© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
The information contained herein is of a general nature and is not intended to address the circumstances of any particular...
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The Bombay High Court dealing with an Insurance Company’s case warned to impose cost on revenue authorities for raising repeated appeals on settled issues

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The Bombay High Court (High Court) in the case of Kotak Mahindra Old Mutual Life Insurance Limited reiterated that while calculating total income of an insurance company, the income falling under Chapter III (Income which do not form part of total income) is to be excluded. The High Court also warned the revenue authorities that heavy cost would have been imposed (and that the cost would be borne by the revenue officers) for raising repetitive issues which are already settled by the High Court.

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The Bombay High Court dealing with an Insurance Company’s case warned to impose cost on revenue authorities for raising repeated appeals on settled issues

  1. 1. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG FLASH NEWS KPMG IN INDIA The Bombay High Court dealing with an Insurance Company’s case warned to impose cost on revenue authorities for raising repeated appeals on settled issues 31 July 2014 Background The Bombay High Court (High Court) in the case of Kotak Mahindra Old Mutual Life Insurance Limited 1 (the taxpayer) reiterated that while calculating total income of an insurance company, the income falling under Chapter III (Income which do not form part of total income) is to be excluded. The High Court also warned the revenue authorities that heavy cost would have been imposed (and that the cost would be borne by the revenue officers) for raising repetitive issues which are already settled by the High Court. Facts of the case  The taxpayer is engaged in life Insurance business and has filed the return of Income as per the provisions of Section 44 read with First Schedule of Income-tax Act, 1961 (the Act). While filing return of income the taxpayer has claimed an exemption for dividend Income under Section 10(34) of the Act.  During the course of assessment, the taxpayer contended that though dividend income has been included in the valuation done by the Actuary, the said dividend income is exempt from tax and Section 44 does not bar the applicability of Section 10 to the insurance company. ___________________ 1 CIT v. Kotak Mahindra Old Mutual Life Insurance Ltd (ITA No. 422 of 2012)  The Assessing Officer (AO) and Commissioner of Income-tax (Appeals) [CIT(A)] rejected the claim of the taxpayer and held that in case of the life insurance company once the valuation surplus or deficit has been worked out by the actuary, no further adjustment is possible.  Upon appeal filed by the taxpayer, the Income- tax Appellate Tribunal (the Tribunal) deleted the disallowance made by the AO and held that inspite of Section 44 governing the computation of total income of Insurance business, the income falling under Chapter III needs to be excluded from total income. Further, the Tribunal also held that disallowance under Section 14A of the Act is not applicable.  Challenging the order of the Tribunal, the tax department had filed appeal before the High Court. High Court’s ruling  The High Court while passing the judgment relied on the jurisdictional High Court judgments 2 quoted by the taxpayer and held that the taxpayer is eligible to claim exemption under Section 10(34) of the Act. ______________ 2 CIT v. New India Assurance Company Ltd [1969] 71 ITR 761 (Bom), Life Insurance Corporation v. CIT [1978] 115 ITR 45 (Bom) and General Insurance Corporation of India v. DCIT [2012] 342 ITR 27 (Bom)
  2. 2. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.  The High Court admitted the appeal relating to the applicability of Section 14A of the Act to the taxpayer as the same was ‘substantial question in law’ and stated that the same shall be heard along with other appeals 3 .  The High Court also expressed its displeasure with regards to the fact that the revenue continues to raise the same question from 1969 till 2014 (regarding entitlement of insurance companies to claim exemption under Section 10) despite the fact that the Courts have ruled the matter in favour of the taxpayer.  Further, the High Court also proposed to impose heavy costs on the revenue which would had to be borne individually by the officers who decided to file the appeal on such repeated issues. However, in this case, it refrained itself from doing so simply because one of the ground of appeal (relating to applicability of Section 14A of the Act to insurance companies) was admitted as ‘substantial question in law’. Our comments This is a welcome and a very important ruling of the Bombay High Court impacting the entire insurance industry in India and the various income-tax litigations surrounding it at the various appellate levels. Further, a warning to the tax authorities (for imposition of heavy cost to be borne by officers individually) would also discourage the revenue officers from raising the same issues over and over again, which are already settled by judicial precedents. Interestingly, on the same day, the Bombay High Court in the case of Larsen and Toubro Ltd 4 , while dismissing the combined appeal of revenue authorities imposed a total cost of INR300,000. It also expressed its astonishment towards such repetitive appeals (which are already settled by judicial precedents) as they are wasting precious judicial time. Further, it also stated that merely by dismissing such appeals expressing displeasure orally is not serving any purpose and hence a costs is imposed. ___________________ 3 Income Tax Appeal No. 1138 and connected appeals. 4 CIT v. Larsen and Toubro Ltd (ITA No. 424, 425 and 483 of 2012).
  3. 3. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“ are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. www.kpmg.com/in Ahmedabad Commerce House V, 9th Floor, 902 & 903, Near Vodafone House, Corporate Road, Prahlad Nagar, Ahmedabad – 380 051 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Bengaluru Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Kochi Syama Business Center 3rd Floor, NH By Pass Road, Vytilla, Kochi – 682019 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Kolkata Unit No. 603 – 604, 6th Floor, Tower – 1, Godrej Waterside, Sector – V, Salt Lake, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010

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