2023 (10) TMI 616 - AT - Income Tax

Insurance Business - Addition on account of Surplus disclosed in Form 1 of Actuarial Report - Netting off of surplus available both in Policy Holders Account and Share Holder s account - Assessee is engaged in the business of life insurance and has obtained license of life insurance business from insurance regulatory and development authority - HELD THAT - Assessee is maintaining its regular books of accounts in accordance with the directions issued by IRDA which mandate preparation of policy holders account and shareholders account separately and since assessee is into life insurance business the computation of profit and loss account of insurance / business for the purpose of tax has to be made in accordance with Section 44 r.w.r. 2 of first Rule of the Act. According to the Regulations Profit and Loss Account (P L A/C) of Insurance Company is divided into a Technical Account (Policyholder s Account) also called as Revenue Account and Non Technical Account (Shareholder s Account) also called as P L Account. Technical Account deals with all the transactions relating to the income by way of premium and expenditures and actuarial provisions shown segment wise. All the transactions relating to Shareholder s like funding the deficit income earned on investment of share capital and reserves are dealt in non technical Shareholder s account. IRDA (Actuarial Report and Abstract) Regulations 2000 prescribes a method of preparation of actuarial report and abstract. As per Regulation 4(2)(d) item no.iv Form I was prescribed for purpose of valuation result and to indicate surplus of deficit in the life insurance business. This precise question was answered by the Hon ble Jurisdictional High Court in the case of CIT vs. ICICI Prudential Insurance Ltd. 2015 (7) TMI 972 - BOMBAY HIGH COURT wherein held that the order of the Tribunal holding that income from shareholders account is also to be taxed as part of life insurance business and cannot be found fault with the view of the clear mandate of Section 44 of the Act. The order of the ld. CIT(A) confirmed - Decided in favor of assessee. Disallowance of profits from pension fund - pension fund scheme was managed by FGILI in A.Y. 2010-11 which was approved by IRDA - assessee had surplus/deficit of Life Insurance business during the relevant year and same has been taken into consideration while computing actuarial appointed by the assessee and AO has disallowed the same stating that he is adding the same in order to keep the issue alive - HELD THAT - As per the provision of Section 10(23AAB) any income arise from pension scheme is exempt under the Act. Thus the intention was to bring incentive provided in insurance sector so that terms will be added to the contributors in the insurance industry. In view of the Section 10(23AAB) r.w. First Schedule of Rule 2 assessee had taken into consideration the actuarial valuation report wherein it has considered the total business income/loss without bifurcating into pension / non-pension business. The assessee had surplus from approved pension scheme during the relevant year and since same forms part of the Life Insurance business only the said amount has been accounted while arriving at the actuarial surplus and that surplus need to be considered for computing profits from life insurance business. Decided against revenue.

Summary

Issues Involved:

1. Addition made by the Assessing Officer on account of Surplus disclosed in Form 1 of Actuarial Report.
2. Consolidation of 'surplus' available in Policy Holders Account and Share Holder's account for taxation.
3. Deletion of addition made by the AO on account of loss from pension fund.
4. Applicability of non-obstante provision of Section 44 to section 10(23AAB) of the IT Act 1961.
5. Applicability of Section 10 of IT Act to Insurance business when total income is computed under Schedule 1 of the IT Act.

Summary:

Issue 1: The Revenue questioned the Tribunal's decision to deny the addition made by the Assessing Officer (AO) based on the Surplus disclosed in Form 1 of the Actuarial Report, citing Section 44 read with Rule 2 of the First Schedule of the IT Act, 1961. The Tribunal noted that this issue had been consistently decided in favor of the assessee in previous years, supported by the Hon'ble Jurisdictional High Court's decisions in CIT vs. Life Insurance Corporation of India Ltd. and General Insurance Corporation of India.

Issue 2: The Revenue challenged the CIT(A)'s decision that consolidated the 'surplus' available in both Policy Holders Account and Share Holder's account, taxing only the 'net surplus' as income from Insurance Business. The Tribunal upheld the CIT(A)'s decision, referencing the Hon'ble Bombay High Court's ruling in CIT vs. ICICI Prudential Insurance Co. Ltd., which affirmed that the surplus from both accounts should be combined for tax purposes.

Issue 3: The Revenue contested the deletion of the addition made by the AO on account of loss from the pension fund, arguing that income includes loss and that income from the Pension Fund does not form part of the total income under Section 10(23AAB) of the IT Act. The Tribunal confirmed the CIT(A)'s deletion, citing the Hon'ble Bombay High Court's decision in Life Insurance Corporation of India Ltd., which allowed the adjustment of losses from pension funds in the actuarial valuation surplus.

Issue 4: The Revenue argued that the non-obstante provision of Section 44 should apply to Section 10(23AAB) of the IT Act, 1961. The Tribunal, however, followed the precedent set by the Hon'ble Bombay High Court, which maintained that Section 44 governs the computation of income from insurance business, including pension funds, irrespective of the exemptions under Section 10.

Issue 5: The Revenue contended that Section 10 of the IT Act should not apply to insurance business when total income is computed under Schedule 1 of the IT Act. The Tribunal dismissed this argument, reiterating that the computation of income for insurance companies must follow the specific rules under Section 44 and the First Schedule, as consistently upheld in previous judgments.

Conclusion: The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order and maintaining that the computation of income for insurance businesses must adhere to the established legal framework, including the specific provisions of Section 44 and the First Schedule of the IT Act.

Order pronounced on 24th July, 2023.