2019 (6) TMI 374 - HC - Income Tax

Taxability of profits on sale of investments and securities - premium paid by the assessee on purchase of Govt. Securities as allowable as revenue expenditure on amortization - disallowance of expenses under Section 14A - HELD THAT - Appeal admitted on question 1 to 5 Relief to the assessee u/s 10 - profits on sale of investment and securities - whether no such benefit is allowable to the assessee due to the non-obstante nature of Section 44? - HELD THAT - This question similar to one considered by the Division Bench of this Court in THE NEW INDIA ASSURANCE CO. LTD., 2018 (3) TMI 589 - BOMBAY HIGH COURT wherein as clarified that exemption available to any other assessee under clause 10(38) relating to long term capital, would also be available to a person carrying on non-life Insurance business. CBDT communication dated 21st February, 2006 addressed by the CBDT to the Chairman, IRTA, as well as the decision of this Court in GIC 2011 (12) TMI 70 - BOMBAY HIGH COURT would be binding upon the Revenue. - Decided in favour of assessee. MAT provision u/s 115JB applicability - HELD THAT - Issue covered against the Revenue by a detailed Judgment THE COMMISSIONER OF INCOME TAX-LTU, COMMISSIONER OF INCOME TAX (IT) -3 VERSUS UNION BANK OF INDIA, MASHREQ BANK PSC, BANK OF INDIA, M/S THE NEW INDIA ASSURANCE CO. LTD., CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 2019 (5) TMI 355 - BOMBAY HIGH COURT as held that provisions of Section 115JB of the Income Tax Act, as it stood at the relevant time, would not apply to Banking Companies or Insurance Companies. This additional question is therefore, not considered.

Summary

Issues:
1. Taxability of profits on sale of investments and securities.
2. Allowability of premium paid on purchase of Govt. Securities as revenue expenditure.
3. Disallowance of expenses under Section 14A of the Income Tax Act.
4. Relief to the assessee under Section 10 of the Income Tax Act.
5. Applicability of Section 115JB of the Income Tax Act to the assessee.

Analysis:

1. The first substantial question of law addressed by the High Court pertained to the taxability of profits on the sale of investments and securities by the assessee. The court deliberated on the impact of the omission of Sub-rule (b) to Rule 5 of the First Schedule to the Income Tax Act, 1961 w.e.f. 01.04.1989, and whether this omission affected the taxability of such profits. The Hon'ble Tribunal's decision in this regard was a focal point of contention.

2. The second issue revolved around the allowability of the premium paid by the assessee on the purchase of Government Securities as revenue expenditure on amortization. The court examined whether such premium could be treated as revenue expenditure despite the absence of specific provisions for its amortization under the Income Tax Act, 1961. The distinction between revenue and capital expenditure was crucial in determining the tax treatment of the premium paid.

3. Another significant issue addressed was the disallowance of expenses under Section 14A of the Income Tax Act. The court scrutinized the Hon'ble Tribunal's decision to delete the disallowance of expenses under this section, particularly in the context of an insurance company. The interpretation of Section 44 of the Act and its impact on the applicability of Section 14A was a key aspect of this analysis.

4. The court also considered the question of relief to the assessee under Section 10 of the Income Tax Act concerning profits on the sale of investments and securities. The applicability of Section 44 of the Act and its implications on granting such relief were central to this issue. The court's assessment of whether such benefits were allowable to the assessee formed a crucial part of the judgment.

5. Lastly, the issue of the applicability of Section 115JB of the Income Tax Act to the assessee was discussed. The court referred to a detailed judgment from a Division Bench regarding the non-applicability of Section 115JB to Banking Companies or Insurance Companies. This decision played a pivotal role in determining the outcome of this particular issue before the High Court.