LTCG From Sale of Shares Eligible for S. 10(38) Exemption for Insurers: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the long term capital gains (LTCG) from the sale of shares is eligible for exemption under Section 10 (38) of the Income Tax Act, 1961 for insurers. The bench of Anikesh Banerjee (Judicial Member) and Jagadish (Accountant Member) has observed that relied on CBDT Circular No. 6/2016, which clarifies that when an assessee treats gains from transfer of shares held for more than twelve months as capital gains, the tax authorities should not dispute such treatment. The issue raised was whether long-term capital gains arising from the sale of listed equity shares by a general insurance company are eligible for exemption under Section 10(38) of the Income Tax Act. The appeals arose from orders passed by the Commissioner of Income Tax (Appeals) under Section 250 of the Act, which had partly allowed the assessee’s claims against additions made by the Assessing Officer during scrutiny assessments under Sections 143(3) and 144B. As the issues involved similar facts and the same assessee, the Tribunal heard the appeals together and delivered a consolidated ruling. Tata AIG General Insurance Company Ltd., engaged in the business of general insurance pursuant to a licence from the Insurance Regulatory and Development Authority of India (IRDAI), was subjected to scrutiny assessment. The Assessing Officer made several additions including denial of exemption on long-term capital gains, reclassification of gains from sale of investments as business income, and disallowances relating to reserves and expenses. The insurer challenged these additions before the Commissioner of Income Tax (Appeals), who granted partial relief. Dissatisfied with the outcome, both the assessee and the Revenue filed appeals before the ITAT. A central issue before the Tribunal was the assessee’s claim for exemption under Section 10(38) in respect of long-term capital gains of ₹29.20 crore arising from the sale of equity shares. The tax department had denied the exemption and treated the gains as taxable income. The Tribunal observed that the issue had already been examined in earlier decisions, including rulings in the case of General Insurance Corporation and the assessee’s own case for previous years. Following these precedents, the Tribunal held that the insurer’s claim for exemption under Section 10(38) was valid and allowed the ground raised by the assessee. The Tribunal also considered whether profits arising from the sale of investments should be treated as business income or capital gains. The Assessing Officer had treated such profits as business income, but the insurer argued that they should be taxed under the head “capital gains.” The Bench noted that identical issues had already been decided in favour of the assessee in earlier years. Respecting the principle of judicial consistency, the Tribunal held that profits from sale of investments should be assessed under the head capital gains, not as business income. Another issue concerned the deduction claimed on reversal of reserve for unexpired risk (UEPR). The Tribunal noted that insurance policies today may span multiple years, resulting in reserve reversals beyond the immediately succeeding year. Interpreting Rule 6E of the Income-tax Rules purposely, the Bench observed that the rule aims to avoid double taxation of such reversals. The Tribunal therefore directed the Assessing Officer to verify the claim and allow the deduction if it satisfied the conditions prescribed under the rule. The Tribunal also dealt with issues relating to rent equalisation adjustment, provisions for claims such as IBNR and IBNER, reinsurance premiums paid to foreign reinsurers, depreciation, dividend exemption, and deduction of expenses where tax was deducted in subsequent years. In most cases, the Tribunal followed earlier coordinate bench rulings in the assessee’s own case. The ITAT allowed the assessee’s appeal on several key issues and dismissed most of the Revenue’s grounds, reaffirming that beneficial CBDT circulars and established precedents must be followed by tax authorities. Case Details Case Title: Tata AIG General Insurance Company Ltd. Versus DCIT Citation: JURISHOUR-234-ITA-2026(MUM) Case No.: ITA No.1432/Mum/2024 Date: 05/03/2026 Counsel For Appellant: Ritesh Misra (CIT DR) Counsel For Respondent: Madhur Agrawal Click Here To Read Order Read More: Clerical Error in Invoice Number Can’t Deny CENVAT Credit Benefit: CESTAT

LTCG From Sale of Shares Eligible for S. 10(38) Exemption for Insurers: ITAT

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