IN THE ITAT MUMBAI BENCH ‘I’
ICICI Lombard General Insurance Co. Ltd.
Versus
Assistant Commissioner of Income-tax
IT APPEAL NO. 2398 (MUM.) OF 2009
[ASSESSMENT YEAR 2003-04]
OCTOBER 10, 2012
ORDER
Vijay Pal Rao, Judicial Member – This appeal by the assessee is directed against the order dated 12.1.2009 of the Commissioner of Income Tax (Appeals) for the Assessment Year 2003-04.
2. The only ground raised by the assessee in this appeal is as under:
“On the facts and circumstances of the case and the law, the Commissioner of Income Tax (Appeals) erred in confirming the disallowance in respect of the deduction for gains on sale of investment amounting to Rs. 3,49,46,887/- on the ground that profits from insurance business are to be taken to be balance of the profits as disclosed by annual accounts, subject to the adjustments provided in clause 5(a) to (c) and it is not open to the appellant to reduce these profits from its computation of income non obstinate cl. B of Rule 5 of the First Schedule.”
3. The assessee is engaged in the general insurance business. In the computation of income, the assessee has reduced the gain on sale of investment amounting to Rs. 3,49 crores while calculating the profit or loss of business or profession. On a query from the Assessing Officer, the assessee has contended that the gains on sale of investment amounting to Rs. 3.49 crores is exempt from tax in view of circular No. 528, dated 16.12.1998 issued by CBDT. It was further submitted that as per section 44 of the Act, the profits and gains for insurance business shall be computed in accordance with the rules contained in the first schedule to the Act and the profit from the insurance business shall be taken to be the balance of the profits as disclosed by annual account, which are required under the Insurance Act, 1938 to be furnished to the Insurance Authorities, subject to the adjustments provided in clause 5(a) to (c) . Clause 5(b) which provided for adjustment, inter alia, for profit or loss on the realization of investments, has been deleted by the Finance Act, 1988 and as per explanatory notes; the aforesaid amendment was made to enable the general insurance companies to play a more active role in capital markets for the benefit of the policy holders. Thus, the assessee contended that the amendment is made to provide for exemption of the profits earned by the general insurance companies on the realization of the investment and as a corollary losses incurred on realization of investment would not be allowed as deduction in computing profits chargeable to tax.
3.1 The Assessing Officer, however, did not accept the contention of the assessee and held that provisions of sec. 44 A did not provide for any profit/gain on sale of investment to be reduced while computing the profits and gain of any business of insurance. The Assessing Officer was of the view that circular 525 does not seek to override the provisions of sec. 44 and Rule 5 of the First Schedule.
3.2 On appeal, the Commissioner of Income Tax (Appeals) has confirmed the disallowance made by the Assessing Officer on this account.
4. Before us, the ld AR of the assessee has submitted that this issue has been considered and decided by this Tribunal in a series of decisions wherein it has been held that profit on sale of investments prior to Assessment Year 2011 is not taxable in the hands of the general insurance companies. The ld AR has pointed out that the Tribunal has repeatedly taken note that the deletion of Sub. Rule (b) of Rule 5 of first schedule was with specific purpose of granting exemption on the profit on sale of investments and that is why the legislature has now bought in a prospective amendment from Assessment Year 2011-12, whereby inserted Rule 5(b)(i) of first schedule of the I T Act. By virtue of this amendment, the profit on sale of investments in the case of the insurance companies will be taxable w.e.f AY 2011-12. The ld AR has relied upon the following decisions:
