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Disallowance of expenditure under Section 14A: Applicability to Insurance business

Case: Max Life Insurance Company Ltd vs. Dcit, Circle- 1, Ltu

Outcome: Assessee


  • The Assessee had claimed an exemption of dividend income under section 10(34) and claimed a deduction of expenditure incurred in order to earn the same.
  • However, the Assessing Officer did not allow the claim of exemption under section 10(34) to the Assessee and also disallowed the claim of expenditure against the same under section 14A.

Key Points

  • This issue was duly covered by decision of Mumbai Bench of this Tribunal in case of ICICI Prudential Insurance Co. Ltd. in which while dealing with similar issue the decision of General Insurance Corp of India by Hon’ble Bombay High Court gave finding that Assessee was entitled to exemption under section 10(34) for the dividend income.
  • Further, while disposing of ground relating to applicability of Section 14A for disallowance of expenditure in respect of income not forming part of total income. Reliance was placed on the Tribunal Mumbai Bench in the case of ICICI Prudential Insurance Co. Ltd. case, wherein a view was taken that since Section 44 created a specific exception to the applicability of section 28 to section 43B, therefore purpose object & purview of Section 14A had no applicability to profits and gains of an insurance business. This decision of co-ordinate Bench was binding to the Tribunal in case of the Assessee.
  • In the present facts of the case, since the only activity in shareholders account was of investment, it could not be said that no expenditure was incurred for earning dividend.
  • In this regard, the question before the Tribunal was not whether any expenditure was incurred for earning of dividend but the question related to the applicability of Section 14A, which issue was already decided by co-ordinate Bench against Revenue in case of ICICI Prudential Insurance Co. Ltd., in which they have followed the decision of Delhi Bench in case of Oriental Insurance Co. Ltd. v Asst. Commissioner of Income Tax, wherein it was concluded that section 14A was not applicable on insurance business. Thus, the additional ground was allowed and the plea of learned DR was dismissed.
  • Accordingly, following the same the Assessing Officer was directed to allow exemption to the Assessee under section 10(34) of the Act without disallowing any expenditure under section 14A of the Act.

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