2018 (9) TMI 469 - AT - Income Tax

Business being taxable at special rate of 12.5% as per Section 44 - Income from SHA account was on account of carrying on business activity, other than Life insurance - addition of incremental negative reserves as per actuarial report - Held that - As decided in assessee s on case issue decided in favour of assessee

Summary

Issues Involved:
1. Taxability of transfer from Shareholder's account to Policy Account as part of 'surplus' under Section 44 of the Income Tax Act.
2. Consolidation of 'surplus' from Policy Holders Account and Share Holder's account for taxation as income from Insurance Business.
3. Impact of negative reserve value on taxable surplus calculation.
4. Exemption of dividend income under Section 10(34) of the Income Tax Act.
5. Taxability of income from pension fund under Section 10(23AAB) and its treatment in total income.
6. Applicability of Section 14A to income of insurance business computed under Section 44 of the Act.

Analysis:

Issue 1:
The appeal contested the taxability of transfer from Shareholder's account to Policy Account as part of 'surplus' under Section 44 of the Income Tax Act. The Ld. CIT(A) concluded that the transfer was not taxable under Section 44, which was challenged by the revenue.

Issue 2:
Regarding the consolidation of 'surplus' from Policy Holders Account and Share Holder's account for taxation as income from Insurance Business, the Ld. CIT(A) allowed relief to the assessee by holding that only the 'net surplus' should be taxed, consolidating the surplus available in both accounts.

Issue 3:
The impact of negative reserve value on taxable surplus calculation was raised, with the Ld. CIT(A) being criticized for not appreciating the reduction in taxable surplus due to considering the negative reserve at zero.

Issue 4:
The Ld. CIT(A) upheld the exemption claim of the assessee for dividend income under Section 10(34) of the Income Tax Act, which was challenged by the revenue based on the inclusion of dividend income in the income of the Life Insurance Business.

Issue 5:
The taxability of income from the pension fund under Section 10(23AAB) and its treatment in the total income was disputed. The Ld. CIT(A) deleted the addition made by the AO, stating that the income from the pension fund does not form part of the total income of the Assessee under Section 10(23AAB).

Issue 6:
The applicability of Section 14A to income of insurance business computed under Section 44 of the Act was questioned. The Ld. CIT(A) held that Section 14A is not applicable to income of insurance business computed under Section 44, despite the provisions of Section 10 being applicable.

The Tribunal dismissed the revenue's appeal, citing previous favorable judgments and the lack of contrary judgments presented by the revenue, leading to the dismissal of the appeal.