Sec 115JB whether applicable to Insurance companies?

Oriental Insurance Co Ltd vs. DCIT (Delhi High Court) - 30 Aug 2017

ONE of Question of law discussed:  “Whether the Tribunal was correct in holding that the provisions of Section 115JB of the Income Tax Act are not applicable to insurance companies?”

Some useful notes/ discussion of the judgement for easy reference;

1- Principal Commissioner of Income Tax v. National Insurance Company Ltd. [2017] 393 ITR 52 (Cal) - it was held that Circular No. 528 of 1988 did not permit the AO to add back the profits arising from the sale of investments made by the Assessee in that case which was also carrying on a general insurance business

2- In CIT v. Ashok Mittal [2013] 357 ITR 245 (Del), the Court reiterated the well settled position that, where the CBDT circular has not been withdrawn and is beneficial to the Assessee, it would be binding on the AO and other Revenue authorities,

3- The ITAT itself has taken a consistent stand that the taxability of income in the case of insurance companies is not on commercial profits but on such profits as are computed in accordance with the provisions of the IA, subject to the permissible adjustments under the Act. In other words, the taxability of profits in the hands of the insurance companies is confined to profits in terms of annual accounts of such insurance companies drawn up in accordance with the IA

4- The disallowance of the investments written off is the subject matter of the Revenue’s ITA No. 448/2015. The ITAT has in the impugned order while setting aside the disallowance, followed its decision for AYs 2000-01 and 2001-02. The ITAT held that the guidelines issued by the GIC permitted insurance companies to book the loss in their accounts rather than waiting for the actual loss on the sale of investment. Since it represented a loss and not an expenditure or allowance, the AO was held to have erred in adding back the said loss in the computation of the Assessee’s income. Reliance was placed on the decision in General Insurance Corporation of India v. CIT [1999] 240 ITR 139 (SC).

5- It was further delibrated that "“When the petitioner is availing the non-taxation of its profits from sale of investments it is also not claiming the loss suffered on these investments. The AO has not only taxed the profits on sale of investment but has also disallowed the losses.” (emphasis supplied) Therefore, even the Assessee acknowledges that if it succeeds, as it has, in its plea that the profit from sale/redemption of investments must be exempt from tax, then it cannot seek deduction as a result of losses on the write off of such investments"

6- Learned court deliberated on the issue of whether 115JB is applicable to insurance company-  "It is plain, from a reading of Section 44 read with the First Schedule of the Act, that insurance companies are required to prepare accounts as per the IA and the regulations of the IRDA and not as per Parts II and III of Schedule VI of the Companies Act. The Assessee prepares its accounts as per the IRDA principles. The IRDA Regulations govern the preparation of the auditor’s report"

Consequently, the question framed in ITA No. 447/2015 is answered in the affirmative, i.e. in favour of the Assessee and against the Revenue by holding that Section 115JB of the Act does not apply to insurance companies

Insurance companies are not taxed on commercial profits but profits computed as per Insurance Act. Hence, income earned on sale/redemption of investments is not chargeable to tax..

For reading full text of the judgement please refer link - http://itatonline.org/archives/oriental-insurance-co-ltd-vs-dcit-delhi-high-court-s-115jb-as-insurance-companies-are-required-to-prepare-accounts-as-per-the-insurance-act-and-not-as-per-schedule-vi-to-the-companies-act-s-115jb/oriental-insurance-book-profits-115jb/