Tata AIA Life Insurance Company Ltd. Vs PCIT (ITAT Mumbai)
ITAT Mumbai held that income from shareholders’ account is to be taxed as a part of life insurance business as assessee is carrying on only life insurance business.
Facts-
The assessee is a joint venture between Tata Sons and the AIA Group and carries on life insurance business in India in accordance with the regulations prescribed by the Insurance Regulatory and Development Authority of India (IRDA).
The taxable income of assessee was computed as difference between the surplus appearing in the Old Form I as on 31/03/2017 and the surplus appearing in the Old Form I as on 31/03/2016. Further, assessee claimed exemption towards dividend income under section 10(34) of the Act and towards surplus from pension fund under section 10(23AAB) of the Act amounting to Rs.84,06,99,308/- and Rs.10,60,42,568/- respectively and also claimed deduction of Rs.56,40,583/- u/s 80JJAA of the Act.
AO while passing the order computed total income of Rs. 599,51,63,800/- by adopting a different approach resulting into double taxation for the purpose of computing the taxable income. The learned AO combined the surplus as per the technical/ revenue and non-technical/ shareholder accounts as well as added the differential surplus as per New Form I of Rs.87,65,86,000/- (comprising of policyholder’s profit) while computing the taxable income. Further, the learned AO proceeded to disallow the exemptions claimed u/s 10(34) and u/s 10(23AAB) of the Act. The ld. AO also mentioned in the order that in case if it is held in the appellate proceedings that the above exemptions are available to assessee, then the provisions of section 14A of the Act shall apply.
Aggrieved by the Order passed by the ld. AO, assessee has preferred an appeal before the Commissioner of Income-tax (Appeals) on 23/01/2020 which is pending for disposal as on the date of hearing of this appeal. In the meanwhile, the present notice u/s 263 of the Act has been issued by the ld. PCIT contending that the order passed by the ld. AO is prejudicial to the interests of the Revenue and proposes to: compute tax payable on life insurance business at the rate of 12.5% under section 115B of the Act and tax on other than life insurance business allegedly i.e., surplus in the shareholders’ funds at the rate of 30% instead of 12.5% as prescribed in section 115B of the Act.
Conclusion-
None of the authorities under the Act nor even before us is it urged that the assessee is carrying on separate business other than life insurance business. Accordingly, the impugned order holding that the income from shareholders’ account is also to be taxed as a part of life insurance business cannot be found fault with in view of the clear mandate of Section 44 of the Act.
We find that the ld. AO had made adequate enquiries in this regard during the course of assessment proceedings in response to the notice issued u/s.142(1) of the Act. The assessee vide letter dated 16/12/2019 had indeed made detailed submissions in respect to this issue which are enclosed in pages 24-30 of the paper book filed before us. Hence, the ld. PCIT seeking to invoke revision jurisdiction u/s.263 of the Act on the ground that no enquiries were made by the ld. AO by applying Explanation 2 to Section 263 of the Act is grossly incorrect and is hereby quashed. In any case, the issue sought to be revised by the ld. PCIT u/s.263 of the Act is also covered in favour of the assessee by the decision of the Hon’ble Jurisdictional High Court on merits. Accordingly, the assessee is entitled for relief even on merits.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal in ITA No.1285/Mum/2022 for A.Y.2017-18 preferred by the order against the revision order of the ld. Principal Commissioner of Income Tax-8, Mumbai u/s.263 of the Act dated 25/03/2022 for the A.Y.2017-18.
2. The assessee has raised the following grounds of appeal:-
“Based on the facts and circumstances of the case. Tata AIA Life Insurance Company Limited (hereinafter referred to as “TALIC’ or ‘the Appellant’) craves leave to prefer an appeal under section 253 of the Income tax Act, 1961 (hereinafter referred to as the Act) against the order dated 25 March 2022 issued under section 263 of the Act (hereinafter referred to as the ‘Order’) by the Principal of Income-tax, Range-8, Mumbai (hereinafter referred to as the ‘learned CIT) on the following grounds, each of which are without prejudice to one another.
1. Ground No. 1: Initiation of revision proceedings under section 263 of the Act. The learned CIT has erred in law and fact, inter alia, on the following grounds:
1.1 In disregarding the submission of the Appellant that the twin conditions contained in section 263 of the Act are not fulfilled prior to initiating proceedings under section 263 of the Act and initiating proceedings under section 263 of the Act.
1.2 In treating the order dated 26 December 2019 issued under section 143(3) of the Act by the Assistant Commissioner of Income-tax, Range -8(3)(1), Mumbai (hereinafter referred to as the ‘learned AO’) [hereinafter referred to as the ‘Assessment Order] for AY 2017-18 as erroneous and prejudicial to the interest of the revenue.
1.3 In concluding that the learned AO has made no inquiry regarding the taxability of the income earned by the Appellant from life insurance business and from activities other than the life insurance business.
1.4 In disregarding the submissions of the Appellant on the merits of the case and not following the order issued by the Jurisdictional High Court and setting aside the aforesaid Assessment Order, with directions to the learned AO to pass an assessment order, after providing an opportunity of being heard to the Appellant.
2. Ground No. 2: Revision of the Assessment Order The learned CIT has erred in law and fact, inter alia, on the following grounds:
2.1 In not appreciating the submission of the Appellant, that the Appellant, being a Life Insurance Company regulated by the Insurance Regulatory and Development Authority of India (‘IRDA ‘), can undertake only life insurance business and no other business.
2.2 In ignoring the provisions of section 44 of the Act read with Rule 2 of the Income-tax Rules, 1962 and consequently, in applying the rate of tax of 30% (which is applicable to a domestic company) as against the tax rate of 12.5% (which is applicable to a company engaged in life insurance business as per section 1158 of the Act The Appellant craves leave to add, alter, vary, omit, substitute, or amend any or all of the above grounds of appeal, at any time before or at, the time of the appeal, so as to enable the Honorable Income-tax Appellate Tribunal to decide this appeal according to law.
3. We have heard rival submissions and perused the materials available on record. The assessee is a joint venture between Tata Sons and the AIA Group and carries on life insurance business in India in accordance with the regulations prescribed by the Insurance Regulatory and Development Authority of India (IRDA). It has obtained a license from the IRDA to carry on life insurance business in India on 12/02/2001 and started operations on 01/04/2001. The assessee filed its original return of income on 29/11/2017 declaring taxable income of Rs.103,85,94,540/-. The taxable income was computed as per Rule 2 of the First Schedule in accordance with the regulations contained in Part-I and Part-ll of the Fourth Schedule of the unamended Insurance Act, 1938 (which was duly in accordance with the order of this Tribunal in assessee’s own case for A.Yrs. 2002- 03 to AY 2008-09 and AY 2014-15). The surplus/ (deficit) in this regard is disclosed by assessee in the Form (‘Old Form 1) in accordance with the Insurance Act, 1938.
3.1 The taxable income of assessee was computed as difference between the surplus appearing in the Old Form I as on 31/03/2017 and the surplus appearing in the Old Form I as on 31/03/2016. Further, assessee claimed exemption towards dividend income under section 10(34) of the Act and towards surplus from pension fund under section 10(23AAB) of the Act amounting to Rs.84,06,99,308/- and Rs.10,60,42,568/- respectively and also claimed deduction of Rs.56,40,583/- u/s 80JJAA of the Act.
3.2 The return of income filed by assessee was selected for scrutiny assessment proceedings and the ld. AO issued notices under section 143(2) and section 142(1) of the Act requesting assessee to furnish various information/ documents. In response to the same, the assessee vide various submissions filed the relevant factual information/ documentary evidences before the ld. AO. The ld. AO while passing the order computed total income of Rs. 599,51,63,800/- by adopting a different approach resulting into double taxation for the purpose of computing the taxable income. The learned AO combined the surplus as per the technical/ revenue and non-technical/ shareholder accounts as well as added the differential surplus as per New Form I of Rs.87,65,86,000/- (comprising of policyholder’s profit) while computing the taxable income. Further, the learned AO proceeded to disallow the exemptions claimed u/s 10(34) and u/s 10(23AAB) of the Act. The ld. AO also mentioned in the order that in case if it is held in the appellate proceedings that the above exemptions are available to assessee, then the provisions of section 14A of the Act shall apply.
3.3 Aggrieved by the Order passed by the ld. AO, assessee has preferred an appeal before the Commissioner of Income-tax (Appeals) on 23/01/2020 which is pending for disposal as on the date of hearing of this appeal. In the meanwhile, the present notice u/s 263 of the Act has been issued by the ld. PCIT contending that the order passed by the ld. AO is prejudicial to the interests of the Revenue and proposes to: compute tax payable on life insurance business at the rate of 12.5% under section 115B of the Act and tax on other than life insurance business allegedly i.e., surplus in the shareholders’ funds at the rate of 30% instead of 12.5% as prescribed in section 115B of the Act.
3.4 The ld. PCIT issued show-cause notice dated 04/03/2022 which is reproduced as under:-
NOTICE FOR THE HEARING
M/s/Mr/Ms
Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the THE INCOME TAX ACT, 1961-Assessment Year 2017-18.
In this regard, a hearing in the matter is fixed on 09/03/2022 at 11:30 AM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaefiling.gov.in
In this case, the ITR for AY 2017-18 was filed by the assessee on 29.11.2017 declaring total income at Rs. 103,85,94,540/-. Subsequently the assessment was completed u/s 143(3) on 26.12.2019 at Rs. 599,51,63,804/-.
3. Further, on perusal of the case records, it is noticed that in accordance with the provisions contained in section 115B read with Appendix 1 of First Schedule of Income Tax Act, 1961, income derived from Life Insurance business to be taxed @12.5%. Also the accounts are to be prepared in two parts i.e. Technical Account and Non-Technical account as envisaged in Appendix 1 of the Act. 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 that business shall be computed separately from his profits and gains from any other business. In other words, only income derived from Life insurance business carried by a company will attracts the concessional rate of tax and all other income of the company suffers the prevailing rates applicable to companies. The entire income is treated as an income from Life Insurance business and taxed @12.5%. However, a perusal of computation of Income reveals the followings:
