2023 (3) TMI 674 - HC - Income Tax

Computation of income - business of carrying out life insurance viz-a-viz investment amortization - Whether the Tribunal misdirected itself in law and on facts in not appreciating that the profits and gains of the appellant/assessee were to be computed in accordance with the provisions of Section 44 read with First Schedule of the Income Tax Act, 1961? - HELD THAT - What emerges upon perusal of Section 44 of the Act is that it contains a non-obstante clause, which excludes the application of all provisions contained in the Act which relate to computation of income chargeable under the heads referred to therein, by providing that computation of income qua the said heads will be made in accordance with rules contained in the First Schedule. Section 44 provides for a statutory mechanism for computing profits and gains of an insurance business and includes, in this context, business carried on by a mutual insurance company or even by a cooperative society. In that sense it moves away from the usual and general method of computing income chargeable to tax by bearing in mind the heads of income of income referred to in Section 14 of the Act. This is plainly evident, since there is a specific reference to Section 199, which broadly deals with granting credit to the person from whose income tax has been deducted at source and the Sections spanning between 28 to 43B. Therefore, Ms Jha s submission that in the computation of profits and gains of the appellant/assessee insofar as its insurance business is concerned, only the provisions of Section 44 of the Act would apply, has weight and hence will have to be accepted. Tribunal, however, has in Ms. Jha s opinion, veered off course by adverting to other provisions of the Act, which stand specifically excluded. Interest on TDS - Tribunal has indicated that the same is inadmissible and for this purpose, reliance has been placed on Section 40(a) of the Act - insofar as unpaid bonus and unpaid leave encashment are concerned, the Tribunal has brought to the fore Section 43B of the Act - There is, inter alia, a specific reference to the provisions of the Act which will not apply to an assessee which is carrying on an insurance business, and these include provisions spanning between Sections 28 and 43B of the Act. The rules contained in the First Schedule appended to the Act will determine the manner in which the profits and gains of insurance business are to be ascertained According to us, the Tribunal has committed an error in law, which needs to be corrected. We may note that for AYs 2005-16, 2008-19 and 2010-11, a coordinate bench of this court in the matter of Principal Commissioner of Income Tax vs Sahara India Life Insurance Co Ltd., ( 2019 (8) TMI 409 - DELHI HIGH COURT has taken a similar view. Decided in favour of assessee.

Summary

Issues:
1. Disallowance of amortization of investment
2. Disallowance on account of interest on Tax Deducted at Source (TDS)
3. Disallowance on account of Bonus Unpaid
4. Disallowance on account of Leave Encashment Unpaid
5. Computation of profits and gains of the assessee in the insurance business

Analysis:
1. The appeal was against the ITAT order concerning the Assessment Year 2014-15. The AO made four additions, including disallowances on various accounts. The CIT(A) deleted all disallowances, which was challenged by the revenue in the appeal resulting in the impugned order.

2. The Tribunal agreed with the CIT(A) on the deletion of disallowances related to investment amortization. However, for the remaining disallowances, the Tribunal sided with the AO, leading to the current appeal.

3. The main issue was how the profits and gains of the assessee, engaged in life insurance business, should be computed. The question of law framed was whether the Tribunal erred in not computing the income in accordance with Section 44 of the Income Tax Act, 1961.

4. The appellant contended that Section 44 is a specific provision for computing income for businesses like life insurance, and other provisions for ascertaining income under different heads should not apply. References to specific judgments were made to support this argument.

5. On the contrary, the respondent argued in favor of the impugned order. However, the court analyzed Section 44, which contains a non-obstante clause, indicating that income for insurance businesses should be computed as per the rules in the First Schedule, overriding other provisions of the Act.

6. The court agreed with the appellant that only Section 44 should apply for computing profits and gains of the insurance business. The Tribunal was found to have erred by considering other provisions like Section 40(a) for interest on TDS and Section 43B for unpaid bonus and leave encashment.

7. The judgment allowed the appeal, setting aside the impugned order, and answered the question of law in favor of the appellant. A similar view was taken in a previous case by a coordinate bench for other assessment years.

8. The appeal was disposed of accordingly, emphasizing the exclusive applicability of Section 44 for computing profits and gains in insurance businesses.