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TMI Blog2016 (12) TMI 1741X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in facts and legal position in those years and the years before us now. Under these circumstances, reliance was placed on the order of the Tribunal for earlier years, especially the order passed in ITA No 3800/Mum/2008 & Others for A.Ys 2003-04 and 2006-07. 2. Per contra, the Ld.CIT-DR did not object to the above submission and could not point out any distinction in facts or legal position. Thus, with this background we proceed to decide the present appeals in the light of the decision taken by the Tribunal in earlier years on identical issues. 3. First, we shall take up appeal filed by the Revenue for AY. 2002-03 in ITA No.1668/Mum/2011 filed against the order of Commissioner of Income-tax (Appeals)-2, Mumbai [in short, CIT(A)] dated 10-12-2010 passed against the assessment order dated 14-12-2009 u/s 143(3) r.w.s. 147 of the Act for AY. 2002-03 on the following grounds:- "Ground No 1 DISALLOWANCE OF EXEMPTION IN RESPECT OF DIVIDEND INCOME U/S 10(34): (i) The learned CIT (A) has erred in law as well as on facts in exercising the power of enhancement for withdrawing the exemption allowed by the A.O. under Section 10 (34) in respect of income from dividend. (ii) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case reported in 119 STR 900 the surplus in a life insurance business is worked out on the basis of "the net liability under business as shown in the summary and valuation of policies" and the "balance of life insurance fund as shown in the balance sheet". Since income from dividend become part of the life insurance fund, it enters into the computation of total income under Section 44 read with First Schedule of the LT. Act. The mere fact that the "income from other sources" has not been separately computed does not make any difference in the tax treatment of such income. Ground No 2 ADDITION ON ACCOUNT OF DIS LLOWANCE OF EXPENDITURE U/S 14A: Based on the decision leading to withdrawal of exemption granted in respect of income from dividend, the learned CIT has held that the provisions of Section 14A are not applicable to the case. However, in the event of his finding getting reversed in Appeal, the provisions will become applicable. He has therefore, considered and disapproved the submissions made by the appellant in regard to working out the amount of expenses relatable to exempt income from dividend. In that respect the appellant is aggrieved on following grounds. (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption under section 10(23AAB) there are only two conditions to be fulfilled as laid down in the section, firstly that the contributions to such a fund is made by any person for the purpose of receiving pension from such fund and secondly the fund is approved by the Controller of Insurance or the Insurance Development Authority of India(IRDA). Hence, the learned CIT (A) was not justified in such an understanding of the provision which nowhere lays down the requirement of the Fund to be an independent assessable entity. The provision is applicable and consequently, the exemption is available to the Fund, irrespective of the fact whether it is an independent entity or run as a segment of the life insurance company, provided the conditions set out in sub-section (23AAB) of Section 10 are complied with. The appellant humbly submit that the Fund is operated by the appellant company as one of the various segments, accounts are maintained in the manner from which surplus I deficiency there from is determinable and all the requirements of Section 10 (23AAB) are met. (iii) For the reasons aforementioned, the learned CIT ought to have directed the A.O. to allow the exemption of the surpl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot point out any distinction in facts or in law in earlier orders of this Tribunal and in the years before us. 7. We have gone through the orders passed by lower authorities, submissions made by both the sides before us as well as the earlier orders of the Tribunal. These three grounds are related to each other involving common issues, i.e. whether the assessee was carrying on two independent activities, i.e. one of insurance business which was reflected in Policyholders' Account by the assessee and the other, being an independent activity depicted in Shareholders' Account, as per the detailed findings given in the assessment order. Under these circumstances, the AO taxed the income arising in Shareholders' Account as "Income from other sources" and the activity related to insurance as reflected in Policyholders' Account was held to be taxable in accordance with provisions of section 44 of the Income-tax Act. Having held that activities of the assessee were separate and independent, the AO computed the 'Income from other sources' after making few adjustments and disallowances. It was noted by the AO that in Shareholders' Account net income was shown at Rs. 10,62,87,461. It was fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. According to appellant, the transfer is necessitated because the appellant desired to effect payment of bonus which could not have been done by appellant as long as there was negative surplus in the policyholders account. Therefore, the positive income in the shareholders account was transferred by passing a journal entry to the policyholders account. 13. Assessing Officer has treated the effect of the transfer entry as under: (1) The amount of dividend paid to the policyholders at Rs. 14,320 has been treated as surplus in the policyholders account (before transfer entry) as against actual deficiency of Rs. 10,91,55,367/-. According to Assessing Officer the amount of Rs. 14,320/- is income from life insurance business being surplus as per actuary valuation. The same has been brought to tax against which appellant is in appeal in the second ground appeal. (2) Assessing Officer has taken the income arising from the shareholders accounts of Rs. 28,82,226/ -, as income from sources, other than insurance business, and has made the disallowances, first being amount transferred from shareholders account to policyholders account on the ground that this is not an expenditure item an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re-compute the income by accepting the income as was computed in the return filed by the assessee. 9. During the course of hearing before us, Ld. CIT-DR was not able to show anything incorrect or contrary to law in the detailed and well reasoned findings of Ld. CIT(A). Further, the Ld. Counsel of the assessee drew our attention on the order passed by the Tribunal wherein identical issue has already been decided in assessee's own case by the Tribunal vide its order dated 23-05-2014. 10. We have gone through the order of the Tribunal and find that the issue before us is covered in favour of the assessee by the earlier decision of the Tribunal. Relevant part of observations of the Tribunal is reproduced below: "2. Core issue common in AYs under consideration- Income nature of the funds transferred from shareholders' Accounts to the Policyholders' Account to meet out the deficiencies: During the proceedings before us and at the outset, in connection with the appeals of the assessee, F.V. Irani and Shri Manoj Purohit, Ld Counsels for the assessee stated that the assessee in the present case is an insurance company and the provisions of section 44 of the Income tax Act are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is in accordance with Rule 2 of First Schedule. Therefore, assessee grounds on this issue are allowed and AD is directed to modify the order accordingly. Ground Nos. 1 to 3 are considered allowed. 55. We have heard the rival contentions. As briefly discussed while deciding the issue of taxing surplus, assessee is in life Insurance business and it is not permitted to do any other business. All activities carried out by assessee are for furtherance of Life Insurance business. Maintaining adequate capital is necessary to comply with IRDA (Assets, liabilities and Solvency margin of insurers) Regulations,2000. Income earned on capital infused in business is integral part of Life Insurance business. The LD. CIT(A) gives a finding that assessee is exclusively in life Insurance business. However, since he gave primacy to Form I proforma he concluded that other incomes are not of life Insurance business. We have already considered and decided that assessee was mandated to maintain separate accounts by IRDA Regulations. Just because separate accounts are maintained the incomes in Shareholder's account does not become separate from life insurance business. As per Insurance Act 1938 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section from 28 to 43B other than activity of Insurance Business as per section 44 of the Income Tax Act, 1961?" We would like to submit that the amount of Rs. 98,7047,844/ -which profit from shareholders account, cannot be treated as profit/Ioss other than insurance business and accordingly applied the provisions of Section 28 to 43B, for the following reasons: i. The company is engaged in the business of life insurance. It is debarred under the statute to indulge in any other business vide sub-section 4(h) of section 3 of the Insurance Act, 1938. Please find below the extracts of the aforesaid section: "3(4) the authority shall cancel the registration of an insurer either wholly or insofar as it relates to a particular class of insurance business, as the case may be- (h) if the insurer carries on any business other than insurance business or any prescribed business " Therefore it is evident by law that corporate entity engaged in insurance business cannot undertake any other business activity. If it does so, its license to carry on insurance business is liable to be cancelled. It, therefore, follows that the entire profit generated from the business is profit from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st maintain a prescribed solvency margin in respect of its life insurance business. For the purpose of calculating the solvency margin, consideration has to be given to assets relating to policyholders as well as shareholders as reflected in the combined balance sheet. Any shortfall in solvency margin is required to be made up by the insurer. by infusing additional capital. The Shareholders fund does not therefore, represents fund for an independent activity but, being a creation of statutory requirement, is intricately linked to the business of Life insurance. v. Insurance Regulatory And Development Authority (IRDA) has issued clarification on regulatory framework vide its letter no. 108/1/F&A/SBLIC/100/0ct./2008-09 dated October 20, 2008 addressed to appellant and confirmed that" shareholder's account is an integral and indivisible part of life insurance business." The copy of said letter is attached as per Annexure 9. vi. We would also like to bring your attention that the Honble Mumbai Tribunal in the case of ICIer Prudential Insurance Co. Ltd vs. Asstt. Commissioner of Income Tax Circle- 6(1),(2012-TrOL- 580-ITAT-MUM-ITA No. 6855/MUM/2010) held that: "As briefly disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a mere appropriation from the surplus in the Revenue Account (Policyholders Account). This amount has already been subject to tax in the Revenue Account and is included in Rs. 1,942,556,721/-. This Amount is the amount of surplus generated from the Policyholders Account and a portion of which i.e. Rs. 1,777,528,757 has been transferred to the Shareholders by way of an appropriation. Taxing the same amount again in the shareholders account would amount to double taxation which is against the intent of law. ii. The Hon'ble Mumbai Tribunal in the case of ICICI Prudential Insurance Co. Ltd vs. Asstt. Commissioner of Income Tax Circle-6(1), (2012-TIOL-580-ITATMUM- ITA 6854/MUM/2010) held that : "Since assessee is having only one business of life insurance, the entire transactions both under the policyholder's and shareholder's account do pertain to the life insurance business only as it was not permitted to do any other business. Once assessee is in the life insurance business, the computation has to be made in accordance with the Rule-2 as per provisions of section 44. Therefore, there is a valid argument raised by assessee that both the policyholder's & shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05-06 and thus relying upon the same, these were disallowed as capital expenses during the year which was allowed by the Ld. CIT(A) holding it as revenue expenses. 15. During the course of hearing before us, it was stated by the Ld. Counsel that this issue is also covered in favour of the assessee by the earlier order of the Tribunal. Ld. CIT-DR did not make any distinction on facts of the case. It is noted that in the appeal for A.Y. 2005-06, the Tribunal, vide its order dated 23-05-2014 held as under: "11. Regarding ground 5 of the assessee appeal for the AY 2005-06, Ld Counsel mentioned that it relates to the 'allowability of claim of stamp duty expenditure incurred in Equity Share Capital. In this regard, both parties mentioned that the AO/CIT(A) are of the opinion that the said expenditure is not allowable considering the capital nature of them. However, now this issue has to be redecided considering the order of the Tribunal in the case of HDFC Standard Life Insurance Co Ltd (ITA 3004/M/2012 and LIC, supra. On hearing the parties, we remand this issue to file of the AO for fresh adjudication after granting reasonable opportunity of being heard to the assessee. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uest of the Ld. Counsel. No objection or any contrary argument was made by the Ld. CIT-DR in this regard. Thus, under these circumstances, we find that there would not be any requirement to send this issue back to the file of the AO which would be a redundant exercise since the issue has already been decided in favour of the assessee by the AO himself. Therefore, the addition is directed to be deleted. As a result, ground 1(iii) raised by the Revenue is dismissed. 16. As a result, appeal of the Revenue is dismissed. 17. Now, we shall take up Revenue's appeals for AY 2007-08 in ITA No.3170/Mum/2010 and AY 2009-10 in ITA No. 4945/Mum/2012. 18. It has been jointly stated by both the parties that grounds raised in these appeals are identical to grounds 1, 1(i), & 1(ii) of Revenue's appeal for A.Y. 2002-03 and there is no change in facts or law. We have gone through the orders passed by the lower authorities and find that identical issues have been raised by the Revenue. We have already dismissed the grounds raised by the Revenue. Respectfully following the same, appeals filed by the Revenue are dismissed in these years as well. 19. Now we shall take up Revenue's appeal for A.Y. 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the Rule 8D?" 20. Ground 1: This ground is identical to Ground 1 of Revenue's appeal for AY 2002-03 wherein we have rejected the ground raised by the Revenue. Relying upon our order for AY 2002-03, this ground is dismissed. 21. Ground 2: In this ground, the Revenue has challenged the action of Ld. CIT(A) in deleting the addition made by the AO on account of Negative Reserve. During the course of hearing, the Ld. CIT-DR contended that the Ld.CIT(A) erred in not appreciating that Negative Reserve has an impact of reducing the surplus as per Form-I and, therefore, corresponding adjustments for negative reserve need to be made to arrive at taxable surplus. 22. Per contra, the Ld. Counsel submitted that this issue has also been decided in favour of the assessee by the Tribunal in its order dated 23-05- 2014 passed in assessee's own case. 23. We have gone through the orders passed by the lower authorities as well as the order of the Tribunal for earlier years. The brief background is that the AO was of the view that the assessee took an undue advantage by reducing its taxable surplus by the amount of Negative Reserve, value of which was taken at zero. In the appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) vide order No CIT(A)- XXIlACIT1(3)/IT- 111/08-09 dated 18.08.2009 for AY 2006-07 has allowed the appeal of the appellant company on this issue. Therefore, I have no reason to differ with my decision and that of my predecessor, since the facts are identical and the decision is rendered in the appellant company's own case. Accordingly, the addition made by the AO, on account of incremental negative reserve is hereby deleted." 24. During the course of hearing before us, Ld. Counsel submitted that this issue was sent back to the file of the AO in AY. 2005-06 wherein fresh assessment order has been passed by the AO and this claim has been allowed on legal principle. Therefore, following the same in this year also, it can be allowed right here and the futile exercise of sending it back to the AO can be avoided in the interest of justice. Copy of order passed by the AO has been provided to the Ld. CIT-DR and after reading the same he raised no serious objection and did not point out any distinction or contradiction in the facts for AY 2005-06 and the year before us. 25. We have gone through the orders passed by the lower authorities and order of the Tribunal as well as the fresh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of the Revenue, wherein the Tribunal restored the matter to the file of the AO for fresh adjudication after considering the decision of ITA T, Mumbai in the case of ICICI Prudential Insurance Co. Ltd (ITA No. 6854/M/2010) and LIC Vs Addl. CIT (ITA No. 6221/M/2012). 6. In this regard, the decision of the Tribunal on the issue of treatment of negative reserves in the case of ICICI Prudential Insurance Co. Ltd (ITA No. 6854/M/2010) is reproduced as under:- "56. In this appeal, the Revenue has raised the following three grounds: "1. On the facts and circumstances of the case and in law, the learned CIT (A) erred in not subjecting the negative reserve amounting to Rs. 27.27 crores ignoring the facts that negative reserve has an impact of reducing the taxable surplus as per Form-l ........... 57. Ground No. 1 is on the issue of treating negative reserve and disallowing the amount. While completing the assessment of life insurance business the AD, after taking the total surpIus from Form-I, reduced the negative reserve amounting to Rs. 27.27 crores. Assessee submitted before the CIT(A) as under: - "Method of Determination of Mathematical Reserves - (1) . Mathematical Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation parameters shall not be subject to arbitrary discontinuities for one year to the next. (9) The determination of the amount of mathematical reserves shall take into account the nature and term of the assets representing those liabilities and the value placed upon them and shall include prudent provision against the effects of possible future changes in the value of assets on the ability to the insurer to meet its obligations arising under policies as they arise. Mandate to Appointed Actuary under regulation Sub-Rule 4 mandates Appointed Actuary to have prudent assumption of all relevant parameters and to include an appropriate margin for adverse deviations that may result in an increase in the amount of mathematical reserves. Sub-Rule 5 defines such margin as "Negative Reserve ", which is being disclosed in column 6 of the Form 1. Further, clause (iii) to sub-Rule 5 mandates appointed actuary to provide for negative reserve in mathematical reserve, accordingly not to include in distributable surplus as per Section 49 of the Insurance Act, 1938. Clause (ii) to sub-Rifle 5 mandates appointed actuary to include negative reserve in mathematics reserve. only at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urance Co. Ltd (Supra), the negative reserve cannot be added back while computing the income of life insurance business of the assessee company under Section 44 r.w. Rule 1 & 2 of the First Schedule to the Income-tax Act, 1961. So, the addition of Rs. 8,17,92,000/- made by the AO on account of negative reserves is to be deleted in pursuance of directions given by the Hon'ble ITAT, Mumbai." 26. Thus, from the above, it is clear that the AO has himself took a decision that the Negative Reserves cannot be added back while computing the income of life insurance assessee company u/s 44 read with rules 1 & 2 of First Schedule of the Income-tax Act, 1961. Under these circumstances, we find that no dispute is left on this issue. Therefore, we find that addition has been rightly deleted by the Ld. CIT(A) on the basis of his well reasoned findings. No interference is called for in his order from us. Thus, the order of the Ld. CIT(A) is upheld and ground 2 is dismissed. 27. Grounds 3.1 to 3.3: In these grounds, the Revenue has challenged the action of the Ld. CIT(A) in directing to grant benefit of exemption u/s 10(32) on dividend income received by the assessee during the year. 28. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -ITAT-MUM, ITA No.6366/ Mum/2011). Hence, respectfully following the judgments (supra), I am in agreement with the contentions of the appellant. Accordingly, the addition made by assessing officer on account of "Dividend Income" is hereby deleted." 30. During the course of hearing before us, it was stated by the Ld. Counsel that this issue has been examined by the Tribunal in assessee's own case in its order dated 23-05-2014 wherein the Tribunal principally decided the issue in favour of assessee, but sent it back to the AO for the limited purpose of verification of facts. In pursuance to the same, the AO passed order giving appeal effect on 29-11-2016, wherein he after verification of the facts in detail and after examining the judgments of the Tribunal decided this issue in favour of the assessee by allowing benefit of exemption u/s 10(34), 1038) as well as 10(23AAB). It was requested that in view of these facts and circumstances, this issue should be decided in favour of the assessee. 31. Per contra, the Ld. DR did not make out any distinction on facts or law. 32. We have considered the submissions made by both the sides, facts of the case, earlier order of the Tribunal as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a). The AO in Order Giving Effect has also granted relief to the assessee by relying upon these judgements. Under these circumstances, we do not find it necessary to interfere in the finding of Ld. CIT(A) and, therefore, the order of the Ld.CIT(A) is upheld. These Grounds raised by the Revenue are dismissed. 34. Ground 4: In this ground, the Revenue is aggrieved by the action of the Ld. CIT(A) in deleting the disallowance made by the AO u/s 14A on the basis of Rule 8D. 35. The brief background of the matter is that in the assessment order it was stated by the AO that in case the assessee is allowed the benefit of exemption u/s 10(34) at any stage, in that case disallowance u/s 14A would be required to be made in accordance with law. In the appeal before Ld. CIT(A), it was stated by the assessee that the Delhi Bench of the Tribunal in the case of Oriental Insurance Co Ltd vs ACIT (ITA No.5462 & 5463/Del/2003 has held that disallowance u/s 14A of the Act is not attracted in the case of insurance company due to special provisions of section 44 of the Income-tax Act being applicable to such companies. Under these circumstances, it was requested that no disallowance was made u/s 14A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the judgment in the case of Godrej & Boyce Mfg Co Ltd, supra. Despite the same, the Tribunal considered the said judgment and still allowed the claim of the assessee. Therefore, in view of the special provisions applicable to the insurance companies, we are of the opinion that the provisions of section 14A r.w.r. 8D were held not applicable to the insurance companies i.e., lCICI Prudential Insurance, HDFC Standard Life Insurance Company. Therefore, the SSI Life Insurance Company Limited (assessee in the present case should not be any exception. Considering the settled nature of the issue vide the decisions of the Tribunal's orders (supra), ground no.3 raised b the assessee for the AY 2006-07 is allowed." 39. During the course of hearing before us, no distinction has been made. Thus, respectfully following the order of the Tribunal, we uphold the decision of the Ld. CIT(A) on this issue. No interference is called for in his order. Ground 4 raised by the revenue is dismissed. 40. As a result, appeal filed by the Revenue is dismissed. 41. Now we shall take up appeal of the assessee in ITA No.4066/Mum/2011 for AY. 2007-08. This appeal is filed against the order of the Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive heads of income, such income gets included in the total income of the appellant. Even if the provisions relating to computation of income under the head 'income from other sources' are overridden obviating the requirement of head wise computation of total income, the income mentioned in chapter Ill, of included in the total income in any form, is required to be excluded. As observed by Hon'ble Bombay High Court in life Insurance Corporation of India case reported in 119 ITR 900 the surplus in a life insurance business is worked out on the basis of "the net liability under business as shown in the summary and valuation of policies" and the "balance of life insurance fund as shown in the balance sheet". Since income from dividend become part of the life insurance fund, it enters into the computation of total income under Section 44 read with First Schedule of the LT. Act. The mere fact that the "income from other sources" has not been separately computed does not make any difference in the tax treatment of such income. Ground No 2 ADDITION ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE U/S 14A: Based on the decision leading to withdrawal of exemption granted in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ANCE OF EXEMPTION IN RESPECT OF INCOME FROM PENSION FUND UIS 10(23AAB): (i) The learned CIT (A) was not justified in holding that the exemption u/s 10 (23AAB) in regard to income of Pension Fund is not available to the appellant on the ground that such an exemption is applicable only when the Pension Fund is an independent assessable entity. (ii) The learned CIT(A) failed to take a note of the fact that for the purpose of availing the exemption under section 10(23AAB) there are only two conditions to be fulfilled as laid down in the section, firstly that the contributions to such a fund is made by any person for the purpose of receiving pension from such fund and secondly the fund is approved by the Controller of Insurance or the Insurance Development Authority of India(IRDA). Hence, the learned CIT (A) was not justified in such an understanding of the provision which nowhere lays down the requirement of the Fund to be an independent assessable entity. The provision is applicable and consequently, the exemption is available to the Fund, irrespective of the fact whether it is an independent entity or run as a segment of the life insurance company, provided the conditions set ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to income of pension fund was not available to the assessee due to the fact that such an exemption is applicable only when pension fund is an independent assessable entity. 45. During the course of hearing, it was stated by the Ld. Counsel that this issue has already been decided by the Tribunal in assessee's own case vide its order dated 23-05-2014, wherein this issue was principally decided in favour of the assessee, but for the purpose of verification of facts it was sent back to the file of the AO. The AO, in the order giving appeal effect examined this issue on facts as well as on law, and vide his order dated 29- 11-2016 he has already decided this issue in favour of the assessee. 46. Per contra, the Ld. DR did not make any distinction in facts or law. 47. We have gone through the submissions made by both the sides as well as orders placed before. It is noted that this ground is identical to Ground No.1 wherein the issue of availability of exemption u/s 10(34) on the dividend income was examined. It is noted that identical issue came up before the Tribunal in earlier years which was sent back to the AO. The AO in his Order Giving Appeal Effect dated 29-11-2016 has decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pension fund under section 10(23AAB) and failed to appreciate that section 10(23AAB) is not overridden by the provisions of section 44 of the Act. Ground No 3 The Learned CIT (A) has erred in enhancing the actuarial surplus by the negative reserve amounting Rs. 3,59,25,230/ - for determining the profit from business of life insurance ignoring the ratio of the Supreme court decision in LIC v / s [CIT 51 ITR 773] and the provision of Insurance Act and the rules and regulation framed there under. Ground No 4 The Learned CIT (A) has erred in initiating penalty proceedings against the appellant under section 271(1)(c)." 52. Ground 1 is regarding denial of benefit of exemption u/s 10(34) on the dividend income received by the assessee on the ground that income of the assessee is computed u/s 44 of the Act. 53. It is noted on the basis of submissions made by both the sides that this ground is identical to Ground 1 of A.Y. 2007-08 which has already been decided in favour of the assessee. Therefore, following our order, this ground of the assessee is allowed. 54. Ground 2: This ground is against denial of benefit u/s 10(23AAB) in respect of income of pension fund. It is noted on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Act. Ground No 2 The Learned CIT (A) has erred in confirming the action of the AO to disallow the exemption of Rs. 50,92,75,738/- in respect of dividend income under section 10(34) and failed to appreciate that section 10(34) is not overridden by the provisions of section 44 of the Act." 58. Ground 1 is with regard to addition on the basis of actuarial surplus of Negative Reserves. It was jointly stated that this ground is identical to Ground 2 of Revenue's appeal for AY. 2010-11. This issue has already been decided in favour of the assessee. Thus, consistent with our order, we decide this ground in favour of the assessee. Ground 1 is allowed. 59. Ground 2 is with regard to benefit of exemption u/s 10(34) on the dividend income. This ground is identical to grounds 3.1 to 3.3 of Revenue's appeal for AY. 2010-11. Thus following our order, this ground is decided in favour of the assessee. Ground 2 is allowed. 60. As a result, appeal of the assessee is allowed. 61. Now we shall take up appeal filed by the assessee for A.Y. 2009-10 in ITA No.3495/Mum/2014 filed against the order of the Commissioner of Income-tax-2, Mumbai [in short, CIT] dated 19-03-2014 passed u/s 263(3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income Tax Act, 1961 was not with a view to treat the pension Fund like Jeevan Suraksha outside the purview of insurance business but to promote insurance business by exempting the income from such fund. 3. Without prejudice to the claim that pension fund remains part of insurance business even with the exemption under section 10(23AAB) of the Income Tax Act, 1961, in case it is held to be income of a separate entity, it will be erroneous not to exclude such income from the total income of the appellant." 62. During the course of hearing, it was stated by the Ld. Counsel that issues raised in the order of CIT are identical to grounds 2 & 3 of assessee's appeal for A.Ys 2007-08 & 2008-09. These issues have already been decided in favour of the assessee. Therefore, the entire exercise taken by the Ld. CIT has become infructuous at this stage. 63. Per contra, the Ld. DR did not oppose the submissions of the Ld. Counsel in this regard. 64. We have gone through the orders passed by the lower authorities and find that the issue involved in the order passed by the Ld.CIT is with regard to allowability of exemption u/s 10(23AAB) to the assessee being life insurance company. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to appreciate that the company has a separate fund and its pension schemes are duly approved by the Insurance Regulatory and Development Authority of India as required by the law. 2.1 The Learned CIT (1) erred in guiding himself by the understanding that crediting income to Profit & Loss AI c amounts to confirmation that a separate fund has not been created. He ignored the fact that a pension segment, even though a distinct segment, remains part of insurance business. The CIT (1) failed to appreciate that by virtue of section 3(4h) of the Insurance Act, 1938 an insurer is not permitted to do any other business except insurance business. 2.2 The CIT (1) failed to take note of the observations of the Honourable Bombay High Court in the case of Life Insurance corporation of India Ltd vs CIT (1), Mumbai (2011- TIOL-483-HCMUM- IT), that the object of inserting section 10(23AAB) of the Income Tax Act, 1961 was not with a view to treat the Pension Fund like Jeevan Suraksha outside the purview of insurance business but to promote insurance business by exempting the income from such fund. 3. Without prejudice to the claim that pension fund remains part of insurance business even w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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