Income arising from pension scheme is exempt u/s 10(23AAB) of Income Tax Act

While ruling in favour of Future Generali India Life Insurance Co. Ltd. (assessee), the Mumbai ITAT held that the assessee was entitled to claim a deduction for the surplus arising from its pension business under Section 10(23AAB) of the Income Tax Act.

Noting that the matter at hand had been addressed consistently in previous years and referring to the decision of Bombay High Court in case of CIT vs. Life Insurance Corporation of India Ltd., wherein it was stated that loss incurred from pension business was allowable under Section 44 read with First schedule to the Income Tax Act, the Coram of Amit Shukla (Judicial Member) and Amarjit Singh (Accountant Member) observed that “assessee had surplus from approved pension scheme during the relevant year and since same forms part of the Life Insurance business only, the said amount has been accounted while arriving at the actuarial surplus and that surplus need to be considered for computing profits from life insurance business”. 

Advocate Dinkle Hariya argued for the Assessee, whereas Advocate Zeenia Handa argued for the Revenue.

Briefly, the assessee had submitted its income tax return claiming a deduction for the surplus from pension business under Section 10(23AAB) of the Income Tax Act. The AO however disallowed such claim.

After considering the submission, the Coram observed that according to the provision of Section 10(23AAB), any income arising from a pension scheme is exempt under the Income Tax Act.

The Coram pointed out that the assessee had considered the actuarial valuation report, which did not distinguish between pension and non-pension business but considered the total business income or loss.

Therefore, since the surplus from the approved pension scheme was part of the life insurance business, it was rightly accounted for when determining the actuarial surplus and should be considered when computing profits from the life insurance business, added the Coram.

The ITAT also highlighted that the intention of the legislature was to bring incentive provided in insurance sector so that terms will be added to the contributors in the insurance industry.

Accordingly, the ITAT answered in favour of the Assessee.

Cause Title: DCIT vs. Future Generali India Life Insurance Co. Ltd. [ITA No.1695/Mum/2023 / 2023-Enterslice-10-ITAT-Mum]

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