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2018 (1) TMI 845 - AT - Income TaxProfit disclosed by the assessee in the shareholder s Profit and loss account (Form A-PL) - not the profit derived from Life Insurance business and therefore the provisions of section 44 read with Schedule First of the Income Tax Act are not applicable - Held that - Set aside the order of CIT(A) on this issue and direct the assessing officer to take profit shown in shareholders profit and loss account i.e. Form A-PL to be part of the income derived from life insurance business. Thus these grounds are allowed. Addition in respect of the amount declared and allocated as bonus for the policy holders - Held that - We do agree that the term accrual surplus is not defined under the act. The CBDT Circular cannot control the interpretation of Rule 2. We find force in the submissions of the learned Sr. Advocate that CBDT Circular has limited application to a situation where the insurance benefits are assigned to third parties where the benefits are to be paid/reserved/expended on behalf of the policy holder or the assignee. As the term on behalf of implies agency relationship and when the benefits are assigned to third parties insurance company acts as agent of the policy holder. Even otherwise if we go to the explanatory note as given under para 40.2 of the Circular 202 according to this bonus paid to the policy holder will also be taxed but that is not the case of the Revenue. The Revenue has only contested the bonus declared and the incremental FFA. 89. We also noted that no such disallowance has been made by the Revenue in the earlier assessment years i.e. up to A.Y.2009-10 and it is for the first time that the CIT(A) has enhanced the assessment. Even on the ground of consistency the Revenue cannot discard the consistent and regular method followed for determining the taxable income without there being any change or otherwise the bonus declared and the incremental FFA has been allowed as deduction by the Revenue. Addition considering Funds for Future Appropriation ( FFA ) as part of the actuarial surplus - Held that - We even noted upto Assessment Year 2009-10 the Revenue has consistently excluded amount appropriated for FFA out of the available surplus for the purpose of ascertaining acturial surplus while computing profit and gains of life insurance business of the assessee. Therefore following principle of consistency as has been held by Hon ble SC in the case of Radhasaomi Satsang Baug v CIT 1991 (11) TMI 2 - SUPREME Court 2, 50, 00, 000/- as there is no submission or argument made on behalf of the assessee that the assessee is eligible for deduction under section 80G of the Income tax Act and the assessee had complied with the conditions as stipulated under section 80G. It is also not the case of the assessee that the assessee has incurred these expenses eligible for deduction under section 35CCA 35CCB 35CCC or 35CCD so that we have taken a view that while computing the income from insurance business in view of specific provisions of section 44 no disallowance could have been made. Thus while deleting the enhancement made by CIT(A) in respect of provision for doubtful debts we also delete the disallowance of 2, 500/- taken in ground no. 8 as the assessee derived income from life insurance business only and the computation of the income from life insurance business in view of S. 44 of the Income Tax Act has to be made in accordance with Rule 2 of First Schedule of the Income Tax Act which debars Revenue to apply provision of S. 28 to 43B of the Income Tax Act. Thus ground no. 8 stand allowed. Re-compute the losses assessed in earlier AYs for the purpose of allowing setoff thereof u/s 72 - Held that - CIT(A) although allowed assessee to setoff of losses u/s 72 of AY 2002-03 7, 10, 43, 000/- has duly been shown by assessee under the head income from investment and is duly included in the gross receipt of 1, 43, 19, 19, 000/- and loss of 20, 91, 40, 000/- has been arrived at after considering said income. Therefore we find that CIT(A) has correctly observed that this is a double addition in income of assessee and he has rightly deleted the said addition. We do not find any illegality or infirmity in the order of CIT(A) while deleting the said addition. Thus the cross objection filed by Revenue stands dismissed.
Issues Involved:
1. Enhancement of income made by CIT(A) 2. Additions confirmed by CIT(A) 3. Additional ground of appeal regarding exemption under Section 10(34) 4. Cross-objections by the Revenue Detailed Analysis: 1. Enhancement of Income Made by CIT(A): The CIT(A) enhanced the taxable income of the assessee by Rs. 42,18,54,000 on account of Funds for Future Appropriation (FFA) and Rs. 141,85,84,000 by treating the amount declared and allocated as bonus for policyholders as part of the actuarial surplus liable to tax under Section 44 read with Rule 2 of the First Schedule of the Act. Analysis: - The Tribunal found that the bonus declared for participating policyholders is an ascertained liability and should be deducted while computing the actuarial surplus. The bonus is a contractual obligation enforceable in law and represents a liability towards the policyholders, not the shareholders. - The Funds for Future Appropriation (FFA) were also considered as a provision for a definite and ascertained liability, which is a necessary charge on the profits of the life insurance business. The Tribunal held that FFA represents the provision for future bonuses and should be taken into account while determining the actuarial surplus. - The Tribunal emphasized that the actuarial surplus should be computed after providing for all expenses and ascertained liabilities of the life insurance business, including bonuses and FFA. 2. Additions Confirmed by CIT(A): The CIT(A) confirmed the additions made by the Assessing Officer on account of donations paid (Rs. 2,50,00,000) and share issue expenses (Rs. 2,500). Analysis: - The Tribunal held that the income of the assessee has to be computed in accordance with Rule 2 of the First Schedule provided in Section 44 of the Income Tax Act, which overrides the normal provisions of the Act relating to the computation of income chargeable under the head "Profits and gains of business or profession." - Donations and share issue expenses are not to be disallowed under the normal provisions of the Act while computing the income from life insurance business. However, the Tribunal upheld the disallowance of donations as the assessee did not establish eligibility for deduction under Section 80G. 3. Additional Ground of Appeal Regarding Exemption Under Section 10(34): The assessee raised an additional ground of appeal for exemption under Section 10(34) in respect of dividend income earned during the previous year. Analysis: - The Tribunal admitted the additional ground as it was a legal ground and no new facts were required to be investigated. - The Tribunal allowed the exemption under Section 10(34) for dividend income, following the decision of the Mumbai Bench of the Tribunal in the case of ICICI Prudential Insurance Co. Ltd. vs. ACIT, which was also confirmed by the Bombay High Court. 4. Cross-Objections by the Revenue: The Revenue filed cross-objections against the deletion of the addition of Rs. 7,10,43,000 made by the Assessing Officer on account of profit from the sale of investment. Analysis: - The Tribunal upheld the deletion of the addition by the CIT(A), noting that the said income was already included in the shareholders' profit and loss account, and adding it again would lead to double taxation. - The Tribunal dismissed the cross-objections filed by the Revenue, finding no error in the CIT(A)'s order. Conclusion: - The Tribunal allowed the appeal of the assessee in part, setting aside the enhancements made by the CIT(A) and deleting the disallowances of provision for doubtful debts and share issue expenses. - The Tribunal dismissed the cross-objections filed by the Revenue, upholding the deletion of the addition on account of profit from the sale of investment. - The Tribunal admitted and allowed the additional ground of appeal for exemption under Section 10(34) for dividend income.
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