2019 (10) TMI 840 - AT - Income Tax

Addition on account of income from sale of investment - assessee is into insurance business - HELD THAT - We are of the considered view that investment made by the assessee are part and parcel of insurance business and the assessee has rightly treated the income from sale of investment as part of business of insurance. Moreover, in 2005-06, the Revenue itself has decided this issue in favour of the assessee by holding that profit and loss arising from the sale of investment is not chargeable to tax separately. In other words, it is beyond the purview of section 44 of the Act. Consequently, we are of the considered view that AO/CIT(A) have erred in making addition on account of income from sale of investment and as such are ordered to be deleted. Fringe Benefit Tax (FBT) provisions applicability - HELD THAT - FBT provisions is not sustainable on the ground that in Rule 2 of Schedule 1 of the Act, there is no mandate to make any such addition on the income of life insurance business. Moreover, any adjustment in the provisions of section 28 to 43B of the Act is not required to be added/reduced from the income of the assessee from life insurance business. So, in view of the matter, addition made by the AO and confirmed by CIT (A) for AYs 2007-08, 2008-09 2009- 10 respectively is not sustainable, hence ordered to be deleted. Exemption u/s 10(34) - HELD THAT - In respect of dividend income earned; that due to inadvertence, the assessee could not claim this exemption in the income tax return filed during the year under assessment. Keeping in view the fact that the appellate authorities can allow the ground even if the claim for relief/exemption has not been made part of the original or revised return. Even otherwise, to decide the controversy once for all and to stop the multiplicity of the proceedings, the assessee is entitled to raise the additional ground because the issue in controversy has also been decided in favour of the assessee by the Tribunal in AY 2006-07.

Summary

Issues Involved:
1. Treatment of income from the sale of investment as part of life insurance business.
2. Set-off of business loss against income from the sale of investment under Section 70(1) of the Income Tax Act.
3. Disallowance of Fringe Benefit Tax (FBT) provision.
4. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act.
5. Allowing exemption under Section 10(34) for dividend income.

Issue-wise Detailed Analysis:

1. Treatment of Income from Sale of Investment:
The primary issue was whether the income from the sale of investments should be treated as part of the life insurance business. The Tribunal noted that the appellant, a life insurance company, argued that under the Insurance Regulatory Development and Authority Act, 1999 (IRDA Act), they could not engage in any business other than life insurance. The Tribunal referenced a previous decision in the appellant's own case for AY 2006-07, where it was held that investments made by the assessee are part and parcel of the insurance business. The Tribunal concluded that the income from the sale of investments should be treated as part of the life insurance business, following the precedent set in AY 2006-07 and the consistent treatment in AY 2005-06, where the Revenue did not appeal against a similar decision.

2. Set-off of Business Loss Against Income from Sale of Investment:
The Tribunal did not specifically address the issue of set-off of business loss against income from the sale of investment under Section 70(1) of the Income Tax Act in the detailed analysis, as the primary focus was on the classification of the income from the sale of investments.

3. Disallowance of Fringe Benefit Tax (FBT) Provision:
The Tribunal considered the disallowance of FBT provision, which the AO had added back to the income. The Tribunal referred to its earlier decision for AY 2006-07, where it was held that FBT is not allowable as a deduction under Section 40(ic) of the Act. The Tribunal reiterated that there is no mandate in Rule 2 of Schedule 1 to make such an addition to the income of life insurance business and that adjustments under Sections 28 to 43B are not required for life insurance business income. Therefore, the disallowance of FBT provision was deemed unsustainable and was ordered to be deleted.

4. Initiation of Penalty Proceedings Under Section 271(1)(c):
The Tribunal did not provide specific findings on the initiation of penalty proceedings under Section 271(1)(c), deeming the ground premature and not requiring specific findings at this stage.

5. Allowing Exemption Under Section 10(34) for Dividend Income:
The appellant sought to raise an additional ground for exemption under Section 10(34) for dividend income, which had not been claimed in the original or revised return due to inadvertence. The Tribunal allowed the additional ground, noting that appellate authorities can permit such claims to avoid multiplicity of proceedings and to resolve the controversy comprehensively. The Tribunal referenced the decision in the appellant's favor for AY 2006-07 to support this allowance.

Conclusion:
The Tribunal allowed the appeals for AYs 2007-08, 2008-09, and 2009-10, ruling in favor of the assessee on all contested grounds. The income from the sale of investments was treated as part of the life insurance business, the disallowance of FBT provision was reversed, and the additional ground for exemption under Section 10(34) was permitted. The issue of penalty proceedings was deemed premature and not addressed in detail.