Income Tax Appellate Tribunal - Mumbai
Idbi Federal Life Insurance Company ... vs Asst Cit 6(1), Mumbai on 9 August, 2017
आयकर अपीलीय अिधकरण, मुबं ई "आई" खंडपीठ
Income-tax Appellate Tribunal -"I"Bench Mumbai
सव ी राजे
,लेखा सद
य एवं, राम लाल नेगी,
याियक सद
य
Before S/Shri Rajendra,Accountant Member and Ram Lal Negi,Judicial Member
आयकर अपील सं ./I.T.A./6282/M um/2012, िनधा रण वष /Assessment Year: 2009-10
आयकर अपील सं ./I.T.A./6281/M um/2012, िनधा रण वष /Assessment Year: 2009-10
आयकर अपील सं ./I.T.A./5567/M um/2014, िनधा रण वष /Assessment Year: 2010-11
IDBI FederalLife Insurance CompanyLtd. The DCIT-6(1)
1st Floor, Tarade view Oasis Complex 5th Floor, Room No.506
Kamala City, P.B. Marg, Lower Parel (W) Vs. Aayakar Bhavan, M.K. Road
Mumbai-400 013. Mumbai-400 020.
PAN: AABCI 6227 M
(अपीलाथ /Appellant) ( यथ / Respondent)
आयकर अपील सं ./I.T.A./6306/M um/2012, िनधा रण वष /Assessment Year: 2009-10
आयकर अपील सं ./I.T.A./5378/M um/2014, िनधा रण वष /Assessment Year: 2010-11
The DCIT-6(1) IDBI FederalLife Insurance CompanyLtd.
5th Floor, Room No.506 1st Floor, Tarade view Oasis Complex
Vs.
Aayakar Bhavan, M.K. Road Kamala City, P.B. Marg, Lower Parel (W)
Mumbai-400 020. Mumbai-400 013.
(अपीलाथ /Appellant) ( यथ / Respondent)
Revenue by: Shri Rajesh Ojha-DR
Assessee by: Shri M.D. Thakur
सुनवाई क तारीख / Date of Hearing: 03.08.2017
घोषणा क तारीख / Date of Pronounce ment: 09.08.2017
आयकर अिधिनयम ,1961 क धारा
254(1) अ
तग त के आदे श
Order u/s.254(1)of the Inco me-tax Act,1961(Act)
लेखासद
य राजे
के अनुसार
PER RAJENDRA, AM-
Challenging the orders dtd.31/7/12 and 16/6/2002 of the CIT(A)-14,the Assessing Officer(AO) and the assessee have filed cross appeals for the above mentioned two assessment years(AY.s). The assessee has also filed an appeal against the order passed u/s.154 of the Act for AY.2009-10. Issues involved in these appeals are also similar,so we are adjudicating them by passing a single order.Assessee-company is engaged in the business of life insurance.The details of dates of filing of return,returned incomes,assessed income etc. can be summarised as under :-
A.Y. ROI filed on Income as per return Dt. of Assessment order Assessed income 2009-10 30/09/2009 (loss) Rs.110.41crores 30/12/2011 Rs.57.24 crores 2010-11 14/10/2010 (loss)Rs.106.71 crores 28/02/2013 Rs.18.04 crores ITA /No.6306/Mum/2012-AY.,2009-10:
2.Grounds No.6 and 7,raised by the AO,are of general nature hence, are being not adjudicated.
Ground No.1 deals with negative reserves amounting to Rs.50.18 crores.During the assessment 6306,5378,6282,6281&5567/Mumbai IDBI-5 appls proceedings,the AO observed that there was a negative reserve of Rs.51.34 crores as per report of Actuary,that the figure of incremental negative reserve for the year under consideration was Rs.50.18 crores,that the negative reserve would have impact of reducing taxable surplus as Form-I i.e.of the (Actuarial Report).After considering the submission of the assessee,the AO held that the negative reserve was taxable as business income of the assessee and added the same to the total income.
2.1.In the appellate proceedings,the assessee made elaborate submissions before the First Appellate Authority(FAA)and relied upon certain case laws.The FAA after considering the available material and case laws deleted the addition.
3.During the course of hearing before us,representatives of both the sides agreed that identical issue has been dealt with by the Tribunal in the case of HDFC Standard Life Insurance Company (2203 & Ors/Mum,AY.s 2002-03 to 2009-10.,Dtd.20/09/13).We are reproducing para No.6.3(Pg. 20-21)of the order and it reads as under :-
"6.3.We have heard rival submissions and perused the material before us. We are of the opinion that treatment given to negative reserves by actuary cannot be disturbed by the AO.Here,it would be useful to understand meaning of negative reserve in simple terms.While making actuarial valuation,requirement of reserve to service insurance policies issued is ascertained.Such reserve (called mathematical reserve or value of liability)is equal to present value of future benefits payable and future expenses to be incurred less present value of future premium receivable. When the present value of future premium is more than the present value of future benefits payable and future expenses to be incurred, this amount becomes negative, known as 'negative reserve'. In simple words, it means that the insurance contracts under consideration do not warrant any provision and is,in fact,an asset.However, in certain circumstances, such as for following IRDA guidelines, insurers may not treat policies as assets and they set any negative reserves to zero.For example,if an insurer had two policies,one with a reserve of 100 and the other with a reserve of -10,it might think of its liabilities at100 rather than 90 to take into account the eventuality in case the second policy lapsed.This process is called eliminating negative reserves.As mentioned earlier,a policy which has a negative reserve is in nature of an asset.
We find that in the case of ICICI Prudential Insurance Co.(supra),AO had disallowed negative reserve related to Life Insurance business of the assessee. In appellate proceedings FAA allowed the appeal of the assessee.AO challenged the order of the FAA before the Tribunal. We find that AO has raised the following ground of appeal in the appeal filed by him for AY 2006-07. "On the facts and in the 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 reserves has impact of reducing the taxable surplus as per From I."
Disposing his appeal,Tribunal held as under:
"After considering the rival submissions and examining the method of accounting and the mandate given by regulations to appoint Actuarial on the concept of mathematical reserves we do not see any reason to interfere with the order of the CIT(A).The mathematical reserve is a part of Actuarial valuation and the surplus as discussed in 2 6306,5378,6282,6281&5567/Mumbai IDBI-5 appls Form-I under Regulation 4 takes in to consideration this mathematical reserve also. Therefore the order of the order of the CIT(A) is approved.Moreover the Assessing Officer has no power to modify the amount after actuarial valuation was done, which was the basis for assessment under Rule 2 of 1st Schedule r.w.s.44 of the I.T. Act.The principle laid down by the Hon'ble Supreme Court in LIC vs.CIT 51ITR773 about the power of the Assessing Officer also restricted the scope and adjustment by the AO. In view of this uphold the order of the CIT(A) and dismiss the Revenue's ground."
Respectfully,following the above we decide effective ground of appeal against the AO.
Accordingly,Ground No.1 is decided against the AO.
4.Ground No.2 is about setting aside of case to the AO with regard to Ground No.8 raised before the FAA.The DR fairly conceded that the FAA had directed the AO to make certain verifications and had not set aside the order.It was brought to our notice that AO while giving effect to order of FAA had allowed claim made by the assessee.Considering this,we hold that Ground No.2 does not need adjudication.
5.Third Ground of appeal is about direction given to AO to adopt the revised computation of income excluding pension business deficit of Rs.25.20 lakhs.While computing the income for the year under consideration,the assessee had reduced an amount of Rs.25,20,409/- on account of deficit from linked pension scheme in view of the exemption provided in section 10(23AAB). The AO held that income in respect of the pension scheme was not includible in tax computa - tion,that the deficit too should not be considered,that Actuarial had also not computed the surplus/deficit of the pension scheme separately.Finally the AO did not allow deficit of the scheme to be reduced in computation of income.The FAA in the appellate proceedings allowed the deleted the addition made by the AO.
5.1.Before us,the AR and the DR agreed that identical issue was dealt with by the Tribunal in the matter of HDFC Standard Life Insurance Company(supra) at para 11.3(Pg-23)of the order. We are reproducing par 11.1 to 11.3 of the order) and it reads as under :
"11.3.We have heard the rival submissions and perused the material before us.We find that in the case of ICPLI same issue has been decided in favour of the assessee by the Tribunal as under:
"49. In view of the above and respectfully following the same, we hold that assessee is entitled to exemption under section 10. Therefore, we do not see any reason to differ from the order of the CIT (A) where he has allowed assessee's claim of exemption under section 10(23AAB) of surplus of Participating Pension Business and also dividend under section 10(34). Accordingly Revenue ground on this issue is rejected."
We further find that the Hon'ble High Court of Bombay has also dealt with the issue,in the case of Life Insurance Corporation of India (supra),as under:
" As regard questions (c) and (d) are concerned, the dispute is whether the loss incurred by the assessee from the Jeevan Suraksha Fund is liable to be excluded in computing the actuarial 3 6306,5378,6282,6281&5567/Mumbai IDBI-5 appls valuation surplus in view of the fact that the income from the Jeevan Suraksha Fund is exempt under section 10(23AAB) of the Income-tax Act, 1961.
The argument of the Revenue is that with the insertion of section 10(23AAB) by the Finance (No.
2) Act, 1996, with effect from April 1, 1997, the profits as well as loss arising from the Jeevan Suraksha Fund would not be includible in the total income of the assessee and, therefore, while determining the distributable profits of the assessee, the loss from the Jeevan Suraksha Fund ought not to be allowed to be adjusted against the taxable income.
It is not in dispute that the Jeevan Suraksha Fund is a pension fund approved by the Controller of Insurance appointed by the Central to perform the duties of the Controller of Insurance under the Insurance Act, 1938. The loss incurred in the Jeevan Suraksha Fund has been considered by the actuary as a business loss, as per the valuation report as on the last day of the financial year, allowable under section 44 read with the First Schedule to the Income-tax Act, 1961. The fact that the income from such fund has been exempted under section 10(23AAB) with effect from April 1, 1997, does not mean that the pension fund ceases to be insurance business, so as to fall outside the purview of the insurance busi- ness covered under section 44 of the Income-tax Act, 1961. In other words, the pension fund like the Jeevan Suraksha Fund would continue to be governed by the provisions of section 44 of the Income-tax Act, 1961, irrespective of the fact that the income from such fund are exempted, or not. Therefore, while determining the surplus from the insurance business, the actuary was justified in taking into consideration the loss incurred under the Jeevan Suraksha Fund.The object of inserting section 10(23AAB) as per the Board Circular No. 762, dated February 18, 1998 (see [1998] 230 ITR (St.) 12) was to enable the assessee to offer attractive terms to the contributors. Thus, the object of inserting section 10 (23 AAB) was not with a view to treat the pension fund like the Jeevan Suraksha Fund outside the purview of insurance business but to promote the insurance business by exempting the income from such fund. Therefore, in the facts of the present case, the decision of the Income-tax Appellate Tribunal in holding that even after insertion of section 10(23AAB), the loss incurred from the pension fund like the Jeevan Suraksha Fund had to be excluded while determining the actuarial valuation surplus from the insurance business under section 44 of the Income-tax Act, 1961, cannot be faulted. Accordingly, questions (c) and (d) are answered in the affirmative, that is, in favour of the assessee and against the Revenue."
Respectfully following the above,ground no.10 is decided in favour of the assessee. Considering the above,Ground No.3 is decided against the AO.
6.Next Ground of appeal is about carry-forward of losses assessed under the head income from other sources.This issue is interlinked with Ground No.3 raised by the assessee.We will adjudi - cate the issue in the subsequent paras,while deciding the appeal filed by the assessee .
ITA/5378/Mum/2014-AY.2010-11:
7.The AO has raised eight Grounds of appeal for the year under consideration.In all the grounds he has mentioned that the FAA had erred in relying upon the order of the Tribunal in the case of ICICI Prudential Life insurance Co. Ltd. ITA/6059/Mum/2000 and other appeals,dated 14.12. 2012 for the AY.s 2005-06 to 2008-09.We are tabulating the Grounds of appeal for ready reference:
46306,5378,6282,6281&5567/Mumbai IDBI-5 appls GOA Issue Covered by HDFC Covered by ICICI No. Matter Matter 1 Adjustment from the Actuarial valuation -- Para 20-21.Pg.73 2 Transfer between shareholders account and policy Para 2.5.3; pg-12 Para-12-14; Pg6-8 holders account 3 Legislation by incorporation Para2.5.1; Pg.-10-11 Para-12-14, Pg-6-8 4 Provisions of section 28 of IRDA Act, were in addition Para-2.5.1.;Pg.10-11 Para 12-14; pg-6-8 and not in derogation of Insurance Act, 1938.
5 Surplus in the shareholders account to be taxed Para 2.5.2; and para Para-12-14 pg. 6-8 separately as income from other sources 2.5.6; pg- 11-13 6 Write -off of assets (cost less than Rs.20,000) ... Para 12-14, pg-6-8 7 Negative reserves have impact on taxable surplus Para-6-6.3,Pg. 20-21 Para 12-14,pg-6-8 8 Exemption of dividend income .. ... Para-12-14,Pg.6-8 7.1.On a query by the Bench,the DR stated that the department has filed an appeal challenging the order of the Tribunal in the case of ICICI-Prudential (supra),that case has not been heard by the Hon'ble Bombay High Court.
Unless and until the order of the Tribunal is reversed,the FAA is bound to follow the order.In our opinion,all the grounds raised by the AO have to be disallowed,as the FAA followed the order of the Tribunal.Respectfully following the orders of the Tribunal in the case of HDFC Standard Life Insurance Company and ICICI-Prudential (supra),we decide Grounds of appeal No. 1 to 8 against the AO.
Grounds of appeal No. 9 and 10 being general in nature, are not being adjudicated. ITA/6282/Mum/2012,AY-2009-10:
8.In its appeal the assessee has raised 27 Grounds of appeal.During the course of hearing before us the AR stated that all the grounds were not effective Grounds of appeal,that some of them were arguments only in support of the grounds.Therefore, we are rearranging the issues raised by the assessee in a tabular form.We find that most of them are covered by the orders of the Tribunal delivered in the cases of ICICI Prudential Insurance or HDFC Life Insurance case. Following are the issues and the paragraphs of the orders that cover the various grounds,raised by the assessee:
GOA Issue Covered by HDFC Covered by ICICI Order
2. Taxation of profits from life insurance business Para 2.5.1; Pg-10-11 Para 12 to 14; Pg-6 -8
3. Income in Shareholders account taxable as Para 2.5.2, pg-11-12; Para 12 to 14, Pg.-6 to 8
income from other sources Para 2.5.6, Pg. 13
5. Disallowance u/s. 14A Para 3.3,Pg-16-18 Para 1-9; Pg-2 to 6
9. Disallowance of depreciation on assets costing ...... Para 12 to 14 , pg-6 to 8
less than Rs.20,000/-
11. Applicable rate of tax Para 2.5.8.a, Pg-14-15 Para 12 to 14, Pg-6 to 8
5
6306,5378,6282,6281&5567/Mumbai
IDBI-5 appls
12. Interest u/s. 234B of the Act Para5.1,5.2, Pg-18-19 .. ... ..
14. Addition on account of incremental negative Para6 to 6.3,Pg-20-21 Para 12 to 14, Pg-6 to 8
reserves
21. Add back of pension losses Para 11.3, pg-23. .. ... ..
8.1.Ground no.1 and 27 are generic in nature,hence,are not being adjudicated. 8.2.Before us,the AR stated the if ground 2 was decided in favour of the assessee, it would result in adjudication of grounds no.3,4,14,15 and 19 to 25.Cosnidering his submissions,we decide ground no.2 in favour of the assessee and allow the grounds no.3,4,14,15,19-25 for statistical purposes.
8.3.As the issue of disallowance u/s. 14A(GOA-5)stands allowed in the cases of ICICC and HDFC, so,we allow ground no.5 in favour of the assessee.GOA 6-8,are allowed for statistical purposes, as same advance certain arguments in support of ground no.5. 8.4.Following the order of ICICIC(supra),we decide issue of disallowance of depreciation on assets costing less than Rs.20,000/-(GOA-9)in favour of the assessee. 8.5.Grounds no.10,11 and 12 are covered by the orders of the ICICI or HDFC,therefore,all the three grounds stand allowed.
8.6.Next effective ground (GOA 13 and 18)deals with interest u/s.234D of the Act.Before us,the AR stated that 8.7.Ground no.26 is about initiation of penalty proceeding.As the issue is premature,so,we dismiss it.All the ground of appeal raised by the assessee are identical to the grounds of earlier AY.So,following our order for the AY.2009-10,we allow the appeal for the appeal filed by the assessee for the year under consideration.
ITA/6281/M um/2012,AY.2009-10:
9.Present appeal is about the rectification order passed u/s.154 of the Act for the AY.2009-10.We find that all the grounds have become infructuous considering the fact that in the main appeal we have already them.
ITA/5567/Mum/2014,AY.2010-11:
10.Grounds of appeal,raised by the assesee for the year under appeal,are identical to the grounds of earlier AY.Therefore,following the orders for the AY.2009-10,we decide the appeal in its favour.
66306,5378,6282,6281&5567/Mumbai IDBI-5 appls As a result,appeals filed by the AO for AY.2009-10 and 2010-11are dismissed and both the appeals of the assessee are allowed.ITA/6281/Mum/2012 is treated infructuous.
फलतः िनधा
रती अिधकारी ारा िन 2009-10
.व. 2010-11 के िलए दािखल क ग अपील नामंजूर क जाती ह और िनधा
रती
तथा
क अपील मंजूर क जाती है /6281/Mum/2012 िन"#भावी मानी जाती है
.अपील .
Order pronounced in the open court on 9th August, 2017.
आदेश क घोषणा खुले
यायालय म दनांक 09 अग त, 2017 को क गई ।
Sd/- Sd/-
राम लाल नेगी / Ram Lal Negi)
( (राजे
/ Rajendra)
याियक सद य / JUDICIAL MEMBER लेखा सद
य / ACCOUNTANT MEMBER
मुंबईMumbai; &दनांक/Dated : 09 .08.2017.
Jv.Sr.PS.
आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
1.Appellant /अपीलाथ( 2. Respondent /#)यथ(
3.The concerned CIT(A)/संब- अपीलीय आयकर आयु0, 4.The concerned CIT /संब- आयकर आयु0
5.DR "I" Bench, ITAT, Mumbai /िवभागीय #ितिनिध,आई खंडपीठ,आ.अ.1याया.मुंबई
6.Guard File/गाड फाईल स)यािपत #ित //True Copy// आदेशानुसार / BY ORDER, / उप सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण मुंबई , /ITAT, Mumbai.
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