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
Page 14 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 15 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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,
Page 16 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 17 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 19 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 20 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 24 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 26 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 27 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 28 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 29 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 30 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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,
Page 31 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 32 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 33 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
(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.
Page 34 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 35 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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".
Page 36 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 37 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 38 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 39 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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.
Page 40 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
(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;
Page 41 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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:
Page 42 of 77
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;
Page 43 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
(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
Page 44 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 45 of 77
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
Page 46 of 77
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)
Page 47 of 77
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,
Page 48 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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:
Page 49 of 77
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
Page 50 of 77
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 &
Page 51 of 77
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
Page 52 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 53 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 54 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 55 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 56 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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.
Page 57 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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:
Page 58 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 59 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 60 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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".
Page 61 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 62 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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".
Page 63 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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".
Page 64 of 77
ITA Nos.6854 to 6856 6509 7765 to 7767 and 7213 ICICI PRULIFE Mumbai F Bench
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
Page 65 of 77
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
Page 66 of 77
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.
Page 67 of 77
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.
Page 69 of 77
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
Page 70 of 77
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
|
