[CIT v. Life Insurance Corporation of India Ltd., 201 Taxman 115 (Bom.); 12 Taxman.com 388 (Bom.)]
The assessee was engaged in the life insurance business. In its return of income for the A.Y. 2002-03, it computed actuarial valuation surplus by excluding the provision for reserve on account of solvency margin amounting to Rs.3,500 crores and loss in Jeevan Suraksha Fund. The Assessing Officer disallowed the claim of the assessee and passed the assessment order by adding the amount on account of the provision for solvency margin and loss from Jeevan Suraksha Fund, inter alia, on the ground that the provision for solvency margin was not an ascertained liability; and that income from Jeevan Suraksha Fund being exempt u/s.10(23AAB), the loss incurred from the said fund could not be adjusted against the taxable income. The Tribunal deleted the additions.
On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:
“(i) A plain reading of Rule 2 of the First Schedule to the Act, makes it clear that the annual average of the surplus from the insurance business has to be arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938.
(ii) In the instant case, the Chairman of IRDA had directed that the solvency calculations of the assessee did not conform to the requirements of the Regulations that have been stipulated by the Regulatory Authority. It was further directed that the deficiency in the solvency margin was to the extent of Rs.10,000 crores and the assessee was directed to set right the said deficiency over a period of three years by making a provision which would be kept apart in the policy-holders’ fund and no part of the said provision would be available for distribution either to the policy-holders or to the Government of India. Accordingly, the assessee had set apart Rs.3,500 crores towards solvency margin in the assessment year in question.
(iii) The Tribunal, after considering various decisions of the Apex Court as also, the High Court and section 64(VA) of the Insurance Act, 1938, held that the amounts set apart towards the solvency margin as per the directions given by the IRDA was ascertained liability which was required to be set apart as per the Regulations framed by IRDA and, hence, liable to be excluded while computing the actuarial valuation surplus.
(iv) In those circumstances, the decision of the Tribunal in holding that the funds set apart as solvency margin had to be excluded while determining the distributable profits of the assessee could not be faulted.
(v) So far as loss incurred by the assessee from Jeevan Suraksha Fund was concerned, the Jeevan Suraksha Fund is a pension fund approved by the Controller of Insurance appointed by the Central Government to perform the duties of the Controller of Insurance under the Insurance Act. The loss incurred in the Jeevan Suraksha Fund has been considered by the actuary as a business loss, as per the valuation report as on the last day of the financial year, allowable u/s.44 read with the First Schedule to the Act. The fact that the income from such fund has been exempted u/s.10(23AAB) w.e.f. 1-4-1997, does not mean that the pension fund ceases to be insurance business, so as to fall outside the purview of the insurance business covered u/s.44.
(vi) In other words, the pension fund like Jeevan Suraksha Fund would continue to be governed by the provisions of section 44, irrespective of the fact that the income from such fund is exempted, or not. Therefore, while determining the surplus from the insurance business, the actuary was justified in taking into consideration the loss incurred under Jeevan Suraksha Fund.
(vii) The object of inserting section 10(23AAB) as per the Board Circular No. 762, dated 18-2-1998 was to enable the assessee to offer attractive terms to the contributors. Thus, the object of inserting section 10(23AAB) was not with a view to treat the pension fund like Jeevan Suraksha Fund outside the purview of insurance business, but to promote insurance business by exempting the income from such fund.
(viii) Therefore, in the facts of the instant case, the decision of the Tribunal in holding that even after insertion of section 10(23AAB), the loss incurred from the pension fund like Jeevan Suraksha Fund had to be excluded while determining the actuarial valuation surplus from the insurance business u/s.44 could not be faulted.”
