KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD, MUMBAI v. ADDL CIT 1(2), MUMBAI

ITA 2901/MUM/2010 | 2007-2008
Pronouncement Date: 30-09-2011 | Result: Allowed

Appeal Details

RSA Number 290119914 RSA 2010
Assessee PAN AXACT1961I
Bench Mumbai
Appeal Number ITA 2901/MUM/2010
Duration Of Justice 1 year(s) 5 month(s) 16 day(s)
Appellant KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD, MUMBAI
Respondent ADDL CIT 1(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 30-09-2011
Date Of Final Hearing 06-09-2011
Next Hearing Date 06-09-2011
Assessment Year 2007-2008
Appeal Filed On 13-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO.2901/MUM/2010 ASSESSMENT YEAR 2007-08 M/S. KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. 7 TH FLOOR GODREJ COLISEUM BEHIND EVERARD NAGAR SION (E) VS. THE ACIT 1(2) AAYAKAR BHAVAN MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI FARROKH IRANI RESPONDENT BY: SHRI USHA S. NAIR DATE OF HEARING : 6.9.2011 DATE OF PRONOUNCEMENT: O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 29.01.2010 PASSED BY THE LD. CIT(A)-2 FOR THE ASSESSMENT YEAR 2007- 08. 2. THE ASSESSEE IS A CORPORATE ENTITY ENGAGED IN LI FE INSURANCE BUSINESS. THE AO INCLUDED THE DIVIDEND INCOME OF RS. 6 78 13 292/- WHILE COMPUTING THE TAXABLE INCOME OF THE INSURANCE COMPANY U/S. 44 READ WITH FIRST SCHEDULE EVEN THOUGH DIVIDEND INCOME IS EXEMPT U/S . 10(34). 3. BEFORE THE ASSESSING OFFICER THE ASSESSEE CONTE NTED IS THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAD EARNED DIVIDE ND INCOME OF RS.6 78 13 292/- WHICH HAS BEEN INCLUDED IN THE VAL UATION DONE BY THE ITA NO. 2901/M/2010 2 ACTUARY WHILE IN FACT SINCE THIS INCOME IS EXEMPT FROM TAX IT SHOULD HAVE BEEN TAKEN OUTSIDE THE FRAMEWORK OF SECTION 44 AND THE SURPLUS OR DEFICIT OUGHT TO HAVE BEEN WORKED OUT ACCORDINGLY. ACCORDI NG TO ASSESSING OFFICER THERE IS NO SCOPE OF ANY ADJUSTMENT U/S.44 AND CONS EQUENTLY THE ADJUSTMENT AS REQUESTED THE DIVIDEND INCOME BE TAKEN OUTSIDE THE PURVIEW IS NOT JUSTIFIED. ACCORDING TO HIM ONCE SURPLUS OR DEFICI T HAS BEEN WORKED OUT BY THE ACTUARY NO FURTHER ADJUSTMENT IS POSSIBLE. IT WAS ALSO CONTENDED THAT THE VARIOUS PROVISIONS UNDER THE INCOME TAX ACT ARE REQ UIRED TO BE INVOKED SEQUENTIALLY. IT HAS BEEN CONTENDED THAT INCOME WHI CH IS SPECIFICALLY CONSIDERED TO BE NOT FORMING PART OF TOTAL INCOME B Y THE PROVISIONS OF THE INCOME-TAX ACT IS NECESSARILY REQUIRED TO BE TAKEN OUTSIDE THE PURVIEW OF TAXATION EVEN BEFORE THE PROCESS OF COMPUTATION BEG INS. THEREFORE DIVIDEND INCOME WHICH IS EXEMPT U/S.10 (34) OF THE INCOME-TA X ACT WILL HAVE TO BE FIRST TAKEN OUTSIDE THE ACCOUNTS OF APPELLANT AND TREATED AS EXEMPT INCOME. IT HAS BEEN FURTHER CONTENDED THAT ONCE THIS IS DONE CREDIT FOR REDUCTION OF THIS INCOME WILL HAVE TO BE GIVEN IN THE COMPUTATION OF SURPLUS OR DEFICIT AS COMPUTED U/S.44 OF THE INCOME-TAX ACT. 4. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) AND REITERATED CONTENTION MADE BEFORE THE AO. 5. THE LD. CIT(A) HELD THAT ANYTHING BEING INCOME WHICH BY THE INTENTION OF THE LEGISLATURE IS SPECIFIED IN CHAPTE R III OF THE INCOME-TAX ACT AND IS ACCORDINGLY TREATED AS NOT FORMING PART OF T OTAL INCOME CANNOT BE CONSIDERED AT ALL FOR TAXABILITY AND CHARGE OF INCO ME TAX CANNOT BE PUT UPON SUCH INCOME. TO THIS EXTENT CONTENTION OF LEARNED REPRESENTATIVE OF APPELLANT IS CORRECT. THE DIVIDEND INCOME BEING EX EMPT HAS TO BE TAKEN OUT EVEN BEFORE THE TAXABILITY UNDER THE BUSINESS HEAD OF INCOME IS CONSIDERED. AT THE SAME TIME THE CONTENTION OF ASSESSING OFFIC ER IS ALSO PERFECTLY JUSTIFIED THAT FOR THE PURPOSE OF COMPUTING TAXABLE INCOME OF A CORPORATE ENTITY ENGAGED IN INSURANCE BUSINESS ASSESSING OFFICER HA S ONLY TO TAKE INTO ACCOUNT THE VALUATION AS DONE BY THE ACTUARY AND HA S NO POWERS BEYOND THAT ITA NO. 2901/M/2010 3 TO MAKE ANY ADJUSTMENTS EXCEPT THOSE WHICH HAVE BEE N PRESCRIBED IN SCHEDULE 1 ITSELF. AND SINCE THE ACTUARY IS VALUI NG THE SURPLUS OR DEFICIT AFTER TAKING INTO ACCOUNT THE DIVIDEND INCOME THE ADJUST MENT AS SOUGHT BY APPELLANT CANNOT BE DONE BY ASSESSING OFFICER. CON SEQUENTLY THE GROUND OF APPEAL IS REJECTED. 6. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US HA S RAISED THE FOLLOWING GROUNDS: 1. THE COMMISSIONER OF INCOME TAX (APPEALS) 2 MUMBA I (HEREINAFTER REFERRED AS TO THE CIT(A)) ERRED IN CONFIRMING TAX ATION OF DIVIDEND INCOME OF RS.6 78 13 292/- BY DENYING THE EXEMPTION CLAIMED BY THE APPELLANT U/S.10(34) OF THE INCOME TAX ACT 1961 (T HE ACT). 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT : A) UNDER THE SCHEME OF THE ACT ANY INCOME FALLING WITHIN THE VARIOUS CLAUSES OF SECTION 10 OF THE ACT IS COMPLETELY EXCL UDED IN COMPUTING THE TOTAL INCOME OF THE APPELLANT: B) THE PROVISIONS OF SECTION 44 IN RELATION TO COMP UTATION OF PROFITS AND GAINS OF BUSINESS OF INSURANCE DO NOT EXCLUDE F ROM EXEMPTION INCOMES OTHERWISE EXEMPT U/S.10(34). 3. THE APPELLANT PRAYS THAT THE DIVIDEND INCOME OF RS. 6 78 13 292/- BE TREATED AS EXEMPT U/S.10(34) OF THE ACT. 4. WITHOUT PREJUDICE TO THE ABOVE IF IT BE HELD THAT THE DIVIDEND OF RS.6 78 13 292 IS TAXABLE THEN THE AO BE DIRECTED T HAT NO DISALLOWANCE OF RS.2 77 69 215 IS WARRANTED U/S.14A. 7. THE LEARNED COUNSEL FOR THE ASSESSEE APPEARED BE FORE US AND SUBMITTED THAT THE ISSUE IS GOVERNED BY VARIOUS DEC ISIONS WHICH ARE AS FOLLOWS: S.NO. NAME OF THE CASE CITATION 1 LIFE INSURANCE CORPORATION OF INDIA VS CIT 115 ITR 45 (BOM) 2 LAKSHMI INSURANCE CO LTD VS CIT 72 ITR 474 (DEL) 3 CIT VS NEW INDIA ASSURANCE CO LTD 122 ITR 633 (BOM) 4 CIT VS ADVANCE INSURANCE CO LTD 119 ITR 660 (BOM) 8. WE FIND THAT IN THE CASE OF LIFE INSURANCE CORPOR ATION OF INDIA VS CIT IT HAS BEEN HELD THAT DEDUCTION CLAIMED BY INSURANCE C OMPANY NOT SPECIFICALLY ITA NO. 2901/M/2010 4 EXCLUDED U/S.44 RULE 2 OF FIRST SCHEDULE OF INCOME TAX ACT 1961 IS ALLOWABLE. SIMILARLY IN THE CASE OF LAKSHMI INSURANCE CO LTD V S CIT IT WAS HELD THAT EXEMPTION GRANTED BY NOTIFICATION U/S.16 OF 1922 AC T IS AVAILABLE IN THE CASE OF ASSESSABLE PROFITS OF INSURANCE COMPANIES DETERM INED UNDER RULE 2B OF SCHEDULE. IN THIS CASE THE CONTENTION OF THE ASSE SSEE BEFORE THE IT AUTHORITIES WAS THAT BY VIRTUE OF A NOTIFICATION UN DER S.60 INTEREST ON MYSORE DARBAR SECURITIES WAS EXEMPT FROM TAX AND THAT THE SAID AMOUNTS SHOULD NOT BE INCLUDED IN THE TAXABLE SURPLUS. THE ITO ACCEPT ED THE SAID CONTENTION OF THE ASSESSEE AND EXCLUDED THE AMOUNTS IN COMPUTING THE TAXABLE SURPLUS. BUT THE CIT TOOK THE VIEW THAT THE SAID AMOUNTS SH OULD NOT BE SO EXCLUDED. ACCORDING TO HIM THE LIFE INSURANCE BUSINESS IS A CLASS BY ITSELF THE PROFITS OF WHICH ARE TO BE COMPUTED IN ACCORDANCE WITH THE PRO CEDURE LAID DOWN IN THE SCHEDULE TO THE IT ACT AND ONLY THE ADJUSTMENTS EN UMERATED IN THE SAID SCHEDULE ARE TO BE CARRIED OUT AND NO OTHER MODIFIC ATION IS TO BE MADE TO THE BASIS OF COMPUTATION OF PROFITS. HIS REASONING WAS THAT THE INCOME THAT IS ASSESSED IN THE CASE OF LIFE INSURANCE BUSINESS IS NEITHER THE ACTUAL INCOME NOR THE TOTAL INCOME OF THE PREVIOUS YEAR BUT WHAT IS CHARGED TO TAX UNDER S.10(7) AND THE SCHEDULE TO THE ACT IS A NOTIONAL O R CONVENTIONAL INCOME THAT AS ACTUAL INCOME IS NOT TO BE BROUGHT UNDER TAX TH E QUESTION OF EXCLUSION OF THE INTEREST ON THE SECURITIES OF THE MYSORE DARBAR DOES NOT ARISE THAT IN CASES WHERE R.2 (B) OF THE SCHEDULE IS APPLICABLE THE SCHEDULE PROVIDES A METHOD OF FINDING OUT THE AMOUNT WHICH IS TO BE THE SUBJECT OF TAX IN RESPECT OF PROFITS OF INSURANCE BUSINESS AND THAT THE EXEM PTION GRANTED BY NOTIFICATION UNDER S. 60 OF THE ACT IS NOT AVAILABL E IN THE CASE OF ASSESSABLE PROFITS OF INSURANCE COMPANIES DETERMINED UNDER R. 2(B) OF THE SCHEDULE. IN SUPPORT OF HIS VIEW HE RELIED UPON THE DECISIONS I N IRC VS. AUSTRALIAN MUTUAL PROVIDENT SOCIETY (1947) 15 ITR (SUPPL) 71 (HL) CI T VS. WESTERN INDIA LIFE INSURANCE CO LTD (1949) 17 ITR 125 (PC) AND CIT VS. B.B. & C.I. RAILWAY CO- OP. MUTUAL DEATH BENEFIT SOCIETY (1949) 17 ITR 509 (BOM). 9. IN THE CASE OF CIT VS. NEW INDIA ASSURANCE CO LTD IT HAS BEEN HELD THAT FOR THE PURPOSES OF CALCULATING THE CAPITAL G AINS IN RESPECT OF ITA NO. 2901/M/2010 5 COMPENSATION FOR ACQUISITION OF INSURANCE BUSINESS RUN BY THE ASSESSEE THE ASSESSEE IS NOT BOUND BY THE FORMULA LAID DOWN BY T HE INSURANCE ACT FOR ADOPTING THE MARKET VALUE OF THE COST OF ACQUISITIO N AS ON 1 ST JAN. 1954. 10. SEC. 44 PROVIDES THAT COMPUTATION OF INCOME OF INSURANCE COMPANIES UNDER VARIOUS HEADS SHOULD BE AS PER THE FIRST SCHE DULE. BUT WHAT WE ARE CONSIDERING IS AN INCOME FALLING UNDER CHAPTER-III WH ICH IS TO BE EXCLUDED FROM TOTAL INCOME. WE ARE OF THE OPINION THAT UNDE R THE SCHEME OF ACT NO INCOME FALLING WITHIN THE VARIOUS CLAUSES OF SEC.10 OF THE ACT IS TO BE COMPULSORILY EXCLUDED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE AND THE PROVISION OF SEC.44 IN RELATION TO COMPUTATION OF P ROFITS AND GAINS OF BUSINESS OF INSURANCE DO NOT INCLUDE INCOMES OTHERWISE EXEMP T U/S.10 (34). THEREFORE THE DIVIDEND INCOME OF RS.6 78 13 292 IS TREATED AS EXEMPT U/S.10 (34) OF THE ACT HAS TO BE EXCLUDED FROM THE COMPUTATION OF TOTA L INCOME OF THE ASSESSEE. 11. GROUND NO.2 IS WITH REGARD TO DISALLOWANCE OF S UM OF RS.2 77 69 215/- IN ACCORDANCE WITH RULE 8D 2 SEC.14A IS EXPENDITURE INCURRED FOR EARNING DIVIDEND INCOME. THE CIT(A) HELD AS FOLLOWS: AT THE OUTSET IT IS CLARIFIED THAT THE ACTIVITY OF ANNUITY BUSINESS IS PERMITTED BUSINESS ACTIVITY WHICH CAN BE UNDERTA KEN SEPARATELY AND INDEPENDENTLY OF INSURANCE BUSINESS AND THE DISALLO WANCE BEING CONSIDERED IS ONLY IN RESPECT OF EXEMPT INCOME OF T HIS ANNUITY BUSINESS. THE ONLY OBJECTION TAKEN AGAINST THE DIS ALLOWANCE MADE BY ASSESSING OFFICER IS THAT RULE 8D GOES BEYOND THE A UTHORITY GIVEN TO CBDT BY SECTION 14 A OF THE INCOME-TAX ACT. IT IS C ONTENDED THAT THE RULE ONLY DETERMINES THE NOTIONAL COST OF HOLDING I NVESTMENTS WHICH MAY OR MAY NOT YIELD ANY EXEMPT INCOME AND SUCH NOT IONAL COST FOR HOLDING INVESTMENT HAS NO RELATIONSHIP WITH THE ACT UAL EXPENDITURE INCURRED BY APPELLANT. IT HAS BEEN ACCORDINGLY CONT ENDED THAT THE DISALLOWANCE MADE BY ASSESSING OFFICER NEEDS TO BE DELETED. I HAVE PERUSED THE FACTS OF THE CASE. I FIND THAT THE ISS UE OF DISALLOWANCE U/S.14 A HAS BEEN CONSIDERED BY HONOURABLE MUMBAI I TAT IN SEVERAL CASES AND IT HAS BEEN HELD THAT RULE 8D IS PERFECTL Y JUSTIFIED AND IS REQUIRED TO BE INVOKED IN ALL CASES OF DISALLOWANCE U/S.14A. IT IS ACCORDINGLY HELD THAT ASSESSING OFFICER HAS RIGHTLY INVOKED RULE 8D FOR MAKING THE DISALLOWANCE. THE DISALLOWANCE MADE BY ASSESSING OFFICER IS CONSEQUENTLY CONFIRMED AND THE GROUND OF APPEAL IS REJECTED. ITA NO. 2901/M/2010 6 12. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. IN THE CASE OF BAJAJ ALLIANCE GENERAL INSURANCE COMPANY LTD VS ADDITIONA L COMMISSIONER OF INCOME TAX 38 DTR 282 PUNE IT HAS BEEN HELD THAT SE C.14A IS NOT APPLICABLE IN THE CASE OF INSURANCE BUSINESS WHICH IS GOVERNED BY SPECIFIC PROVISIONS OF 44 AND SCHEDULE 1. IN THE CASE OF RELIANCE GENERAL INSURANCE CO LTD VS DEPUTY COMMISSIONER OF INCOME TAX MUMBAI BENCH SIM ILAR VIEW HAS BEEN TAKEN. SIMILARLY IN THE CASE OF BIRLA SUNLIFE INSU RANCE CO LTD VS ADDITIONAL COMMISSIONER OF INCOME TAX ITA 2253/M/2006 HAS HELD AS FOLLOWS: WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF TH E RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE FIND MERIT IN THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE THAT T HE ASSESSING OFFICER AFTER EXAMINING THE RELEVANT DETAILS AS DISCUSSED I N PARA 5.16 AND 5.17 OF THE ASSESSMENT ORDER HAS DISALLOWED THE EXPENSES OF RS.30 18 496/- FOR EARNING DIVIDEND INCOME THEREFORE THE PLEA TA KEN BY THE LD. DR THAT THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER IS DEVOID OF ANY MERIT. THIS BEING SO AND KEEPING IN VIEW THAT THE TRIBUNAL IN ORIENTAL INSURANCE CO LTD VS. ACIT (200 9) TIOL 172 ITAT DEL AFTER DISCUSSING THE IDENTICAL ISSUE AT LENGT H HAS HELD THAT SEC.44 PROVIDES FOR APPLICATION OF SPECIAL PROVISIONS FOR COMPUTATION OF PROFITS AND GAINS OF INSURANCE BUSINESS IN ACCORDANCE WITH RULE 5 OF SCHEDULE 1 AND THEREFORE IT IS NOT PERMISSIBLE TO THE ASSE SSING OFFICER TO TRAVEL BEYOND SEC.44 AND SCHEDULE-I AND MAKE DISALLOWANCE BY APPLYING SEC.14A OF THE ACT. THE ABOVE ORDER HAS CONSISTENT LY BEEN FOLLOWED BY THE TRIBUNAL IN THE ABOVE THREE CASES RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT ON RECORD BY THE LD. DR WE RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL HOLD THAT IT IS NOT PERMISSIBLE TO THE ASSESSING OFFICER TO TRAVEL BEYOND SEC.44 AND SCHEDULE-I AND MAKE DISALLO WANCE BY APPLYING SEC.14A OF THE ACT AND ACCORDINGLY THE DIS ALLOWANCE OF RS.30 18 496 MADE BY THE ASSESSING OFFICER AND SUST AINED BY THE LD. CIT(A) IS DELETED. THE GROUND TAKEN BY THE ASSESSE E IS THEREFORE ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF THE C O-ORDINATE BENCHES WE DELETE THE ENTIRE DISALLOWANCE MADE UNDER 14A AM OUNTING TO RS.2 77 69 215 IS NO EXPENDITURE IS INCURRED FOR EA RNING EXEMPTION DIVIDEND INCOME. 13. GROUND NO.3 WHICH IS AN ALTERNATE GROUND IS INF RUCTUOUS AS WE HAVE DECIDED GROUND NO.2 IN FAVOUR OF THE ASSESSEE. ITA NO. 2901/M/2010 7 14. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF SEPTEMBER 2011 SD/ - SD/ - ( PRAMOD KUMAR ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 30 TH SEPTEMBER 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR A BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI