2020 (2) TMI 849 - HC - Income Tax

Income from insurance business - Taxable income of the assessee Company as assessed u/s 44 read with the First Schedule - Profits and Gains of Insurance Business declared by the assessee - CIT (Appeals) issued the direction which reads as that the net income in the non-technical shareholders account of the appellant was ₹ 1,31,04,000/- and, after contribution to the policyholders fund at ₹ 9,22,41,000/-, the net loss from insurance business of the appellant was ₹ 7,91,37,000/-. The AO is directed to assess the income of the appellant at this amount - HELD THAT - Direction issued by the CIT (Appeals) in paragraph 4.3 of its order could not have been issued, since with the issuance of the said direction, the power of the Assessing Officer to discharge his function of carrying out the assessment stands denuded. Merely because profits of life insurance business are liable to be computed in terms of Section 44 read with Rules contained in the First Schedule, it does not follow that the Assessing Officer is denuded of his authority to carry out scrutiny while making the assessment. Even to arrive at a conclusion whether, inter alia, Rule 2 of the first Schedule has been complied with by the assessee, the Assessing Officer would have to look into the books maintained by the assessee and he is not bound to swallow the facts and figures placed before him by the assessee with a claim that the profits of life insurance business have been computed in terms of Rule 2 and the other Rules of the First Schedule. Answer the aforesaid question in favour of the revenue. Learned counsel for the respondent has also sought to urge that the CIT (Appeals) could not have remaded the matter back to the Assessing Officer and he was bound to carry out the assessment on his own. However, we find that the assessee did not prefer an appeal against that part of the order passed by the CIT (Appeals) before the Tribunal and also did not prefer any cross objections to that effect before the Tribunal. We are, therefore, not inclined to interfere with the direction of remanding the proceedings to the Assessing Officer. We, while, answering the question in favour of the revenue, direct that the Assessing Officer shall proceed to compute the profits from life insurance business strictly in terms of Section 44 read with the Rules contained in the First Schedule of the Income Tax Act.

Summary

Issues:
1. Interpretation of the direction issued by CIT (Appeals) regarding the assessment of income.
2. Jurisdiction of Assessing Officer to compute income from insurance business in accordance with the rules contained in the First Schedule.
3. Validity of the direction issued by CIT (Appeals) denuding the Assessing Officer's authority.
4. Whether CIT (Appeals) could remand the matter back to the Assessing Officer without appeal or cross objections.

Analysis:

1. The High Court analyzed the direction issued by the CIT (Appeals) regarding the assessment of income. The Court deliberated on whether the Assessing Officer was bound by the direction to assess the income of the appellant at a specific amount, considering the net loss from the insurance business. The Court emphasized the importance of the Assessing Officer's authority in carrying out the assessment process.

2. The Court examined the jurisdiction of the Assessing Officer to compute income from the insurance business in accordance with the rules contained in the First Schedule of the Income Tax Act. It was argued that the Assessing Officer's power to compute profits from the insurance business should not be denuded by any direction issued by the CIT (Appeals). The Court highlighted the provisions of Section 44 read with the First Schedule in this context.

3. The validity of the direction issued by the CIT (Appeals) denuding the Assessing Officer's authority was a crucial aspect of the judgment. The Court observed that the Assessing Officer must have the autonomy to scrutinize and assess the income, even if the profits from the insurance business are to be computed as per the rules in the First Schedule. The Court emphasized that the Assessing Officer should not be compelled to accept the figures presented by the assessee without scrutiny.

4. The Court addressed the issue of whether the CIT (Appeals) could remand the matter back to the Assessing Officer without any appeal or cross objections filed by the assessee. It was noted that the assessee did not challenge this aspect before the Tribunal. The Court decided not to interfere with the direction of remanding the proceedings to the Assessing Officer, while also directing the Assessing Officer to compute the profits from the life insurance business in accordance with Section 44 and the First Schedule of the Income Tax Act.

In conclusion, the High Court's judgment clarified the Assessing Officer's authority in computing income from the insurance business, emphasizing the importance of adherence to the provisions of the Income Tax Act while conducting assessments. The Court upheld the autonomy of the Assessing Officer in scrutinizing the income and directed compliance with the rules contained in the First Schedule for computing profits from the life insurance business.