2019 (11) TMI 516 - AT - Income Tax

Addition being income from investment not included - diversion of income by overriding titles - HELD THAT - As given thoughtful consideration to the orders of the authorities below and have carefully considered the letter of the Government of India referred to hereinabove. The facts of the case, read with the aforesaid letter of the Government, clearly demonstrates that this is a case of diversion of income by overriding titles. Considering the fats of the case in the light of the letter of Government of India, we find that the reliance by the ld. CIT(A) on the ratio laid down by the Hon'ble Supreme Court in the case of Associated Power 1995 (11) TMI 5 - SUPREME COURT is well taken. The ratio laid down by the Hon'ble Supreme Court has been followed in various judgments, to name a few, CIT Vs. New Horizon Sugar Mill Pvt Ltd 1998 (4) TMI 41 - MADRAS HIGH COURT , Bijli Cotton Mills P Ltd 1978 (11) TMI 1 - SUPREME COURT , Dalmia Cement Ltd 1999 (4) TMI 4 - SUPREME COURT , etc. All these judicial decisions have been discussed elaborately by the ld. CIT(A) in his order. We, therefore, do not find any error or infirmity in the order of the ld. CIT(A). Accordingly, Ground No. 1 of the Revenue is dismissed. Disallowance made u/s 14A - HELD THAT - Section 14A contemplates an exception for deductions as allowable under the Act are those contained u/s 28 to 43B of the Act. Section 44 creates Special application of these provisions in the cases of insurance companies. We, therefore, agree with the assessee and delete the disallowance made by the AO which is based on the application of sec. 14A of the act as according to us, it is not permissible to the AO to travel beyond section 44 and First Schedule of the Income-tax Act. Respectfully following the decision of the ITAT in the case of Oriental Insurance Co. Ltd. 2009 (2) TMI 240 - ITAT DELHI-B , the additional ground raised by assessee is allowed.

Summary

Issues Involved:

1. Deletion of addition of ?8,62,47,181/- as income from investment not included.
2. Deletion of addition of ?75,29,079/- as disallowance under Section 14A of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?8,62,47,181/- as Income from Investment Not Included:

The case involves the assessee company, which provides financial security through insurance products and is engaged in Agriculture Crop Insurance. During the scrutiny assessment, the Assessing Officer (AO) noticed that the assessee had excluded ?8,62,47,181/- from its profit and loss account, crediting it directly to the Corpus Fund of Central & State Government. The AO added this amount back to the income of the assessee, which was contested by the assessee, claiming that the income belonged to the government and was credited to the Corpus Fund as per the Government of India's directions.

The Commissioner of Income Tax (Appeals) [CIT(A)] considered the submissions and observed that the corpus fund was created by the Government of India and State Governments, and the income generated from this fund belonged to the government. The CIT(A) relied on the Supreme Court decision in the case of Associated Power, which explained the doctrine of diversion of income by overriding titles. The CIT(A) concluded that the income credited to the corpus fund should be excluded from the total income of the assessee company.

Upon appeal, the Tribunal reviewed the facts, including a letter from the Government of India confirming that the interest accrued on the Corpus Fund belonged to the government. The Tribunal agreed with the CIT(A) that this was a case of diversion of income by overriding titles, citing various judicial decisions supporting this view. Consequently, the Tribunal found no error in the CIT(A)'s order and dismissed the Revenue's ground.

2. Deletion of Addition of ?75,29,079/- as Disallowance under Section 14A of the Income Tax Act, 1961:

The AO had disallowed ?75,29,079/- under Section 14A read with Rule 8D, as the assessee did not make any disallowance during the year under consideration, despite having made such disallowances in the preceding year. The assessee argued that for insurance businesses, Section 44 of the Income Tax Act overrides other provisions, and no disallowance under Section 14A can be made.

The CIT(A) referred to the coordinate bench's decision in the assessee's own case for the previous assessment year, which held that Section 44, which deals with insurance business, overrides other provisions of the Act, including Section 14A. The Tribunal, following the coordinate bench's decision, agreed that the provisions of Section 14A are not applicable to the assessee's case, as the computation of income for insurance businesses is governed by Section 44 and the First Schedule of the Income Tax Act.

The Tribunal upheld the CIT(A)'s decision to delete the disallowance under Section 14A, dismissing the Revenue's ground.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions to delete the additions of ?8,62,47,181/- and ?75,29,079/-, respectively, based on the principles of diversion of income by overriding titles and the overriding provisions of Section 44 for insurance businesses. The judgment was pronounced in the open court on 06.11.2019.