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TMI Blog2012 (11) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... e is engaged in the general insurance business. In the computation of income, the assessee has reduced the gain on sale of investment amounting to Rs.3,49 crores while calculating the profit or loss of business or profession. On a query from the Assessing Officer, the assessee has contended that the gains on sale of investment amounting to Rs. 3.49 crores is exempt from tax in view of circular No.528 dated 16.12.1988 issued by CBDT. It was further submitted that as per section 44 of the Act, the profits and gains for insurance business shall be computed in accordance with the rules contained in the first schedule to the Act and the profit from the insurance business shall be taken to be the balance of the profits as disclosed by annual account, which are required under the Insurance Act, 1938 to be furnished to the Insurance Authorities, subject to the adjustments provided in clause 5(a) to (c). Clause 5(b) which provided for adjustment, inter alia, for profit or loss on the realization of investments, has been deleted by the Finance Act, 1988 and as per explanatory notes; the aforesaid amendment was made to enable the general insurance companies to play a more active role in capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HDFC Ergo General Insurance Co. Ltd Mum ITAT Shri D Manmohan & Shri Rajendra Singh 2004-05 Tata AIG General Insurance Co. Ltd Mum ITAT Shri R V Easwar & Shri A L Gehlot 2003-04 4.1 The ld AR has further pointed out that the circular no.528 dt 16.12.1988 of the CBDT issued as an explanatory note on the Finance Act 1988 whereby the sub rule (b) of Rule 5 of first schedule has been deleted and it has been explained to enable the general insurance companies and its subsidiaries to play a more active role in capital markets for the benefit of policy holders. This rule has been amended for exemption of the profits earned by them on the sale of investments. 4.2 On the other hand, the ld DR has submitted that the assessment of the insurance companies has to be framed as per the provisions of sec. 44 and in accordance with the First Schedule of the Insurance Act. Even after the amendment whereby the sub Rule (b) of Rule 5 of First Schedule was removed the total income of the assessee has to be computed as per the existing provisions. He has submitted that section 44 r.w. the First Schedule to the I T Act provides the scheme of computation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the amount of profit on sale of investment will be included in the total income of the assessee. The ld DR has further submitted that as per the Circular no.525 dt 16.12.1988, the amendment has been brought with the object to enable the general insurance company and its subsidiaries and not for other private Insurance companies like the assessee. Therefore, the said circular cannot be applied in the case of the assessee. He has relied upon the orders of the authorities below. 5. We have considered the rival submissions as well as the relevant material on record. There is a special provision for computation of income chargeable under the head "profits and gain" inter-alia in the business of Insurance under section 44 of the I T Act and the same shall be computed in accordance with the Rule containing in first schedule of the Act. The profits and gains of business of insurance other than the life insurance shall be computed as per Rule 5 of First Schedule as under: 5. The profits and gains of any business of insurance other than life insurance shall be taken to be the profit before tax and appropriations as disclosed in the profit and loss account prepared in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the ld DR that once the assessee has included the gain on sale of investments in the P&L account prepared as per the provisions of the Insurance Act, 1938, then the said amount cannot be reduced while computing the income as per provisions of sec. 44 r.w First Schedule of the I T Act. 5.2 However, in the series of decisions of the Tribunal a view has been taken that the amendment vide Finance Act 1988 w.e.f 1.4.89, the sub rule (b) of Rule 5 of First Schedule was omitted with the purpose to grand exemption to the insurance companies with regard to the profit on sale of investments. The Tribunal has taken note of the fact that in the corollary, it has been provided in the circular no.528 dated 16.12.1988 that the loss incurred by the general insurance companies on realization of investment shall not be allowed as deduction in computing the profit chargeable to tax. 5.3 In the latest decision dated 22.10.2010, this Tribunal in the case of Tata AIG General Insurance Co Ltd vs ACIT in ITA No.2597/Mum/2009 after considering the earlier decisions of the Tribunal has held in paras 18 to 20 as under: "18. We have carefully considered the rival contentions. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribes the method of computation of income of Insurance Business in part (A) but also prescribe the method of computation of other Insurance Business in Part (B). Rule 5 is within Part (B) and earlier it has prescribed the method of taxation of profit on sale of investments which was later on scraped. Even by applying a reverse logic we must arrive at the same conclusion that had the impugned income' was earlier taxable under one specific clause but even on its deletion no clause was Introduced or replaced to prescribe the method of taxation of such income;. Therefore the Revenue Department has no right to tax such an income in the absence of any enabling provision. Naturally, such a deletion cannot be treated a superfluous action but this change had to give a definite judicial meaning. We have to ascribe a logical conclusion to the said deletion of sub rule (b) from Rule 5 and the natural meaning is that after the deletion the income described therein is out of the purview of computation of Insurance Business from the First schedule therefore consequently cannot be taxed u/s 44 of I T Act. After expressing this view we hereby dismiss the cross objection V of the revenue"'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of section 115JB of the Act are not applicable to the Appellant as the Appellant prepares its accounts as per the Insurance Regulatory And Development Authority (IRDA) (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulation, 2002 and not as per provisions of Part II and Ill of Schedule VI of the Companies Act, 1956." 7. We have heard the ld AR of the assessee as well as the ld DR on the point of admissibility of additional ground and considered the relevant material on record. Since the additional ground raised by the assessee is on the issue of applicability of the provisions of sec. 115JB with respect to the Insurance Companies, which is purely a legal issue and therefore, no new facts are required to be examined or investigated for adjudication of the additional ground raised by the assessee. Accordingly, in view of the decision of the Hon'ble Supreme Court in the case of NTPC reported in 229 ITR 383(SC), we admit the additional ground raised by the assessee for adjudication on merit. 8. The Assessing Officer has pointed out that the total income as per the provisions of I T Act at loss of Rs. 2,81,60,340/- which is obviously less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut that now an amendment has been brought in statute by the Finance Act 2012 whereby sub.sec. 2 has been substituted w.e.f 1.4.2013; therefore, prior to 1.4.2013, the provisions of sec. 115JB cannot be applied in the case of Companies which are not required to prepare accounts as per the provisions of part II of Schedule VI of the Companies Act, 1956. 8.5 On the other hand, the ld DR has submitted that as per section 115JB, every company is required to prepare its accounts as per Schedule VI of the Companies Act, 1956. However, as per the provisions of the Companies Act, 1956, certain companies, e.g. insurance, banking or electricity company, are allowed to prepare their P&L account in accordance with the provisions specified in their regulatory Acts. In order to align the provisions of Income-tax Act with the Companies Act, 1956, it is proposed to amend section 115JB to provide that the companies which are not required under section 211 of the Companies Act to prepare their profit and loss account in accordance with the Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act 2012 whereby sec 115JB has been amended w.e.f 2013 and therefore, prior to 1.4.2013, the amended provisions of sec. 115JB cannot be applied in case of Insurance, banking, electricity, generation and distribution companies and other class of companies, which are not required to prepare their accounts and particularly Balance Sheet and P&L account as per part II & III of Schedule VI of the Companies Act. 9.2 The Hyderabad Bench of the Tribunal in the cased of State Bank of Hyderabad (supra) has considered and decided a similar issue; though in the case of bank in paras 13 & 14 as under: "13. The provisions of Sec.1153B will be applicable to all companies. However, it is contended that Sec.115JB will be applicable only where the assessee is required to show profit & loss account in accordance with schedule VI of companies act. As the banks are required to prepare balance sheet and profit & loss account in accordance with the Banking Regulation Act, provision of 115JB cannot be applied to the banks. In the case of Maharashtra State Electricity Board vs.)CIT (82 ITD 422) it was held that provisions of book profit cannot be applied to Electricity Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussed above, the assessee is following the accounting policies under the Electricity Supply act and prepared its accounts in view of those very policies. Following those very policies, the accounts in accordance with part II & III of Schedule VI of the Companies Act are not applicable at all. Once there is no possibility for preparing the accounts in accordance with the part II & II of Schedule VI of Companies Act then the provisions of sec. 115JB cannot be forced. Therefore, in view of the above facts and circumstances and respectfully following the above decisions of the Hon'ble Supreme Court and the decision of the Tribunal for AY 88-89, we hold that provisions of sec. 115JB are not applicable on the facts of the present case." 10. Following the decisions of the coordinate Benches of this Tribunal, we hold that when the insurance companies, banking companies and electricity generation and distributions companies are treated in the same class as per the provisions of sec. 211 of the Companies Act in preparing their final accounts, then these companies cannot be treated differently for the purpose of sec. 115JB and accordingly, the provisions of sec. 115JB are not applicable i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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