Facts of the Case

The assessee, M/s Max Life Insurance Co. Ltd, is engaged in the business of providing life insurance services.

For AY 2016-17, the assessee filed its return of income declaring income of Rs. 371,68,91,170, which was enhanced to Rs. 1,271,18,60,170 through the assessment order dated 17.12.2018.

During the year, the assessee earned interest income of Rs. 4,10,35,585 from investments made in bonds and debentures issued by Public Sector Companies such as:

  • 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 respect of such interest income either in the return of income or during assessment proceedings.

Subsequently, before the ITAT, the assessee raised an additional ground seeking exemption u/s 10(15)(iv)(h) in respect of such interest income.

Apart from this, issues relating to CSR expenditure disallowance, deduction under Section 80G, and computation of income of life insurance business under Section 44 read with First Schedule were also involved.

 

Issues Involved

  1. Whether the assessee can raise an additional ground before ITAT claiming exemption u/s 10(15)(iv)(h) even though such claim was not made before the Assessing Officer or CIT(A).
  2. Whether interest income from investments in PSU bonds/debentures qualifies for exemption under Section 10(15)(iv)(h).
  3. Whether CSR expenditure disallowance was justified.
  4. Whether deduction under Section 80G should be allowed.
  5. Whether the computation of income of life insurance business should be governed by Section 44 read with First Schedule instead of normal provisions of the Income Tax Act.

 

Petitioner’s Arguments (Assessee)

  • Due to oversight, the claim for exemption under Section 10(15)(iv)(h) was not made before the Assessing Officer or CIT(A).
  • The Tribunal has wide powers under Section 254 of the Income Tax Act, allowing additional legal grounds to be raised if relevant facts are already on record.
  • The investments in PSU bonds/debentures were already disclosed in the audited financial statements, therefore the factual record was available.
  • Reliance was placed on the Supreme Court decision in National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC).
  • The assessee also relied on the Bombay High Court decision in Siva Equipment (P.) Ltd. v. ACIT (2020) 423 ITR 20 (Bom) stating that additional claims can be raised before appellate authorities.
  • Regarding deduction under Section 80G, the assessee argued that the issue had been earlier restored to the AO in its own case for AY 2006-07, therefore similar treatment should be followed. 

Respondent’s Arguments (Department)

  • The assessee had failed to claim exemption under Section 10(15)(iv)(h) in the return of income as well as during assessment proceedings.
  • Admission of additional grounds is not automatic and should be permitted only if it is purely a question of law and all facts are already on record.
  • The Department relied upon the Supreme Court decision in NTPC Ltd. v. CIT (229 ITR 383) to argue that additional grounds cannot be entertained as a matter of right. 

Court Findings / Tribunal Order

1. Admission of Additional Ground

The Tribunal held that the Supreme Court in NTPC Ltd. v. CIT has clarified that the Tribunal has wide powers under Section 254 and can entertain additional grounds if the necessary facts are already on record.

Since the details of investments in PSU bonds/debentures were available in audited financial statements, the Tribunal admitted the additional ground.

However, since the eligibility of exemption required verification, the Tribunal restored the matter to the Assessing Officer for examination of the claim under Section 10(15)(iv)(h).

Thus, the additional ground was allowed for statistical purposes. 

2. CSR Expenditure Disallowance

The assessee did not press the ground relating to disallowance of CSR expenditure, as the issue had already been decided against the assessee in its own case for AY 2010-11.

Accordingly, the ground was dismissed as not pressed.

 

3. Deduction under Section 80G

The Tribunal observed that the CIT(A) failed to adjudicate the issue of deduction u/s 80G, even though it was raised before him.

Following its earlier decision in the assessee’s own case for AY 2006-07, the Tribunal restored the issue to the Assessing Officer for verification and decision in accordance with law.

 

4. Revenue’s Appeal – Computation of Income of Insurance Business

The Tribunal held that Section 44 of the Income Tax Act overrides other provisions and profits of life insurance business must be computed in accordance with the First Schedule.

Following earlier ITAT decisions in the assessee’s own case for several years, the Tribunal dismissed the Revenue’s grounds relating to:

  • Shareholder account income
  • Profit on sale of investments
  • Bonus to policyholders
  • Funds for Future Appropriation (FFA)
  • Provision for bad debts

 

Important Clarification

  • Additional claims can be raised before appellate authorities, even if not claimed in the return of income, provided relevant facts are available on record.
  • The ITAT has wide powers under Section 254 to ensure correct determination of tax liability.
  • For life insurance companies, income computation is governed by Section 44 read with the First Schedule, which overrides general provisions of the Act.

 

Sections Involved

  • Section 10(15)(iv)(h) – Exemption of interest from certain bonds
  • Section 37 – Business expenditure
  • Section 44 – Computation of profits of insurance business
  • Section 80G – Deduction for donations
  • Section 254 – Powers of the Appellate Tribunal
  • First Schedule to the Income Tax Act – Rules for computation of insurance business income
  • Rule 11 & Rule 27 of ITAT Rules

 

Link to download the order - https://itat.gov.in/public/files/upload/1735715649-J9HgqX-1-TO.pdf

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