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2013 (8) TMI 664 - AT - Income TaxRevision u/s 263 - Erroneous or prejudicial of revenue - AO allowed the Exemption u/s. 10(34) - Insurance business - Dividend income - whether exemption u/s. 10 can be allowed to an Insurance company when income is computed u/s. 44 of the Act - Held that - - Issue of deduction u/s. 10 of the Act was considered and allowed following the Hon ble Bombay High Court Judgment in writ petition No. 2560 of 2011 dt. 01-12-2011 in the case of General Insurance Corporation of India, Mumbai. Versus The Deputy Commissioner of Income Tax, 1(3) Mumbai & Anr. 2011 (12) TMI 70 - BOMBAY HIGH COURT . Relying upon the judgment in the case of CIT Vs. New India Assurance Co. Ltd 1991 (2) TMI 39 - BOMBAY High Court ; GIC of India vs. CIT(Supreme Court) 2006 (9) TMI 116 - SUPREME Court , it is held that assessee was entitled to exemption u/s. 10 including the dividend income i.e., exemption available u/s. 10(34) of the Act. The order passed by the AO allowing exemption u/s. 10(34) of the Act cannot be said to be an order which is erroneous and prejudicial to the interest of the Revenue. - Decided in favor of assessee.
Issues Involved:
1. Validity of the exemption under Section 10(34) of the Income Tax Act for dividend income in the context of life insurance business. 2. Whether the order passed by the Assessing Officer (AO) allowing the exemption can be considered erroneous and prejudicial to the interest of the Revenue under Section 263 of the Income Tax Act. Issue-wise Detailed Analysis: 1. Validity of the Exemption under Section 10(34): The primary issue revolves around whether the exemption under Section 10(34) of the Income Tax Act, which pertains to dividend income, is applicable to a company engaged in the life insurance business. The assessee, a public limited company engaged in life insurance, had claimed this exemption, which was allowed by the AO during the assessment. However, the Commissioner of Income Tax (CIT) invoked Section 263, believing the AO's order was prejudicial to the interest of the Revenue. The Tribunal referred to several precedents, including the case of Life Insurance Corporation of India Vs ACIT, where it was established that insurance companies are entitled to exemptions under Section 10, including Section 10(34). The Tribunal also cited the decision in ICICI Prudential Insurance, which reinforced this position by stating that exemptions under Section 10 are available even when income is computed under Section 44 of the Income Tax Act. Furthermore, the Tribunal highlighted the judgment of the Hon'ble Bombay High Court in the case of GIC of India, which clarified that Section 44, which deals with the computation of profits and gains of insurance businesses, does not exclude the applicability of exemptions under Section 10. The High Court emphasized that the provisions of Section 44 and the First Schedule do not override the exemptions available under Section 10, and this principle applies to both life and general insurance businesses. 2. Erroneous and Prejudicial to the Interest of the Revenue: The Tribunal examined whether the AO's order, which allowed the exemption under Section 10(34), could be considered erroneous and prejudicial to the interest of the Revenue as per Section 263. The CIT had directed the AO to recompute the income without granting the exemption, considering the original order prejudicial to the Revenue. However, the Tribunal found that the AO's decision was consistent with judicial precedents and the established legal position. The Tribunal noted that the AO had followed the CBDT's communication, which clarified that exemptions under Section 10 are available to insurance companies, provided the conditions are met. The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue, as it was based on binding judicial precedents and the CBDT's guidelines. Conclusion: The Tribunal quashed the order passed by the CIT under Section 263, holding that the AO's decision to allow the exemption under Section 10(34) was correct and in line with judicial precedents. The appeal filed by the assessee was allowed, and the order pronounced in the open court on 11/07/2013 affirmed the assessee's entitlement to the exemption under Section 10(34) of the Income Tax Act.
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