2025 (2) TMI 866 - AT - Income Tax

Assessment of insurance companies - Claim of exemption relating to profit on sale of shares and securities u/s. 10(38) interest on securities is allowable u/s. 10(15) and dividend on shares is allowable u/s. 10(34) - observed that the computation of income from business of insurance had to be made in accordance with section 44 r/w 1st Schedule of the Act and the other provisions of the Act in respect of relevant heads of income were not applicable in the case of an insurance company HELD THAT - Tribunal while deciding the issue in assessee s own case in preceding assessment years has categorically held that assessee s claim of exemption relating to profit on sale of shares and securities is allowable u/s. 10(38) interest on securities is allowable u/s. 10(15) and dividend on shares is allowable u/s. 10(34) of the Act. We find that all the issue in dispute under present appeal are covered by the order for A.Y. 2010-11. Also in view of the co-ordinate bench is also in consonance with the clarification issued by CBDT vide circular letter dated 21.02.2006 which has indeed been referred by learned CIT(A). In absence of any contrary decision the impugned order passed by learned CIT(A) does not warrant any interference and is accordingly affirmed and the grounds raised by the revenue under appeal stand determined against the revenue.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

1. Whether the CIT(A) erred in interpreting Section 44 of the Income Tax Act, 1961, in conjunction with Rule 2 of the First Schedule, the Insurance Act, 1938, and related regulations, by allowing adjustments from the 'surplus' worked out as per 'actuarial valuation'.

2. Whether the CIT(A) erred in deleting additions made on account of deductions claimed on dividend income under Section 10(34), considering it should be assessed under business income and not separately exempt.

3. Whether the CIT(A) erred in holding that exemptions under Section 10(34) should be provided on the gross dividend earned, not net, as Section 14A is not applicable to insurance companies.

4. Whether the CIT(A) erred in deleting additions related to exemptions claimed on long-term capital gains under Section 10(38) and interest income under Section 10(15), arguing these should be assessed under business income and not separately exempt.

5. Whether the CIT(A) erred in holding that exemptions under Sections 10(38), 10(15), and 10(34) are allowable while calculating income under Section 44 read with the First Schedule.

6. Whether the CIT(A) erred by not appreciating that valuation of insurance companies is governed by the Insurance Act, thus limiting deductions to those specifically provided in Schedule 1 Rule 2, excluding Section 10 exemptions.

7. Whether the CIT(A) erred in interpreting that only the un-amended Insurance Act 1938 and its regulations became part of Section 44 read with Rule 2 of the First Schedule due to "legislation by incorporation".

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Interpretation of Section 44 and Related Regulations

- Legal Framework: Section 44 of the Income Tax Act governs the computation of income for insurance businesses, requiring adherence to the First Schedule. The Insurance Act, 1938, and related regulations also play a role.

- Court's Interpretation: The Tribunal noted that the CIT(A)'s interpretation is consistent with past decisions, allowing exemptions under Section 10 for insurance companies.

- Key Evidence and Findings: The Tribunal referenced previous decisions confirming that exemptions for long-term capital gains, interest, and dividends are allowable.

- Application of Law to Facts: The Tribunal applied the legal framework consistently with prior rulings, affirming the CIT(A)'s decision.

- Competing Arguments: The Revenue argued against exemptions under Section 10, while the Assessee supported the CIT(A)'s interpretation.

- Conclusions: The Tribunal upheld the CIT(A)'s interpretation, dismissing the Revenue's appeal.

Issue 2: Exemption on Dividend Income under Section 10(34)

- Legal Framework: Section 10(34) exempts dividend income from taxation.

- Court's Interpretation: The Tribunal confirmed that dividend income qualifies for exemption under Section 10(34), aligning with prior decisions.

- Key Evidence and Findings: The Tribunal referenced past rulings where similar claims were upheld.

- Application of Law to Facts: The Tribunal applied the exemption consistently with prior cases, affirming the CIT(A)'s decision.

- Competing Arguments: The Revenue contested the exemption, arguing it should be part of business income.

- Conclusions: The Tribunal upheld the CIT(A)'s decision, affirming the exemption.

Issue 3: Exemption on Long-Term Capital Gains and Interest Income

- Legal Framework: Sections 10(38) and 10(15) exempt long-term capital gains and certain interest income.

- Court's Interpretation: The Tribunal confirmed these exemptions apply to insurance companies.

- Key Evidence and Findings: Past Tribunal decisions consistently upheld these exemptions.

- Application of Law to Facts: The Tribunal applied the legal framework consistently with past rulings, affirming the CIT(A)'s decision.

- Competing Arguments: The Revenue argued against these exemptions, while the Assessee supported the CIT(A)'s interpretation.

- Conclusions: The Tribunal upheld the CIT(A)'s decision, affirming the exemptions.

3. SIGNIFICANT HOLDINGS

- The Tribunal consistently upheld the CIT(A)'s interpretation, affirming that exemptions under Sections 10(34), 10(38), and 10(15) apply to insurance companies.

- The Tribunal referenced past decisions confirming the applicability of these exemptions, maintaining consistency and uniformity in its rulings.

- The Tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s decisions for both assessment years under consideration.