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Asstt. CIT, Cir-6(1) Mumbai Vs. ICICI Prudential Insurance Co. Ltd, 1089 Appasaheb Marathe Marg, Prabhadevi,Mumbai 400025
September, 17th 2012
                     ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




           IN THE INCOME TAX APPELLATE TRIBUNAL
                      "F" Bench, Mumbai

       Before Shri B. Ramakotaiah, Accountant Member
           And Shri Vivek Varma, Judicial Member

     ITA   No.6854/Mum/2010             :   (Assessment         year:    2005-06)
     ITA   No.6855/Mum/2010             :   (Assessment         year:    2006-07)
     ITA   No.6856/Mum/2010             :   (Assessment         year:    2007-08)
     ITA   No.6059/Mum/2010             :   (Assessment         year:    2008-09)

   ICICI Prudential Insurance               Vs.      Asstt. CIT, Cir-6(1)
   Co. Ltd, 1089 Appasaheb                           Mumbai
   Marathe Marg, Prabhadevi,
   Mumbai 400025
   PAN: AAACI 7351 P
      (Appellant)                                        (Respondent)

     ITA   No.7765/Mum/2010             :   (Assessment         year:    2005-06)
     ITA   No.7766/Mum/2010             :   (Assessment         year:    2006-07)
     ITA   No.7767/Mum/2010             :   (Assessment         year:    2007-08)
     ITA   No.7213/Mum/2010             :   (Assessment         year:    2008-09)

  Asstt. CIT, Cir-6(1)            Vs.       ICICI Prudential Insurance
  Mumbai                                    Co. Ltd, 1089 Appasaheb
                                            Marathe Marg, Prabhadevi,
                                            Mumbai 400025
                                            PAN: AAACI 7351 P
     (Appellant)                                    (Respondent)

                   Assessee by:               Shri S.E. Dastur and
                                              Ms. Arati Vissanji
                   Department by:             Shri Subachan Ram

                   Date of Hearing:       20/06/2012
                   Date of Pronouncement: 14/09/2012




                                 ORDER

Per Bench:
     These appeals are by assessee for the assessment years 2005-
06 to 2008-09 and cross appeals by revenue for the respective
assessment years. These appeals are on common issues, even
though amounts vary from year to year. Therefore, all the appeals
were heard together and common order is passed.




                                      Page 1 of 77
                     ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




2.    We have heard the learned Counsel Shri S.E. Dastur and the
learned CIT (DR) Shri Subachan Ram in detail and also perused the
submissions made by the respective parties and reliance on various
case law and paper books placed on record in respective years.
Their arguments were incorporated wherever necessary. For the
sake of convenience, the issues in assessment year 2005-06 are
discussed elaborately.

ITA No.6854/Mum/2010 ­ AY 2005-06:

3.    This is an assessee's appeal in which assessee has raised the
following grounds:

     "1. The CIT (Appeals) has erred in not accepting the loss of
     `.150.45 crores returned by the appellant.
     2. The CIT (Appeals) erred in holding that the surplus as
     reflected in Form-I is the taxable income of the appellant.
     3. The CIT(Appeals) erred in upholding the taxable income for
     the year at `.98.96 crores by holding that the amount
     transferred from the shareholder's account to account is not
     to be reduced from the surplus disclosed in Form-I. It is
     prayed that the surplus considered for computing taxable
     income should be after removing the effect of transfer from
     Shareholder's account to account.
     4. The CIT (Appeals) has erred in not accepting disallowance
     under section 14A offered in revised return of income is on
     reasonable basis but directed AO to decide the issue afresh".

4.    The facts in brief are that assessee is a Public Limited
Company registered under the Companies Act, 1956. The Company
was incorporated on July 20, 2000 with the object of carrying on
Life Insurance Business. The activities of the insurance are
governed by the Insurance Act, 1938, Insurance Regulatory and
Development Authority (IRDA) Act, 1999 as amended from time to
time, IRDA rules and Regulations from time to time made there
under. The return of income for AY 2005-06 was filed on
27.10.2005 declaring a loss of `.150,46,83,807/-. The case was
selected for scrutiny and AO while accepting that assessee is in the
business of life insurance considered that income of assessee from


                                      Page 2 of 77
                         ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




insurance business is assessable as per section 44 of the Income
Tax Act. He has considered the Actuarial Valuation Report
submitted in Form-I extracted in the assessment order which is as
under:

Form-I of the Actuarial Report:

Item   Description     Balance of      Mathematical         Surplus (`.)      Negative       Surrender
 No.                  fund shown          reserves                            Reserves          value
                       in Balance        (excluding                             (`.)           deficit
                        Sheet (`.)     cost of bonus                                          reserved
                                        allocated)(`)                                            (`.)
 (1)       (2)            (3)                 (4)                (5)              (6)             (7)
 01    Business
       within India   6702408920        6411682550          290726370        12539400             00
       Par policies
 02    Non      Par
                      28131258270      28064221830           67969900        59423230             00
       Policies
 03    Totals         34833667190      34475904380          358696280        71962640             00
 04    Total
       business       6702408920        6411682550          290726370        12539400             00
       par policies
 05    Non      par
                      28131258270      28064221830           67969900        59423230             00
       policies
 06    Total          34833667190      34475904380          358696280        71962640             00


Since there is a surplus declared at `.35,86,92,280/- in the form I
AO asked assessee to explain why the computation is not made
according to the `actuarial valuation' It was the contention of
assessee that the actuarial valuation has resulted in deficit which
were shown as loss whereas the Form-I represents the total surplus
after transfer of assets from shareholder's account to the account
as per the IRDA rules. The surplus has to be shown in order to
declare dividend, bonus etc. under the rules and the amount was
transferred by way of infusion of fresh capital into the company and
transferred to the Policyholder's account. It was submitted that the
transfer of shareholder's funds does not give rise to any income and
the actuarial surplus arrived at was a deficit on which the return
was filed and in case AO has to consider the surplus in Form-I,
then transfer of funds from shareholder's account should be
reduced from the above amount as it is only transfer of capital
assets and not income. AO, however, relying on the principles laid




                                          Page 3 of 77
                      ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




down by the Hon'ble Supreme Court in the case of LIC vs. CIT, 51
ITR 773 wherein it was held that the assessment of the profits of an
insurance business is completely governed by the rules under the
schedules and there is no power to do anything not contained in it.
Further he also relied on the judgment of the Hon'ble Bombay High
Court in the case of LIC vs. CIT, 115 ITR 45 to come to a conclusion
that AO has no power to make adjustment once provisions of
section 44 were invoked. Accordingly he took the surplus as
declared in Form-I as the basis for computation of income and
accordingly arrived at the surplus at `.35,86,96,280/-. He also
made     an    addition     of     deficit       from        Pension         Scheme           at
`.63,09,19,492/- before setting of the brought forward losses. He
also made disallowance under section 14A to an extent of
`.4,42,584/- even though              no adjustment was made in the
computation of income.

5.     The matter was contested before the CIT (A) and assessee
made elaborate submissions. The main contention was that Form-I
is a report prepared as a part of actuarial report and abstracts
under the IRDA Regulations to ascertain segment-wise cumulative
allowability of actuarial valuation shown as mathematical errors. It
was submitted that Form ­ I does not provide the Profit & Loss A/c
of entire business but shows the asset- liability position of only . It
was further explained that IRDA has made specific rules to
segregate the account and shareholder's account and revised the
form for presentation of insurance accounts as prescribed in
IRDA(Preparation of Financial statements and Auditor's Report of
Insurance     companies)      Regulations            2002.        According          to     the
Regulations, Profit & Loss A/c of life insurance company is divided
into a technical account (policy holder's account) also called as
revenue account and non-technical account (shareholder's account)
also called Profit & Loss A/c. It was further submitted that
technical accounts deals with all the transactions relating to the



                                       Page 4 of 77
                       ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




including income from premium and expenditure and actuarial
provision shown segment-wise. All the transactions relating to
shareholder's like funding the deficit of the account, income earned
on investment of share capital and reserves are dealt with the non
technical    account   called       shareholder's           account.          As     per     the
Regulations the format for presentation of account, the impact of
actuarial valuation is shown in the Revenue Account relating to for
the year and the surplus/deficit is arrived at. It was submitted that
in order to compute the effect for the Income Tax computation
result of account and shareholder's account needs to be combined
and accordingly assessee filed surplus/deficit calculated after
combining the and shareholder's accounts.

6.    The learned CIT (A) however, did not agree with the above
contentions and stated that section 44 r.w. part-A of first schedule
to the Income Tax (Rule 2) provides for mechanism of arriving at the
surplus of the insurance business and the actuarial surplus as
disclosed in Form-I which is part of the actuarial report duly
certified by the appointed Actuary of the Company should be
considered as income from life insurance business as per the Act.
Therefore, he agreed with AO's action and rejected assessee's
contention. Assessee is aggrieved on this issue and raised grounds
no 1 to 3.

7.    The learned Counsel drawing our attention to the special
scheme of assessment as provided in section 44 of the Income tax
Act and First schedule of Income tax act and more particularly
Rule-2 submitted that insurance business was governed by the
actuarial valuation and not by the general Profit & Loss A/c
prepared in other company. Insurance business is regulated by the
Insurance Act 1938 and further by the IRDA Act 1999. As per the
Regulations issued by the IRDA which assessee has to follow, as it
was incorporated after the legislation of the IRDA Act, it has to
maintain the accounts as per the new Regulations and accordingly


                                        Page 5 of 77
                    ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




shown policy holder's account and shareholder's account. There
was a negative balance in policyholder's account to an extent of
`.201.60 crores. The law requires the deficit in policyholder's
account should be made good before declaring any bonus or
dividend and this deficit should be fulfilled by transferring
corresponding amount from shareholder's account. Accordingly
during the year, assessee has transferred an amount to the extent
of `.233.35 crores from shareholder's account to policyholder's
account. As the transfer should be supported by assets, assessee
has issued shares afresh to the extent of `.250 crores and increased
the capital to that extent. Since the amount transferred from
shareholder's account is nothing but transfer of capital from
shareholder's   account    to    policyholder's           account,         it    was      the
submission that the surplus arrived at after the transfer of the
capital cannot be considered as income of assessee. It was like
taxing the capital receipt/ sum which can not be regarded as
income. Without prejudice to the claim, it was also submitted that
assessee has filed the returns consolidating the policyholder's
account   and   shareholder's        account         and       the     credit       in    the
policyholder's account is matched by the debit in the shareholder's
account. This is tax neutral. Therefore, AO was not correct in
considering the surplus which arose due to transfer of share capital
as per the IRDA Regulations.

8.    The learned Counsel also explained the history of the case. It
was the submission that this issue of examining the actuarial
surplus was first time taken up under section 263 in assessment
years 2003-04 and 2004-05, for the first time by the CIT and this
matter has been contested before the ITAT. ITAT vide ITA No.3270
and 4685/Mum/2008 dated 22.01.2009 has set aside the orders of
the CIT as there was no prejudice caused to the Revenue in the
order under section 143(3). This order was contested before the
Hon'ble High Court which dismissed the Revenue appeal and



                                     Page 6 of 77
                      ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




further contested before the Hon'ble Supreme Court which also did
not admit and dismissed Revenue appeals. However, the Revenue
took proceedings under section 147 and reopened assessment from
assessment years 2002-03 to 2004-05 on the very same issue which
was contested by way of writ petition filed before the Hon'ble High
Court. The Hon'ble High Court vide orders dated 19/03/2010
reported in 325 ITR 471 quashed the notices under section 148
issued in this regard. The Hon'ble High Court also considered on
merits all the issues and rejected the Revenue contentions. So, it
was submitted that upto the assessment year 2004-05 assessee's
computation of actuarial deficit i.e. loss arrived at in the life
insurance business was accepted.

9.    Referring to the notes to the computation, the learned
Counsel drew our attention to various notes (page-5 of the paper
book) to submit that consequent to the IRDA recommendations, the
insurance companies are maintaining the account as per the format
prescribed under Insurance Act 1938 for presentation of insurance
accounts and as per the revised format for the presentation of
accounts in the new Regulations under IRDA, the impact of the
actuarial valuation is transferred to the revenue account relating to
policy holders for the year and the surplus/deficit is disclosed
therein. It was further submitted that the earlier formats for
presentation   of   accounts        aggregated          the      results       relating       to
shareholder's and policyholder's and thus the surplus/deficit was
including the impact of both. There is a scheme of presentation of
accounts currently in force for life insurance companies and the
new formats were prescribed for complying with the IRDA
Regulations. It was the submission that even though amendment
was brought in Rule 5 in First Schedule for General Insurance
business to incorporate changes brought by I R D Act no such
amendment was brought in Rule-2. Therefore, the manner of taxing
the life insurance companies has not been realigned with the



                                       Page 7 of 77
                      ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




changes as prescribed by the IRDA. It was further submitted that
there is a deficit of `.233,34,76,828/- in the policyholder's account
format-A-RA which has been made good by transfer of funds from
the shareholder's account. Therefore, the figures that appeared in
Form-I are subsequent to this transfer from shareholder's account.
It was further submitted that the earlier format did not provide for
segregating insurance business into                       and shareholder's and
therefore, the requirement to transfer funds from one account to
other and the need thereof for aggregating two accounts to reflect
the outcome of surplus or deficit did not arise at that time. In order
to arrive at the actuarial surplus/ deficit as per the Insurance Act,
1938 it was submitted that the accounts are aggregated and
accordingly assessee has filed the return of income. As per the
account before transfer of the amounts, there was a deficit to an
extent of `.161,40,61,362/- and surplus in shareholder's account of
`.10,93,77,555/-. In view of this assessee arrived at a loss of
`.150,46,83,807/- for the valuation year ended 31.03.2005 by
combing both accounts. The learned Counsel referred to the
actuarial valuation report placed in the paper book and also
reconciliation statement as per Rule-2 and submitted that the
reconciliation statement is as per the rules under Insurance Act
1938.

10.     It was further submitted that even if one were to accept the
flipside of the accounting, AO cannot take only one side of the
account to tax the surplus arrived after transfer of capital funds
from the shareholder's account. If one were to accept the transfer
from one account to another, the surplus in policyholder's account
will get nullified by deficit in shareholder's account consequent to
transfer from one to another. If the method is to be followed as per
the Insurance Act, 1938, then the combined account which
assessee has followed is correct method and AO has no option than
to accept the accounts as prepared under the Insurance Act, 1938.



                                       Page 8 of 77
                        ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




11.    The learned Counsel referring to Rule-2 submitted that the
actuarial valuation made in accordance with the Insurance Act,
1938 (Act No.4 of 1938) should be read to mean that it is an
incorporation into the Income Tax Act and not a mere reference.
Therefore, it was his submission that the actuarial valuation has to
be computed in accordance with the Insurance Act, 1938 then
existing and not with reference to the subsequent amendments
made in the formats under the IRDA Act. He then referred to the
principle   of   `legislation     by incorporation'               and       `legislation        by
reference' and referred to the decisions of the Hon'ble Supreme
Court of India in the case of Mahindra & Mahindra Ltd vs. Union of
India & Others (1979) 2 Supreme Court cases 529 given in the
context of MRTP Act, 1969 and Bharat Cooperative Bank Mumbai
Ltd vs. Cooperative Bank Employees Union AIR 2007 (SC) 2320

12.    The learned Counsel also submitted that in case the language
of the statutory provision is ambiguous and capable of two
constructions, that construction must be adopted which will give
meaning and effect to the other provisions of the enactment rather
than that which will give none. He referred to the decision of the
Hon'ble Supreme Court in the case of Addl. CIT vs. Surat Art Silk
Cloth Manufacturers Association 121 ITR 1(SC) to submit that the
construction which is in tune with the provisions of the Act can only
be adopted and referred to the following from the above said order.

      "It is true that the consequences of a suggested construction
      cannot alter the meaning of a statutory provision where such
      meaning is plain and unambiguous, but they can certainly
      help to fix its meaning in case of doubt or ambiguity. Let us
      examine what would be the consequences of the construction
      contended for on behalf of the revenue. If the construction put
      forward on behalf of the revenue were accepted, then as
      already pointed out above, no trust or institution whose
      purpose is promotion of an object of general public utility,
      would be able to carry on any business, even though such
      business is held under trust or legal obligation to apply its
      income wholly to the charitable purpose or is carried on by the
      trust or institution for the purpose of earning profit to be


                                         Page 9 of 77
                       ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




      utilized exclusively for feeding the charitable purpose. If any
      such business is carried on, the purpose of the trust or
      institution would cease to be charitable and not only the
      income from such business but the entire income of the trust
      or institution from whatever source derived, would lose the tax
      exemption. The result would be that no trust or institution
      established for promotion of an object of general public utility
      would be able to engage in business for fear that it might lose
      the tax exemption altogether and a major source of income for
      promoting objects of general public utility would be dried up. It
      is difficult to belief that the legislature could have intended to
      bring about a result so drastic in its consequence. If the
      intention of the legislature were to prohibit a trust or
      institution established for the promotion of an object of general
      public utility from carrying on any activity for profit, it would
      have provided in the clearest terms that no such trust or
      institution shall carry on any activity for profit, instead of
      using involved and obscure language giving rise to linguistic
      problems and promoting interpretative litigation. The
      legislature would have used language leaving no doubt as to
      what was intended and not left its intention to be gathered by
      doubtful implication from an amendment made in the
      definition clause and that too in language far from clear".

13.    The learned Counsel further relied on principle laid down by
Hon'ble Himachal Pradesh High Court decision in Yogendra
Chandra       Vs CWT 187 ITR 58 to submit that if a literal
interpretation as suggested by Revenue is accepted, it would lead to
a manifestly absurd result which is not the intention of legislature.
In this case the capital transfer was considered as income in the
pretext of relying on Form I. He referred to AO's order to submit that
the Hon'ble Supreme Court in the case of LIC vs. CIT 51 ITR 773
had approved that AO has to arrive at the profits of the insurance
business as per first schedule and he was not empowered to make
any variation. To that extent, the accounts that were prepared
under the Insurance Act, 1938 are to be accepted. However, it was
submitted that       reliance on the Hon'ble Bombay High Court
judgment in LIC vs. CIT 115 ITR 45 is not correct as that judgment
was reversed by the Hon'ble Supreme Court in 219 ITR 410.
Therefore, it was submitted that AO relied on the over-ruled




                                       Page 10 of 77
                         ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




judgment to deny assessee the benefit of combining the accounts. It
was submitted that the rules and provisions has to be implemented
by making a harmonious reading of the provisions and internal
transfer should be permitted which was made as per IRDA
Regulations for which the Income Tax Act was not amended to
incorporate the changes.

14.      Ld. Counsel also referred to the annual accounts, various
forms and Regulations and filed reconciliation statements placed
before     authorities    to     explain        the      rationale         of    arriving        at
surplus/deficit as was done by assessee company.

15.      In reply the learned DR submitted that there is no relevance
of the proceedings initiated under section 263 and 147 to the issue
in present as their actions are under different provisions and are
different matter altogether. It was his submission that the ITAT
order against appeal on order under section 263 had no impact as
ITAT considered the issue in the context of erroneous and prejudice
to the interest of Revenue. Likewise dismissal of SLP does not
establish any law and the factual position was not affected by the
orders of the High Court or Supreme Court. He then referred to the
provisions of law under section 44 of the Income Tax Act, Rule-2 of
first schedule and the actuarial report placed on record to submit
that assessee has prepared the actuarial surplus under the IRDA
Regulations which AO has accepted as per the provisions of law.
There may be credit or transfer from shareholder's funds but AO
has no option than to arrive at the surplus as disclosed in Form-I as
per the rules. He also referred to Form-I and the surplus as per the
actuarial valuation extracted by AO in the assessment order itself.
He relied on the principles laid down by the Hon'ble Supreme Court
in the case of Vegetable Products, 88 ITR 192 with reference to the
provisions for interpretation of law and further in the case of
Hindustan Construction Co. Ltd. v. CIT 208 ITR 291.




                                         Page 11 of 77
                     ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




16.   Ld CIT DR further submitted that in case there are any
transfers from one account to another account, that issue is not for
AO to examine as the actuary arrived at the surplus and reported in
Form-I which is the basis for assessment under Rule-2 of first
schedule to the Income Tax Act. Whether there is a surplus or not
in the actuarial report can only be verified by AO under Rule-2 and
he is duty bound to act on the basis of form as prescribed under
the Regulations which indicate surplus during the year which AO
has accepted as mandated by the statutory provisions and the legal
interpretations. It was further submitted that as far as life
insurance business is concerned, the old provisions will apply and
as there is no amendment to the Act as such the IRDA can only
modify the format of reporting. He also submitted that there is no
contradiction in the old and new format prescribed under the IRDA
and relied on the decision of the Hon'ble Supreme Court in the case
of Surana Steels Pvt. Ltd vs. Dy. CIT, 104 Taxman 188 (SC) to
submit that reference to the other provisions are not required when
the Act is very clear. It was further submitted that the regulatory
provisions for other insurance businesses have taken profit as Profit
& Loss A/c as basis for the computation but for the life insurance
business, they have taken a different method of calculation based
on determination of actuarial surplus/deficit. It was submitted that
as far as life insurance business is concerned, the intention of the
legislature is not to consider capital or revenue but only to arrive at
surplus or deficit. It was further submitted that even though
amendment was made to Rule-5, no such amendment was made in
Rule-2 of Part-A of first schedule and virtually there was no change
from the situation from Insurance Act 1938 to IRDA Act1999. It is
very clear that actuarial report is nothing to do with shareholder's
but only.

17.   Ld.CIT DR further submitted that meaning of actuarial
surplus used in Rule-2 is not defined. As per Rule 4 of the IRDA



                                     Page 12 of 77
                       ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




Regulations, actuarial report was abstracted in a statement to be
prepared by the actuary as per procedure. In view of this the
actuarial report provided in Form-I is the base for the assessment
for AO. The Regulations 8 of the IRDA starts as a statement
showing total amount of surplus arisen during the inter valuation
period. Further it depends on the composition of surplus which
consist of A to F items and item J talks about the total surplus (a to
i). Since Form I indicate surplus for the total business, the total
surplus has to be considered as actuarial surplus for the purpose of
Rule-2 for the inter valuation period. He also further referred to the
guidelines issued in IRDA circular 2004 to state that transfer of
funds shall not be reversible in nature. He also referred to AO's
order passed in assessment year 2008-09 which is little more
elaborate than the order in assessment year 2005-06 to support the
stand of the Revenue that the surplus arrived at in Form I is the
actuarial surplus to be brought to tax under the rules. The learned
DR in his submission also referred to the Hon'ble Supreme Court
judgment in the case of LIC vs. CIT 51 ITR 773 (SC) for the primacy
of section 44 and Rule-2 in arriving at the actuarial valuation. He
supported the order of AO and the CIT (A).

18.    We have considered the submissions and perused the record
and relevant provisions and the case laws relied upon. There is no
dispute with the taxability of insurance business as governed by the
provisions of section 44 of the Act r.w. First schedule of Income Tax
Act 1961. Section 44 provides as under:

      "44. Notwithstanding anything to the contrary contained in
      the provisions of this Act relating to the computation of income
      chargeable under the head "Interest on securities", "Income
      from house property", "Capital gains" or "Income from other
      sources", or in section 199 or in sections 28 to[43B], the profits
      and gains of any business of insurance, including any such
      business carried on by a mutual insurance company or by a
      co-operative society, shall be computed in accordance with the
      rules contained in the First Schedule.




                                       Page 13 of 77
                         ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




The First schedule contains three parts A, B & C. Part-A pertains
to life insurance business, Part-B for other business and Part-C
other provisions. The relevant rules in Part A for life insurance
business are as under:

    "Profits of Life Insurance business to be computed
    separately
    1. In the case of a person who carries on or at any time in the
    previous year carried on life insurance business, the profits
    and gains of such person from hat business shall be
    computed separately from his profits and gains from any other
    business.


    Computation of profits of life insurance business
    2. The profits and gains of life insurance business shall be
    taken to be the annual average of the surplus arrived at by
    adjusting the surplus or deficit disclosed by the actuarial
    valuation made in accordance with the Insurance Act, 1938 (4
    of 1938) in respect of the last inter-valuation period ending
    before the commencement of the assessment year, so as to
    exclude from it any surplus or deficit included therein which
    was made in any earlier inter-valuation period.
    Deductions
    3. Omitted
    Adjustment of tax paid by deduction at source
    4. Where for any year an assessment of the profits of life
    insurance business is made in accordance with the annual
    average of a surplus disclosed by a valuation for an inter-
    valuation period exceeding twelve months, then in computing
    the income-tax payable for that year, credit shall not be given
    in accordance with section 199 for the income-tax paid in the
    previous year, but credit shall be given for the annual average
    of the income-tax paid by deduction at source from interest on
    securities or otherwise during such period".
Rule-7 defines `life insurance business' means life insurance
business as defined in clause-2 of section 2 of Insurance Act 1938.
Assessee incorporated after the enactment of the IRDA 1999, is in
the life insurance business and there is no dispute with that. As per
section   44   for   a     business         involved         in    insurance          business
notwithstanding contained in any other head of income like interest



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on securities, house property, capital gains and other sources, the
income from profits and business are to be computed according to
the first schedule. Primacy of Sec.44 and power of AO to compute
as per Rule 2 of First Schedule was also decided by Hon'ble
Supreme Court in number cases relied on by both parties. As the
dispute is not with the above, there is no need to reiterate those
principles or discuss cases in this order.

19.   Rule-2 is the main computation provision which is applicable
to the life insurance business. As per Rule-2 the profits and gains of
life insurance business shall be taken to be the annual average of the
surplus arrived at by adjusting the surplus or deficit disclosed by the
actuarial valuation made in accordance with the insurance act, in
respect of the last inter valuation period so as to exclude any surplus
or deficit included therein which was made in any inter valuation
period. According to the rule the surplus or deficit between two
valuation periods can only be taken as income or loss of the period.
Thus if there is a surplus in earlier valuation of `Y' amount and
surplus in the later valuation at `X' amount, the difference between X
& Y will be the income of the inter valuation period for the purpose of
Rule 2. Therefore, actuarial evaluation done in respective periods has
importance. Before the IRDA Act, only Life Insurance Corporation
was permitted to involve itself in life insurance business. The
actuarial valuation was not undertaken every year but once in three
years. Therefore, the rule provides for only average of the surplus to
arrive between two inter valuation periods. However, with the
enactment of IRDA Act 1999 and Regulations therein not only the
private participants were permitted to do business but presentation
of accounts and reports were modified.

Past history of the assessee company:

20.   Assessee company was governed by the IRDA Act and its
Regulations from its inception. In earlier years attempts were made




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by Revenue to disturb the Incomes or losses assessed both under
Sec. 263 and Sec. 147, as briefly stated in Ld. Counsel's arguments.
The incomes and Losses shown by assessee in various assessment
years are as under:

  A.Y.          Returned       Surplus/(deficit)             Amount               Surplus as
              Income/(loss)      as per A-RA               transferred            per Form I
                                                            from SHA
2001-02        (204,359,146)       (206,619,000)                     -                      -
2001-03        (854,736,440)        177,434,000          1,241,806,000                      -
2003-04        (987,036,885)              22,000         1,583,784,000                      -
2004-05      (1,742,378,630)             (22,000)        2,367,746,000                      -
2005-06      (1,505,539,430)       (317,487,000)         2,333,474,000            358,696,280
2006-07      (2,005,534,043)      1100,641,000)          2,306,655,000            775,734,930
2007-08      (4,128,758,204)    (1,360,152,000)          7,579,972,000          1,426,033,160
2008-09       8,233,771,502)    (3,251,153,000)         16,063,495,000          3,029,120,030

21.      The dispute in this case is in adopting the amount of surplus
or deficit as per actuarial valuation. There is no dispute with method
of actuarial valuation. The dispute is centered around the amounts
represented in Form-I as per the IRDA Regulations. Consequent to
changes brought by IRDA Act, and its Regulations the revised format
in Form I deviates from the Form-I prescribed under Insurance Act
1938. Assessee reconciles the form with old Regulations and filed
return of income/ loss. The AO adopts the `Total Surplus' stated in
Form-I under new Regulations ignoring the assessee submissions
about changes in accounting procedures and need for reconciliation.
This aspect was examined by the Hon'ble Bombay High Court in the
assessee own case of ICICI Prudential Life Insurance Co. Ltd. vs.
ACIT 325 ITR 471 (Bom.). The facts examined by the Hon'ble Bombay
High Court pertain to the assessment year 2003-04 wherein
consequent to the reopening of the assessment under section 148,
the matter was challenged before the Hon'ble Bombay High Court.
The entire scheme,            various Regulations applicable, change in
formats and method of accounts were elaborately discussed by the
Hon'ble Bombay High Court as under:

   "During the course of the assessment year 2003-04, the
   petitioner filed a return of income on November 27, 2003,



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reporting a net loss of Rs. 98.70 crores. The statement of the
computation of profits and gains from business shows an
actuarial deficit of Rs. 158.37 crores. After excluding a deficit
of Rs. 48.47 crores, arising out of pension schemes exempt
under section 10(23AAB), the deficit in the account stood at
Rs. 109.90 crores. The petitioner had an income surplus in the
shareholder's' account of Rs. 11.20 crores. As a result, the
deficit from the insurance business was Rs. 98.70 crores.
Section 44 of the Income-tax Act, 1961, provides that
notwithstanding anything contained to the contrary in the
provisions of the Act relating to the computation of income
chargeable under the head "Interest on securities", "Income from
house property", "Capital gains" or "Income from other sources"
or in section 199 or in sections 28 to 43B the profits and gains
of any business of insurance shall be computed in accordance
with the rules contained in the First Schedule to the Act. Rule 2
of the First Schedule provides as follows:
    "The profits and gains of life insurance business shall
    be taken to be the annual average of the surplus
    arrived at by adjusting the surplus or deficit disclosed
    by the actuarial valuation made in accordance with the
    Insurance Act, 1938, in respect of the last inter-
    valuation period ending before the commencement of
    the assessment year, so as to exclude from it any
    surplus or deficit included therein which was made in
    any earlier inter-valuation period."
Before 1999, companies engaged in the business of life
insurance were required to prepare one consolidated
account. Section 11 of the Insurance Act, 1938 was
amended so as to include sub-sections (1A) and (1B).
Subsection (1A) to section 11 provides that every insurer,
on or after the commencement of the IRDA Act, 1999, in
respect of insurance business transacted by him and in
respect of shareholder's' funds, shall, at the expiration of
each financial year, prepare with reference to that year,
a balance sheet, a profit and loss account, a separate
account of receipts and payments, and revenue account
in accordance with the Regulations made by the
Authority. Section 13(1) provides that every insurer
carrying on life insurance business shall, inter alia, in
respect of the life insurance business transacted in
India, cause an investigation to be made each year by an
actuary into the financial condition of the life insurance
business carried on by him, including a valuation of his
liabilities and shall cause an abstract of the report of
such actuary to be made in accordance with the
Regulations laid down in Part I of the Fourth Schedule



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and in conformity with the requirements of Part II of
that Schedule. The fifth proviso to section 13 stipulates
that on or after the commencement of the IRDA Act, 1999
every insurer shall cause an abstract of the report of the
actuary to be made in the manner specified by the
Regulations made by the Authority.
In exercise of the powers conferred by section 114A of the
Insurance Act, 1938, the IRDA notified the Insurance
Regulatory and Development Authority (Actuarial Report
and Abstract) Regulations, 2000. Regulations 3 and 4
stipulate the procedure for preparation of actuarial
reports and abstracts and the requirements applicable.
Under Regulation 3(4)(v), each abstract and statement is
to be accompanied by a certificate signed by the
appointed actuary, inter alia, stating that in his opinion,
the mathematical reserves are adequate to meet the
insurer's future commitments under contracts and the
reasonable expectation of policyholder's. Each insurer is
required to prepare statements which are to be annexed
to the abstract and a list of those statements is set out in
Regulation 4(2). Regulation 8 provides that a statement
showing the total amount of surplus arising during the
inter-valuation period and allocation of such surplus,
shall be furnished separately for participating business
and for non-participating business, together with the
particulars as mentioned in the Regulation. The
composition of surplus, inter alia, includes the surplus
shown by Form I, interim bonuses, loyalty additions and
sums transferred from shareholder's' funds during the
inter-valuation period.
The Authority has also notified the Insurance Regulation
and Development Authority (Preparation of Financial
Statements and Auditor's Report of Insurance Companies)
Regulations, 2002. Part V deals with the provision of
financial statements. Every insurer is required to prepare
(i) a revenue account which is also described as a
policyholder's' account; and (ii) a profit and loss account,
which is also described as a shareholder's' account,
apart from a balance-sheet. The statutory forms are
prescribed by the Regulations. Form A-RA is prescribed
for the preparation of the revenue account or the
policyholder's' account. Form A-RA reflects the surplus
or, as the case may be, the deficit generated in the
revenue account for the year ending 31st March.
As a result of the Regulations, the petitioner which is
engaged in the business of life insurance is required to
prepare and maintain two accounts namely, (i) a revenue



                                 Page 18 of 77
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account of policyholder's, and (ii) a profit and loss
account of shareholder's. For the previous year which ended
on March 31, 2003, the policyholder's' account reflected a
deficit of Rs. 158.37 crores. This deficit was made good by the
transfer of an amount of Rs. 158.37 crores from the
shareholder's' account to the policyholder's account. This was
essentially an internal transfer of funds. Form I which has been
prepared      by the petitioner in pursuance of the IRDA
Regulations of 2000 reflected a nil deficit consequent upon the
transfer of an amount of Rs. 158.37 crores              from the
shareholder's' account to the policyholder's account. The source
for making a transfer of Rs. 158.37 crores from the
shareholder's' account originated in the infusion of capital from
shareholder's during the course of the previous year relevant to
the assessment year in question.
During the course of the assessment proceedings for the
assessment year 2003-04, the petitioner furnished a note to the
computation of income.       The salient aspects which were
highlighted in the note were as follows:
   (i) The erstwhile format for the presentation of
   surplus/deficit required each insurance company to
   aggregate the results relating to shareholder's' operations
   and policyholder's' operations. The impact of the
   consolidated revenue account was transferred to the
   actuary's valuation balance-sheet in Form I which
   disclosed the surplus/deficit for the year;
   (ii) The format for presentation of the insurance accounts
   was amended by the Regulations of 2000 and by the
   revised format, the impact of the actuarial valuation was
   transferred to the revenue account relating to         the
   policyholder's for the year and the surplus/deficit was
   disclosed therein ;
   (iii) The profit and loss for shareholder's and the
   surplus/deficit for policyholder's are since segregated into
   two separate accounts after the amended Regulations;
   (iv) For the financial year ending March 31, 2003, the
   actuarial valuation as disclosed in Form I shows a nil
   surplus/deficit as regards the business of policyholder's.
   The actual deficit of Rs. 158.37 crores in the policyholder's'
   account (Form A-RA) was made good by a transfer of an
   equivalent sum from the shareholder's' account. Hence, the
   figures showing a nil deficit in Form I were subsequent to
   the transfer;
   (v) The total deficit in the policyholder's' account for tax
   purposes was Rs. 109.90 crores (Rs.158.37 crores less an



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     amount of Rs. 48.47 crores on account of exempt pension
     schemes);
     (vi) In the shareholder's' account, there was a net surplus
     of Rs. 11.19 crores;
     (vii) Consequently, while there was a net surplus in the
     shareholder's' account of Rs. 11.19 crores, there was a net
     deficit in the policyholder's' account of Rs. 109.90 crores;
     (viii) Consequently, in determining the profits and gains
     under section 44 read with rule 2, the loss was computed
     at Rs. 98.70 crores by aggregating the surplus in the
     shareholder's' account with the deficit in the policyholder's'
     account for the purposes of taxation.
    During the course of the assessment proceedings, letters were
    addressed to the Assessing Officer specifically in order to
    clarify the position of the deficit in the policyholder's' account.
    By its letter dated December 27, 2005, the petitioner clarified
    that the deficit in the policyholder's' account as reflected by
    Form A-RA had been met by a transfer from the shareholder's'
    account. The figures relating to surplus/deficit in Form I were
    subsequent to the internal transfer of funds. The assessee
    contended that the transfer from the shareholder's' to the
    policyholder's' account was an internal adjustment and was
    tax neutral. Before the assessment proceedings came to be
    concluded for the assessment year 2003-04, an audit query
    was raised with reference to the assessment year 2002-03.
    The audit report dated May 4, 2005 specifically raised a
    question as to whether the petitioner should have been
    allowed to claim a deficit in the policyholder's' account since
    the deficit disclosed by the actuarial valuation in Form I was
    shown to be nil. In response to the audit query, the petitioner
    addressed a letter dated December 29, 2005, contending that
    the First Schedule to the Income-tax Act did not refer to any
    particular form for calculating the taxable surplus and
    instead mentions that the actuarial surplus calculated under
    the provision      of the Insurance Act, 1938, has to be
    considered. The petitioner reiterated its position that Form I
    showed a zero surplus because, it has already considered,
    inter alia, the transfers made from the shareholder's' account
    to the policyholder's' account to nullify the deficit as per the
    IRDA Regulations. The same position has been reiterated by
    a letter dated December 30, 2005 to the Assessing Officer".

It was further observed vide Para 18 (Page No.480) as under:
    The record before the court shows that the assessee had in its
    computation of income disclosed that the policyholder's'
    account showed that (i) there was a deficit of Rs. 109.90



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      crores (comprising Rs. 158.37 crores minus Rs. 48.47 crores
      arising out of exempt pension funds) ; (ii) there was a transfer
      of funds to the extent of Rs. 158.37 crores from the
      shareholder's' account to the policyholder's' account ; and (iii)
      that the deficit in the policyholder's' account was adjusted
      only by an internal transfer of funds from the shareholder's'
      account to the policyholder's' account. By its letters dated
      December 27, 2005 and December 30, 2005, which were filed
      in response to queries raised by the Assessing Officer, the
      assessee disclosed (a) the manner in which the profits and
      gains under section 44 read with the First Schedule were
      arrived at, so as to reflect a loss of Rs. 98.70 crores ; (b)the
      fact that the nil surplus shown in the report of the actuarial
      valuation in Form I was subsequent to the transfer of funds
      from the shareholder's' account to the policyholder's' account.
      When the assessment proceedings pertaining to the
      assessment year 2003-04 were pending, an audit query came
      to be raised in regard to a similar claim for loss during the
      assessment year 2002-03. The petitioner responded to the
      audit query by its letter dated December 29, 2005. The letters
      addressed by the petitioner, including the note appended to
      the computation of income clearly set out the fact that there
      was a surplus in the shareholder's' account and that the
      deficit in the policyholder's' account was met by a transfer
      from the share holders' account to the policyholder's' account.
      The petitioner disclosed that in Form I, the surplus/deficit
      was shown to be nil and submitted that the position reflected
      in Form I was subsequent to the internal transfer of funds
      which took place from the shareholder's' to the policyholder's'
      account. It is after the petitioner had filed its explanation by
      several letters that the Assessing Officer passed an order of
      assessment under section 143(3)".

22.    Further vide Para 21 (Page 482), the method of accounting
and Regulations were further analysed as under:

      While dealing with the reopening of the assessment for the
      assessment year 2004-05, the principal question before the
      court is as to whether there was any tangible material before
      the Assessing Officer to form a reason to believe that income
      chargeable to tax had escaped assessment. In the prefatory
      part of this judgment, a reference has been made to the
      relevant provisions of the Insurance Act, 1938 and to the
      Regulations of 2000 and 2002, which have a bearing on the
      formulation of the accounts, of an assessee like the petitioner
      who engages in the business of life insurance. Section 13(1) of
      the Insurance Act, 1938 which was inserted by the Insurance
      Regulatory Authority Act, 1999 requires every insurer upon



                                       Page 21 of 77
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the commencement of the Act to maintain separate accounts in
respect of the insurance business transacted by the insurer
and in respect of the shareholder's funds. Regulations 3 and
4 of the Regulations of 2000 provide the procedure and
requirements in the preparation of the actuarial report and
abstract. Form I, it may be noted, is one of the summary
statements that is required to be prepared by the insurer
under Regulation 4(2). Part V of the 2000 Regulations deals
with the preparation of the financial statement and requires
the insurer to prepare; (i) a revenue account, also called a
policyholder's' account ; and (ii) a profit and loss account, also
called the shareholder's' account. Form A-RA is the form in
which the policyholder's' account is to be filed. Form A-RA
requires a disclosure of (a) premiums earned, income from
investments and other income ; (b) commission, operating
expenses, provision for doubtful debts, debts written off,
provision for tax and other than taxation ; (c) benefits, interim
bonuses and change in valuation of liability in respect of life
policies. The surplus/deficit is computed at the foot of the
account by deducting the amounts computed under (b) and (c)
above from the figures of income in (a).
   During the course of the assessment, the assessee
   had set out the computation in the policyholder's'
   account and in the shareholder's' account.
   According to the assessee, the net result of the
   operations is reflected in the policyholder's'
   account which has been made good by transfer
   from the shareholder's' account. A circular has
   been issued on March 23, 2004 by the Insurance
   Regulatory Development Authority, to specify the
   conditions which are required to be fulfilled where
   an insurer intends to declare a bonus when there is
   a deficit in the life fund. The condition which is
   prescribed in the circular is that the accumulated
   deficit in the policyholder's' account must be made
   good by a transfer of funds from the shareholder's'
   account to the policyholder's' account. The circular
   clarifies that the transfer from the shareholder's'
   account can be out of the profit and loss account,
   balance or reserves in the shareholder's' account or
   by drawing upon the paid up capital of the insurer.
   The transfer of funds made from the shareholder's'
   account to the policyholder's' account is to be
   irreversible. What the circular emphasizes is that
   an insurer who intends to declare a bonus has to
   ensure, in the event that there is a deficit in the
   policyholder's' account, that the deficit is effaced




                                 Page 22 of 77
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        by a transfer of funds from the shareholder's'
        account".
      The Assessing Officer, while reopening the assessment has
      not put forth any tangible material on the basis of which he
      could have formed a reasonable belief that income chargeable
      to tax has escaped assessment. He has merely altered or
      changed the opinion which was formed during the
      assessment proceedings". (emphasis supplied)

The Hon'ble Bombay High Court on the facts of the case held that
reopening is bad in law. In arriving at that decision, the Hon'ble
High Court examined the entire scheme of presentation of accounts
and arriving at surplus. Therefore not only the Regulations which
are binding on the assessee were discussed but computation made
there under was also considered in the above decision.

23.    The dispute in these years is also similar. Eventhough Ld.CIT
DR submitted that those years has no effect on deciding this issue,
we are aware about consequential effects in later years and the need
to follow uniform methodology. Therefore an attempt was made to
examine and reconcile the various contentions in this order. It was
the assessee contention that the surplus or deficit amount should
be arrived at after adjusting both Accounts there by neutralising the
transfer   of   capital    funds        from        Shareholder's             account         to
policyholder's account as per Regulations and prudent business
practice and international practices being followed by assessee
company. AO's contention is based on amounts referred in Form I.

Import of Insurance Act 1938:

24.     Before analyzing the issue, it is necessary to discuss the
principles of `incorporation' of Insurance Act 1938 into the Income
Tax Act 1961. As rightly pointed out by the learned Counsel, the
reference to the Insurance Act 1938 in the Income Tax Act as such
can only be considered as `legislation by incorporation'. The
principles of `legislation by incorporation' and `legislation by




                                      Page 23 of 77
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reference' are discussed by the Hon'ble Supreme Court in a number
of cases, more so in the following cases.

25.    In the case of Mahindra & Mahindra Ltd vs. Union of India &
Others,    the   Hon'ble     Supreme           Court        on      the     principles          of
interpretation of statutes on           section 8(1) of general Clauses Act
1897 held as under:

      Interpretation of Statutes - Legislation by reference and
      by incorporation-Difference - In former case Section 8(1)
      of General Clauses Act applicable - But in latter case
      subsequent repeal or amendment of the provision
      incorporated does not affect the incorporating statute -
      General Clauses Act, 1897,Section 8(1)
                                     (paras 8 and 9)
      "8. The first question that arises for consideration on the
      preliminary objection of the respondents is as to what is the
      true scope and ambit of an appeal under Section 55., That
      section provides inter alia that any person aggrieved by an
      order made by the Commission under Section 13 may prefer an
      appeal to this Court on "one or more of 'the grounds specified in
      Section 100 of the Code of Civil Procedure, 1908". Now at the
      pate when Section 55 was enacted, namely, December 27,
      1969, being the date of coming into force of the Act, Section
      100 of the Code of Civil Procedure specified three grounds on
      which a second appeal could be, brought to the High Court and
      one of these grounds was that the decision appealed against
      was contrary It was sufficient under Section 100 as it stood
      then that there should be a question of law in order to attract
      the jurisdiction of the High Court in second appeal and,
      therefore, if the reference in Section 55 were to the grounds set
      out in the then existing Section 100, there can be no doubt that
      an appeal would lie to this Court under Section 55 on a
      question of law. But subsequent to the enactment of Section 55,
      Section 100 of the Code of Civil Procedure was substituted by a
      new section by Section 37 of the Code of Civil Procedure
      (Amendment) Act, J 976 with effect from February 1, 19'77
      and the new Section 100 provided that a second appeal shall
      lie to the High Court only if the High Court is satisfied that the
      case involves a substantial question of law. The three grounds
      on which a second appeal could lie under the former Section
      100 were abrogated and in their place only one ground was
      substituted which was a highly stringent ground, namely, that
      there' should be a substantial question of law. This was the
      new Section 100 which was in force on the date when the
      present appeal was 'preferred by the appellant and the
      argument of the respondents was that the maintainability of



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the appeal was, therefore, required to be judged by reference to
the ground specified in the new Section 100 and the appeal
could be entertained only if there was a substantial question of
law. The respondents leaned heavily on Section 8(1) of the
General Clauses Act, 1897 which provides:
Where this Act or any Central Act or Regulation made after the
commencement of this Act, repeals and re-enacts, with or
without modification, any provision of a former enactment, then
references in any other enactment or in any instrument to the
provision so repealed shall, unless a different intention
appears, be construed as references to .the provision so re-
enacted and contended that the substitution of the new Section
100 amounted to repeal and re-enactment, of the former
Section 100 and, therefore, on an application of the rule of
interpretation enacted in Section 8(1), the reference in Section
55 to Section 100 must be construed as reference to the new
Section 100 and the- appeal could be maintained only on
ground" specified in the new Section 100, that IS, on a
substantial question of law. We do not think this contention is
well founded. It ignores the 'distinction between a mere
reference to or citation' of one statute in another and an
incorporation which in effect means bodily lifting a provision of
one enactment and making it a part of another. Where there is
mere reference to or citation of one enactment in another
without incorporation; Section 8(1) applies and the repeal and
re-enactment of the provision referred to or cited, has the effect
set out in that section and the reference to the provision
repealed is required to be construed, as reference to the
provision as' 're-enacted. Such was the case in the Collector of
Customs v. Nathella Sampathu Chetty" and New Central Jute
Mills Co. Ltd. v. Assistant Collector of Central Excise. But where
a provision of one statute is Incorporated in another, 'the
repeal or amendment of the former does not affect the latter.
The effect of incorporation is as if 'the provision incorporated
were written' out in the incorporating statute and were a part of
it. Legislation by incorporation is a common legislative device
employed by the legislature, where the legislature for
convenience of drafting incorporates provisions from an existing
statute by reference to: that statute instead of setting out for
itself at length the provisions which it desires to adopt. Once
the incorporation is made, the provision incorporated becomes
an integral part of the statute in which it is transposed and
thereafter there is no need to refer to the statute from which the
incorporation is made and any' subsequent amendment made
in it has no effect on the incorporation statute. Lord Esher, M.
R." while dealing with legislation in incorporation in In re
Wood's Estate" pointed out at page 615 :
If a subsequent Act brings into itself by reference some of the



                                 Page 25 of 77
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     clauses of a former Act, the legal effect of that, as has often
     been held, is to write those sections into the new Act, just as if
     they' had been actually written in it with the pen, or printed in
     it, and, the .moment you pave those clauses in the later Act,
     you have no occasion to refer to .the former Act at all.   '

Lord Justice Brett, also observed to' the same effect in 'Clarke v.
Bradlaugh": ..... there is a' rule of construction that, where statute
is incorporated by reference into a second . statute, the repeal of
the first statute by a third statute does not affect the second. This
was the rule applied by the Judicial Committee of the Privy Council
in Secretary of State' for India in Council v; Hindustan Co-operative
Insurance Society Ltd.". The Judicial Committee pointed out in this
case that the provisions of the Land Acquisition Act, 1894 having
been incorporated in the Calcutta Improvement Act, 1911 and
become an integral part of it, the subsequent amendment of the
Land Acquisition Act, 1894 by the addition of sub-section (2) in
Section 26 had no effect on the Calcutta Improvement Act, 1911
and could not be read into it. 'Sir George Lowndes delivering the
opinion of the Judicial Committee observed at page 267 :

In this country it is accepted that where a statue is incorporated by
reference into a second statute, the repeal of the first statute does
not affect the second: see the cases collected in Craies on Statue
Law 3rd ed. pp. 349, 350 ... The independent existence of the two
Acts is, therefore, recognized; despite the death of the parent Act,
its .offspring survives in, the incorporating Act.
It seems to be no less .logical: to hold that where certain provisions
from an existing Act, have been incorporated into a subsequent Act,
.no addition to the former Act, which is not expressly made
applicable to the subsequent Act, :can be deemed to be
incorporated in it, at all events if it is possible for the subsequent
Act to function effectually without the addition.
So also in Ram Sarup v. M Munshi, it was held by this Court that
since the definition of 'agricultural land' in the Punjab Alienation, of
Land' Act, 1900 as bodily incorporated, in the Punjab Pre-emption
Act, 1913, the' repeal of the former Act .had no effect on the
continued operation of, the latter. Rajagopala Ayyangar, J.,
"speaking for the Court observed at pages 868-869 of the Report :
Where the provisions of an Act are' incorporated' by reference in a
later Act the' 'repeal 'of 'the' earlier Act has, in general, no effect
upon the construction or effect of the Act' in which its provisions
have been incorporated.
In the circumstances, therefore, the repeal of the Punjab Alienation



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of Land Act of 1900 has no effect on the continued operation of the
Pre-emption Act and the expression~, 'agricultural land' in the later
Act has to be read as if the definition in the Alienation of Land Act
1900, had been bodily transposed into it. :

The decision of this Court in Bolani Ores Ltd. v. State 'of Orissa"
also proceeded on the same principle. There the question arose in
regard to the interpretation of Section 2(c) of the Bihar and Orissa
Motor Vehicles Taxation' Act, 1930 (hereinafter referred to as the
Taxation Act). This section when enacted adopted the definition of
'motor vehicle' contained in Section 2(18) of the Motor Vehicles Act,
1939. Subsequently, Section 2(18) was amended by Act 100 of
1956 but no corresponding amendment was made in the definition
contained in Section 2(c) of the Taxation Act. The argument
advanced before the Court was that the definition in Section 2(c) of
the Taxation Act was not a definition by incorporation but only a
definition by reference and the meaning of 'motor vehicle' in Section
2(c) must, therefore, be taken to be the same as defined from time.
to time in Section 2(18) of the' Motor Vehicles Act, 1939. This
argument was negatived by the Court and it was held that this
was a case of incorporation and not reference and the definition' in
Section 2(18) of the Motor Vehicles Act, 1939 as then existing was
incorporated in Section 2(c) of the 'Taxation Act and neither repeal
of the Motor Vehicles Act, 1939 nor any .amendment in, it would
affect the definition of 'motor vehicle' in Section 2 (c) of the.-Taxation
Act. It is, therefore, clear that if there is mere reference to a
provision. of one statute in another without incorporation, then,
unless a different intention clearly appears, Section 8(1) would
apply and the reference- would ; be construed as a reference to the
provision as may be in force from time to time in the former
statute. But if a provision of one statute is incorporated in another,
any subsequent. amendment in the former statute or even its total
repeal would not affect the provision as incorporated in the latter
statute. The question is to which category the present case
belongs.

9. We have no doubt that Section 55 is an instance of legislation
by incorporation and not legislation by reference. Section 55
provides for an appeal to this Court on' "one or more of the grounds
specified in Section 100". It is obvious that the legislature did not
want to confer an unlimited right of appeal, but wanted to restrict it
and turning to Section 100, it found that the grounds there set out
were appropriate for restricting the right of appeal and hence it
incorporated them in Section 55. The right of appeal was clearly
intended to be limited to the grounds set out in the then existing
Section 100. Those were the grounds which were before the
Legislature and to which the Legislature could have applied its
mind and it is reasonable to assume that it was with reference to
those specific and known grounds that the Legislature intended to



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restrict the right of appeal. The Legislature could never have been
intended to limit the right of appeal to any ground or grounds
which might from time to time find place in Section 100 without
knowing what those grounds were. The grounds specified in
Section 100 might be changed from' time to time having regard to
the legislative policy relating to second appeals and it is difficult to
see' any valid reason why the Legislature should have thought it
necessary that these changes should also be reflected in Section
55 which deals with the right of appeal in a totally different
context. We fail to appreciate what relevance the legislative policy
in 'regard to second appeals has to the right of appeal under
Section 55 so that Section 55 should be inseparably linked or
yoked to .Section 100 and whatever changes take place in Section
100 must be automatically read into Section 55. It must be
remembered that the Act is a self-contained Code dealing with
monopolies and restrictive trade practices and it is not possible to
believe that the Legislature could have made the right of 'appeal
under such a code. dependent on the vicissitudes through which a
section in another statute might pass from time to time. The scope
and ambit of the appeal could not have been intended to fluctuate
or vary with every change in the grounds set out in Section 100.
Apart from the absence of any rational justification for doing so,
such an indissoluble linking of Section 55 with Section 100 could
conceivably lead to a rather absurd and startling result. Take for
example a situation where Section 100 might be repealed
altogether by the Legislature - a situation which cannot be
regarded as wholly unthinkable. If the construction contended for
on behalf of the respondents were accepted, Section 55 would in
such a case be reduced to futility and the right of appeal would be
wholly gone, because then there would be no grounds on which an
appeal could lie. Could such a consequence ever have been
contemplated by the Legislature? - The Legislature clearly
'intended that the e should be a right of appeal, though on limited
grounds, and it would be absurd to place on the language of
Section 55 an interpretation which might, in a given situation,
result in denial of the right of appeal altogether and thus defeat the
plain object and purpose of the section. We must, therefore, hold
that on a proper interpretation the grounds specified in the then
existing Section 100 were incorporated in Section 55 and the
substitution of the new Section 100 did not affect or restrict the
grounds as incorporated and since the present appeal admittedly
raises questions of law, it is clearly maintainable under Section 55.
We may point out that even if the right of appeal under Section 55
were restricted to the ground specified in the new Section 100, the
present appeal would still be maintainable, since it involves a
substantial question of law relating to the interpretation of section
13(2). What should be the test for determining whether a question
of law raised in an appeal is substantial has been laid. down by
this Court in Sir Chunilal V. .Mehta and Sons Ltd. N. The Century


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Spinning and Manufacturing Co. Ltd." and it has been held that
the proper test would be whether the question of' law - is of general
public importance or whether it directly and substantially affects,
the rights of the' parties, and if so, whether it is 'either an open
question in the sense that it is not finally settled by this Court or
'by the 'Privy Councilor by the Federal Court or is not free from
difficulty or calls for discussion of alternative' views.
The question of interpretation of Section 13(2) which arises in the
present appeal directly and substantially affects the rights of the
parties and it is an open question in the sense that it is not finally
settled by this Court and it is, therefore, clearly a substantial
question of Jaw within the meaning of. this test. We must,
therefore, reject the preliminary objection raised on behalf of the
respondents against the maintainability of the present appeal:

26.   Further in the case of Bharat Co-operative Bank (Mumbai) Ltd
vs. Co-operative Bank Employees Union,( supra) this issue was
considered by the Hon'ble Supreme Court vide Paras 12 to 29 and
held as under:

  "12. The main question raised for determination is whether the
  afore-noted amendments to the BR Act, particularly insertion of
  Section 56 in the new format w.e.f. 1st March, 1966, after the
  insertion of the definition of "Banking Company" in the ID Act by
  Act 54 of 1949 will apply mutatis mutandis to the matters
  governed by the ID Act?
  13. As there is no indication in the ID Act as to the applicability
  or otherwise of the subsequent amendments in the BR Act, the
  question posed has to be answered in the light of the two
  concepts of statutory interpretation, namely, incorporation by
  reference and mere reference or citation of one statute into
  another. Thus, answer to a rather intricate question hinges on
  the test whether at the time of insertion of the definition of the
  term "Banking Company" in the form of sub-section (bb) of
  Section 2 of the ID Act by the 1949 Act it was a mere reference
  to the Banking Companies Act, 1949 (later re-christened as the
  Banking Regulation Act) or the intendment of the legislature was
  to incorporate the said definition as it is in the ID Act?
  14. Before adverting to the said core issue, we may briefly notice
  the distinction between the two afore-mentioned concepts of
  statutory interpretation, viz., a mere reference or citation of one
  statute in another and incorporation by reference. Legislation by
  incorporation is a common legislative device where the
  legislature, for the sake of convenience of drafting incorporates
  provisions from an existing statute by reference to that statute
  instead of verbatim reproducing the provisions, which it desires


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to adopt in another stature. Once incorporation is made, the
provision incorporated becomes an integral part of the statute in
which it is transposed and thereafter there is no need to refer to
the statute from which the incorporation is made and any
subsequent amendment made in it has no effect on the
incorporating statute. On the contrary, in the case of a mere
reference or citation, a modification, repeal or re-enactment of
the statute, that is referred will also have effect on the stature in
which it is referred. The effect of "incorporation by reference"
was aptly stated by Lord Esher, M.R. In re: Wood's Estate, Ex
parte Her Majesty's Commissioners of Works and Buildings in
the following words at page 615:
"If a subsequent Act brings into itself by reference some of the
clauses of a former Act, the legal effect of that, as has often been
held, is to write those sections into the new Act just as if they
had been actually written in it with the pen, or printed in it, and,
the moment you have those clauses in the later Act, you have no
occasion to refer to the former Act at all."
15. The Privy Council in Secretary of State for India in Council
vs. Hindustan Co-operative Insurance Society Ltd. while
amplifying the doctrine of incorporation, observed as follows:
"Their Lordships regard the local Act asdoing nothing more than
incorporating certain provisions from an existing Act, and for
convenience of draft doing so by reference to that Act, instead of
setting out for itself at length the provisions which it was desired
to adopt The independent existence of the two Acts is therefore
recognized; despite the death of the parent Act, its offspring
survives in the incorporating Act. Though no such saving clause
appears in the General Clauses Act, their Lordships think that
the principle involved is as applicable in India as it is in this
country."
16. The doctrine of legislation by incorporation and its effect has
been dealt with by this Court in a catena of decisions. In Ram
Sarup vs. Munshi & Ors. a Constitution Bench held that repeal
of Punjab Alienation of Land Act, 1900 had no effect on the
continued operation of the Punjab Pre-emption Act, 1913 and
that the expression "agricultural land" in the later Act had to be
read as if the definition of the Alienation of Land Act had been
bodily transposed into it. After referring to what Brett, L.J. said
on the effect of incorporation in Clarke vs. Bradlaugh , namely,
"where a statute is incorporated, by reference, into a second
statute the repeal of the first statute by a third does not affect
the second", it was observed as follows:- "Where the provisions
of an Act are incorporated by reference in a later Act the repeal
of the earlier Act has, in general, no effect upon the construction
or effect of the Act in which its provisions have been



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incorporated. In the circumstances, therefore, the repeal of the
Punjab Alienation of Land Act of 1900 has no effect on the
continued operation of the Pre- emption Act and the expression
'agricultural land' in the later Act has to be read as if the
definition in the Alienation of Land Act had been bodily
transposed into it."
17. The same principle was applied in Bolani Ores Ltd. vs. State
of Orissa . In that case this Court was considering the question
regarding the interpretation of Section 2(c) of the Bihar and
Orissa Motor Vehicles Taxation Act, 1930 (for short "the Taxation
Act"). This Section when enacted adopted the definition of "motor
vehicle" contained in Section 2(18) of the Motor Vehicles Act,
1939. Subsequently, Section 2(18) was amended by Act 100 of
1956 but no corresponding amendment was made in the
definition contained in Section 2(c) of the Taxation Act. The
argument advanced was that the definition in Section 2(c) of the
Taxation Act was not a definition by incorporation but only a
definition by reference and the meaning of "motor vehicle" in
Section 2(c) must, therefore, be taken to be the same as defined
from time to time in Section 2(18) of the Motor Vehicles Act, 1939.
The argument was rejected by this Court and it was held that
this was a case of incorporation and not reference and the
definition in Section 2(18) of the Motor Vehicles Act, 1939, as
then existing, was incorporated in Section 2(c) of the Taxation
Act and neither repeal of the Motor Vehicles Act, 1939 nor any
amendment in it would affect the definition of "motor vehicle" in
Section 2(c) of the Taxation Act.
18. The decision of this Court in Mahindra & Mahindra Ltd. Vs.
Union of India & Anr. also proceeded on the same principle.
There the question was in regard to the effect of subsequent
amendment in Section 100 of the Code of Civil Procedure, 1908
on Section 55 of the Monopolies and Restrictive Trade Practices
Act, 1969 (for short "The MRTP Act"). Section 55 of the MRTP Act
provides for an appeal to this Court against the orders of the
Monopolies and Restrictive Trade Practices Commission on "one
or more of the grounds specified in Section 100 of the Code of
Civil Procedure, 1908". Section 100 of the Code of Civil
Procedure was substituted by a new Section in 1976, which
narrowed the grounds of appeal under that Section. In
construing Section 55 of the MRTP Act this Court held that
Section 100 of the Code as it existed in 1969 was incorporated
in Section 55 and the substitution of new Section in the code,
abridging the grounds of appeal, had no affect on the appeal
under Section 55 of the MRTP Act.
19. The principle laid down in these decisions was reiterated
in U.P. Avas Evam Vikas Parishad vs. Jainul Islam & Anr.
and lately in P.C. Agarwala vs. Payment of Wages Inspector,



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M.P. & Ors. It is, therefore, clear from the afore-noted decisions
that if there is a mere reference to a provision of one statute in
another without incorporation, then, unless a different intention
clearly appears, the reference would be construed as a reference
to the provision as may be in force from time to time in the
former statute. But if a provision of one statute is incorporated in
another, any subsequent amendment in the former statute or
even its total repeal would not affect the provision as
incorporated in the latter statute.
20. However, the distinction between incorporation by reference
and adoption of provisions by mere reference or citation is not
too easy to highlight. The distinction is one of difference in
degree and is often blurred. The fact that no clear-cut guidelines
or distinguishing features have been spelt out to ascertain
whether it belongs to one or the other category makes the task of
identification difficult. The semantics associated with
interpretation play their role to a limited extent. Ultimately, it is a
matter of probe into legislative intention and/or taking an insight
into the working of the enactment if one or the other view is
adopted. Therefore, the kind of language used in the provision,
the scheme and purpose of the Act assume significance in
finding answer to the question. (See:Collector of Customs vs.
Sampathu Chetty & Anr. ). The doctrinaire approach to ascertain
whether the legislation is by incorporation or reference is, on
ultimate analysis, directed towards that end. (See: Maharashtra
State Road Transport Corporation vs. State of Maharashtra &
Ors. ) Thus, the question for determination is to which category
the present case belongs.
21. The plain language of Section 2(bb) of the ID Act makes the
intention of the legislature very clear and we have no hesitation
in holding that reference to Section 5 of the Banking Companies
Act, 1949 in the said provision is an instance of legislation by
incorporation and not legislation by reference.
22. Section 2(bb) of the ID Act as initially introduced by Act 54 of
1949 used the word "means.. and includes" and was confined to
a "Banking Company" as defined in Section 5 of the Banking
Companies Act, 1949, having branches or other establishments
in more than one province and includes Imperial Bank of India.
Similarly, Section 2(kk), which was also introduced by Act 54 of
1949, defines Insurance Company as "an Insurance Company
defined in Section 2 of the Insurance Act, 1938 (IV of 1938),
having branches or other establishments in more than one
province". It is trite to say that when in the definition clause
given in any statute the word "means" is used, what follows is
intended to speak exhaustively. When the phrase "means" is
used in the definition, to borrow the words of Lord Esher M.R. in
Gough vs. Gough , it is a "hard and fast" definition and no



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meaning other than that which is put in the definition can be
assigned to the same. (Also see: P. Kasilingam and Ors. vs.
P.S.G. College of Technology and others ). On the other hand,
when the word "includes" is used in the definition, the
legislature does not intend to restrict the definition; makes the
definition enumerative but not exhaustive. That is to say, the
term defined will retain its ordinary meaning but its scope would
be extended to bring within it matters, which in its ordinary
meaning may or may not comprise. Therefore, the use of the
word "means" followed by the word "includes" in Section 2(bb) of
the ID Act is clearly indicative of the legislative intent to make
the definition exhaustive and would cover only those banking
companies which fall within the purview of the definition and no
other.
23. Moreover, Section 2(bb) has subsequently been amended
from time to time by various amendments to include certain
specified banks and institutions, which would otherwise not fall
within the exhaustive definition of the "Banking Company" in
Section 2(bb) read with Section 5(c), 5(b) and 5(d) of the BR Act.
It is plain that if the Parliament had intended an expansive
interpretation of the original words, then there would have been
no reason whatsoever to keep amending the definition from time
to time. In our view, therefore, the language of Section 2(bb)
clearly demonstrates the legislative intent not to bring within its
ambit all the banks transacting the business of banking in India.
24. We are, therefore, of the opinion that introduction of the
Banking Companies Act, 1949 in clause (bb) of Section 2 of the
ID Act is a case of incorporation by reference; it has become its
integral part and therefore, subsequent amendments in the BR
Act would not have any effect on the expression "Banking
Company" as defined in the said Section.
25. At this juncture, we may also consider an alternative
submission made on behalf of the Bank that even if it is
assumed that the provisions of Section 5 of the BR Act were
introduced into Section 2(bb) of the ID Act by way of legislative
incorporation, two of the exceptions, namely, exceptions (c) and
(d), carved out by this Court in State of Madhya Pradesh vs.
M.V. Narasimhan and reiterated in P.C. Agarwala's case (supra),
would apply in the instant case. The exceptions so enumerated
are:
(a) Where the subsequent Act and the previous Act are
supplemental to each other;
      (b) Where the two Acts are in pari materia;
(c) Where the amendment in the previous Act, if not imported into
the subsequent Act also, would render the subsequent Act
wholly unworkable and ineffectual; and


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  (d) Where the amendment of the previous Act, either expressly or
  by necessary intendment, applies the said provisions to the
  subsequent Act.
  26. In our view, there is no substance in the contention. The ID
  Act is a complete and self contained Code in itself and its
  working is not dependant on the BR Act. It could not also be said
  that the amendments in the BR Act either expressly or by
  necessary intendment applied to the ID Act. We, therefore, reject
  the contention advanced by learned counsel for the appellant on
  this aspect as well.
  27. Further, as noticed above, the definition of the "Banking
  Company" in clause (bb) of Section 2 of the ID Act being
  exhaustive, it is only with respect to the "Banking Company"
  falling within the ambit of the said definition in the ID Act, that
  the Central Government would be the appropriate government,
  which admittedly is not the case here.
  28. In the light of the analysis we have made of the provision
  contained in Section 2(bb) of the ID Act, we deem it unnecessary
  to dilate on the impact of the IDBIC Act on the ID Act.
  29. For all these reasons, we have no hesitation in upholding the
  view taken by the High Court that for the purpose of deciding as
  to which is the "appropriate government", within the meaning of
  Section 2(a) of the ID Act, the definition of the "Banking
  Company" will have to be read as it existed on the date of
  insertion of Section 2(bb) and so read, the "appropriate
  government" in relation to a multi-state co-operative bank,
  carrying on business in more than one state, would be the State
  Government".

27.      Respectfully following the above principles and examining
the provisions of IT Act, we are of the opinion that the `actuarial
valuation made in accordance with the Insurance Act, 1938' do
mean that the actuarial valuation               done in accordance with the
Insurance Act, 1938. In arriving at the above decision we have also
taken into consideration that Rule-5 in Part-B of the first schedule
with reference to `other insurance business' did incorporate the
IRDA and its Regulations as amended by the Finance Act 2009
w.e.f. 1.4.2011 which is as under:

      "B- Other Insurance Business:
      Computation of profits and gains of other insurance
      business.



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      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 &
      Loss A/c prepared in accordance with the provisions of
      the Insurance Act, 1938 (4 of 1938) or the rules made
      thereunder or the provisions of the Insurance
      Regulatory and Development Authority Act, 1999 (4
      of 1999) or the Regulations made thereunder subject
      to the following adjustments:-
      (a) subject to the other provisions of this rule, any
      expenditure or allowance including any amount debited to
      the profit and loss account either by way of a provision for
      any tax, dividend, reserve or any other provision as may
      be prescribed which is not admissible under the
      provisions of section 30 to 43B in computing the profits
      and gains of a business shall be added back:
      (b) (i) any gain or loss on realization of investments shall
      be added or deducted, as the case may be, if such gain or
      loss is not credited or debited to the Profit & Loss A/c ;
      (c) such amount carried over to a reserve for unexpired
      risks as may be prescribed in this behalf shall be allowed
      as a deduction". ( emphasis supplied)
This indicates that the legislature consciously omitted incorporating
the provisions of IRDA or the Regulations made there under in Rule
2 which still refers to the Insurance Act 1938 only.

28.    Further, we also notice that the Insurance Act itself was
amended along with the introduction of IRDA Act 1999. Along with
the said IRDA Act, there are various amendments proposed in the
Insurance Act in tune with IRDA Act by amending the relevant
provisions of Insurance Act 1938. However, since the Rule 5 was
amended in the First schedule by specifically referring to the IRDA
Act 1999 or the Regulations made there under, we are of the
opinion that the legislature intended not to modify or amend the
Rule-2. This indicates the intention of legislature that the actuarial
valuation has to be made in accordance with the unamended
Insurance Act, 1938. We are of the firm opinion that the
unamended     provisions       of    Insurance           Act      1938        were        only
incorporated into the Income Tax Act as far as life insurance



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business is concerned. Therefore, AO's action in following the
format prescribed under the Regulations of IRDA Act is not in
accordance with the spirit of Rule-2 and provisions as made
applicable under the Income Tax Act.

29.    We also notice that the actuarial report and abstracts under
the Insurance Act 1938 has to be prepared vide section 13 of that
Act in accordance with the Regulations contained in Part-I of the
Fourth schedule and in conformity with the requirement of Part-II
of that schedule. Section 13 of Insurance Act 1938( as amended
now) is as under:

      "13. Actuarial report and abstract.
      (1) Every insurer carrying on life insurance business
      shall, in respect of the life insurance business transacted
      by him in India, and also in the case of an insurer
      specified in sub- clause (a) (ii) or sub- clause (b) of clause
      (9) of section 2 in respect of all life insurance business
      transacted by him,(every year) cause an investigation to
      be made by an actuary into the financial condition of the
      life insurance business carried on by him, including a
      valuation of his liabilities in respect thereto and shall
      cause an abstract of the report of such actuary to be
      made in accordance with the Regulations contained in
      Part I of the Fourth Schedule and in conformity with the
      requirements of Part II of that Schedule:
      Provided that the Authority may, having                    regard to the
      circumstances of any particular insurer,                   allow him to
      have the investigation made as at a date                   not later than
      two years from the date as at which                         the previous
      investigation was made:
      Provided ....
      Provided.....
      Provided....
      Provided also that every insurer on or after the
      commencement of the Insurance Regulatory and
      Development Authority Act, 1999 shall cause an abstract
      of the report of the actuary to be made in the manner
      specified by the Regulations made by the Authority".




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30.     The First to Fourth Schedule of the Insurance Act 1938 was
omitted by the Insurance Amendment Act 2002 after incorporation
of the relevant schedules in the IRDA Act. Even though the said
schedules were omitted from the Insurance Act, 1938, we are of the
opinion that as far as Rule-2 is concerned by the principle of
`Legislation by incorporation' unamended Insurance Act, 1938 is
applicable and the actuarial valuation has to be made in accordance
with the then existing Part-I of the Fourth Schedule and in
conformity with the requirements of Part-II of that schedule.
Therefore, assessee's contention that the IRDA Regulations even
though are applicable to assessee since it has commenced business
after the commencement of the IRDA Act, 1999, for the purpose of
Rule-2, the actuarial valuation has to be done in accordance with
the Regulations contained in erstwhile Fourth schedule Part-I and
Part-II. This is what assessee is contending and                            merging the
accounts of policyholder's and shareholder's account and arriving at
the actuarial deficit, without taking into consideration the transfer
of funds from the shareholder's account to policyholder's account.

31.   After introduction of IRDA Act, the entire Regulation of
insurance business has gone to the authority and in order to
protect the interests of holders of insurance policies, to regulate, to
promote and ensure orderly growth of insurance industry number
of regulations have been prescribed by the IRDA. One such is,
Insurance Regulatory and Development Authority (IRDA) (Actuarial
Report and Abstract) Regulations 2000 by which method of
preparation of actuaries report and abstracts were prescribed. An
actuary is responsible for analysing possible out comes of the types
of events that would potentially cost policy holders to make claims
against their insurance policies. Insurance companies need to make
sure that the money they are charging and collecting from policy
holders is adequate to cover the costs of certain claims that might
beneficially be made by policy holders as well as their other



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expenses. In fact, the work that actuaries perform is crucial to an
insurance company's ability to remain in business. Actuaries are
involved at all stages in product development and in the pricing risk
assessment and marketing of the products. Their job involves
making estimates of ultimate out-come of insurable events. In the
business of insurance the product cost is an abstraction, depending
on the timing issues, variability issues and risk parameters. One big
function actuaries provide is making reserves to insure that
insurance companies keep enough money on their balance sheets to
make good of all the claims they will have to pay. This involves
arriving at actuarial surplus or deficit depending on various factors.
In order to ensure a fair play in the business, the IRDA prescribed
regulations according to which various norms were prescribed in
order to ensure that Life Insurance business (even other insurance
business) are done according to healthy business practices. As per
the above regulations, Regulation 4 prescribes number of abstracts
and statements in respect of (a) linked business; (b) non-linked
business and (c) health insurance business. As part of this
Regulation 4(2)(d) item No. iv, Form-"I" was prescribed for the
purpose of valuation results and to indicate the surplus or deficit in
the life insurance business of a company. Apart from the above
regulations,     IRDA   also      prescribed          Insurance          Regulatory          and
Development Authority (Preparation of Financial Statements and
Auditor's Report of Insurance Companies) Regulations 2002. The
surplus or deficit arrived at by the actuary in his valuation for the
inter valuation period has to be taken into consideration under the
regulations in financial accounts as well.

32.     IRDA Regulations specifically require to maintain the
policyholder's account and the shareholder's account separately
and permits transfer of funds from shareholder's account to
policyholder's    account       as     and      when        there       is    a    deficit      in
policyholder's account. As rightly noted by the Hon'ble Bombay



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High Court, as a policy, company is transferring funds/assets from
shareholder's account to policyholder's account even during the
year periodically as and when the actuarial valuation was arrived at
in policyholder's account. Most of the companies are required to
submit quarterly accounts under the Company Law, there is
requirement    of     actuarial       valuation          report       periodically          and
accordingly assessee was transferring funds from the shareholder's
account to policyholder's account. Since the insurance business will
not yield the required profits in the initial 7 to 10 years, lot of
capital has to be infused so as to balance the deficit in the
policyholder's account. During the year as already stated assessee
has issued fresh capital to the extent of `.250 crores and
transferred   funds     to   the      extent       of    `.233       crores        from      the
shareholder's account to policyholder's account. 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 & shareholder's account
has to be consolidated into one and transfer from one account to
another is tax neutral. What AO has done is to tax the surplus after
the funds have been transferred from shareholder's account to the
policyholder's account at the gross level while ignoring such
transfer in shareholder's account, while bringing to tax only the
incomes declared in the shareholder's account that too under the
head `other sources of income'. In fact while giving the finding that
assessee is in the life insurance business only and incomes are to
be treated as income from life insurance business, the CIT (A)
surprisingly in subsequent assessment years appeals accepted AO's
contention that surplus in shareholder's account is to be taxed as



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   other sources of income. But once the provisions of section 44 of IT
   Act are invoked anything contained in the heads of income like
   income from other sources, capital gains, house property or even
   interest on securities does not come into play and only first
   schedule has to be invoked to arrive at the profit. Therefore, in our
   opinion both the policyholder's and shareholder's account has to be
   consolidated for the purpose of arriving at the deficit or surplus.

   Comparison of Forms-I under the Insurance Act and the IRDA
   Regulations.
   33.    Let us examine whether AO's action in adopting Form-I
   prescribed under the IRDA Regulations same as that of actuarial
   valuation made in accordance with the Insurance Act 1938. Even
   though Insurance Act 1938 also refers to Form-I, there is
   substantial difference in the formats. Both AO and the CIT (A) has
   given credence to Form I without understanding that the old form-I
   prescribed under the Insurance Act 1938 is entirely different from
   new Form-I prescribed under the IRDA Regulations. In fact the old
   form -I has this format:

                           The Insurance Act, 1938

                                          Form I

   Valuation of Balance Sheet of                        as at                             19

   Net liability under              `.           Balance of Life Insurance                    `.
   business as shown in                          Fund as shown in the
   the summary and                               Balance sheet
   valuation of policies
   Surplus, if any......                         Deficiency, if any.....
                                           NOTE
      If the proportion of surplus allocated to the insurer, or in the
   case of an insurance company to shareholder's, is not uniform in
   respect of all classes of insurances, the surplus must be shown
   separately for the classes to which the different proportions relate.

New Form-I under the IRDA Actuarial Report and Abstracts 2000 is as
under which was prescribed under the Regulations 4.



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                                         (Form-I)
                                 (See Regulation 4)
  Insurance Regulatory and Development Authority (Actuarial
            Report and Abstract) Regulations, 2000
                    Valuation Results as at 31st March, 20__
                                                                   Form Code___________
Name of Insurer:               Regn.No.                    Date of Regn.


Item     Description     Balance      Mathematical         Surplus        Negative       Surrender
No.                      of Fund      reserves                            Reserve        Value
                         shown        (excluding                                         Deficiency
                         in           cost of bonus                                      Reserve
                         Balance      allocated)
                         Sheet
(1)      (2)             (3)          (4)                  (5)            (6)            (7)
01       Business
         within India
         Par policies
02       Non-Par
         Policies
03       Total
04       Total
         Business Par
         Policies
05       Non Par
         Policies
06       Totals



34.            Not only that another format of the Form-I is prescribed
in the IRDA recommendations under Regulation 8 in the following
format:

Statement of composition and distribution of surplus in
respect of policyholder's' fund as prescribed in Regulation 8:
(1) A statement showing total amount
      Composition of Surplus;
      a) Surplus shown under Form I;
      b) Interim Bonus paid during the inter-valuation period;
      c) Terminal Bonuses paid during the inter-valuation period;
      d) Loyalty additions or other forms of bonuses, if any, paid during
         the inter-valuation period;


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  e) Sum transferred from shareholder's funds during the inter
     valuation period;
  f) Amount of surplus from policyholder's' funds, brought forward
     from preceding valuation;
  g) Total Surplus (total of the items (a) to (f)

35. We have specifically asked the CIT DR to explain what is the
surplus shown under Form I ie. at column (a) above. Regulation 8
as shown above has Column (a) `surplus shown under Form I'. In
Col.(e) one has to represent sum transferred from shareholder's
fund during the inter valuation period. Item (g) refers to the `total
surplus' after taking into account items (a) to (f). Under Col.(a)
surplus shown in Form I is a deficit as per Form AR-A in the
policyholder's deficit account in this year. This corresponds the
`actuarial valuation surplus or deficit' referred to under the
Insurance Act, 1938. This amount also tallies with Form I
prescribed under Regulation 4.              IRDA Regulations however, after
arriving at the surplus or deficit in the Form I also prescribes a
separate statement again as Form I with details of (a) to (f) under
Regulation 8. As can be seen from these two forms, there is
variation in the amounts are presented, as these forms serve
different purposes.      The Form I which was prescribed under
Regulations 8 is after arriving at the distribution                       surplus under
Regulations 6. The Regulations 6, 7 and 8 are as under:

     "Distribution of Surplus:
     6. The basis adopted in the distribution of surplus as
     between the shareholder's and the policyholder's, and
     whether such distribution was determined by the
     instruments constituting the company or by its
     Regulations or by-laws or how otherwise shall be
     mentioned.
     Principles adopted in distribution of profits:
     7. The general principles adopted in distribution of profits
     among policyholder's, including statements on following
     points, shall be furnished:




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                  ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




(i)     Whether the principles were determined by
        instruments constituting the insurer, or by its
        Regulations or by-laws or how otherwise:
(ii)    The number of years premium to be paid, period to
        elapse and other conditions to be fulfilled before a
        bonus is allotted;
(iii)   Whether the bonus is allocated in respect of each
        year's premium paid or in respect of each calendar
        year or year of assurance or how otherwise and
(iv)    Whether the bonus vests immediately on allocation
        or if not conditions of vesting.
Statements    of   composition   of   surplus   and
distribution of surplus in respect of policyholder's'
funds:
(8) A statement, showing total amount of surplus arising
during the inter valuation period and the allocation of such
surplus, shall be furnished separately for participating
business and for non participating business, with the
particulars as mentioned below:
Composition of Surplus:
(a)     Surplus shown under Form I
(b)     Interim Bonuses paid during the inter-valuation
        period;
(c)     Terminal Bonuses paid during the inter-valuation
        period;
(d)     Loyalty Additions or other forms of bonuses, if any,
        paid during the inter valuation period.
(e)     Sum transferred from shareholder's funds during
        the inter valuation period;
(f)     Amount of surplus, from policyholder's' funds,
        brought forward from preceding valuation;
(g)     Total surplus (total of the items (a) to (f).
Distribution of Surplus:
Policyholder's' Fund:
(a)     To Terminal Bonuses paid;
(b)     To Terminal Bonuses;
(c)     To loyalty Additions or any other forms of bonuses,
        if any;




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      (d)   Among policyholder's with immediate participation
            giving the number of policies which participated and
            the sums assured thereunder (excluding bonuses);
      (e)   Among policyholder's with deferred participation,
            giving the number of policies which participated and
            the sums assured thereunder (excluding bonuses);
      (f)   Among policyholder's in the discounted bonus class
            giving the number of policies which participated and
            the sums assured thereunder (excluding bonuses);
      (g)   To every reserve fund or other fund or account (any
            such sums passed through the accounts during the
            inter valuation period to be separately stated);
      (h)   As carried forward un-appropriated.
      Shareholder's' Fund:
      (i)    To the shareholder's funds (any such sums passed
            through the accounts during the inter-valuation
            period to be separately stated);
            Totals:
      (j)   Total surplus allocated: (total of the items (a) to (j)
(2) Specimen of Bonuses allotted to policies for one thousand
    rupees together with the amounts apportioned under the
    various manners in which the bonus is receivable for each
    type of participating produce, shall be furnished.

Thus as can be seen from above Regulations, the Form I under
Regulation 8 represent the total surplus for the purpose of
distribution of bonuses/ dividends to policy holders and does not
represent surplus or deficit of actuarial valuation for the purposes of
balance sheet. This amount is represented in Form I prepared under
Regulation 4 for the purpose of financial accounts.

Reconciliation of amounts:
36.    As seen from the orders of the authorities, the `Total surplus'
prepared under Regulation 8 was taken as basis ignoring the Form-
I of Regulation 4. While accepting the Ld.CIT DR argument that for
the purposes of Life insurance business the act provides for surplus
of valuation to be taxed at lesser rate, we can not accept the
argument that surplus is Total surplus including Transfers from
share holder's account. Basically transfers are tax neutral as a


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credit in one account gets cancelled by debit in other account when
accounts are consolidated. What the Rule.2 prescribed was only
`average surplus' arrived by adjusting the surplus disclosed in the
actuarial valuation made with regard to the Insurance Act, 1938 in
respect of inter valuation period. Assessee in the course of the
assessment proceedings has furnished general balance sheet in
Form-A which is as under:

Form-A General Balance Sheet
General Balance Sheet of ICICI Prudential Life Insurance Company Limited as at
March 31, 2006                                           (Amount in Rupees `000)
Particulars                Mar-05          Mar-04           Particulars                Mar-05              Mar-04
Share Capital               92,50,000        67,50,000      Loans                             25,225           21,619
Share Application                      -                -   Investments                 3,75,88,023        1,64,46,429
Money
Employee stock option                  -                -   Agents Balances
outstanding
Reserve for                                                 Outstanding                       84,426           61,287
contingency                                                 premiums
General Reserve                        -                -   Interest, Dividend             1,47,531            77,589
                                                            and          Rents
                                                            outstanding
Share Premium                          -                -   Int. Dividend and              1,86,899          1,48,778
                                                            Rents accrued but
                                                            not due
Property Revaluation                   -                -   Amount due from
Reserve                                                     other persons or
                                                            bodies carrying on
                                                            Insurance Business
Investment Reserve                                          Sundry        Debtors,         2,95,504          1,78,792
                                                            Advances          and
                                                            Deposits
Property Insurance                                          Fixed Assets                   6,30,124          5,48,131
Reserve
Profit & Loss                                               Cash: At Bankers               3,00,000            44,900
Appropriate A/c                                             on Deposit Account
Balance of funds           2,78,28,554       95,97,898      At    Bankers   on                       -               -
                                                            Notice      Deposit
                                                            Account
Debenture stock                                             At    Bankers    on           16,95,868          4,58,304
                                                            current     account
                                                            and in hand
Estimated liability in
respect of outstanding
claims, whether due or
intimated
Annuities     due    and




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                              ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




unpaid
Amount due to other                      -                -
persons    or  bodies
carrying on Insurance
Business
Current Liabilities &         38,75,046        16,37,931
Provisions
Total `.                     4,09,53,600     1,79,85,829      Total `.                    4,09,53,600        1,79,85,829


Likewise it also given Form-G consolidating Revenue Account as
under:
                       Form-G Consolidated Revenue Account
Revenue Account of ICICI Prudential Live Insurance Company Limited as at March
31, 2006                                                (Amount in Rupees `000)
Particulars                  Mar-05          Mar-04           Particulars                Mar-05              Mar-04
Claims under policies,                                        Balance of fund at            95,97,898         26,58,698
less re-insurance:                                            the beginning year
By Death                       1,11,348            59,627     Premiums:
By Maturity                        2,539                  -   1st year premiums           1,45,43,024         62,91,180
Annuities,      less   re-               -                -   Renewal premiums              77,94,747         23,84,328
insurance
Surrenders (incl. sur              9,286            4,076     Single premiums               13,00,401         12,17,250
bonus)    less     re-
                                                              Less: Reinsurance               (38,177)          (19,075)
insurance
Bonuses in cash, less                    -                -   Consideration    for
re-insurance                                                  Annuities granted,
                                                              less reinsurance
Bonuses in reduction             56,434            17,904     Interest, Dividends            6,92,979          6,27,033
of premiums                                                   and Rents
Other benefit                                                 Fees and Charges                  23,629            2,348
Expenses                of                                    Linked Income                  4,92,380          3,61,463
Management:
Commission                    17,79,564         8,65,104      Other income                       1,055            1,098
Other           operating     46,20,211        29,79,714      Registration fees                        -               -
Expenses
Bad Debts                                                     Loss transferred to
                                                              Profit & Loss A/c
UK, Indian, Dominion                                          Transferred    from
and foreign taxes                                             Appropriation A/c
Provision for tax
Fringe Benefit Tax
Profit transferred     to    2,78,28,554       95,97,898
Profit & Loss A/c
Total `.                     3,44,07,936     1,35,24,323      Total `.                    3,44,07,936        1,35,24,323




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                        ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




Form-I ­ Valuation Balance Sheet has been furnished as under:
                   Form-I Valuation Balance Sheet
   Valuation Balance Sheet of ICICI Prudential Life Insurance
            Company Limited as at March 31, 2005
Particulars     Mar-05            Mar-04            Particulars            Mar-05               Mar-04
Actuarial     3,44,75,905 1,43,38,641 Balance of                        2,78,28,554            95,97,898
Valuation                             fund as
Liability                             shown in
                                      General
                                      Balance
                                      Sheet
Surplus                                             Deficit               66,47,351            47,40,743

Total `.      3,44,75,905 1,43,38,641 Total `,                          3,44,75,905 1,43,38,641

Particulars                                                             Amount (`.'000)
Deficit as at March 31,2005                                                      (664,73,51)
Less: Deficit as at March 31,2004                                                (474,07,43)
Deficit for the year ended on March 31,2005                                     (190,66,08)
Income offered in return of income before                                       (190,66,08)
claiming exemption under section 10 of the
Income Tax Act, 1961


37.    Thus as can be seen, the deficit for the year ended March,
2005 was arrived at `.190,66,08/- (`000) which was also tallying
with assessee's computation of income. Further assessee also
furnished the reconciliation of Form-I `total surplus' with return of
income:

ICICI Prudential Life Insurance Company Limited FY 2004-05/
AY 2005-06:
Reconciliation of Form-I Surplus with Return of Income
Particulars                                                     Amount (`.)               Amount (`.)
Form-I Surplus as on 31.3.2005 (Page-14B                                                      35,86,96,280
Less Form I Surplus as at 31.3.2004                                                                        -
Surplus for FY 2004-05/AY 2005-06                                                             35,86,96,280
Less: Shareholder's funding
Deficit funding transfers from shareholder's fund                  2,33,34,74,000
(Page 8PB)




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                          ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




Advance funding based on estimates (Note 1)                              4,12,09,280        (2,37,46,82,280)
Less: Round off                                                                                          (12,808)
Deficit in account                                                                          (2,01,59,99,808)
Surplus for participating business                                      10,41,05,196
Deficit for non-participating business                                    (36,30,236)
Surplus for       participating     annuities      (Pension             21,33,71,824
Business)
Deficit for linked business                                        (1,66,59,51,826)
Deficit for linked pension business                                   (63,09,19,492)
Deficit for linked group business                                       (3,29,75,274)
Deficit in policyholder's account                                  (2,01,59,99,808)
Add: surplus in shareholder's' account                                                          10,93,77,555
Income as per Rule 2 of Schedule 1 of the Act                                               (1,90,66,22,253)
Exemption under section 10(23AAB)
Less: Surplus for participating pension business                      (21,33,71,824)
Add: Deficit for linked pension business                                63,09,19,492            41,75,47,668
Exemption under section 10(34)
Dividend Income                                                          2,21,29,204
Less: In pension scheme                                                   (65,19,982)
Less: Disallowance under section 14A                                         1,44,377)           (1,54,64,845)
Total Surplus/(Deficit) from Life Insurance Business                                        (1,50,45,39,430)



38. The above statement furnished is in accordance with the
Insurance Act, 1938, therefore, it cannot be stated that assessee
returned income is not in accordance with the Insurance Act, 1938.
There is no basis for AO to take Form-I `total surplus' as surplus of
the Life insurance business ignoring transfer from shareholder's
account.

39. It is also on record that assessee followed the IRDA
recommendations and accordingly prepared the actuarial valuation
report including the surplus or deficit. However, Rule-2 prescribes
only actuarial valuation in accordance with the Insurance Act,
1938. Therefore, AO is duty bound to insist on actuarial valuation
in accordance with the Insurance Act, 1938, so as to bring to tax
the surplus or deficit. What we notice is that AO, ignoring Rule-2,



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has relied on the actuarial valuation report prescribed under the
IRDA recommendations under Regulation 8 that too at `Total
surplus', which is at variance with the Insurance Act, 1938. Since
no amendment was brought to Rule-2 to incorporate IRDA
recommendations, we are of the opinion that the action of AO in
relying on the IRDA Regulations is not according to the law.
Assessee had submitted its accounts as stated above, which are in
accordance with the Insurance Act, 1938. Instead of examining
these statements, just because assessee has shown total surplus in
the accounts in similarly named Form-I( under Regulation 8), AO
wants to tax the amount which is after taking into account the
transfer of assets by way of fresh capital from shareholder's
account. This in a way is taxing fresh capital infused into business
indirectly which cannot be done as this is not business surplus but
infusion of capital directly.

40.   In our opinion what assessee has done in reconciling the IRDA
format with that of old Insurance Form is correct and accordingly
the loss disclosed in the computation of income is according to the
actuarial surplus/deficit under the Insurance Act, 1938 prescribed
under Rule 2 of the first schedule part-A. In view of this, we are of
the opinion that insistence by AO to bring to tax the entire amount
shown    under    the     new       Regulations           including         transfer        from
shareholder's account is not correct. Instead of AO in taking the
surplus at Regulation 8(1)(a) which is the actuarial surplus / deficit
for the year took the amount as disclosed at Regulation 8 (1) (f)
(total surplus after transfer from Shareholder's account) which is
not at all correct.

41. Learned Counsel in the course of the argument also placed
reconciliation of the various figures as under:




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                        ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




Table: Statement of deficit in policyholder's account                                     (PHA),
Shareholder account (SHA) funding and Net deficit:
S.No   Particulars                  Amount           Amount        (`   Paper book           page
                                    (`. In crs.)     In crs.)           reference
       Deficit in PHA a/c                                   233.34      Page 70 ­ Part of
                                                                        Actuarial   Report
                                                                        and also Page 8
                                                                        Revenue A/c
       Met by transfer from                                 237.46
       SHA a/c amounting to:
       a.Transfer to meet the            233.34                         Page 70 Part of
       deficit                                                          Actuarial   Report
                                                                        and also at Page 8
       b.Additional Transfer
                                            4.12            237.46      Revenue Account
I      SCENARIO       1:    If                                          Page 8          Revenue
       transfer   disregarded                                           account          (31.74-
       as income:                                                       233.33)
       The             amount
       transferred cannot be                               -201.59
                                                                        Page 9 Profit & Loss
       of income nature, if
                                                                        A/c (11.34-0.41)
       disregarded, there will
       be a net deficit in the                                10.93
       PHA of Add: Surplus in
                                                           -190.66
       SHA
II     SCENARIO       2:    If                                          Page 8 Revenue
       transfer   disregarded                                           account
       as income:                                                       (Surplus/Deficit)
       If amount transferred                                            Page ­ 9 Profit &
       is regarded as income                                  31.74     Loss           A/c
       nature, the surplus in                                           (Profit/Loss before
       PHA account will be                                              Tax)
                                                           -222.40
       Deficit in SHA
                                                            190.66
       Net Deficit


       Net Deficit as per the                                            Page 8 ­ Revenue
       return   on    income                                            account
       (before       claiming                                           (surplus/deficit)
       exemptions       under
                                                                        Page 9 Profit & Loss
       section 10)
                                                           -201.59      A/c     (Profit/Loss)
       Deficit in PHA                                                   before tax.
                                                              10.93
       SHA Income
                                                           -190.66
       Details as per return
       before        claiming
       exemptions
       Conclusion:
       Both scenarios give the
       same result and reflect
       the actual deficit as




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                       ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




       disclosed in the return
       of income filed (before
       claiming    exemptions
       under section 10).
NOTE   Due to excess funding                                           Page 8 Revenue
       done, the surplus as                                            account
       disclosed    by    the                                          (surplus/deficit)
       actuarial valuation is
                                                                       Page 70 Part of
       more than the surplus
                                                                       Actuarial    Report
       disclosed    in    the
                                                                       excess      funding
       financials:                                           31.74
                                                                       disclosed by way of
       The surplus    as    per                                        a note (Amount not
       financials                                                      mentioned)
       Add Excess     funding                                          Page 14 ­ Actuarial
                                                               4.12
       done                                                            Valuation in Form-I
                                                            35.86
       Surplus       as    per
       actuarial valuation



42.      In view of the above, looking at the issue in any way what
we notice is that the computation made by assessee is in
accordance with Rule-2 of the Insurance Act 1938 according to
which only AO can base his computation. This also corresponds to
the way incomes were assessed in earlier years ie. the correct
method as per Rule 2 and Sec 44 of IT ACT. In view of the
discussion above and after analyzing the Forms, Regulations and
Provisions we have no hesitation to hold that the assessee working
of actuarial surplus/ deficit is in accordance with Rule 2 of First
Schedule. Therefore, assessee grounds on this issue are allowed
and AO is directed to modify the order accordingly. Ground Nos.1 to
3 are considered allowed.

43. Ground No.4 pertains to disallowance under section 14A offered
in revised return on reasonable basis. Assessee offered an amount
of `.1,44,377/- as against the dividend income mostly claimed at
`.1,56,09,222/- arrived at in participating life insurance business.
Assessee gave methodology in contributing the expenses. However,
AO did not accept and took the estimation 0.5% of the average
investment thereby making the addition. The CIT (A) following the
judgment of the Hon'ble Bombay High Court in the case of Godrej &



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                      ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




Boyce vs. DCIT dated on 12/08/2010 directed AO to workout on a
reasonable basis. Assessee has raised the additional ground of
appeal as under:

     Ground:

     "AO and the CIT (A) erred in invoking the provisions of
     section 14A of the Income Tax Act 1961 and disallowing
     expenses attributable to earning exempted income,
     without appreciating the fact that the provisions of
     section 14A are not applicable to Insurance Companies".
44. The learned Counsel submitted that in view of the provisions of
section 44, the provisions of section 14A are not applicable. He
relied on the orders of Bajaj Alliance General Insurance Co. vs.
Addl.CIT in ITA No.1447/Mum/2007 dated 31/08/2009, JCIT vs.
Reliance General Insurance Company in ITA No.3085/Mum/2008
and other cases wherein the Coordinate Bench have already
decided the provisions of section 14A are not applicable. He also
placed on reliance in the case of General Insurance Corporation of
India vs. Addl. CIT in ITA No.3554/Mum/2011 dated 15/02/2012
to submit that the provisions of section 14A does not apply to the
Insurance business.

45. The learned DR however, relied on the orders of AO and the CIT
(A) and the fact that assessee itself has offered income disallowing
under section 14A.

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 in ITA No.3554/Mum/2011
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 14A 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



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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 Tribunal in the case of Bajaj Allianz
General Insurance Company limited V/s Add. CIT in ITA
No.1447/PN/2007 for the assessment year 2003-04 order dated
31.08.2009. This Tribunal in the case of JCITV/s M/s Reliance
General Insurance co. in ITA No.3085/Mum/2008 for the
assessment year 2005-06 vide order dated 26.2.2010 has
considered this issue and decided in favour of the assessee.
This order was followed by this Tribunal while deciding the issue
in ITA No.781/Mum/2007 vide order dated 30.4.2010. Thus, this
issue has been consistently decided in favour of the assessee
and against the revenue by this Tribunal. The Pune Bench of this
Tribunal in the case of Bajaj Allianz General Insurance Company
limited V/s Add. CIT (supra) has decided this issue in paragraphs
17 to 20 as under:


      "17. Finally the quest ion to be answered is about the
      applicability of s. 14A in respect of sale of investment
      which is not taxed under the special circumstances of
      deletion of a sub-rule from the statute. It is not
      questioned that the impugned profit was non-taxable
      per se rather the accepted legal position is that the
      impugned profit was very much taxable in the past
      .Now it has been informed that this controversy in
      respect of insurance company set at rest by a decision
      of Tribunal , Delhi Bench verdict in the case of Oriental
      Insurance Co. Ltd. (ITA Nos. 5462 & 5463/Del /2003)
      asst. yrs. 2000-01 and 2001-02 order dt. 27th Feb.
      2009 [reported as Oriental Insurance Co. Ltd. v. Asst t .
      CIT [2010] 130 TTJ (Delhi)388 : [2010] 38 DTR (Delhi )
      225--Ed. ] . Therefore considering the vehement
      reliance of learned Authorized Representative it is
      worth to mention at the outset itself that the issue now
      stood resolved by this latest decision of Delhi, Tribunal
      in the case of Oriental Insurance Co. Ltd. (supra), the
      relevant portion reproduced below:
             "17. We have heard rival submissions of the
             parties and have gone through the material
             available on record. Identical issue arose in
             assessee's own case for asst. yr. 1985-86.
             The Tribunal accepted the plea of the
             assessee and in fact the issue went up to



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      the Hon'ble Delhi High Court in asst . yrs.
      1986-87 to 1988-89, which is reported as
      CIT v. Oriental Insurance Co. Ltd. [2003]
      179 CTR (Delhi ) 85 : [2002] 125 Taxman
      1094 (Delhi ), decided the issue in favour of
      the assessee by holding that s. 44 of the Act
      is a special provision dealing with the
      computation of profits and gifts of business
      of insurance. It being a non obstinate
      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. I t
      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 quest ion of law, much
      less a substantial quest ion of law survives
      for their consideration. In other words, order
      of the Tribunal has been affirmed. Following
      the same reasoning, addition made by the
      AO is deleted.
22. We have considered the rival contentions and gone
through the records. The provisions of s. 44 read as
under:
      "44. Insurance business.--Notwithstanding
      anything to the contrary contained in the
      provisions of this Act relating to the
      computation of income chargeable under the
      head ' Interest on securities' . 'Income from
      house property' , 'Capital gains' or ' Income
      from other sources' , or in s. 199 or in ss. 28
      to 43B, the profits and gains of any business



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       of insurance, including any such business
       carried on by a mutual insurance company
       or by a co operative society, shall be
       computed in accordance with the rules
       contained in the First Schedule"'.
23. The above provision makes it very clear that s. 44
applies notwithstanding anything to the contrary
contained within the provisions of the IT Act relating to
computation of income chargeable under different
heads. We agree with the learned counsel that there
is no requirement of head-wise bifurcation called for
while computing the income under s. 44 of the Act in
the case of an insurance company. The income of the
business of insurance is essentially to be at the
amount of the balance of profits disclosed by the
annual accounts as furnished in the Controller of
Insurance. The actual computation of profits and
gains of insurance business will have to be computed
in accordance with r. 5 of the First Schedule. In the
light of these special provisions coupled with non
obstante clause the AO is not permitted to t ravel
beyond these provisions.
24. Sec. 14A contemplates an exception for
deductions as allowable under the Act are those
contained under ss. 28 to 43B of the Act. Sec. 44
creates special application of these provisions in the
cases of insurance companies. We therefore, agree
with the assessee and delete the act as according to
us, it is not permissible to the AO to travel beyond s.
44 and First Schedule of the IT Act ."
       18. I t may not be out of place to mention
       that the respected Co-ordinate Bench has
       duly taken the note of an earlier decision of
       that very Bench decided in the case of that
       very assessee vide order dt . 29th Sept. 2004
       bearing ITA Nos. 7815/Del/1989, 3607 to
       3609/Del /1990; 5035/Del / 1998 and
       3910/Del /2000 named as Dy. CIT v.
       Oriental General Insurance Co. Ltd. [2005]
       92 TTJ (Delhi ) 300. As seen from the Paras
       reproduced above on due consideration of
       the relevant provisions 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




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travel beyond s. 44 of First Schedule of IT
Act .
18. The next common dispute relates to the
order of the CIT (A) in sustaining the act ion
of AO in al lowing 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. 1 of the IT Act. Sec. 44 is a non
obstinate clause and applies notwithstanding
anything to the contrary contained within the
provisions of the IT Act relating to
computation of income chargeable under
different heads, other than the income to be
computed under the head 'Profit and gains
of business or profession' . For computation
of profits and gains of business or profession
the mandate to the AO is to compute the
said income in accordance with the
provisions of ss. 28 to 43B of the Act . In the
case of the computation of profits and gains
of any business of insurance, the same shall
be done in accordance with the rules
prescribed in First Schedule of the Act,
meaning thereby ss. 28 to 43B shall not
apply. No other provision pertaining to
computation of income will become relevant.
According to the learned counsel, two
presumptions that follow on a combined
reading of ss. 14, 14A, 44 and r. 5 of the
First Schedule are:
(a)That no head-wise bifurcation is cal led
for. The income, inter alia, of the business of
insurance is essentially to be at the amount
of the balance of profits disclosed by the
annual accounts as furnished to the



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                 Controller of Insurance under the Insurance
                 Act, 1938. The said balance of profits is
                 subject only to adjustments there under. The
                 adjustments do not refer to disallowance
                 under s. 14A of the Act.
                 (b) Profits and gains of business as refer red
                 to in (a) above have only to be computed in
                 accordance with r. 5 of the First Schedule.
                 22. Sec. 44 creates a specific except ion to
                 the applicability of ss. 28 to 43B. Therefore,
                 the purpose, object and purview of s. 14A
                 has no applicability to the profits and gains
                 of an insurance business.
                 21.      The       learned      Departmental
                 Representative strongly justified the act ion
                 of the AO and that of the CIT(A) in the light
                 of the clear provisions of s. 14A of the Act .
                 Since the view has al ready been
                 expressed by respected Co-ordinate Bench
                 therefore, we have no reason to take any
                 other view except to follow the same. With
                 the result we hereby accept the argument of
                 learned Authorized Representative to the
                 extent that in the present situation the
                 provisions of s. 14A need not to apply while
                 granting exempt ion to an income earned
                 on sale of investment primarily because of
                 the reason of the withdrawal or deletion of
                 sub- r. 5(b) to First Schedule of s. 44 of IT
                 Act.    Once we have taken this view
                 therefore the enhancement as proposed by
                 learned CIT(A) is reversed and the
                 directions in this regard are set aside.
                 Resultantly ground No. 1 is allowed
                 consequent thereupon 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.




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Revenue Appeal in ITA No.7765/Mum/2010, AY 2005-06
47. The Revenue in its appeal has raised the following grounds:

      "1. On the facts and in the circumstances of the case and
      in law, the learned CIT (A) erred in deleting the deficit
      from pension schemes of `.63,09,19,492/- ignoring the
      facts that the surplus of pension schemes do not form
      part of total income as per section 10(23AAB), so the
      deficit would also not form part of total income.
      2. On the facts and in the circumstances of the case and
      in law, the learned CIT (A) erred in holding that the
      income from surplus of participating annuities business
      represent surplus from "Participating Pension Business"
      and accordingly allowing the relief to assessee of `.21.34
      crores".
      3. On the facts and in the circumstances of the case and
      in law, the learned CIT (A) erred in allowing the dividend
      income of assessee of `.1,56,09,222/- as exempted
      under section 10(34) of the Income Tax Act, 1961 ignoring
      the facts that dividend income is considered as part of
      Income of Life Insurance Business and is included as an
      income by the actuary".
48.      All the above three grounds are on the issue whether
exemption under Sec 10 can be allowed when incomes are
computed under Sec.44 of the IT Act. In arriving at the deficit from
the insurance business, assessee claimed certain exempt incomes
under section 10(23AAB) with reference to Pension Business and
dividend under section 10(34). AO did not allow the amounts on the
reason that these incomes are part of income of life insurance
business and it is included as income by the actuary, therefore,
they cannot be exempted. This issue is covered in favour of
assessee and against the Revenue by the orders of the General
Insurance Company of India in ITA No.3554/Mum/2011 wherein
the issue of deduction under section 10 have been considered and
allowed following the Hon'ble Bombay High Court judgment in writ
petition No.2560 of 2011 dated 1.12.2011. The order in the case of
GIC of India in ITA No.3554/Mum 2011 vide Para 7 to 8 is as
under:




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7."Issue No.5: Availability of Section 10 Exemption
(Modified Ground of Appeal No.2 ­ Original Ground of
Appeal No.2.1 & 2.2) ­. The issue arises in a peculiar
manner in this assessment year. While dealing with the
issue of profit on sale of investments, the Assessing
Officer proposed to differ from assessee stand and bring
to tax the profit on sale of investment. The assessee
alternately submitted that the deduction under section
10(38) in respect of long term capital gain was available.
When this issue came up before the CIT (A), the CIT (A) not
only rejected the claim under section 10(38) but also
considered and elaborately discussed how and why the
assessee was not eligible for deductions already allowed
by the Assessing Officer in respect of `interest on tax free
bonds' amounting to `3,45,19,352/- under section 10(15)
and dividend income amounting to `270,66,46,489/-
under section 10(34). He has elaborately discussed this
issue from Para 6 onwards and ultimately made an
enhancement of income to an extent of `274,11,65,844/-
the amount which was allowed by the Assessing Officer
as exempt under section 10. The contention of the CIT (A)
was that the assessee was not eligible for deduction
under section 10, once the incomes are brought to tax
under section 44 r.w. Rule 5 of First Schedule to the
Income Tax Act, 1961.
8. There is no need to consider the arguments of the CIT
(A) and how he has arrived at that conclusion in this order
as this issue was decided by the Hon'ble Bombay High
Court in favour of the assessee in writ petition No.2560 of
2011 in the assessee's own case dated 1.12.2011.
Consequent to the findings of the CIT(A) in AY 2007-08
(impugned AY ) the Assessing Officer seems to have
issued notice under section 148 for reopening the
assessment for the AY 2006-07 on the reason that the
assessee was not eligible for claiming income as exempt
under sub-sections 15, 23G, 34 and 38 of Section 10 and
assessee challenged the issue by way of writ petition. The
Hon'ble Bombay High Court not only disapproved the
reopening of the assessment but gave the findings on
merit also which are as under:-
"11. Section 44 of the Income Tax Act, 1961 stipulates
as follows:
      "44. Notwithstanding anything to the contrary
      contained in the provisions of this Act relating
      to the computation of income chargeable under
      the head "interest on securities", "Income from
      house property", "Capital gains" or "Income



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      from other sources", or in section 199 or in
      sections 28 to (43B), the profits and gains of
      any business of insurance, including any such
      business carried on by a mutual insurance
      company or by a cooperative society, shall be
      computed in accordance with the rules
      contained in the First Schedule".
Section 44 provides that the profits and gains of any
business of insurance of a mutual insurance company
shall be computed in accordance with the rules in the
First Schedule. Part `A' of the First Schedule containing
Rules 1 to 4 deals with profits of life insurance business
while Part B consisting of Rule 5 deals with computation
of profits and gains of other insurance business. Rule 5
provides as follows:
      "5. The profits and gains of any business of
      insurance other than life insurance shall be
      taken to be the balance of the profits disclosed
      by the annual accounts, copies of which are
      required under the Insurance Act, 1938 (4 of
      1938), to be furnished to the Controller of
      Insurance subject to the following adjustments:
      (a) Subject to the other provisions of this rule,
          any expenditure or allowance (including any
          amount debited to the profit and loss
          account either by way of a provision for any
          tax, dividend, reserve or any other provision
          as may be prescribed) which is not
          admissible under the provisions of section
          30 to (43B) in computing the profits and
          gains of a business shall be added back;
      (b) (.........)
      (c) Such amount carried over to a reserve for
          unexpired risks as may be prescribed in this
          behalf shall be allowed as a deduction".
The Assessing Officer has in the reasons 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, a
Division Bench of this Court construed the provisions of
section 44 and of the First Schedule. The assessee in


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that case which carried on life insurance business had
made a claim to exemption under section 10(15) and
section 19(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
Insurance Corporation will not be entitled to claim the
deductions which are otherwise admissible in the case
of an assessee, computation of whose income is
governed by the other provisions of the Act. The
argument of Mr. Kolah for the Life Insurance Corporation
is that unless there are express provisions which disable
the Corporation from claiming the deductions referred to
above, the Corporation cannot be deprived of the benefit
of the provisions referred to in the questions Nos. 1 to 6.
Section 44, which deals with computation of profits and
gains of business of insurance, begins with a non-
obstante clause, the effect of which is that the provisions
of the Act relating to the computation of income
chargeable under the head "Interest on securities",
"Income from house property", "Capital gains" or
"Income from other sources", do not apply in the case of
computation of income from insurance business. The
effect of the non-obstante clause so far as the earlier
part of section 44 is concerned, therefore, is that the
provisions of section 44 will prevail notwithstanding the
fact that there are contrary provisions in the Act relating
to computation of income chargeable under the four
heads mentioned in section 44. The only other overriding
effect of section 44 is that its provisions operate
notwithstanding the provisions of section 191 and of
section 28 to 43A. Thus, the only effect of section 44 is
that the operation of the provisions referred to therein is
excluded in the case of an assessee who carried on
insurance business and in whose case the provisions of
rule 2 of the First Schedule are attracted. If the
deductions which are claimed by the assessee do not
fall within the provisions which are referred to in section
44, it will have to be held that the applicability of those
provisions in the case of an assessee whose assessment
is governed by section 44 read with rule 2 in the First
Schedule is not excluded".


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This judgment is sought to be distinguished by the
Assessing Officer while disposing of the objections on
the ground that the decision was rendered in the context
of an assessee which carried on life insurance business
to whom Rules 1 to 4 of the First Schedule applied
whereas in the case of the assessee in this case which
carries on general insurance business Rule 5 could
apply. According to the Assessing Officer, Rule 5 would
not permit any adjustment 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. 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 19(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 the Schedule to the Act. The Division Bench
held that upon the language of sub-section (7) of section
10 read along with rule 6 it was impossible to hold that
the provisions relating to exemptions stood excluded
from operation. In that context the Division Bench held
as follows:
      "It is only after the profits and gains of a
      business are computed that any question of
      granting exemptions arises and if the latter
      stage were intended to be excluded by the law
      we should have thought that a clearer
      provision than is made in sub-section (7) of
      section 10 and in rule 6 would have been
      made".
In the subsequent judgment of the Division Bench in Life
Insurance Corporation (supra), the Division Bench
noted that there was a difference in the language of



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section 10(7) of the Act of 1922 when compared with
section 44 of the Act of 1961 since section 44 does not
refer to the computation of tax but merely to the
computation of profits and gains in the business of
insurance. The Division Bench held that this would
however not make any difference to the principle laid
down by the Court in the earlier decision in the case of
New India Assurance Co. Ltd. Accordingly, the
decision of Life Insurance Corporation (Supra) could
not have been ignored by the Assessing Officer on the
supposition that the decision was rendered in the
context of an assessee who carried on life insurance
business and was, therefore, not available to an
assessee which carries on general insurance business.
12. In General Insurance Corporation of India v.
Commissioner of Income-Tax, the Supreme Court
considered in an appeal arising out of a judgment of the
High Court the issue as to whether a sum of `3 crores,
being a provision for redemption of preference shares,
was not liable to be added back in the total income of
the assessee for AY 1977-78?. The Supreme Court held
that a plain reading of rule 5(a) of the First Schedule
made it clear that in order to attract the applicability of
the provision the amount should firstly be an
expenditure or allowance and secondly it should be one
not admissible under the provisions of section 30 to 43A.
The Supreme Court held that the sum of `3 crores in that
case which was set apart as a provision for redemption
of preference shares could not have been treated as an
expenditure and hence could not have been added back
under rule 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 At 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".



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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 decision in Commissioner of
Income-tax vs. New India Assurance Co. Ltd (supra).
The Assessing Officer could not have ignored the binding
precedent contained in the two Division Bench decisions
of this Court. Moreover, the Assessing Officer in allowing
the benefit of the exemption in the order of assessment
under section 143(3) specifically relied upon the view
taken by the CBDT in its communication dated 21
February 2006 to the Chairman of IRDA. The
communication clarifies that the exemption available to
any other assessee under any clauses of section 10 is
also available to a person carrying on non-life insurance
business subject to the fulfillment of the conditions, if
any, under a particular clause of section 10 under which
exemption is sought. It needs to be emphasized that it is
not the case of the Assessing Officer that the assessee
had failed to fulfill the condition which attached to the
provisions of the relevant clauses of section 10 in respect
of which the exemption was allowed. This of course is
apart from clause (38) of section 10 where the Assessing
Officer had rejected the claim for exemption in the
original order of assessment under section 143(3). The
Assessing Officer above all was bound by the
communication of the CBDT. Having followed that in the
order under section 143(3) he could not have taken a
different view while purporting to reopen the
assessment. Having applied his mind specifically to the
issue an having taken a view on the basis of the
communication noted earlier, the act of reopening the
assessment would have to be regarded as a mere
change of opinion which has also not been based on any
tangible material. Consequently, we hold that the
reopening of the assessment is contrary to law. The
Petition would have, therefore, to be allowed".
Respectfully following the above, we hold that the
assessee is entitled for exemption under section 10. The
enhancement made by the CIT (A) is therefore, cancelled.
Ground is accordingly allowed".




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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.

50. In the result, assessee appeal in ITA No.6854/Mum/2010 for
the assessment year 2005-06 is allowed and Revenue appeal in ITA
No.7765/Mum/2010 for the assessment year 2005-06 is dismissed.

ITA No.6855/Mum/2010- AY 2006-07
51. This is an assessee appeal wherein assessee has raised the
following grounds:

      "1. The CIT (A) has erred in not accepting the loss of
      `.200.55 crores returned by the Appellant.
      2. The CIT (A) erred in holding that the insurance income
      of the appellant which is taxable is the amount of
      surplus disclosed in Form I.
      3. The CIT (A) has erred in upholding the computation of
      taxable income for the year at `.27.34 crores by holding
      that the amount transferred from the shareholder's
      account to account is not to be reduced from the surplus
      disclosed in Form I.
      4. The CIT (A) has erred in holding that the income of
      `.27.34 crores in shareholder's account is separately
      taxable under the head "income from other sources".
      5. The CIT (A) has erred in rejecting the alternate plea
      that in an event the income in policyholder account is
      computed after considering transfers from shareholder's
      account to account, then income in shareholder's account
      should be computed by allowing a corresponding
      deduction of transfers to account.
      6. The CIT (A) has erred in not accepting the
      disallowance under section 14A offered in revised return
      of income is on reasonable basis but directed AO to
      decide the issue afresh.
      7. The CIT (A) has erred in confirming that the income in
      the shareholder's account is taxable at the normal



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                     ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




      corporate rate of tax instead of rate specified in section
      115B of the Act."
52.   In assessee appeal ground nos.1, 2, 3, 5 is on taxing the
transfer from share holders fund, while considering the total
surplus as surplus for purposes of Rule 2. This issue was discussed
elaborately in AY 2005-06 vide grounds 1 to 3 in ITA no
6854/M/2010 above and for the detailed reasons stated there in the
grounds are allowed. AO is directed to modify the order accordingly.

53.   Ground no 6 and Additional Ground raised are similar to the
grounds raised in AY 2005-06 on the issue of disallowance u/s 14A.
This issue was also elaborately considered in appeal no ITA no
6854/M/2010 above in ground no.4. For the reasons stated there
in following coordinate bench decisions, these grounds are allowed.

54.    Ground no 4 and 7 is on the issue of treating incomes in
shareholders account as income from other sources. This issue
arises for the first time in this year. The assessing officer was of the
view that policy holders account represent life insurance business
to be taxed u/s 44 where as shareholders account is separate
investment account of assessee and incomes are to be taxed under
the   head    `income    from        other        sources'.         An       amount           of
Rs.27,33,67,000, adjusted by assessee in deficit in policy holders
account, was brought to tax separately, while considering the Total
surplus   in Life insurance business. The CIT(A) upheld the same
stating that income of Life insurance activity is to be computed as
per Form I and since there is income from other activities not
included in Form I, same should be subjected to tax as income from
other sources.

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



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                      ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




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 all incomes are part
of one business only and these incomes are considered as part of
same business. Therefore, the incomes in Shareholder's account are
to be considered as arising out of Life insurance business only.
More over Sec 44 mandates that only First Schedule will apply for
computing incomes and excludes other heads of income like,
Interest on Securities, income from house property, Capital gains or
Income     from other sources. Being non-obstante clause, sec. 44
mandates that the profits and gains of insurance business shall be
computed in accordance with the rules contained in First Schedule.
Therefore, the incomes in Shareholder's account are to be taxed as
part of life insurance business only, as they are part of same
business and investments are made as part of solvency ratio of
same business. The grounds are allowed. AO is directed to treat
them as part of Life Insurance Business and tax them u/s 115B.

ITA No.7766/Mum/2010 A.Y 2006-07
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 `.27.27 crores ignoring the facts that negative
    reserve has an impact of reducing the taxable surplus as per
    Form-I.



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                      ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




      2. On the facts and circumstances of the case and in law, the
      learned CIT (A) erred in deleting the addition made on account
      of claim of 100% depreciation of `.15,79,707/- ignoring the
      facts that Actuarial surplus is determined on the basis of the
      total assets of the company and therefore by not capitalizing
      the above assets, the assets of the assessee company are
      under stated in the books and thereby it has an impact of
      reducing the surplus of or increase in the books and thereby it
      has an impact of reducing the surplus of or increase in the
      deficit and therefore, the assets so written off are also
      considered as part of the surplus and taxable under section
      44 of the I.T. Act.
      3. On the facts and circumstances of the case and in law, the
      learned CIT (A) erred in allowing the dividend income of
      assessee of `.2,24,05,934/- as exempted under section 10(34)
      of the Income Tax Act, 1961 ignoring the facts that dividend
      income is considered as part of income of Life Insurance
      Business and is included as an income by the actuary".

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 AO, after taking the total surplus from
Form-I, reduced the negative reserve amounting to `27.27 crores.
Assessee submitted before the CIT(A) as under: -

      "Method of Determination of Mathematical Reserves ­
      (1) Mathematical Reserves shall be determined separately for
      each contract by a prospective method of valuation in
      accordance with sub-paras (2) to (4).
      (2) The valuation method shall take into account all
      prospective contingencies under which any premiums (by the
      policyholder) or benefits (to the policyholder/beneficiary) may
      be payable under the policy, as determined by the policy
      conditions. The level of benefits shall take into account the
      reasonable expectations of policyholders (with regard to
      bonuses, including terminal bonuses, if any) and any
      established practices of an insurer for payment of benefits.
      (3) The valuation method shall take into account the cost of
      any options that may be available to the policyholder under
      the terms of the contract.
      (4) The determination of the amount of liability under
      each policy shall be based on prudent assumptions of
      all relevant parameters. The value of each such
      parameter shall be based on the insurer's expected



                                      Page 68 of 77
                 ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




experience and shall include an appropriate margin for
adverse deviations (hereinafter referred to as MAD) that
may result in an increase in the amount of
mathematical reserves.
(5) (1) The amount of mathematical reserve in respect of
a policy, determined in accordance with sub-para (4),
may be negative (called "negative reserves") or less than
the guaranteed surrender value available (called
"guaranteed surrender value deficiency reserves") at the
valuation date.
The appointed actuary shall, for the purpose of section
35 of the Act, use the amount of such mathematical
reserves without any modification.
The appointed actuary shall, for the purpose of sections
13, 49, 64V and 64VA of the Act, set the amount of such
mathematical reserve to zero, in case of such negative
reserve, or to the guaranteed surrender value, in case of
such guaranteed surrender value deficiency reserves, as
the case may be.
(6) The valuation method shall be called "Gross Premium
Method".
(7) If in the opinion of the appointed actuary, a method of
valuation other than the Gross Premium Method of valuation is
to be adopted, then, other approximations (e.g. retrospective
method) may be used.
Provided that the amount of calculated reserve is expected to
be atleast equal to the amount that shall be produced by the
application of Gross Premium Method.
(8) The method of calculation of the amount of liabilities and
the assumptions for the 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 regulations
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.




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                      ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




      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-Rule 5 mandates appointed actuary to
      include negative reserve in mathematics reserve only at the
      time of Amalgamation and transfer of insurance business and
      otherwise.
      Taxable surplus
      Since taxation of Life Insurance Business is on surplus
      disclosed as per Section 49 which is covered by Rule 2(5)(iii),
      where in appointed actuary is mandated to arrive at surplus
      after excluding negative reserve.
      In view of the above we humbly submit before your goodself to
      kindly not treat negative reserve as taxable. 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."
58.    The CIT(A), in his brief order vide para 17, considered the
detailed explanation above and accepted that the negative reserve
disclosed in Form-I does not give rise to distributable surplus.
Accordingly he disallowed the same.

59.    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 part of Actuarial valuation and the surplus
as discussed in Form-I under Regulation 4 takes into consideration
this mathematical reserve also. Therefore the order of the CIT(A) is
approve. 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 principles laid down by the Hon'ble Supreme Court in LIC vs.
CIT 512 ITR 773 about the powers of Assessing Officer also restricts



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                      ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




the scope and adjustments by the AO. In view of this we uphold the
order of the CIT(A) and dismiss the Revenue ground.

60.    Ground No. 2 is about deletion of addition made on account
of claim of 100% depreciation of `15,79,707/-. It was the contention
of the Revenue that the CIT(A) ignored the actuarial surplus
determined on the basis of the total assets if the company and
therefore not capitalized in the above assets. The assets of assessee
to that extent are not stated, therefore, it has an impact of reducing
the total surplus.

61.    Before the CIT(A) it was submitted that the assessee prepared
its accounts as per the format prescribed by the IRDA in tune with
the Insurance Act 1938. The assets were originally capitalized in the
books and being eligible for 100% depreciation they are written off.
The CIT(A), after considering the submissions, accepted the
contention as under: -

      "19. The appellant has to prepare its accounts as per the
      formats prescribed by the IRDA under the Insurance Act,
      1938. These accounts have accordingly been prepared by the
      appellant and have been subject to statutory audit. Further,
      the accounting policy of claiming 100% depreciation in its
      financial statements has been consistently followed by the
      appellant and has also been duly accepted by the IRDA. The
      appellant has stated that the assets on which depreciation
      has been claimed have been initially capitalized in the books
      and then 100% depreciation has been claimed on these
      assets. Taxation of Life Insurance is presumptive taxation
      with only the surplus as disclosed by Form I being subjected
      to tax. In my view, as per the provisions of law only those
      adjustments which are expressly not prohibited under section
      44 of the Act could be made. Consequently depreciation which
      has been debited in the audited accounts as per the
      consistently followed and accepted accounting policy need not
      be disallowed."

62.    After considering the rival submissions, we are of the opinion
that the action of the CIT(A) in deleting the amount is consistent
with the accounting principles followed and the provisions of section




                                      Page 71 of 77
                       ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




44 read with Rule 2 of the 1st Schedule. Therefore we uphold the
order of the CIT(A) and dismiss the ground raised by the Revenue.

63.    Ground No. 3 is on the issue of claim of exemption under
section 10(34) on the dividend income earned by the assessee,
which was allowed by the CIT(A). This ground is already considered
vide paras 48 & 49 of the above in ITA No. 7765/Mum/2010 for
A.Y. 2005-06. Therefore, ground No. 3 raised by the Revenue is
accordingly dismissed.

ITA No.6856/Mum/2010 ­ A.Y. 2007-08.
64.    Assessee in this appeal has raised seven grounds which is
extracted below:

      "1. The CIT (A) has erred in not accepting the loss of `.412.88
      crores returned by the Appellant.
      2. The CIT (A) erred in holding that the Appellant's taxable
      income from insurance is the amount of surplus disclosed in
      Form I.
      3. The CIT (A) has erred in upholding the computation of
      taxable income for the year at `.31.72 crores by holding that
      the amount transferred from the shareholder's account to
      policyholder's account is not to be reduced from the surplus
      disclosed in Form I.
      4. The CIT (A) has erred in holding that income of `.31.72
      crores in shareholder's account is separately taxable under
      the head "income from other sources".
      5. The CIT (A) has erred in rejecting the alternate plea that in
      an event the income in policyholder account is computed after
      considering transfers from shareholder's account to account,
      then income in shareholder's account should be computed by
      allowing a corresponding deduction of transfers to
      policyholder's account.
      6. The CIT (A) has erred in not holding disallowance under
      section 14A offered in revised return of income is on
      reasonable basis but directed AO to decide the issue afresh.
      7. The CIT (A) has erred in confirming that the income in the
      shareholder's account is taxable at the normal corporate rate
      of tax instead of rate specified in section 115B of the Act".




                                       Page 72 of 77
                     ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




65.   Grounds No. 1,2,3 & 5 are on the issue of actuarial surplus.
This issue was discussed elaborately in AY 2005-06 vide grounds 1
to 3 in ITA No 6854/Mum/2010 above and for the detailed reasons
stated there in the grounds are allowed. AO is directed to modify the
order accordingly.

66.   Grounds No. 4 & 7 on the issue of treating the income in
shareholders account as income from other sources. This issue is
already decided in grounds No. 4 & 7 in ITA No. 6855/Mum/2010
for A.Y. 2006-07. For the reasons stated therein vide paras 54 & 55
we direct the AO to treat the income in shareholders account as
part of life insurance business only. Grounds are allowed.

67.   Ground No. 6 pertains to the issue of disallowance under
section 14A and assessee also raised additional ground on the
reason that section 14A is not applicable once incomes are assessed
under section 44. This issue is also considered in A.Y. 2005-06 in
ITA No. 6854/Mum/2010 in ground No. 4. For the reasons stated
therein, following the above, this ground and the additional ground
are allowed. AO is directed to do accordingly.

ITA No.7767/Mum/2010 ­ A.Y. 2007-08
68.   The Revenue in this appeal has raised the following two
grounds:

      "1. On the facts and circumstances of the case and in law,
      the learned CIT (A) erred in deleting the addition made on
      account of claim of 100% depreciation of `.76,60,380/-
      ignoring the facts that Actuarial surplus is determined on
      the basis of the total assets of the company and therefore
      by not capitalizing the above assets, the assets of the
      assessee company are under stated in the books and
      thereby it has an impact of reducing the surplus of or
      increase in the deficit and therefore, the assets so written
      off are also considered as part of the surplus and taxable
      under section 44 of the I.T. Act.
      2. On the facts and circumstances of the case and in law,
      the learned CIT (A) erred in allowing the dividend income of
      assessee as exempted under section 10(34) of the Income
      Tax Act, 1961 ignoring the facts that dividend income is


                                     Page 73 of 77
                     ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




      considered as part of Income of Life Insurance Business
      and is included as an income by the actuary".
69.   Ground No. 1 is about deletion of addition made on account
of claim of 100% depreciation of `76,60,380/-. This ground is
already considered vide ground No.2 in ITA No. 7766/Mum/2010
for A.Y. 2005-06. Therefore, for the reasons mentioned therein
ground No. 2 raised by the Revenue is accordingly dismissed.

70.   Ground No. 2 is on the issue of claim of exemption under
section 10(34) on the dividend income earned by the assessee,
which was allowed by the CIT(A). This ground is already considered
vide paras 48 & 49 of the above in ITA No. 7765/Mum/2010 for
A.Y. 2005-06. Therefore, ground No. 3 raised by the Revenue is
accordingly dismissed.

ITA No.6059/Mum/2010 ­ A.Y. 2008-09
71.   Assessee in this appeal raised the following grounds:

      "1. The CIT (A) has erred in not accepting the loss of
      `.823.38 crores returned by the Appellant,
      2. The CIT (A) erred in holding that the Appellant's taxable
      income from insurance is the amount of surplus disclosed
      in Form I.
      3. The CIT (A) has erred in upholding the computation of
      taxable income for the year at `.228.98 crores by holding
      that the amount transferred from the shareholder's account
      to policyholder's account is not to be reduced from the
      surplus disclosed in Form I.
      4. The CIT (A) has erred in holding that income of `.61.09
      crores in shareholder's account is separately taxable under
      the head "income from other sources".
      5. The CIT (A) has erred in rejecting the alternate plea that
      in an event the income in policyholder account is computed
      after considering transfers from shareholder's account to
      account, then income in shareholder's account should be
      computed by allowing a corresponding deduction of
      transfers to policyholder's account.
      6. Section 14A is not applicable to insurance companies as
      this section contemplates to restrict the deductions as
      allowable under the Act which are contained under section
      28 to 43B of the Act. Section 44 creates a special exception



                                     Page 74 of 77
                     ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




      to the applicability of these provisions in the cases of
      insurance companies and therefore, section 14A is not
      applicable to insurance companies.
      7. The CIT (A) has erred upholding that the amount of
      disallowance as computed by AO under section 14A of the
      Act is appropriate ignoring the amount offered by the
      Appellant under section 14A in return of income.
      8. The CIT (A) has erred in confirming that the income in
      the shareholder's account is taxable at the normal
      corporate rate of tax instead of rate specified in section
      115B of the Act."

72.   Grounds No. 1,2,3 & 5 are on the issue of actuarial surplus.
This issue was discussed elaborately in AY 2005-06 vide grounds 1
to 3 in ITA No 6854/Mum/2010 above and for the detailed reasons
stated there in the grounds are allowed. AO is directed to modify the
order accordingly.

73.   Grounds No. 4 & 8 are on the issue of treating the income in
shareholders account as income from other sources. This issue is
already decided in grounds No. 4 & 7 in ITA No. 6855/Mum/2010
for A.Y. 2006-07. For the reasons stated therein vide paras 54 & 55
we direct the AO to treat the income in shareholders account as
part of life insurance business only. Grounds are allowed.

74.   Grounds No. 6 & 7 pertain to the issue of disallowance under
section 14A and assessee also raised additional ground on the
reason that section 14A is not applicable once incomes are assessed
under section 44. This issue is also considered in A.Y. 2005-06 in
ITA No. 6854/Mum/2010 in ground No. 4. For the reasons stated
therein, following the above, this ground and the additional ground
are allowed. AO is directed to do accordingly.

ITA No.7213/Mum/2010 ­ A.Y 2008-09

75.   The Revenue in this appeal has raised the following four
grounds:

      "1. On the facts and circumstances of the case and in
      law, the learned CIT (A) erred in not upholding the


                                     Page 75 of 77
                     ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




      findings of AO that assessee is earning income from
      activities other than Life Insurance Business ignoring the
      facts that assessee is getting dividend income and
      income from other sources also.
      2. On the facts and circumstances of the case and in law,
      the learned CIT (A) erred in not subjecting the negative
      reserve amounting to `.87.94 crores ignoring the facts
      that negative reserve has an impact of reducing the
      taxable surplus as per Form-I.
      3. On the facts and circumstances of the case and in law,
      the learned CIT (A) erred in deleting the addition of
      `.61,88,017/- ignoring the fact that Actuarial surplus is
      determined on the basis of the total assets of the
      company and therefore by not capitalizing the above
      assets, the assets of the assessee company are
      understated in the books and thereby it has an impact of
      reducing the surplus of or increase in the deficit and
      therefore, the assets so written off are also considered as
      part of the surplus and taxable under section 44 of the IT
      Act.
      4. On the facts and in the circumstances of the case and
      in law, the learned CIT (A) erred in allowing the dividend
      income of assessee of `.78,27,74,249/- as exempted
      under section 10(34) of the Income Tax Act, 1961 ignoring
      the facts that dividend income is considered as part of
      income of Life Insurance Business and is included as an
      income by the actuary".

76.   Grounds No. 1 & 2 are on the issue of actuarial surplus. This
issue was discussed elaborately in AY 2005-06 vide grounds 1 to 3
in ITA No 6854/Mum/2010 above and for the detailed reasons
stated there in the grounds are allowed. AO is directed to modify the
order accordingly.

77.   Ground No. 3 pertains to deletion of addition on deprecation
claimed at 100%. This issue was discussed above in ITA No.
7766/Mum/2010 vide ground No. 2. For the reasons stated therein
the ground raised by the Revenue is rejected.

78.   Ground No. 4 is on the issue of claim of exemption under
section 10(34) on the dividend income earned by the assessee,
which was allowed by the CIT(A). This ground is already considered



                                     Page 76 of 77
                        ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench




vide para 47, 48 & 49 of the above in ITA No. 7765/Mum/2010 for
A.Y. 2004-06. Therefore, ground No. 3 raised by the Revenue is
accordingly dismissed.

79.     In the result appeals filed by assessee in ITA Nos. 6854 to
6856/Mum/2010,          &    6059/Mum/2010                   are     allowed         and      the
Revenue appeals in ITA Nos. 7765                           to 7767/Mum/2010 &
7213/Mum/2010 are dismissed.

        Order pronounced in the open court on 14th September, 2012.

                 Sd/-                                                Sd/-
          (Vivek Varma)                                 (B. Ramakotaiah)
         Judicial Member                               Accountant Member

Mumbai, dated" 14th September, 2012.

Vnodan/sps

Copy to:

   1.   The   Appellant
   2.   The   Respondent
   3.   The   concerned CIT(A)
   4.   The   concerned CIT
   5.   The   DR, "F" Bench, ITAT, Mumbai

                                      By Order



                          Assistant Registrar
                     Income Tax Appellate Tribunal,
                       Mumbai Benches, MUMBAI




                                        Page 77 of 77
 
 
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