The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the disallowance on dividend income claimed by ICICI Prudential Life Insurance, ruling that Section 44, being a non-obstante clause, overrides the provisions of Section 14A of the Income Tax Act, 1961, in computing income for life insurance companies.
ICICI Prudential Life Insurance Company Limited, the assessee is engaged in the life insurance business and registered under the Companies Act, 1956, and regulated by the Insurance Act, 1938, and the Insurance Regulatory and Development Authority ( IRDA ) Act, 1999.
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The assessee-company claimed an exemption under Section 10(34) of the Income Tax Act for dividend income of Rs. 6,30,26,26,000, of which Rs. 25,34,90,100 was related to the company’s pension business. After adjustments, the net exemption claim amounted to Rs. 3,76,77,25,000.
The company computed its income for the assessment years 2014-15, 2015-16, 2016-17, 2017-18 & 2017-18 as per Section 44 of the Income Tax Act. The computation was based on the actuarial valuation prescribed under the Insurance Act, 1938.
The AO disallowed Rs. 1,16,44,64,060 under Section 14A of the Income Tax Act, which disallows expenses incurred concerning earning exempt income. This disallowance was applied because the company had earned exempt dividend income. Therefore, it should not be able to deduct related expenses from its taxable income.
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On appeal before CIT(A), the company argued that Section 44, a non-obstante clause specific to insurance businesses, overrides Section 14A of the Income Tax Act, 1961, and the income computation for life insurance companies is exclusively governed by Section 44, which does not require separate disallowance for expenses related to exempt income.
The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction in favor of the assessee. Aggrieved by the decision, the revenue challenged the CIT(A) order before the ITAT, Mumbai.
The revenue counsel argued that the assessee’s computation did not follow Section 44 of the Income Tax Act, which mandates the use of actuarial valuation for life insurance businesses. The counsel also argued that Section 14A applies to the assessee, and the disallowance for expenses related to exempt income should be considered.
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The two-member bench comprising Kuldip Singh ( Judicial Member ) and Gagan Goyal ( Accountant Member ) observed that Section 44 overrides the normal provisions of the Income Tax Act and requires computing profits strictly according to actuarial valuations under the Insurance Act of 1938.
The tribunal relied on previous rulings in the assessee’s own case in earlier years ( A.Y. 2005-06 to 2008-09 ) which held Section 44, being a non-obstante clause, overrides Section 14A explaining disallowances related to exempt income do not apply to life insurance companies. Therefore, the tribunal upheld the decisions made by the CIT(A) to delete the disallowance of the assessee’s dividend income.
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