Facts of the Case

The assessee, Max Life Insurance Co. Ltd, engaged in the business of life insurance, filed its return of income for AY 2015-16 and AY 2016-17 declaring taxable income which was subsequently enhanced by the Assessing Officer during assessment proceedings.

During the relevant assessment years, the assessee had earned interest income from investments in redeemable non-convertible bonds/debentures issued by public sector companies, including:

  • Rural Electrification Corporation Ltd
  • India Infrastructure Finance Company Ltd
  • Indian Railway Finance Corporation Ltd
  • Housing and Urban Development Corporation Ltd

However, the assessee did not claim exemption under Section 10(15)(iv)(h) in the return of income or during the assessment proceedings.

During the appellate stage before the Tribunal, the assessee raised an additional ground claiming exemption under Section 10(15)(iv)(h) on the interest income earned from such PSU bonds.

The assessee also raised issues regarding:

  • Disallowance of CSR expenditure
  • Non-grant of deduction under Section 80G
  • Various additions made by the Assessing Officer while computing profits of life insurance business.

Issues Involved

  1. Whether the assessee can raise an additional claim for exemption under Section 10(15)(iv)(h) before the ITAT even if such claim was not made in the return of income or before lower authorities.
  2. Whether CSR expenditure disallowed by the Assessing Officer was allowable.
  3. Whether the assessee was entitled to deduction under Section 80G.
  4. Whether income of life insurance companies should be computed strictly under Section 44 read with the First Schedule, without applying other provisions such as Sections 28 to 43B.
  5. Whether additions relating to:
  • Shareholder account income
  • Profit on sale of investments
  • Bonus allocated to policyholders
  • Funds for Future Appropriation (FFA)
  • Provision for bad debts 

Petitioner’s Arguments (Assessee)

The assessee contended that:

  • The additional claim for exemption under Section 10(15)(iv)(h) was not made earlier due to oversight.
  • The Tribunal has wide powers under Section 254 to admit additional grounds if the relevant facts are already available on record.
  • Investments in PSU bonds and related interest income were already disclosed in audited financial statements.

The assessee relied on the following judicial precedents:

  • National Thermal Power Co. Ltd. vs CIT (229 ITR 383, SC)
  • Siva Equipment (P.) Ltd. vs ACIT (423 ITR 20, Bombay HC)

The assessee further submitted that:

  • Its income must be computed under Section 44 read with the First Schedule, which governs taxation of life insurance companies.
  • Various issues raised by the Revenue had already been decided in earlier assessment years in the assessee’s own case. 

Respondent’s Arguments (Revenue)

  • The assessee failed to claim exemption under Section 10(15)(iv)(h) in the return of income or before the Assessing Officer and CIT(A).
  • Additional claims should not be entertained unless they arise directly from the assessment order.
  • The CIT(A) erred in deleting additions relating to:
    • Income from shareholder accounts
    • Profit on sale of investments
    • Bonus to policyholders
    • Funds for Future Appropriation
    • Provision for bad debts

Court Findings

The Tribunal made the following observations:

1. Admission of Additional Ground

The Tribunal held that:

  • Under Section 254, the powers of the ITAT are very wide.
  • As held by the Supreme Court in National Thermal Power Co. Ltd. vs CIT, additional legal claims can be raised before the Tribunal if the relevant facts are already on record.

Since the details of investments in PSU bonds were available in the audited accounts, the Tribunal admitted the additional ground.

However, the matter relating to exemption under Section 10(15)(iv)(h) was remanded to the Assessing Officer for verification of eligibility.

2. CSR Expenditure

The assessee did not press this ground as the issue had already been decided against the assessee in earlier years by the Tribunal.

Accordingly, the ground was dismissed as not pressed. 

3. Deduction under Section 80G

  • The CIT(A) failed to adjudicate the issue though the assessee had raised it.
  • In earlier years, the Tribunal had set aside the matter for verification.

4. Taxation of Life Insurance Companies

  • Section 44 of the Income Tax Act contains a non-obstante clause.
  • Profits of life insurance business must be computed only as per Rule 2 of the First Schedule, based on actuarial valuation surplus.

 5. Revenue’s Grounds

The Tribunal dismissed the Revenue’s appeals by following earlier decisions in the assessee’s own case on issues relating to:

  • Income from shareholder account
  • Profit on sale of investments
  • Bonus allocated to policyholders
  • Funds for Future Appropriation (FFA)
  • Provision for bad debts 

Court Order

  • Additional claim under Section 10(15)(iv)(h) is admissible and the issue is remanded to the Assessing Officer for verification.
  • CSR expenditure disallowance ground dismissed as not pressed.
  • Deduction under Section 80G remanded to the Assessing Officer.
  • Revenue’s appeals were dismissed following earlier ITAT decisions.
  • Income of life insurance companies must be computed under Section 44 read with the First Schedule. 

Important Clarification

  • Additional claims can be raised before the Tribunal even if not claimed in the return of income, provided relevant facts are already available on record.
  • Section 44 overrides other computation provisions for taxation of life insurance business. 

Sections Involved

  • Section 44 – Special provisions for insurance business
  • Rule 2 of First Schedule – Computation of profits of life insurance business
  • Section 10(15)(iv)(h) – Exemption for interest on certain securities
  • Section 80G – Deduction for donations
  • Section 254 – Powers of ITAT 

Link to download the order - https://itat.gov.in/public/files/upload/1735715346-7UPRFD-1-TO.pdf

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