Icici Prudential Life Insurance Co Ltd, ... vs Department Of Income Tax

᮰ी आर.सी. शमाᭅ, लेखा सद᭭य, एवं ᮰ी िवजय पाल राव, ᭠याियक सद᭭य के समᭃ । BEFORE SHRI R.C. SHARMA,AM AND SHRI VIJAY PAL RAO, JM

आयकर अपील सं./I.T.A. No.5251/Mum/2013 ( िनधाᭅरण वषᭅ / Assessment Year : 2010-11) आयकर अपील सं./I.T.A. No.5252/Mum/2013 ( िनधाᭅरण वषᭅ / Assessment Year : 2011-12)

ICICI Prudential Life बनाम/ बनाम The ACIT Insurance Company Vs. Circle 6(1) Ltd. Room No.506, 5 t h Floor 1089, Appasaheb Aayakar Bhavan M.K. Road Marathe Marg Mumbai-400 020.

Prabhadevi Mumbai-400 025.

᭭थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAAC 1735 P (अपीलाथᱮ /Appellant) .. (ᮧ᭜यथᱮ / Respondent)

आयकर अपील सं./I.T.A. No.5529/Mum/2013 ( िनधाᭅरण वषᭅ / Assessment Year : 2010-11) आयकर अपील सं./I.T.A. No.5530/Mum/2013 ( िनधाᭅरण वषᭅ / Assessment Year : 2011-12)

The ACIT बनाम/ बनाम ICICI Prudential Life Circle 6(1) Vs. Insurance Company Ltd. th Room No.506, 5 Floor 1089, Appasaheb Marathe Aayakar Bhavan M.K. Marg Road Prabhadevi Mumbai-400 020. Mumbai-400 025. ᭭थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAAC 1735 P (अपीलाथᱮ /Appellant) .. (ᮧ᭜यथᱮ / Respondent) ICICI Prudential Life Insurance Company Ltd. ITA No.5251, 5529, 5530 & 5252 2

अपीलाथᱮ कᳱ ओर से / Appellant by Ms. Aarti Vissanji : ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri Kishan Vyas

सुनवाई कᳱ तारीख / Date of Hearing : 29/12/2014 घोषणा कᳱ तारीख /Date of Pronouncement : 14/01/2015

आदेश / O R D E R

PER BENCH:

These are set of two cross appeal i.e. ITA Nos.5251/Mum/2013 and 5252/Mum/2013 are assessee's appeals and ITA Nos.5529/Mum/2013 and

5530/Mum/2013 are appeals by the department, which are directed against two separate

orders of CIT(A) both dated 29/5/2013 for the assessment years 2010-11 and 2011-12 respectively. The assessee has raised the common grounds in both the appeals. The grounds raised for the assessment year 2010-11 are as follows :-

1. The CIT (Appeals) has erred in not adjudicating ground no.1 raised before him relating to the computation adopted for filing return of income by the Appellant holding that this ground of appeal is general in nature.

2. The CIT has erred taxing twice negative reserve once in earlier years on arising and again in current year of crystallization.

3. The CIT (Appeals) has erred in holding that the provisions of Section 14A are applicable to the appellant.

4. Without prejudice to the above, The CIT (Appeals) erred in holding that disallowance should be computed by applying Rule 8D, estimating the expenses attributable towards dividend income as 0.5% (i.e. Rs. 85.43 crores) of average investment, without giving any reason for disregarding the calculations filed by way of submissions, detailing the method of computing expenses attributable to such exempt income.

2. Ground No.1 is regarding non adjudication of this issue by the CIT(A), i.e. regarding the computation adopted by the assessee in the return of income .

ICICI Prudential Life Insurance Company Ltd.

ITA No.5251, 5529, 5530 & 5252 3

2.1 We have heard the ld. AR as well as the ld. DR and considered the relevant material on record. At the outset we note that an identical issue has been considered and decided by this Tribunal in assessee's own case for the assessment year 2005-06 to 2008-09 in the case of (ICICI Prudential Insurance Co. Ltd.) 140 ITD 41 in para 42 as under :-

"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 i.e. 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."

2.1.1 Accordingly, the AO is directed to compute the income of the assessee in accordance with the Rule-2 of the Insurance Act, 1938. This ground of the assessee's appeal is treated as allowed.

3. Ground Nos. 2 and 3 are regarding disallowance under section 14A. The assessee contended before the authorities below that provisions of section 14A are not applicable in case of insurance company, however, the AO as well as the ld. CIT(A) has held that provisions of section 14A are applicable to the assessee and consequently made the disallowance of Rs.118.81 crores under section 14A.

3.1 We have heard the ld. AR as well as the ld. DR. At the outset we note that an identical issue has been considered and decided by the Tribunal in assessee's own case in assessment year 2005-06 in para-46 as under :-

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 (supra) 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 ICICI Prudential Life Insurance Company Ltd.

ITA No.5251, 5529, 5530 & 5252 4

heard the rival contentions. We also note that this issue is also considered 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. Addl. CIT in ITA No.1447/PN/2007 for the assessment year 2003-04 order dated 31.08.2009. This Tribunal in the case of JCIT v. 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. Addl. 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. Asstt. 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 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.

It 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 question of law survives for their consideration. In other words, order of the Tribunal has ICICI Prudential Life Insurance Company Ltd.

ITA No.5251, 5529, 5530 & 5252 5

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 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 travel 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. It 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 travel beyond s. 44 of First Schedule of IT Act.

18.1 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 ICICI Prudential Life Insurance Company Ltd.

ITA No.5251, 5529, 5530 & 5252 6

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 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.

23. 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."

3.2 Following the earlier order of this Tribunal we decide this issue in favour of the assessee.

4. The revenue has raised common grounds in both the appeals. The grounds raised for the assessment year 2010-11 are as under :-

"1. Whether on the facts and in the circumstances of the case and in law, the Ld C1T(A) erred in interpreting the provisions of Section 44 of the I.T. Act read with Rule 2 of the First Schedule alongwith provisions of Insurance Act 1938, Insurance Regulatory and Development Authority Act 1999 and regulations there under and accordingly allowing adjustment from the ' s u r p l u s w o r ke d ICICI Prudential Life Insurance Company Ltd.

ITA No.5251, 5529, 5530 & 5252 7

a s p e r ' a c t u a r i a l v a l u a t i o n " [ a n d a s s h o w n b y t h e assessee in Form-I] in violation of the ratio of the Apex Court in the case of LIC vs CIT 51 ITR 778?

2. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in allowing the relief to the assessee by holding that 'surplus" available both in Policy Holders Account and Share Holder's Account is to be consolidated and only "net surplus" is to be taxed as income from Insurance Business?

3. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in giving relief to the assessee, following the decision of Hon'ble ITAT in assessee own case for the earlier years, wherein Hon'ble tribunal held that on account of 'legislation by incorporation', 'only' the "u n - amen ded " I ns ura n ce Act 1 9 3 8 a nd t he Re gu lati o ns th ere u nd er became part of Section 44 r.w Rule 2 of the First Schedule of the IT. Rules; when an appeal against this order of ITAT has been filed & is pending with High Court, Bombay?

4. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in giving relief to the assessee, following the decision of Hon 'ble ITAT in assessee own case for the earlier years, wherein Hon 'ble Tribunal held that the Legislature consciously omitted incorporation of the provision of Insurance Regulatory and Development Authority Act 1999 and Regulations made thereunder in section 44 of the l.T.Act r.w.Rule 2 of the First Schedule which 'refers' only to un-amended Insurance Act 1938 and Regulations made there-under; when an appeal against this order of ITAT has been filed & is pending with High Court, Bombay?

5. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in giving relief to the assessee, following the decision of Hon 'ble ITAT in assessee own case for the earlier years, wherein Hon' ble Tribunal failed to take note that Section 28 of Insurance Regulatory and Development Authority Act 1999 clarifies that provisions of IRDA Act are in addition and not in derogation of Insurance Act 1938, which means IRDA Act and its regulation has been adopted in Section 44 of the I.T. Act r.w. Rule 2 of the First Schedule by way of "legislation by reference"; and when an appeal against this order of ITAT has been filed & is pending with High Court, Bombay?

6. Whether on the facts and in the circumstances of the case and in law, the LD CIT(A) erred in allowing the relief to the assessee by holding that "surplus" available both in Policy Holders Account and Share Holder's Account is to be consolidated; and only 'net surplus" is to be taxed as income from Insurance Business?

7. Whether on the facts and in the circumstances of the case and in law, the L d C I T(A ) er red i n co n cl ud i ng t hat tra ns fe r be twee n S hare Ho lde rs Account and policy Holder's Account is tax neutral and not taxable u/s 44 of the Act r.w Rule 2 of the first Schedule.

8. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition made on account of claim of 100% depreciation ignoring the facts that Actuarial surplus is determined on the basis of the total assets of the c o mpany and therefore by n ot ICICI Prudential Life Insurance Company Ltd.

ITA No.5251, 5529, 5530 & 5252 8

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 or increase in the deficit and therefore, the assets so written off are also accordingly required to be considered as part of the surplus and taxable under section 44 of the IT. Act?

9. Whether on the facts and in the circumstances of the case and in law, t he Ld CI T(A) err ed i n a llo wi ng th e d ivi den d in co me o f as se s see a s exempt u/s. 10(34) of the I.T. Act, 1961, ignoring the fact that dividend income is considered as part of income of Life Insurance Business and is included as an income by the actuary?

10. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in allowing relief to the assessee by holding that surplus avai lab le i n S har e H old ers A c c ou nt i s n ot to be taxed se parat ely a s 'income from other sources' and at the normal corporate rate and holding that surplus from Share Holders Account was only part of income from insurance business arrived at after "combining' surplus available in S h a r e H o l d e r s A c c o u n t w i t h t h e s u r p l u s a va i la b le i n P o l i cy H o l d e r s Account and then and taxing this 'net surplus' arrived at, at the rates specified u/s. 1 15B of the Act?

11. "The appellant prays that the order of Ld. CIT(A) on the above grounds be set aside to file of AO or confirm the order of the AO.

12. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."

5. Ground No.1 to 6 regarding interpretation of the provision of section 44 of the Income tax Act r.w. Rule 2 of the 1st Schedule of the Income tax Act, 1938.

5.1 We have heard the ld. DR as well as the ld. AR and considered the relevant material on record. The issue involved in ground No.1 to 6 of the revenue's appeal have been considered by this Tribunal in assessee's own case for the assessment year 2005- 06 to 2008-09 in 140 ITD 41 in para nos. 23, 27, 32, 38, 40 and 42 which are as under

:-

"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.

ICICI Prudential Life Insurance Company Ltd.

ITA No.5251, 5529, 5530 & 5252 9

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.

.. 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 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 Rs.250 crores and transferred funds to the extent of Rs.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 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 ICICI Prudential Life Insurance Company Ltd.

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policyholder's and shareholder's account has to be consolidated for the purpose of arriving at the deficit or surplus.

....

... 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. ....

..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. ....

.. 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 i.e. 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.

5.2 Following the earlier order of this Tribunal we do not find any error or illegality in the impugned order of the ld. CIT(A) qua this issue. Accordingly ground Nos. 1 to 6 are dismissed.

6. Ground No.7 is regarding the taxability of surplus of both policy and share holders account.

6.1 We have heard the ld. DR as well as the ld. AR and considered the relevant material on record. We find that this issue was decided by this Tribunal in assessee's own case for the assessment year 2005-06 and assessment year 2008-09 in para no.55 as under :-

" 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 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 ICICI Prudential Life Insurance Company Ltd.

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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."

6.2 Following the earlier order of this Tribunal we do not find any error or illegality in the impugned order of the ld. CIT(A) and decide this issue against the revenue and in favour of the assessee.

7. Ground No.8 is regarding the claim of 100% depreciation on fixed assets.

7.1 We have heard the ld. DR as well as the ld. AR. Considered the relevant material on record. We find that this issue was decided by this Tribunal in assessee's own case for the assessment year 2005-06 and assessment year 2008-09 in para nos. 60 to 62 as under :-

"60. Ground No. 2 is about deletion of addition made on account of claim of 100% depreciation of Rs. 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."

ICICI Prudential Life Insurance Company Ltd.

ITA No.5251, 5529, 5530 & 5252 12

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 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."

7.2 Following the earlier order of this Tribunal we do not find any error or illegality in the impugned order of the ld. CIT(A). The issue involved in ground No. 8 is dismissed.

8. Ground No.9-10 is regarding treating / excluding negative reserve for considering the taxable surplus by the AO.

8.1 We have heard the ld. DR as well as the ld. AR. Considered the relevant material on record. We find that an identical issue was decided by this Tribunal in assessee's own case for the assessment year 2005-06 and assessment year 2008-09 in para nos.49 to 50 which is reproduced hereunder for ready reference :-

"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."

8.2 Following the earlier order of this Tribunal we do not find any error or illegality in the impugned order of the ld. CIT(A). and decide this issue against the revenue and in favour of the assessee.

9. In the result, appeal of the assessee is allowed and that of the revenue dismissed.

Order pronounced in the open court on 14/01/2015 .

आदेश कᳱ घोषणा खुले ᭠यायालय मᱶ ᳰदनांकः 14/01/2015 को कᳱ गई ।

Sd/- Sd/- (R.C. Sharma) (Vijay Pal Rao ) लेखा सद᭭य / ACCOUNTANT MEMBER ᭠याियक सद᭭य / JUDICIAL MEMBER मुंबई Mumbai; ᳰदनांक Dated 14/01/2015 व.िन.स./ Jv, Sr. PS ICICI Prudential Life Insurance Company Ltd. ITA No.5251, 5529, 5530 & 5252 13

आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy षत of the Order forwarded to : 1. अपीलाथᱮ / The Appellant 2. ᮧ᭜यथᱮ / The Respondent. 3. आयकर आयुᲦ(अपील) / The CIT(A)- 4. आयकर आयुᲦ / CIT 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 6. गाडᭅ फाईल / Guard file. आदेशानुसार/ ार BY ORDER, स᭜यािपत ᮧित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar)

आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai