2020 (11) TMI 601 - AT - Income Tax

Exemption u/s 10(34) with respect to dividend income - disallowance u/s 14A to insurance company - HELD THAT - CIT(A) has relied upon host of binding decisions to arrive at the conclusion that exemption u/s 10(34) with respect to dividend income would be available to the assessee and further, the provisions of Sec. 14A would not apply to insurance company. No contrary decision has been placed before us. See ICICI PRUDENTIAL LIFE INSURANCE CO. LTD. 2018 (7) TMI 2022 - BOMBAY HIGH COURT Exemption u/s 10(34) could not be denied to the assessee. Further provisions of Sec.14A would not apply to insurance company. Ground, thus, raised, stands dismissed. Adjustment of Negative Reserves - CIT(A) observed that assessee s income was to be computed as per Sec. 44 of the Act and the assessee would be required to take Actuarial valuation Report in accordance with insurance Act, 1938 - HELD THAT - Assessee s income was to be computed as per Sec. 44 of the Act and the assessee would be required to take Actuarial valuation Report in accordance with insurance Act, 1938. The negative reserves would be nothing but premium receivable by the insurance company. However, there would always be a chance that policyholder might not continue with the insurance polity bought by him which would result in non-receipt of premium which was otherwise receivable by the insurance company. Therefore, the same could not be taxed. See LIFE INSURANCE CORPN. OF INDIA VERSUS ADDL. CIT 2013 (6) TMI 377 - ITAT MUMBAI - Decided against revenue.

Summary

Issues:
1. Exemption u/s. 10(34) of the Income Tax Act, 1961 regarding dividend income.
2. Disallowance u/s. 14A of the Income Tax Act, 1961.
3. Addition on account of negative reserves.

Exemption u/s. 10(34) - Dividend Income & Disallowance u/s 14A:
The appeal by the revenue contested the order of the Ld. CIT(A) for AY 2012-13, focusing on the allowance of exemptions u/s. 10(34) amounting to ?17,92,987 on dividend income. The Assessing Officer had denied this exemption citing Section 44 of the Income Tax Act, 1961. However, the Ld. CIT(A) allowed the exemption based on binding judicial precedents favoring the assessee. The Tribunal noted that the provisions of Sec. 14A would not apply to insurance companies, as supported by relevant case laws. The Tribunal upheld the CIT(A)'s decision, emphasizing the consistency of judicial precedents and the lack of contrary decisions presented.

Adjustment of Negative Reserves:
The issue of negative reserves arose due to an actuarial valuation that ignored reserves of ?841.35 Lacs. The Assessing Officer increased the surplus by this amount, reducing the returned loss. However, the CIT(A) ruled in favor of the assessee, stating that the negative reserves were akin to premium receivable and could not be taxed. The Tribunal concurred with the CIT(A)'s decision, citing similar judgments and the refusal of the Bombay High Court to admit similar grounds raised by the revenue in previous cases. The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision on this issue.

In conclusion, the Tribunal dismissed the appeal, affirming the decisions made by the CIT(A) on all the issues raised. The judgment was pronounced on 22nd October 2020.