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2020 (5) TMI 357 - AT - Income TaxProfit on sale of investment as profit in the Life Insurance Business - not treating the profit disclosed in shareholder s account - applicability of provision of section 44 of the Act read with 1st Schedule - HELD THAT - As decided in own case 2018 (1) TMI 845 - ITAT DELHI and 2019 (4) TMI 1769 - ITAT DELHI 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. Non considering surplus actuarial valuation done in accordance with the Insurance Act, 1938 as per old Form No. 1 - AO has held that after the commencement of IRDA Act. 1999 and the taxable income should be equivalent to the actuarial valuation as per the new regulation and not as per old From in From No. G, H and I - HELD THAT - As decided in own case 2018 (1) TMI 845 - ITAT DELHI 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. 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 . We are of the view, 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 on account of funds for further appropriation and bonus allocated to the policyholders to the taxable income of the appellant - treating the same as part of the actuarial surplus liable to be taxed u/s 44 of the Act read with Rule 2 - HELD THAT - As decided in own case 2018 (1) TMI 845 - ITAT DELHI for all legal purposes, the property must be treated as belonging to the assessee and perhaps the Legislature would remedy the hardship of the assessee in such cases if it wants. Even though the assessee had a mere husk of title and as against the vendee no reality of title, as against the world he was still the legal owner and the real owner. In case the Revenue is of the opinion that due to the language of Rule 2, the companies carrying on life insurance business will be paying unjustifiably tax at a lower rate, the Revenue can approach the Parliament for making the necessary amendment in the Income Tax Act. 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 1991 (11) TMI 2 - SUPREME COURT and that of Excel Industries Ltd. 2013 (10) TMI 324 - SUPREME COURT we set aside the order of CIT(A) and delete the enhancement made by CIT(A) in this regard. Disallowance incurred on account of donation - donation was made by the assessee to the concern in which the directors of the appellate company are trustees - HELD THAT - Respectfully following the decision of the coordinate bench 2018 (1) TMI 845 - ITAT DELHI with respect to disallowance of donation made u/s 37(1) of the Act is the ground is confirmed against assessee. Claim of the assessee is that though donation is disallowable u/s 37(1) of the Act, if it fulfills the condition of the allowability of the donation under chapter VI A of the Act it should be allowed to the assessee - HELD THAT - Direction to verify the claim of the assessee u/s 80G. Exemption of claim by the assessee u/s 10(34) for the dividend income - issue raised by the assessee as an additional ground before the ld CIT(A) - CIT(A) rejected the same on the ground that since the claim was not made in the return of income or before the ld AO, he does not have the power to entertain the additional claim - applicability of S. 14A for disallowance of expenditure in respect of income not forming part of Total Income - HELD THAT - This issue is duly covered by decision of Mumbai Bench of this Tribunal in case of ICICI Prudential Insurance Co. Ltd. 2012 (11) TMI 13 - ITAT MUMBAI in which under para 47 while dealing with similar issue following decision of General Insurance Corp of India 1999 (9) TMI 3 - SUPREME COURT gave clearcut finding that assessee is entitled to exemption u/s 10(34) for the dividend income. No contrary decision for applicability of S. 10(34) S. 14A was brought to our knowledge. We accordingly allow the additional ground and dismiss the plea of learned DR that directions be given in case exemption is granted u/s 10(34) to disallow be expenditure u/s 14A of the Income Tax Act. Direction of the ld CIT(A) to the ld AO to re-compute the losses assessed in earlier assessment years as per section 44 of the Act and further the grant set off u/s 72 of the Act only in respect of income covered u/s 115B(ii) of the Act and that too against the loss as re-compute in earlier years.
Issues Involved:
1. Validity of various additions made to the returned income. 2. Treatment of total profit disclosed in the Shareholder's Profit and Loss Account. 3. Computation of income considering the actuarial valuation surplus. 4. Addition of Funds for Future Appropriation (FFA) to taxable income. 5. Addition of bonus allocated to policyholders to taxable income. 6. Disallowance of donation expenditure. 7. Denial of exemption under Section 10(34) for dividend income. 8. Re-computation of losses assessed in earlier years and set-off under Section 72. 9. Initiation of penalty proceedings under Section 271(1)(c). Detailed Analysis: 1. Validity of Various Additions: The assessee challenged the additions made by the AO, which increased the assessed income significantly. The Tribunal dismissed the general ground (Ground No. 1) as no arguments were advanced. 2. Treatment of Total Profit in Shareholder's Account: The Tribunal found that the issue of whether the profit disclosed in the shareholder's account should be treated as profit from the life insurance business was already decided in favor of the assessee in earlier years. The Tribunal reiterated that the income from the shareholder's account should be considered as part of the life insurance business under Section 44 read with the First Schedule. Thus, Ground No. 2 was allowed. 3. Computation of Income Considering Actuarial Valuation Surplus: The Tribunal noted that the AO's reliance on new regulations post-IRDA Act, 1999, was incorrect. The Tribunal upheld that the actuarial valuation should be done as per the old Form G, H, and I under the Insurance Act, 1938. This ground (Ground No. 3) was allowed based on consistency and previous Tribunal decisions. 4. Addition of Funds for Future Appropriation (FFA): The Tribunal held that FFA represents a provision for future liabilities and should not be included in the actuarial surplus. This decision was consistent with earlier Tribunal rulings, and thus, Ground No. 4 was allowed. 5. Addition of Bonus Allocated to Policyholders: The Tribunal found that the bonus allocated to policyholders is part of the actuarial liabilities and should not be taxed as part of the actuarial surplus. This ground (Ground No. 5) was also allowed, following previous decisions. 6. Disallowance of Donation Expenditure: The Tribunal upheld the disallowance of donation expenditure under Section 37(1) but admitted an additional ground for considering the donation under Section 80G. The matter was set aside to the AO for verification. Thus, Ground No. 6 was partly allowed, and the additional ground was allowed for statistical purposes. 7. Denial of Exemption Under Section 10(34) for Dividend Income: The Tribunal allowed the exemption under Section 10(34) for dividend income, following the precedent set in the assessee's earlier cases. Ground No. 7 was allowed. 8. Re-computation of Losses and Set-off Under Section 72: The Tribunal amended the CIT(A)'s direction consistent with the decision for Assessment Year 2010-11, allowing the set-off of losses. Ground No. 8 was allowed. 9. Initiation of Penalty Proceedings Under Section 271(1)(c): The Tribunal dismissed the ground related to the initiation of penalty proceedings as premature since no penalty had been levied. Ground No. 9 was dismissed. Conclusion: The Tribunal allowed several grounds in favor of the assessee, particularly those related to the computation of income from life insurance business and the treatment of actuarial surplus. The Tribunal upheld the disallowance of donation expenditure under Section 37(1) but allowed for its consideration under Section 80G. The Tribunal also allowed the exemption for dividend income under Section 10(34) and amended the direction for the re-computation of losses. The appeal was partly allowed.
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