Section 44 of the Act is specific to Insurance Business . It states that, notwithstanding anything to the contrary contained in the Act relating to the computation of income chargeable under different heads interest on securities , income from house property , capital gains or income from other sources , the profits and gains of any business of insurance shall be computed in accordance with rules contained in the First Schedule of the Act. Therefore, in the case of the Assessee which is carrying on general insurance business, the profits and gains of its business have to be computed only in terms of the First Schedule. With the Assessee carrying on a general insurance business, it was bound by the provisions of the IA as well as the IRDA Regulations referred to hereinbefore. Even the CBDT, in its Circular No. 5/2010 dated 3rd June 2010, acknowledged that, after the introduction of the IRDA Regulations in 2002, non-life insurance companies are required to credit income from the sale of investments directly to the P&L Account. This requirement, which would make the income so earned amenable to tax, was made applicable only from AY 2011-12. Prior to 1st April 2011, there was no provision which required the Revenue to disallow the deduction of loss on sale of investments. The Court is, therefore, unable to subscribe to the submission of Mr. Manchanda that the Circular No. 528 has no application to the present case. The decision in J.K. Synthetics v. CBDT (1971 (4) TMI 3 - SUPREME COURT ) relied upon by him has no application to the facts of the case. Furthermore, it is not even the case of the Revenue that the said Circular is ultra vires of the Act. ITAT erred in holding that the income earned on sale/redemption of investment was chargeable to tax. - Decided in favour of assessee. Disallowance of investments written off - Held that - Even the Assessee acknowledges that if it succeeds, as it has, in its plea that the profit from sale/redemption of investments must be exempt from tax, then it cannot seek deduction as a result of losses on the write off of such investments. Consequently the question framed is answered in the negative, i.e. in favour of the Revenue and against the Assessee. It is held that CIT (A) erred in deleting the addition by the AO on account of the investment written off. Applicability of Section 115JB to insurance companies - Held that - It is plain, from a reading of Section 44 read with the First Schedule of the Act, that insurance companies are required to prepare accounts as per the IA and the regulations of the IRDA and not as per Parts II and III of Schedule VI of the Companies Act. The Assessee prepares its accounts as per the IRDA principles. The IRDA Regulations govern the preparation of the auditor s report. Consequently, the question framed is answered in the affirmative, i.e. in favour of the Assessee and against the Revenue by holding that Section 115JB of the Act does not apply to insurance companies.
Issues Involved:
1. Taxability of income earned on sale/redemption of investments. 2. Applicability of Section 115JB of the Income Tax Act to insurance companies. 3. Deletion of the addition made by the Assessing Officer on account of investment written off. Detailed Analysis: 1. Taxability of Income Earned on Sale/Redemption of Investments: The primary issue in ITA No. 372/2015 was whether the income earned on sale/redemption of investments is chargeable to tax. The Assessee argued that Circular No. 528 dated 16th December 1988, which exempted such profits from tax, should apply. The Revenue contended that the investments should be treated as stock-in-trade and thus taxable. The Court analyzed the provisions of the Insurance Act, 1938, and the Income Tax Act, 1961, particularly Section 44 and Rule 5 of the First Schedule. It concluded that the investments could not be considered stock-in-trade and that the Circular No. 528 was binding on the Revenue. Consequently, the Court held that the ITAT erred in holding that the income earned on sale/redemption of investment was chargeable to tax, answering the question in favor of the Assessee. 2. Applicability of Section 115JB of the Income Tax Act to Insurance Companies: In ITA No. 447/2015, the question was whether the provisions of Section 115JB, which pertains to Minimum Alternate Tax (MAT), apply to insurance companies. The Court noted that insurance companies are required to prepare accounts as per the Insurance Act and IRDA regulations, not as per Parts II and III of Schedule VI of the Companies Act. Therefore, the Court affirmed that Section 115JB does not apply to insurance companies, answering the question in favor of the Assessee and against the Revenue. 3. Deletion of the Addition Made by the Assessing Officer on Account of Investment Written Off: The issue in ITA No. 448/2015 was whether the ITAT was correct in upholding the decision of the CIT (A) in deleting the addition made by the AO on account of investment written off. The ITAT had followed its decisions for previous assessment years, holding that the guidelines issued by the GIC permitted insurance companies to book the loss in their accounts. The Court noted that the Assessee had acknowledged that if it succeeded in its plea that the profit from sale/redemption of investments must be exempt from tax, it could not seek deduction for losses on the write-off of such investments. Consequently, the Court held that the CIT (A) erred in deleting the addition made by the AO, answering the question in favor of the Revenue. Conclusion: The Court allowed ITA No. 372 and 448 of 2015, holding that the income earned on sale/redemption of investments is not chargeable to tax and that the CIT (A) erred in deleting the addition on account of investment written off. ITA No. 447 of 2015 was dismissed, affirming that Section 115JB does not apply to insurance companies.
|
