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TMI Blog2013 (10) TMI 1130X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case and the law, the CIT(A) erred in confirming the disallowance in respect of the Section 14A of the Act amounting to Rs. 39,99,020/- on the ground that the provisions of Section 14A, being in the nature of special provisions, override the provisions of Section 44." 3. Ground No. 1 regarding the taxability of gain on sale of investment. We have heard the Ld. AR as well Ld. DR and considered the releant material on record. At the outset we note that an identical issue has been considered and decided by this Tribunal for the assessment year 2003-04 vide order dated 10.10.2012 in ITA No. 2398/M/2009 in para 5 to 5.4 as under: "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 insura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded 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 is no dispute that under the guidelines issued by the IRDA (Audito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed 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 f the revenue"'. 19: The aforesaid order of the Pune Bench, which was in the case of a company carrying on general insurance business, was followed by the Mumbai Bench Of the Tribunal in its order dated 17.09.2010, in the case :of HDFC E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITD 41. On the other hand, the Ld. DR has submitted that when the income is non-assessable to tax being exempt then the provisions of section 14A shall be applied. This issue has been considered and decided by the Tribunal in case of ICICI Prudential Insurance Co. Ltd. Vs ACIT (supra) in para 46 as under: "46. This issue is already decided by the Coordinate Benches in various cases. For the sake of record, the order in the case of General Insurance Corporation of India (supra) vide Para 9 is as under: 9. "Issue No.6 Non applicability of provisions of section 14A. (Modified Ground of Appeal No.3.1 to 3.4 - Original Ground of Appeal No.3.1 to 3.5). The issue is with reference to the applicability of section 1 4A and disallowance of expenditure in respect of sale of investment which are not taxed. We have heard the rival contentions. We also note that this issue is also considered by the Coordinate Bench in assessee's own case for 2006-07 vide Para 7 to 9: 7. Grounds of appeal no.4 regarding the expenditure under section 14A. 8. We have heard the rival contentions and perused the relevant record. We note that this issue has been considered and decided by the Pune Bench of this Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of profits and gifts of business of insurance. It being a non obstante provision has to prevail over other provisions in the Act. It clearly provides that income from insurance business has to be computed in accordance with the rule contained in the First Schedule. It is not the case of the Revenue that the assessee has not computed the profits and gains of its insurance business in accordance with the said rules. Reliance was placed on the scope of s. 144, as held in the case of General Insurance Corporation of India v. CIT [1999] 156 CTR (SC) 425: [1999] 240 ITR 139 (SC), wherein their Lordships of the Apex Court have categorically held that the provisions of s. 44 being a special provision govern computation of taxable income earned from business of insurance. It mandates the tax authorities to compute the taxable income in respect of insurance business in accordance with the provisions of the First Schedule to the Act. In the light of these, their Lordships of Delhi High Court have held that no question of law, much less a substantial question of law survives for their consideration. In other words, order of the Tribunal has been affirmed. Following the same reasoning, additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions as applicable to resolve this issue a conclusion was drawn that since the Courts have held, s. 44 creates a special provision in the cases of assessment of insurance companies therefore it was not permissible to the AO to travel beyond s. 44 of First Schedule of IT Act. 18.1 The next common dispute relates to the order of the CIT (A) in sustaining the action of AO in allowing only 50 per cent of the management expenses by invoking the provisions of s. 14A of the Act. The addition is made by the AO on the plea that the provisions of s. 14A was inserted by Finance Act, 2001 w.e.f. 1st April, 1962. It is stated that the investments made by the assessee are both taxable as well as tax free. An estimated disallowance of 50 per cent out of the management expenses incurred and as claimed in the P&L a/c is treated as expenses incur red in connect ion with the looking after tax-free investment. 19. The learned counsel for the assessee vehemently argued that the income of the assessee is to be computed under s. 44 r w r. 5 of Sch. I of the IT Act, Sec. 44 is a non obstante clause and applies notwithstanding anything to the contrary contained within the provisions of the IT Act relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eupon ground No. 2 automatically goes in favour of the assessee". Accordingly, by following the orders of this Tribunal, we decide this issue in favour of the assessee. Therefore, the ground is allowed". Respectfully following the same, we modify the order of the CIT (A) and delete the addition made by AO. The ground and additional grounds are considered as allowed." Following the earlier order of this Tribunal we decide this issue in favour of the assessee. 6. The Revenue has raised the only ground in this appeal as under: "1. On the facts and in the circumstances of the case as well as in law, the Learned CIT(A) has erred in directing to allow the deduction for Unexpired Risk Reserve on terrorism @ 100% without appreciating that the URR was created in excess of the amount permissible under section 64(V)(1)(ii)(b) of the Insurance Act." 7. We have heard the Ld. DR as well as Ld. AR and considered the relevant material on record. The Ld. DR has relied upon the order of the Assessing Officer. On the other hand, the Ld. AR has submitted that there is only minimum limit as provided u/s 64V(1)(ii)(b) of the Insurance Act for creating Unexpired Risk Reserve (URR) on terrorism. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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