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TMI Blog2011 (12) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... YED, JJ. Appearances by: Mr. F.B. Irani with Mr. Atul K. Jasani for the Petitioner. Mr. Charanjeet Chanderpaul for Respondent No. 1. ORAL JUDGMENT : (PER DR.D.Y.CHANDRACHUD, J.) 1. Rule. Learned Counsel for the Respondents waives service. By consent taken up for final hearing on the request of learned Counsel for the parties. 2. By a notice of the First Respondent dated 17 March 2011 issued under Section 148 of the Income Tax Act, 1961 an assessment for Assessment Year 200607 has been sought to be reopened. 3. The Petitioner is engaged in the business of general insurance. For Assessment Year 2006-07 the Petitioner filed a return of income on 30 November 2006 declaring a loss of Rs. 504.68 crores after excluding exempt incomes under clauses (15), (23G), (33) and (38) of Section 10. On 12 October 2007, the Assessing Officer issued a notice under Section 142 (1) seeking details of income exempted and of expenditure under Section 14A. The Petitioner, during the course of the assessment proceedings, made a submission before the Assessing Officer in a letter dated 25 October 2007 inter alia in regard to the claim of exemption under Section 10 (38). Reliance was pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee for exemption of dividend income [u/s. 10(34)], interest on taxfree bonds [u/s. 10(15)] is not according to law and deserves to be disallowed. However, for this assessment year, in the assessment u/s. 143(3) of the Act, the above claims have been wrongly allowed. The assessee submitted objections to the reopening of the assessment on 25 April 2011 which have been disposed of by an order dated 14 November 2011. 6. Learned Counsel appearing on behalf of the assessee submitted that : (i) During the course of assessment proceedings, the assessee had claimed an exemption under four clauses of Section 10 and had specifically placed reliance on a circular of the Central Board of Direct Taxes dated 21 February 2006. The Assessing Officer brought his mind to bear on whether the assessee has fulfilled the conditions for the grant of exemption under Section 10 and specifically disallowed the claim for an exemption under Section 10 (38). The exemptions under the other three clauses were allowed; (ii) The Assessing Officer had no new material and certainly no tangible material on the basis of which the assessment could be reopened even within the period of four years. As a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icular clause of section 10 under which exemption is sought. General Insurance Companies are therefore, on par with other assesses who are entitled to or are eligible for exemption under section 10 of the Income-tax Act of long-term capital gains. The Assessing Officer declined to grant the benefit of an exemption under Section 10(38) to the assessee on the ground that during the assessment year the assessee had carried on a regular business activity of trading in shares and was not an investor. The exemptions under clauses (15), (23G) and (33) of Section 10 were however allowed. The Assessing Officer, in the reasons which have been declared to the assessee for reopening assessment has now taken the view that on a combined reading of Section 44 of the Income Tax Act, 1961 and the First Schedule the position that emerges is that no other Section of the Act applies to a company which carries on general insurance business except the provisions contained in Rule 5 of the First Schedule. On this basis, it has been contended that the claims have been wrongly allowed . We find merit in the contention of the Petitioner that the reasons which have been set out by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an inbuilt test to check abuse of power by the Assessing Officer. Hence, after 1 st April, 1989, the Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act,1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in section 147 of the Act. However, on receipt of representations from the companies against omission of the words reason to believe , Parliament reintroduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer. 10. In the present case, it is apparent that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons for reopening the assessment proceeded on the premise that in computing the profits and gains of business for an assessee who carries on general insurance business no other section of the Act would apply and that the computation could be carried out only in accordance with Section 44 read with Rule 5 of the First Schedule. In Life Insurance Corporation of India, Bombay v. Commissioner of Income-Tax, Bombay City-III 115 ITR 45 a Division Bench of this Court construed the provisions of Section 44 and of the First Schedule. The assessee in that case which carried on life insurance business had made a claim to exemption under Section 10 (15) and Section 10 (1). In a reference before the Court the questions referred included whether in computing the profits and gains of the business of insurance under Section 44 read with the First Schedule certain items which were ordinarily not includible in the total income were rightly included in the taxable surplus. The Division Bench of this Court held as follows : The question which essentially falls to be determined in this reference is whether, in view of the provisions in section 44 or rule 2 of the First schedule, the Life Insuranc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to the balance of profit as per annual accounts prepared under the Insurance Act, and hence the judgment would not be applicable. The Assessing Officer has clearly not noticed that the decision in Life Insurance Corporation (supra) though rendered in the context of an assessee which carries on life insurance business, followed an earlier decision of a Division Bench of this Court in Commissioner of Income-Tax v. New India Assurance Co. Ltd. [1969] 71 ITR 761 (Bom). That was a case of an assessee which carried on non life insurance business. In New India Assurance Co. Ltd., the Division Bench dealt inter alia with the provisions of Section 10(7) of the Income Tax Act, 1922. The questions referred to this Court included whether the assessee was entitled to claim an exemption from tax under Section 15B and 15C (4) and in respect of interest on a government loan under a notification issued under Section 60. Section 10 (7) of the Income Tax Act, 1922 provided that notwithstanding anything to the contrary contained in Section 8, 9, 10, 12 or 18, the profits and gains of any business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (a). In that context, the Supreme Court held as follows : There is another approach to the same issue. Section 44 of the Income-tax Act read with the rules contained in the First Schedule to the Act lays down an artificial mode of computing the profits and gains of insurance business. For the purpose of income-tax, the figures in the accounts of the assessee drawn up in accordance with the provisions of the First Schedule to the Income-tax Act and satisfying the requirements of the Insurance Act are binding on the Assessing Officer under the Income-tax Act and he has no general power to correct the errors in the accounts of an insurance business and undo the entries made therein. The question whether an assessee who carries on general insurance business would be entitled to avail of an exemption under Section 10 did not arise. The issue as to whether the assessee which carries on the business of general insurance would be entitled to the benefit of an exemption under clauses (15), (23G) and (33) of Section 10 is directly governed by the decision rendered by the Division Bench in Life Insurance Corporation vs. Commissioner of Income-tax (supra) following the earlier decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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