Income Tax Appellate Tribunal - Chennai
Dcit Corporate Circle 3(2) , Chennai vs United India Insurance Co. Ltd. , ... on 28 August, 2018
आयकर अपील य अ धकरण, 'ए' यायपीठ, चे नई IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, CHENNAI ी एन.आर.एस. गणेशन, या यक सद य एवं ी अ ाहम पी.जॉज%, लेखा सद य केसम( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.2107/Chny/2008 नधा%रण वष% / Assessment Year : 2004-05 आयकर अपील सं./ITA Nos.1753, 1605, 1606, 1607, 1608, 1609 & 1610/Chny/2011 नधा%रण वष% / Assessment Years : 2003-04 to 2008-09 आयकर अपील सं./ITA Nos.28, 29, 30 & 764/Chny/2014 नधा%रण वष% / Assessment Years : 2006-07, 2007-08, 2009-10 & 2010-11 M/s United India Insurance Co. Ltd., The Joint Commissioner of Income 24, Whites Road, v. Tax, Company Range, Chennai - 34. Chennai - 600 014. The Deputy Commissioner of Income Tax / The Assistant Commissioner of PAN : AAACU 5552 C Income Tax, Large Taxpayer Unit, Chennai - 600 101.
(अपीलाथ-/Appellant) (./यथ-/Respondent) आयकर अपील सं./ITA Nos.1149 & 364/Chny/2016 नधा%रण वष% / Assessment Years : 2011-12 & 2012-13 & आयकर अपील सं./ITA No.1085/Chny/2017 नधा%रण वष% / Assessment Year : 2013-14 M/s United India Insurance Co. Ltd., The Assistant Commissioner of 24, Whites Road, v. Income Tax, Chennai - 600 014. Corporate Circle - 3(2) Chennai - 600 034.
(अपीलाथ-/Appellant) (./यथ-/Respondent)
आयकर अपील सं./ITA No.892/Chny/2007
नधा%रण वष% / Assessment Year : 2003-04
The Assistant Commissioner of M/s United India Insurance Co. Ltd.,
Income Tax, v. 24, Whites Road,
Company Circle III(3), Chennai - 600 014.
Chennai - 600 034.
(अपीलाथ-/Appellant) (./यथ-/Respondent)
2
I.T.A.No.1753, 1605 to 1610/Chny/11
I.T.A.Nos.28 to 30 & 764/Chny/14
I.T.A.Nos.905,906,1673,1989,
1688 to 1693,1798 to 1801/Chny/11
C.O.No.150/Chny/11
& others
आयकर अपील सं./ITA No.217/Chny/2009
नधा%रण वष% / Assessment Year : 2004-05
The Assistant Commissioner of M/s United India Insurance Co. Ltd.,
Income Tax, v. 24, Whites Road,
Large Taxpayer Unit, Chennai - 600 014.
Chennai - 600 101.
(अपीलाथ-/Appellant) (./यथ-/Respondent)
आयकर अपील सं./ITA Nos.905, 906, 1673, 1989, 1688, 1689, 1690, 1691, 1692, 1693, 1798, 1799, 1800 & 1801/Chny/2011 & C.O. No.150/Chny/2011 (in ITA No.905/Chny/2007) नधा%रण वष% / Assessment Years : 2003-04 to 2010-11 आयकर अपील सं./ITA Nos.34, 36 & 696/Chny/2014 नधा%रण वष% / Assessment Years : 2007-08, 2009-10 & 2010-11 The Dy.Commissioner of Income Tax / M/s United India Insurance Co. Ltd., Asst.Commissioner of Income Tax / v. 24, Whites Road, ITO (TDS), Large Taxpayer Unit, Chennai - 600 014. Chennai - 600 101.
(अपीलाथ-/Appellant) (Respondent & Cross-Objector) आयकर अपील सं./ITA Nos.1511, 626/Chny/2016 नधा%रण वष% / Assessment Years : 2011-12 2012-13 आयकर अपील सं./ITA No.1571/Chny/2017 नधा%रण वष% / Assessment Year : 2013-14 The Asst.Commissioner of Income Tax, M/s United India Insurance Co. Ltd., The Deputy Commissioner of Income v. 24, Whites Road, Tax, Corporate Circle - 3(2), Chennai - 600 014. Chennai - 600 034.
(अपीलाथ-/Appellant) (./यथ-/Respondent) राज व क0 ओर से /Revenue by : Shri M. Swaminathan, Sr.Standing Counsel Ms. V. Pushpa, Jr. Standing Counsel नधा%2रती क0 ओर से /Assessee by : Shri P.H. Arvindh Pandian, Sr. Advocate for Shri Amrith Bhargav, Advocate Shri S. Sundararaman, CA 3 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others सन ु वाई क0 तार ख/Date of Hearing : 29.05.2018 घोषणा क0 तार ख/Date of Pronouncement : 28.08.2018 आदे श /O R D E R PER BENCH:
These appeals filed by both the assessee and Revenue are directed against the respective orders of the Commissioner of Income Tax (Appeals), Large Taxpayer Unit / Commissioner of Income Tax (Appeals) - 11, Chennai and pertain to assessment years 2003-04 to 2013-14. The assessee has also filed a cross-
objection for assessment year 2004-05. Since common issues arise for consideration in all these appeals, we heard these appeals and the cross-objection together and disposing of the same by this common order.
2. There was a delay of 8 days in filing the appeal in I.T.A. No.1571/Chny/2017 by the Revenue. The Revenue has filed a petition for condonation of delay. We have heard the Ld. D.R. and the Ld. Sr. counsel for the assessee. We find that there was 4 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others sufficient cause for not filing the appeal before the stipulated time. Therefore, we condone the delay and admit the appeal.
3. The first common issue arises for consideration in both the assessee and Revenue's appeals is disallowance of re-insurance premium paid by the assessee to the non-resident re-insurance companies.
4. Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, submitted that there are five categories of re-insurance premiums paid by the assessee to the non-resident.
(1) Directly to non-resident re-insurance companies who are residents of countries with whom India has Double Taxation Avoidance Agreement.
(2) Directly to non-resident re-insurance companies through non-resident brokers who are residents of countries with whom India has Double Taxation Avoidance Agreement.
(3) Directly to non-resident re-insurance companies through resident brokers where there is Double Taxation Avoidance Agreement between India and the residence of re-insurance companies.
(4) Directly to non-resident re-insurance companies where there is no Double Taxation Avoidance Agreement.
(5) Directly to non-resident companies through brokers where there is no Double Taxation Avoidance Agreement.5
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others According to the Ld. Sr. counsel, the assessee is engaged in the business of general insurance in India and recognized as such by Insurance Regulatory And Development Authority of India. The Ld. Sr. counsel explained that when an aircraft or satellite was insured, the assessee has to assume large amount of risk which the assessee may not be able to handle by itself. Therefore, in order to distribute the risk, the assessee enters into re-insurance contract with non-resident re-insurance company. According to the Ld. Sr. counsel, re-insurance contract or re-insurance treaty is independent of insurance between the assessee-company and re-insurer. Re- insurance, according to the Ld. Sr. counsel, is an insurance for insurer. The Ld. Sr. counsel further submitted that the re-insurer and the assessee-company being an insurance company, deal with the each other on principal-to-principal basis. Re-insurance, in fact, does not affect the relationship between the insured person and the assessee-company. The insured person is not a party to the re- insurance treaty or contract. In the event of loss, according to the Ld. Sr. counsel, the assessee being an insurance company, has to compensate the insured person independently. Subsequently, a 6 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others claim would be made by the assessee in respect of the re-insurance contract / treaty before the re-insurer. The re-insurer, as per the re- insurance treaty, would compensate the assessee being the insurance company.
5. Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, further submitted that in order to distribute the risk, normally, re-insurance would be made with number of re-insurance companies. Referring to Section 101A of the Insurance Act, 1938, the Ld. Sr. counsel submitted that the assessee being an insurance company, mandatorily reinsure with Indian re-insurer such percentage of sum assured with each policy as specified by the Insurance Regulatory And Development Authority of India. The Insurance Regulatory And Development Authority of India specifies various percentages ranging from 10% to 20% for various accounting years. This is a mandatory requirement, therefore, re- insurance with Indian re-insurer is known as statutory ceding or obligatory ceding. The Ld. Sr. counsel further submitted that the only Indian re-insurance company is General Insurance Corporation of India. Therefore, naturally, the assessee has to reinsure the risk 7 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others assumed on each policy with General Insurance Corporation of India as specified by the Insurance Regulatory And Development Authority of India. The Ld. Sr. counsel further submitted that in fact, the assessee complied with the mandatory requirement of re- insurance as specified by Insurance Regulatory And Development Authority of India and there is no dispute about this. In other words, there is no dispute with regard to statutory ceding or obligatory ceding of reinsurance as required under Section 101A(1) of the Insurance Act, 1938.
6. Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, further submitted that Section 101A(7) of the Insurance Act, 1938 further clarifies that the assessee over and above the percentage of re-insurance sum fixed by the Insurance Regulatory And Development Authority of India may also at its option, reinsure the risk with any Indian re-insurer or other re-insurer the entire sum assured on the policy or portion thereof in excess of percentage specified by Insurance Regulatory And Development Authority of India. Therefore, according to the Ld. Sr. counsel, in order to reinsure the risk over and above specified by the Insurance 8 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others Regulatory And Development Authority of India, the assessee opted to reinsure with non-resident re-insurance companies. The Ld. Sr. counsel further clarified that while the assessee retains the maximum risk in India as per the Insurance Regulatory And Development Authority of India regulation, they also ceded re- insurance risk to non-resident re-insurance company in order to protect its risk. On a query from the Bench, when sub-section (7) of 101A of the Insurance Act, 1938 clarifies that the insurance companies may have re-insurance with Indian re-insurer or other insurer the entire sum assured on some policy or any portion thereof in excess of the percentage specified by the Insurance Regulatory And Development Authority of India, how can they have re-insurance contrary to the provisions of Section 2(9) of the Insurance Act, 1938? The Ld. Sr. counsel clarified that Section 2(9) of the Insurance Act, 1938 is not applicable to the assessee- insurance company. Referring to Section 114A(zd) of the Insurance Act, 1938, the Ld. Sr. counsel submitted that the Insurance Regulatory And Development Authority of India framed regulations for having re-insurance treaty with non-resident re-insurance 9 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others company. Since the Insurance Regulatory And Development Authority of India framed a regulation in exercise of its statutory power conferred under Section 114A(zd) of the Insurance Act, 1938, according to the Ld. Sr. counsel, the provisions of Section 2(9) of the Insurance Act, 1938 is not applicable to the assessee.
7. Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, further submitted that Section 2C of Insurance Act, 1938 in categorical terms says that only an Indian re-insurance company holding a valid license for dealing in insurance business can operate in India. In other words, the foreign re-insurance company cannot do any business in India. The Ld. Sr. counsel further submitted that the foreign insurance company have no place of business in India or business connection in India. Moreover, no license was granted by the Insurance Regulatory And Development Authority of India to any of the non-resident re-insurance company to operate in India. This was clarified by the Insurance Regulatory And Development Authority of India in its letter dated 07/05/2008 addressed to Central Board of Direct Taxes. The Ld. Sr. counsel further submitted that foreign re-insurance company deals only with Indian insurer either 10 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others directly or through independent brokers situated either in India or outside India. The brokers who operate in India need to get registered themselves with the Insurance Regulatory And Development Authority of India. According to the Ld. Sr. counsel, the brokers represented multiple insurance companies and re- insurance companies. Therefore, they are independent agents / brokers and they are not attached to any particular insurance company or re-insurance company. According to the Ld. Sr. counsel, the independent brokers act only as a facilitator between the assessee-insurance company and non-resident re-insurance company. The brokers have no role in negotiating the re-insurance contract on behalf of either the Indian insurer or non-resident re- insurer. According to the Ld. Sr. counsel, the brokers function in their ordinary course of business representing no re-insurance or insurance companies. Non-resident brokers can also represent multiple non-resident re-insurance companies. The brokers are not dependent of any insurance companies, therefore, the brokers cannot be construed as dependent agent having a permanent establishment in India. According to the Ld. Sr. counsel, even 11 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others though in some of the re-insurance contract or re-insurance slip, the brokers sign in addition to re-insurance company, the brokers have no role either in negotiating the terms of contract of re-insurance or for settlement of claim. The brokers do not take any decision to accept re-insurance business.
8. Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, further submitted that the re-insurance programme of the assessee-insurance company is approved by the Board of Directors of the assessee and it was submitted before the Insurance Regulatory And Development Authority of India every year. The assessee-company is expected to identify the re-insurance company to whom re-insurance contract could be entered into over and above the obligatory cession to the General Insurance Corporation of India. On a query from the Bench how the assessee-company identifies the re-insurance company, either by calling for tender or by inviting non-resident company for negotiation? The Ld. Sr. counsel submitted that the assessee contacts the non-resident re-insurance company directly by sending e-mail. In some cases, the non-resident re-insurance company was 12 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others also contacted by mails through brokers. The re-insurance contract was settled or finalized by way of exchange of communications via e-mail.
9. Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, further submitted that normally the assessee-company deals with re-insurance company outside the country directly. However, in order to distribute the risk to various non-resident companies, the assessee has to naturally contact the brokers who have entire information of the international brokers and re-insurance companies. The knowledge of brokers and the information furnished by them helped the assessee-company in selecting the non-resident re-insurance companies for entering into re-insurance contract.
10. Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, further submitted that negotiation was normally as per the agreed terms with General Insurance Corporation of India. According to the Ld. Sr. counsel, General Insurance Corporation of India is the lead-reinsurer, therefore, whatever terms and conditions 13 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others accepted by General Insurance Corporation of India for the statutory / obligatory ceding would also be accepted by non-resident re- insurance company. According to the Ld. Sr. counsel, normally, there was no negotiation in the terms and conditions. The re- insurance premium would be paid in proportionate to the risk taken over by the non-resident company. The Ld. Sr. counsel further clarified that if the non-resident re-insurance company takes over the risk of 10% of risk assumed by the assessee-company, the 10% of premium collected by the assessee-company would be paid to the non-resident re-insurance company. According to the Ld. Sr. counsel, the negotiation with non-resident re-insurance company would only be with respect to percentage of risk that would be taken over by them. The percentage of risk would normally offered by the assessee-company, and then there would be counter offers from the re-insurance company. According to the Ld. Sr. counsel, if there is a broker, he acts only as a communication channel in the transaction and the broker would not play any role for negotiation or finalization of percentage of the re-insurance. Once the percentage of re-insurance is accepted by the assessee and non-resident re- 14
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others insurance company, the proportionate share as per the agreed percentage would be paid to non-resident re-insurance company as per the terms and conditions agreed by the lead-reinsurer, namely, General Insurance Corporation of India. The Ld. Sr. counsel for the assessee further submitted that in case of no claim, the non- resident insurance company would refund 85% of the insurance premium and retain only 15% of the reinsurance premium. The Ld. Sr. counsel also clarified that 40% of insurance premium would be retained by the assessee as its commission.
11. Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, further submitted that the slip or re-insurance slip is signed by the re-insurer wherever the re-insurance was direct or through a broker. Sometimes, even though the broker signed the re-insurance slip specifying the share of re-insurer in respect of particular line of business, re-insurers also sign the re-insurance slip agreeing their respective share of risk. According to the Ld. Sr. counsel, the broker cannot bind the re-insurer by signing the re- insurance slip in case the treaty terms have not been accepted by the re-insurer by signing the treaty or re-insurance slip. 15
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others
12. The Ld. Sr. counsel for the assessee further submitted that the quarterly claim statement of accounts was normally sent to the non-resident re-insurer or the broker as the case may be, specifying the re-insurance premium, re-insurance claim, commission and net payable or receivable from the re-insurer. According to the Ld. Sr. counsel, in case the assessee has to pay money to the re-insurer or broker, the same would be paid. In case the re-insurer has to pay money, the same would be paid by the re-insurer either directly or through the broker. In case of claim made by the insured person for loss or damages, according to the Ld. Sr. counsel, it was an obligation of the assessee-company to settle the claim to the insured person irrespective of the fact whether the re-insurer accepts the claim or not. The assessee would normally appoint independent surveyor to assess damages caused to the machinery which was subject matter of insurance and accepts the obligation on the basis of survey report. The assessee subsequently communicates to the re-insurer the amount of loss and claim the re- insurer to pay their proportionate obligation as per the re-insurance policy. According to the Ld. Sr. counsel, it is open to the re-insurer 16 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others to appoint independent surveyor to assess the extent of damage. However, no such incident of appointing independent surveyor by the re-insurer has happened sofar.
13. The Ld. Sr. counsel further submitted that the re-insurance is nothing but an insurance taken by the insurance companies to protect itself against the loss and to safeguard its interest. According to the Ld. Sr. counsel, the assessee being an insurer transfers their part of risk to another re-insurer or insurer in order to reduce its own liability in the event of any claim of damages. On a query from the Bench, the Ld. Sr. counsel submitted that normally the re-insurer accepts the claim made by the assessee-company wherever there was a loss to the property which is subject matter of insurance. However, to meet the extraordinary event, in case of disputes, according to the Ld. Sr. counsel, the treaty slip provides for appointing of arbitrator. The place of sitting of arbitrator is in India. The Ld. Sr. counsel further submitted that since the non- resident re-insurance company operates outside the country, the profit is not chargeable to tax in India. Referring to the order of the CIT(Appeals), the Ld. Sr. counsel submitted that the CIT(Appeals) 17 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others placed reliance on the judgment of Bombay High Court in the case of Vodafone International Holdings B.V. v. Union of India (2010) 329 ITR 126. Since the judgment of Bombay High Court was reversed by the Supreme Court (reported in (2012) 341 ITR 1), the entire basis of finding of the CIT(Appeals) would no longer exist. Therefore, according to the Ld. Sr. counsel, the CIT(Appeals)'s order cannot stand in the eye of law after the reversal of Bombay High Court judgment in the case of Vodafone by the Supreme Court. Since the non-resident re-insurance company operates outside the country, their income is not taxable in India, therefore, the assessee is not liable to deduct tax. Hence, according to the Ld. Sr. counsel, the disallowance made by the Assessing Officer under Section 40(a)(i) of the Income-tax Act, 1961 (in short 'the Act') is not justified.
14. On the contrary, Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue, submitted that Section 101A of the Insurance Act, 1938 clearly says that every insurer shall re-insure with Indian re-insurer such percentage of sum assured on each policy as may be specified by the authority. In this case, according 18 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others to the Ld. Sr. Standing Counsel, the authority referred in Section 101A is Insurance Regulatory And Development Authority of India. In fact, Insurance Regulatory And Development Authority of India by way of notification specified the percentage of sum assured on each policy to be re-insured with Indian re-insurer. In fact, according to the Ld. Sr. Standing Counsel, there is no dispute with regard to re- insurance premium paid by the assessee to the Indian re-insurer. The Ld. Sr. Standing Counsel further submitted that the Indian re- insurer is General Insurance Corporation of India. Therefore, the assessee being an insurer has obligation to re-insure the percentage of sum assured as specified by the Insurance Regulatory And Development Authority of India with General Insurance Corporation of India.
15. Referring to sub-section (7) of Section 101A of the Insurance Act, 1938, the Ld. Sr. Standing Counsel for the Revenue submitted that the Parliament in its wisdom clarified that the assessee or other insurer, may also re-insure with any Indian re-insurer or other insurer any sum assured on any policy or any portion thereof in excess of percentage specified by the Insurance Regulatory And 19 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others Development Authority of India under sub-section (2) of Section 101A of the Insurance Act, 1938. According to the Ld. Sr. Standing Counsel, the "Indian re-insurer" is defined in sub-section (8)(ii) of Section 101A. As per this definition, "Indian re-insurer" means an insurance company which has been granted registration certificate under sub-section (2a) of Section 3 by Insurance Regulatory And Development Authority of India to carry on exclusively the re- insurance business in India. As on date, the authority granted registration exclusively for carrying on re-insurance business only to the General Insurance Corporation of India. Therefore, according to the Ld. Sr. Standing Counsel, the General Insurance Corporation of India is the only Indian re-insurance company. Sub-section (7) of Section 101A of Insurance Act, 1938 also enables the assessee to have re-insurance with other insurer. Therefore, according to the Ld. Sr. Standing Counsel, the real question arises for consideration is who are the other insurers other than Indian re-insurer, namely, General Insurance Corporation of India?
16. Referring to Section 2(9) of the Insurance Act, 1938, the Ld. Sr. Standing Counsel for the Revenue submitted that the term 20 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others "insurer" is defined in Section 2(9) of the Insurance Act, 1938. Section 2(9) as it stood at the relevant point of time clearly says that "insurer" means in respect of body corporate incorporated under the law of any country other than India which carries on that business in India or its principal place of business is in India or maintains a place of business in India. The insurer as defined in Section 2(9) of Insurance Act, 1938 alone can carry on the insurance or re- insurance business in India. Therefore, according to the Ld. Sr. Standing Counsel, the term "other insurer" as referred in sub- section (7) of Section 101A of the Insurance Act, 1938 is an insurer as defined in Section 2(9). It does not include any re-insurance company or other insurance company which is not referred in Section 2(9).
17. Referring to Section 2(7A) of Insurance Act, 1938, the Ld. Sr. Standing Counsel for the Revenue submitted that "Indian insurance company" was also defined in Section 2(7A). Therefore, the non- resident re-insurance company which has no place of business in India or business connection in India would not fall within the term "other insurer" as provided in sub-section (7) of Section 101A. 21
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others According to the Ld. Sr. Standing Counsel, if the assessee claims that non-resident re-insurance company has no business connection or permanent establishment in India, the payment of reinsurance premium would be in violation of Insurance Act, 1938, therefore, the entire premium paid by the assessee has to be disallowed under proviso to Section 37 of the Act. The Ld. Sr. Standing Counsel further submitted that if the assessee claims that there is a business connection for non-resident re-insurance company in India or non-resident company has permanent establishment in India, then naturally the profit of non-resident re- insurance company is liable for taxation in India, hence, the assessee is liable to deduct tax. In this case, according to the Ld. Sr. Standing Counsel, admittedly, the assessee-company has not deducted any tax, therefore, the Assessing Officer has rightly disallowed the entire reinsurance premium paid by the assessee under Section 40(a)(i) of the Act. The CIT(Appeals), however, restricted the disallowance to 15% without any rhyme or reason. When the assessee failed to deduct tax, according to the Ld. Sr. Standing Counsel, the entire amount has to be disallowed under 22 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others Section 40(a)(i) of the Act. Even otherwise, the re-insurance premium was paid contrary to the statutory provision, namely, Section 2(9) of the Insurance Act, 1938, therefore, the CIT(Appeals) is not justified in restricting the disallowance to 15%. According to the Ld. Sr. Standing Counsel, the Revenue filed appeal against the order of the CIT(Appeals) where he restricted disallowance to 15%. According to the Ld. Sr. Standing Counsel, the entire re-insurance premium paid by the assessee-company has to be disallowed under Section 37 of the Act since it was paid in violation of Section 2(9) of the Insurance Act, 1938 as it stood at the relevant point of time.
18. By way of rejoinder, Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, submitted that re-insurance programme of the assessee-company was made after extensive discussion with General Insurance Corporation of India, the lead-reinsurer. The Ld. Sr. counsel further submitted that Section 2(9) of the Insurance Act, 1938 is not at all applicable to the assessee. By virtue of the rule framed by the Insurance Regulatory And Development Authority of India, in exercise of its statutory power under Section 114A of the Insurance Act, 1938, the assessee was allowed to have re- 23
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others insurance programme with non-resident reinsurer. The Ld. Sr. counsel has also referred to the memorandum of object for introduction of Section 101A in the Parliament. The memorandum clearly says that there was no prohibition for the Indian insurance companies for re-insuring their risk with non-resident re-insurance companies. After 2014, according to the Ld. Sr. counsel, the assessee is deducting taxes while making payment to non-resident re-insurance companies in view of amended provision of Section 2(9) of the Insurance Act, 1938. On a query from the Bench whether the assessee can have re-insurance with other Indian insurance companies apart from General Insurance Corporation of India? The Ld. Sr. counsel clarified that the assessee can also have re-insurance programme with other Indian insurers like United India Insurance, New India Assurance, etc. apart from General Insurance Corporation of India. In fact, according to the Ld. Sr. counsel, the assessee has taken up re-insurance programme with Indian companies for its own risk and also received re-insurance premiums from other Indian insurer by taking part of their risk. 24
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others
19. We have considered the rival submissions on either side and perused the relevant material available on record. The assessee is an Indian insurance company registered with Insurance Regulatory And Development Authority of India as provided in Section 3(2A) of the Insurance Act, 1938. Till 2014, the re-insurance programmes are not regularized in India. The Parliament, for the first time introduced Part IVA by Insurance (Amendment) Act, 1961. For the purpose of convenience, Part IVA is reproduced as under:-
PART IV-A RE-INSURANCE Re-insurance with Indian reinsurers 101A. (1) Every insurer shall re insure with Indian re-insurers such percentage of the sum assured on each policy as may be specified by the Authority with the previous approval of the Central Government under sub- section (2).
(2) For the purposes of sub-section (1), the Authority may, by notification in the official Gazette,--
(a) specify the percentage of the sum assured on each policy to be reinsured and different percentages may be specified for different classes of insurance:
Provided that no percentage so specified shall exceed thirty per cent of the sum assured on such policy; and
(b) also specify the proportions in which the said percentage shall be allocated among the Indian re-insurers.25
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others (3) Notwithstanding anything contained in sub-section (1), an insurer carrying on fire-insurance business in India may, in lieu of re-insuring the percentage specified under sub-section (2) of the sum assured on each policy in respect of such business, re-insure with Indian re-insurers such amount out of the first surplus in respect of that business as he thinks fit, so however that the aggregate amount of the premiums payable by him on such re-insurance in any year is not less than the said percentage of the premium income (without taking into account premiums on re-insurance ceded or accepted) in respect of such business during that year Explanation- For the purposes of this-section, the year 1961 shall be deemed to mean the period from the 1st April to the 31st December of that year.
(4) A notification under subsection (2) may also specify the terms and conditions in respect of any business of re-insurance required to be transacted under this section and such terms and conditions shall be binding on Indian re-insurers and other insurers. (5) No notification under sub-section (2) shall be issued except after consultation with the Advisory Committee constituted under Section 101B. (6) Every notification issued under this section shall be laid before each House of Parliament, as soon as may be, after it is made. (7) For the removal of doubts, it is hereby declared that nothing in subsection (1) shall be construed as preventing an insurer from reinsuring with any Indian re-insurer or other insurer the entire sum assured on any policy or any portion thereof in excess of the percentage specified under sub-section (2).
(8) In this section, (i.) "policy" means a policy issued or renewed on or after the 1st day of April, 1961, in Respect of general insurance business transacted in India and does not include a re-insurance policy; and (ii.) 'Indian re-insurer" means an insurer specified in sub-clause (b) of 26 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others Clause (9) of Section 2 who carries on exclusively re-insurance business and is approved in this behalf by the Central Government. Advisory Committee 101B. (1) The Authority with the previous approval of the Central Government shall, for the purposes of Section 101A, constitute an Advisory Committee consisting of not more than five persons having special Knowledge and experience of the business of insurance. (2) The term of office of, and the allowance payable to, members of the Advisory Committee, the procedure to be followed by, and the quorum necessary for the transaction of business of, the Committee and the manner of filling casual vacancies therein shall be such as may be determined by the regulations made by the Authority. Examination of re-insurance treaties 101C. The Authority may, at any time
(a) call upon an insurer to submit for his examination at the principal place of business of the insurer in India all re-insurance treaties and other re-insurance contracts entered into by the insurer;
(b) examine any officer of the insurer on oath in relation to any such document as is referred to in C1ause (a) above; or
(c) by notice in writing, require any insurer to supply him with copies of any of the documents referred to in Clause (a), certified by a principal officer of the insurer.
20. Section 114A of the Insurance Act, 1938 enables the Insurance Regulatory And Development Authority of India to make regulations in consistent with the provisions of Insurance Act, 1938 27 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others and the rules made thereunder, to carry out the purposes of the Insurance Act. The term "re-insurance" is also defined in Section 2(16B) of the Insurance Act, 1938 which reads as follows:-
"re-insurance" means the insurance part of one insurer's risk by another insurer who accepts the risk for a mutually acceptable premium.
21. Therefore, the entire business of insurance / re-insurance is codified and regulated by Insurance Act, 1938. All the insurance companies which are carrying on insurance business in India have to necessarily comply with the provisions of Insurance Act, 1938 as amended and the rules made thereunder. For the purpose of regularizing the insurance business in a better manner, the Insurance Regulatory And Development Authority of India was established and the said authority was also empowered to frame regulations in consistent with the provisions of Insurance Act, 1938 and rules made thereunder. Therefore, it is obvious that Insurance Regulatory And Development Authority of India has to frame regulations in consistent with the provisions of Insurance Act and rules made thereunder. In other words, Insurance Regulatory And 28 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others Development Authority of India cannot frame any regulation contrary to the provisions of Insurance Act and the rules made thereunder. Hence, the insurers who are engaged in the business of insurance and re-insurance are governed by the provisions of Insurance Act, 1938. The Insurance Act, 1938 is the parent act which regulates the business of insurance and re-insurance in India.
22. The term "insurer" is defined in Section 2(9) of Insurance Act, 1938. Section 2(9) of the Insurance Act, 1938 reads as follows:-
"Insurer" means -
(a) any individual or unincorporated body of individuals or body corporate incorporated under the law of any country other than India, carrying on insurance business [not being a person specified in sub-clause (c) of this clause] which--
(i) carries on that business in India, or
(ii) has his or its principal place of business or is domiciled in India or
(iii) with the object of obtaining insurance business, employs a representative, or maintains a place of business, in India;
(b) any body corporate [not being a person specified in sub-clause
(c) of this clause] carrying on the business of insurance, which is a body corporate incorporated under any law for the time being in force in India; or stands to any such body corporate in the relation of a subsidiary company within the meaning of the Indian Companies Act, 1913 (7 of 1913), as defined by sub-section (2) of section 2 of that Act, and
(c) any person who in India has a standing contract with underwriters who are members of the Society of Lloyd's whereby such person is authorised within the terms of such contract to issue protection notes, cover notes, or other documents granting 29 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others insurance cover to others on behalf of the underwriters, but does not include a principal agent, chief agent, special agent, or an insurance agent or a provident society as defined in Part III;
Section 2(9) of Insurance Act, 1938 was amended with effect from 26.12.2014 which reads as follows:-
"insurer" means -
(a) an Indian Insurance Company, or
(b) a statutory body established by an Act of Parliament to
carry on insurance business, or
(c) an insurance co-operative society, or
(d) a foreign company engaged in re-insurance business through
a branch established in India.
Explanation - For the purposes of this sub-clause, the expression "foreign company" shall mean a company or body established or incorporated under a law of any country outside India and includes Lloyd's established under the Lloyd's Act, 1871 (United Kingdom) or any of the Members;]
23. The term "Indian insurance company" is also defined in Section 2(7A) of Insurance Act, 1938, which reads as follows:-
(7A) "Indian insurance company" means any insurer being a company--
(a) which is formed and registered under the Companies Act, 1956 (1 of 1956);
(b) in which the aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed twenty-six per cent. paid-up equity capital of such Indian insurance company;
(c) whose sole purpose is to carry on life insurance business or general insurance business or re-insurance business.30
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others Explanation.-- For the purposes of this clause, the expression "foreign company" shall have the meaning assigned to it under clause (23A) of section 2 of the Income-tax Act, 1961 (43 of 1961);] Section 2(7A) was amended by Insurance Laws (Amendment) Act, 2015 with retrospective effect from 26.12.2014, which reads as follows:-
(7A) "Indian insurance company" means any insurer, being a company which is limited by shares, and -
(a) which is formed and registered under the Companies Act, 2013 (18 of 2013) as a public company is converted into such a company within one year of the commencement of the Insurance Laws (Amendment) Act, 2015;
(b) in which the aggregate holdings of equity shares by foreign investors, including portfolio investors, do not exceed forty-nine per cent of the paid-up equity capital of such Indian insurance company, which is Indian owned and controlled, in such manner as may be prescribed.
Explanation - For the purposes of this sub-clause, the expression "control" shall include the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements;
(c) whose sole purpose is to carry on life insurance business or general insurance business or re-insurance business or health insurance business;] 31 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others
24. The term "insurance company" is also defined in Section 2(8) of Insurance Act, 1938 which was omitted with retrospect effect from 26.12.2014, reads as follows:-
(8) "insurance company" means any insurer being a company, association or partnership which may be wound up under 18 [the Companies Act, 1956 (1 of 1956)], or to which the Indian Partnership Act, 1932 (9 of 1932), applies;
25. The term "Indian re-insurer" is also defined in Section 101A(8)(ii) of Insurance Act, 1938 which reads as follows:-
"Indian re-insurer" means an insurer specified in sub-clause (b) of clause (9) of section 2 who carries on exclusively re-insurance business and is approved in this behalf by the Central Government.
The definition of "Indian re-insurer" was subsequently amended by Insurance (Amendment) Act, 2002 with effect from 23.9.2002 which reads as follows:-
"Indian re-insurer" means an Indian insurance company which has been granted a certificate of registration under sub-section (2A) of section 3 by the Authority to carry on exclusively the re- insurance business in India.
26. As of now, an "Indian re-insurer" means an Indian insurance company which was granted a certificate of registration by Insurance Regulatory And Development Authority of India under 32 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others Section 3(2A) of the Insurance Act, 1938. In other words, other than General Insurance Company of India, all other Indian insurance companies including the assessee may engage itself in reinsurance business since they were granted certificate of registration. By keeping the above provisions in mind, if we examine the transaction of the assessee in paying re-insurance premium to non-resident company, it is obvious that the assessee has violated the provisions of Indian Insurance Act, 1938. Provisions of Section 101A makes it mandatory to every insurer to re-insure with Indian re-insurers such percentage of sum assured on each policy as may be specified by the authority, namely, Insurance Regulatory And Development Authority of India. An option was given to the insurer under sub-clause (7) of Section 101A of Insurance Act, 1938 that an insurer may re-insure over and above the percentage prescribed by Insurance Regulatory And Development Authority of India with other insurer. By taking advantage of this provisions of sub-caluse (7) of Section 101A, the assessee now claims before this Tribunal that there was no prohibition in Insurance Act, 1938 or rules made thereunder or any 33 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others regulation framed by Insurance Regulatory And Development Authority of India from re-insuring over and above the percentage prescribed by Insurance Regulatory And Development Authority of India with non-resident re-insurer. There is no dispute that Insurance Act, 1938 is the parent Act which governs and regulates the business of insurance and re-insurance. As observed earlier, Insurance Regulatory And Development Authority of India Act, 1999 was enacted to implement the provisions of Insurance Act, 1938 more effectively and Insurance Regulatory And Development Authority of India was empowered to frame regulations in consistent with the provisions of Insurance Act, 1938 and rules made thereunder. Therefore, insurance or re-insurance business in India cannot be carried on contrary to the provisions of Insurance Act, 1938 and rules made thereunder.
27. In the case before us, the assessee has paid re-insurance premium to non-resident re-insurance company and claimed the same as deduction while computing the taxable income. The Assessing Officer disallowed the claim of the assessee on the ground that tax was not deducted as required. The contention of 34 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others the Ld. Sr. counsel for the assessee before this Tribunal is that the provisions of Section 2(9) of the Insurance Act, 1938 is not applicable to the assessee-insurance company. The Ld. Sr. counsel has also referred to provisions of Section 114A(zd) of the Insurance Act, 1938 and submitted that Insurance Regulatory And Development Authority of India framed regulations for having re- insurance treaty with non-resident re-insurance companies. The non-resident re-insurance company, according to the Ld. Sr. counsel, was not granted any license to do insurance business in India. Therefore, according to the Ld. Sr. counsel, the entire transaction of the non-resident re-insurance company was outside the territorial jurisdiction of India and the individual brokers acted only as facilitator between the assessee-insurance company and non-resident re-insurance companies, therefore, the profit of the non-resident re-insurance company is not taxable in India. Hence, according to the Ld. Sr. counsel, there cannot be any disallowance for non-deduction of tax under Section 40(a)(i) of the Act. The Ld. Sr. counsel for the assessee very fairly admitted before this Tribunal 35 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others that from the year 2014, the assessee started deducting tax on re- insurance premium paid to non-resident companies.
28. We have gone through the provisions of Section 2C of the Insurance Act, 1938 which reads as follows:-
"2C. (1) Save as hereinafter provided, no person shall, after the commencement of the Insurance (Amendment) Act, 1950 (47 of 1950), begin to carry on any class of insurance business in India and no insurer carrying on any class of insurance business in India shall after the expiry of one year from such commencement, continue to carry on any such business unless he is-
(a) a public company, or
(b) a society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State relating to co-operative societies, or
(c) a body corporate incorporated under the law of any country outside India not being of the nature of a private company:
Provided that the Central Government may, by notification in the official Gazette, exempt from the operation of this section to such extent for such period and subject to such conditions as it may specify, any person or insurer for the purpose of carrying on the business of granting superannuation allowances and annuities of the nature specified in sub- clause (c) of clause (11) of Section 2 or for the purpose of carrying on any general insurance business:
Provided further that in the case of an insurer carrying on any general insurance business no such notification shall be issued having effect for more than three years at any one time:36
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others Provided also that no insurer other than an Indian insurance company shall begin to carry on any class of insurance business in India under this Act on or after the commencement of the Insurance Regulatory and Development Authority Act, 1999.
Provided also an insurer, being an Indian Insurance Company, insurance co- operative society or a body corporate referred to in clause (c) of this sub- section carrying on the business of insurance, may carry on any business of insurance in any Special Economic Zone as defined in clause (za) of section 2 of the Special Economic Zones Act, 2005.
(2) Every notification issued under subsection (1) shall be laid before Parliament as soon as may be after it is issued. (3) Notwithstanding anything contained in sub-section (1), an insurance co- operative society may carry on any class of insurance business in India under this Act on or after the commencement of the Insurance (Amendment) Act, 2002."
29. Section 2C of the Insurance Act, 1938 prohibits from carrying on insurance business otherwise than they are permitted under the Insurance Act, 1938. Third proviso to Section 2C clearly says that no insurer other than Indian insurance company shall begin to carry on any class of insurance business in India. We have also carefully gone through the provisions of Section 2(9) of the Insurance Act, 1938. The Ld. Sr. counsel for the assessee very fairly submitted before this Tribunal that after 2014, the assessee started deducting tax on the re-insurance premium paid to the non-resident re- 37
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others insurance company. This is because of the amendment carried out by the Parliament in Section 2(9) of the Act by Insurance Laws (Amendment) Act, 2015 was with retrospective effect from 26.12.2014. Therefore, the Ld. Sr. counsel for the assessee admits that from 26.12.2014, Section 2(9) of Insurance Act, 1938 is applicable in respect of re-insurance premium paid to non-resident companies.
30. The question now arises for consideration is when the provisions of Section 2(9) of the Insurance Act, 1938 is applicable with effect from 26.12.2014, why it is not applicable for earlier assessment years? This Tribunal is of the considered opinion that the provisions of Section 2(9) of the Insurance Act, 1938 is applicable as it stood at relevant point of time even for earlier assessment years, i.e. even before 26.12.2004. The word "other insurer" provided in Section 101A(7) of the Insurance Act, 1938 enables the Indian insurers for re-insuring over and above the percentage fixed by the Insurance Regulatory And Development Authority of India. The re-insurance may be either with Indian re- insurer or other insurer as defined in Section 2(9). By taking 38 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others advantage of the term "other insurer", now the assessee claims that they can re-insure with non-resident re-insurance company ignoring the provisions of Section 2(9) of the Indian Insurance Act, 1938. This Tribunal is of the considered opinion that there is no merit in the contention of the Ld. Sr. counsel for the assessee. The term "other insurer" as provided in Section 101A(7) of the Insurance Act, 1938 refers only the insurer as defined in Section 2(9) of the Insurance Act, 1938. There cannot be any extended meaning which can be given to the term "other insurer". The definition given in Section 2(9) of Insurance Act, 1938 is not inclusive one. It is an exhaustive one. Therefore, an Indian insurer cannot have any re- insurance arrangement with re-insurance or insurance company other than the insurer as defined / referred in Section 2(9) of Insurance Act, 1938.
31. After 2014, Section 2(9) of the Insurance Act, 1938 was amended which enables foreign company engaged in re-insurance business to establish a branch in India. Therefore, unless a branch was established in India, the non-resident insurance company cannot do any business after 2014. Hence, naturally the profit of 39 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others non-resident re-insurance company is taxable in India. Accordingly, the assessee-insurance company has to deduct tax under Section 40(a)(i) of the Act on the re-insurance premium paid to non-resident re-insurance company.
32. Before amendment, the term "insurer" clearly says that any person who in India has a standing contract with underwriters who are members of the Society of Lloyd's, whereby such person is authorized within the terms of such contract, to issue protection notes, cover notes or other documents granting insurance cover to other on behalf of the underwriters. Therefore, it is obvious that the first condition is that the person, namely, the insurer or re-insurer shall be in India. The second condition is that such person shall have standing contract with underwriters who are members of the Society of Lloyd's, whereby such person in India was authorized to issue protection note or cover note or other documents granting insurance cover. The question now may arise what is meant by "Lloyds"? Lloyds is nothing but an insurance market located in the city of London. "Lloyds" is a body corporate established by Lloyds Act, 1871 to operate as a partially- mutualised market place within 40 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others which multiple financial brokers, grouped in syndicates, come together to pool and spread risk. These underwriters or members are a collection of both Corporations and private individuals, the latter being traditionally known as "Names". Therefore, a person in India has a standing contract with underwriters who are members of the Lloyds, can be an insurer or re-insurer in India before 2014. This Tribunal is of the considered opinion that Section 2(9) of Insurance Act, 1938 before amendment is also equally applicable for insurance and re-insurance business in India. It cannot be the intention of the Parliament to authorise Indian insurer to have re- insurance outside the country ignoring the provisions of Insurance Act, 1938. Section 2(9) of the Insurance Act, 1938 was amended by Insurance Laws (Amendment) Act, 2015. Therefore, the contention of the Ld. Sr. counsel for the assessee that the provisions of Section 2(9) of Insurance Act, 1938, as it stood before 2014, is not applicable to the assessee-company has no merit at all. This Tribunal is of the considered opinion that the provisions of Section 2(9)(c) of Insurance Act, 1938 is very much applicable to the re-insurance business, therefore, the profit of non-resident re- 41
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others insurance company or the person in India who has standing contract with underwriters, who are members of the Lloyds, is taxable in India. Hence, the assessee has to necessarily deduct tax on the premium paid to non-resident re-insurance company for re- insurance. Even otherwise, if the assessee claims that there was no person in India, who has standing contract with underwriters who are members of the Lloyds and premium was paid directly to non- resident re-insurance company, then the transaction of the assessee is clearly in violation of provisions of Section 2(9)(c) of Insurance Act, 1938. In other words, the entire re-insurance arrangement of the assessee- company is in violation and contrary to the provisions of Section 2(9) of Insurance Act, 1938. Therefore, the entire re-insurance premium has to be disallowed under Section 37 of the Act. In this case, the Assessing Officer disallowed the re- insurance premium for non-deduction of tax. Section 2C read with Section 2(9)(c) of Insurance Act, 1938 prohibits any person from doing insurance or re-insurance business in India otherwise permitted under Insurance Act, 1938. Therefore, there is a clear prohibition for payment of re-insurance premium to the non-resident 42 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others re-insurance companies. Hence, the disallowance has to be made under Explanation 1 to Section 37 of the Act also.
33. In view of the above, this Tribunal is of the considered opinion that the Assessing Officer has rightly disallowed the re- insurance premium under Section 40(a)(i) of the Act. Therefore, the CIT(Appeals) is not justified in restricting the claim of the assessee to 15% without any reason.
34. We have carefully gone through the judgment of Apex Court in the case of Vodafone International Holdings (supra). The provisions of Insurance Act, 1938, more particularly Section 2(9) was not considered by the Apex Court and that is not the subject matter of adjudication before the Apex Court. Therefore, this Tribunal is of the considered opinion that the judgment of Apex Court in Vodafone International Holdings (supra) is not applicable at all.
35. We have carefully gone through the decision of Mumbai Bench of this Tribunal in Swiss Re-Insurance Company Limited v. DDIT (38 ITR 568) and other decisions cited by the Ld. Sr. counsel 43 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others for the assessee on identical issue. In all these cases, the provisions of Section 2(9) of Insurance Act, 1938 was not brought to the notice of the Benches of the Tribunal which decided the above cases. Therefore, the Mumbai Bench and Pune Bench had no occasion to decide the applicability of Section 2(9) of Insurance Act, 1938. Since this Bench of the Tribunal finds that Section 2(9) of Insurance Act, 1938 as it stood before amendment in 2014, is applicable to the payment of re-insurance premium to non-resident re-insurance company, the assessee is liable to deduct tax. Therefore, the above decisions of Mumbai Bench and Pune Bench of this Tribunal also may not be of any assistance to the assessee.
36. In view of the above, the orders of the CIT(Appeals) are set aside and that of the Assessing Officer are restored.
37. The next issue arises for consideration is amortization of premium on securities. This issue arises for consideration in the assessee's appeals for assessment years 2004-05 to 2013-14.
38. Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, submitted that the CIT(Appeals) decided the issue 44 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others against the assessee by following his own order for assessment year 2003-04. On appeal by the assessee against the order of the CIT(Appeals) for assessment year 2003-04, according to the Ld. Sr. counsel, this Tribunal confirmed an identical order of CIT(Appeals).
39. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel also. This Tribunal for the assessment year 2003-04, confirmed a similar disallowance towards amortization of premium on securities. For the reason stated by this Tribunal for assessment year 2003-04 in I.T.A. No.801/Mds/2007, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
40. The next issue arises for consideration is disallowance of provision created towards claim incurred but not reported and claim incurred but not enough reported. This issue arises for consideration in Revenue's appeal for assessment years 2003-04, 2011-12, 2012-13 and 2013-14.
41. Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, submitted that during the relevant years, claims were 45 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others incurred but were not reported. Moreover, the few claims incurred which were not enough reported. The Ld. Sr. counsel explained that the assessee-company has made provision on account of claim incurred but not reported and claim incurred but not enough reported. A provision has been made for all the unsettled claims on the basis of the claim lodged by the insured persons. According to Ld. Sr. counsel, the date of damage / loss was considered for recognizing the claim in a particular year. In certain circumstances, the damages / losses were not reported in the balance sheet of the insurance company. Such claims are known as claims incurred but not reported. Sometimes, according to the Ld. Sr. counsel, the damages / losses incurred may be reported. However, it was not enough reported. According to the Ld. Sr. counsel, the liability of the assessee has to be met by making necessary provision as per the Insurance Regulatory And Development Authority of India guidelines. The liability of the assessee-company is determined based on the actual loss / damage. According to the Ld. Sr. counsel, the methodology to determine the liability is also certified by the actuary in accordance with guidelines and norms issued by 46 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others the Institute of Actuaries of India and Insurance Regulatory And Development Authority of India. The Ld. Sr. counsel further submitted that the assessee claimed before the Assessing Officer under Section 37(1) of the Act since all the conditions were fulfilled. The Ld. Sr. counsel further submitted that the provisions were made on the basis of the damages / losses occurred during the year under consideration, therefore, the liability of the assessee-company is ascertained. The provisions made were in respect of the liability incurred by the assessee and not based on any future liability. Therefore, according to the Ld. Sr. counsel, the CIT(Appeals) has rightly allowed the claim of the assessee.
42. On the contrary, Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue, submitted that the assessee created provision in anticipation of settlement of claims that were not ascertained. What was reported to the assessee is damage / loss caused to the insured persons. According to the Ld. Sr. Standing Counsel, the assessee is yet to assess the loss and determine the amount to be compensated, therefore, it is unascertainable liability. What is to be allowed under the Income-tax Act is ascertainable 47 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others liability and not the unascertainable liability. In this case, according to the Ld. Sr. Standing Counsel, at the best, the assessee may claim that there is a liability for compensation. But, the amount of compensation is not quantified on the last day of the financial year. Therefore, according to the Ld. Sr. Standing Counsel, it has to be allowed in the year in which the liability was quantified. Referring to the order of the CIT(Appeals), the Ld. Sr. Standing Counsel it is not known how much amount was actually paid by the assessee towards compensation. No details were available even after long time. Therefore, according to the Ld. Sr. Standing Counsel, it has to be ascertained when the actual compensation or loss was quantified by the insurance company. The year in which the actual loss or compensation was quantified is the year in which the assessee is liable to make the payment. Therefore, according to the Ld. Sr. Standing Counsel, even though technically loss or damage suffered is the point for determining the compensation, as far as the assessee is concerned, the actual compensation or damage is to be quantified only after assessment of actual damages. Therefore, according to the Ld. Sr. Standing Counsel, 48 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others whether the claim incurred but not reported or incurred but not enough reported, the year in which the actual damages or losses were determined and crystalized is the year in which the assessee is eligible to claim the damages.
43. We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee made provision in respect of claims incurred but not reported and in respect of claims incurred but not enough reported. The compensation for making insurance claim arises on the date of loss or damage occurred to the insured property. But, the actual liability to make the payment arises on the date on which the loss or damage was assessed and the amount was determined. In this case, the accident or loss was reported to the assessee but the actual loss or compensation was not determined. Therefore, as rightly submitted by the Ld. Sr. Standing Counsel for the Revenue, the liability to make the payment accrues to the assessee only in the year in which the loss or damage was ascertained and compensation payable to insured person is determined. Therefore, this Tribunal is of the considered opinion that merely because the 49 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others incident happened during the year which is the basis for making claim, that cannot be a reason for allowing the compensation payable by the assessee. In other words, the compensation payable by the assessee has to be allowed in the year in which the amount of compensation was determined. Since the compensation amount was not determined during the year under consideration, this Tribunal is of the considered opinion that the same cannot be allowed. Hence, the CIT(Appeals) is not correct in allowing the claim of the assessee. Accordingly, the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored.
44. For the assessment year 2003-04, the Revenue has also raised a ground with regard to deferred interest on loans and debentures.
45. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue and Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee. The CIT(Appeals) by placing reliance on his own order for the assessment year 1998-99 to 2001-02 in the assessee's own case, directed the Assessing Officer to recompute 50 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others the interest on accrual basis. Since the CIT(Appeals) directed the Assessing Officer to recompute the interest on accrual basis, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
46. The next issue arises for consideration is profit on sale of investments. This issue arises for consideration in the Revenue's appeals for assessment years 2003-04, 2004-05, 2005-06, 2007-08 to 2013-14. This issue also arises for consideration in the assessee's appeals for assessment year 2011-12.
47. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue and Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee. It was brought to the notice of this Tribunal that an identical issue was decided for assessment years 1985-86 to 1987-88, 1989-90 and 1997-98 in favour of the assessee. Since the co-ordinate Bench of this Tribunal has already confirmed a similar decision of the CIT(Appeals), this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
51
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others
48. The next issue arises for consideration is deduction under Section 36(1)(viia) (c) of the Act. This issue arises for consideration in the Revenue's appeal for assessment years 2003-04 and 2004-
05.
49. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue and Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee. The CIT(Appeals) found that the Assessing Officer has not considered proviso to Section 36(1)(viia)(c) of the Act. We have carefully gone through the proviso to Section 36(1)(viia)(c) of the Act which reads as follows:-
"36(1)(viia)(c) a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) Provided that a public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss 52 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others assets in accordance with the guidelines issued by it in this behalf, of an amount not exceeding ten per cent of the amount of such assets shown in the books of account of such institution or corporation, as the case may be, on the last day of the previous year."
50. The assessee-company is an insurance company and it is not a financial company, therefore, the applicability of Section 36(1)(viia)(c) of the Act ought to have been examined. The Assessing Officer had no occasion to examine the same. The CIT(Appeals) simply directed the Assessing Officer to allow the claim of the assessee on the ground that the same was not examined by the Assessing Officer. There is no discussion in the order with regard to the applicability of provisions of Section 36(1)(viia)(c) of the Act. Therefore, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer. Accordingly, orders of both the authorities below are set aside and the issue of disallowance made by the Assessing Officer under Section 36(1)(viia)(c) of the Act is remitted back to the file of the Assessing Officer. The Assessing Officer shall re- examine the matter in the light of the material that may be filed by 53 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others the assessee and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.
51. The next issue arises for consideration is payment of survey fees to non-residents and reimbursement of expenditure. This issue arises for consideration in the Revenue's appeals for assessment year 2003-04, 2008-09, 2011-12, 2012-13 and 2013-14.
52. Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue, submitted that the assessee has paid survey fees to the non-resident without deducting tax. Since tax was not deducted, according to the Ld. Sr. Standing Counsel, the Assessing Officer disallowed the claim of the assessee. However, the CIT(Appeals) allowed the claim of the assessee on the ground that the payment made to surveyors outside the country was not taxable in India and the surveyors did not make available any technical knowledge to the assessee. According to the Ld. Sr. Standing Counsel, in view of the Board's circular in Circular No.715 of 1995, the reimbursement of expenditure has to be disallowed for non-deduction of tax. According to the Ld. Sr. Standing Counsel, payment of survey fees 54 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others to the non-resident is nothing but a technical and managerial service, therefore, the provisions of Explanation 2 to Section 9(1)(vii) of the Act would come into operation.
53. On the contrary, Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, submitted that the surveyors rendered their service outside the country. According to the Ld. Sr. counsel, whenever there was a damage or claim, the surveyors examined the insured property and estimated the damages. The entire services were outside the country and the surveyors have no business connection in India. Therefore, according to the Ld. Sr. counsel, the income of the surveyors is not liable for taxation in India. Moreover, it is only a reimbursement of expenditure actually incurred by the surveyors, therefore, the assessee is not liable to deduct tax.
54. We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, it is a reimbursement of expenditure incurred by non-resident surveyors who were engaged by the assessee to estimate / quantify the 55 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others damages occurred outside the country. The entire services of surveyors were rendered outside the country, therefore, this Tribunal is of the considered opinion that the income of the surveyors is not liable for taxation in India in respect of service rendered to the assessee. Therefore, the assessee is not liable to deduct tax. As rightly submitted by the Ld. Sr. counsel for the assessee, the assessee is expected to deduct tax provided the recipient is liable for taxation on the amount received from the assessee. In view of the above, we have no reason to interfere with the order of the lower authority. Accordingly, the same is confirmed.
55. The next issue arises for consideration is addition of reserve for unexpired risk while computing book profit under Section 115JB of the Act. This issue arises for consideration in the Revenue's appeals for assessment years 2003-04, 2004-05 and 2007-08 to 2013-14 and in the assessee's appeals for assessment years 2003- 04 and 2007-08 to 2013-14.
56. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue and Shri P.H. Arvindh Pandian, the Ld. Sr. 56 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others counsel for the assessee. Since Section 115JB is not applicable to the insurance companies, this Tribunal do not find any infirmity in the order of the CIT(Appeals). Accordingly, the same is confirmed.
57. The next issue arises for consideration is failure of the assessee to deduct tax in respect of commission payments. This issue arises for consideration in the Revenue's appeals for assessment years 2007-08 to 2013-14.
58. Shri M. Swaminathan, Sr. Standing Counsel for the Revenue, submitted that the assessee has paid commissions while accepting re-insurance premium from various other insurance companies in India. However, no tax was deducted while making the payment of commissions to the insurance companies. According to the Ld. Sr. Standing Counsel, it is the obligatory of the assessee to deduct tax while making commission payment in respect of re-insurance premium. Since tax was not deducted, according to the Ld. Sr. Standing Counsel, the Assessing Officer disallowed the commission paid to insurance companies in India under Section 194D of the Act.
57
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others
59. On the contrary, Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, submitted that as per the practice of insurance companies, while making payment for re-insurance, the re-insurance premium will be paid after retaining the agreed percentage of commission by the respective companies. In other words, the assessee, according to the Ld. Sr. counsel, is not paying any commission to insurance companies. The so-called commission was deducted by the respective insurance companies from the re-insurance premium and what was paid to the assessee is only net of re-insurance premium. Referring to Section 194D of the Act, the Ld. Sr. counsel submitted that when the assessee is making payment, the assessee is liable to deduct tax. In this case, according to the Ld. Sr. counsel, the assessee is not making any payment. The insurance companies, who are approaching the assessee-company for re-insurance, deducting the commission from the premium payable and what was paid to the assessee is only the balance amount. Therefore, the assessee is not expected to deduct tax. In other words, according to the Ld. Sr. counsel, it is practically impossible for the assessee to deduct tax when the payer 58 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others of the re-insurance premium is retaining the portion of re-insurance premium as commission.
60. We have considered the rival submissions on either side and perused the relevant material available on record. We have carefully gone through the provisions of Section 194D of the Act. Section 194D of the Act very clearly says that the person responsible for paying to a resident any income by way of remuneration or reward by way of commission or otherwise, for soliciting or procuring insurance business, shall deduct the prescribed percentage towards tax at source. In this case, the practice followed in the business of re-insurance is that the insurance companies retain the commission by themselves and what was paid to the re-insurer is only the balance amount. Therefore, the responsibility of paying commission is not on the assessee. The commission was deducted by the respective insurance companies who are paying re-insurance premium to the assessee at the time of making payment. Therefore, this Tribunal is of the considered opinion that the assessee cannot be found fault for non-deducting the tax. The situation may stand otherwise in 59 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others case the assessee, after receiving entire re-insurance premium, makes payment of commission. In this case, the respective insurance companies themselves act as agents and deduct the commission by themselves. Hence, the CIT(Appeals) has rightly allowed the claim of the assessee. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
61. The next issue arises for consideration is provision towards Employees Short Term Benefits in the computation of book profit. This issue arises for consideration in the Revenue's appeals for assessment years 2008-09, 2009-10 and 2010-11.
62. Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue, submitted that the assessee has made provision of ₹8 Crores towards Employees Short Term Benefits . According to the Ld. Sr. Standing Counsel, the assessee claimed before the Assessing Officer and the CIT(Appeals) that as per the Accounting Standard 15 issued by the Institute of Chartered Accountants of India, the assessee has made the provision. According to the Ld. 60 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others Sr. Standing Counsel, the Accounting Standard issued by the Institute of Chartered Accountants of India has no statutory force. The assessee is expected to compute the income under Section 44 of the Act read with First Schedule. Therefore, according to the Ld. Sr. Standing Counsel, in the guise of Accounting Standard, the assessee cannot override the provisions of Income-tax Act which mandates that the assessee has to compute the income as per the First Schedule to the Income-tax Act.
63. On the contrary, Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, submitted that the assessee was expected to maintain the books as per the Accounting Standard issued by the Institute of Chartered Accountants of India. The Institute issued the Accounting Standard for insurance companies to provide Employee Short Term Benefit in terms of Accounting Standard 15. Therefore, according to the Ld. Sr. counsel, the CIT(Appeals) found that the provision made cannot be treated as provision under Explanation 1(c) to Section 115JB of the Act, therefore, the CIT(Appeals) has rightly allowed the claim of the assessee.
61
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others
64. We have considered the rival submissions on either side and perused the relevant material available on record. The provisions of Companies Act are not applicable to the insurance companies. Therefore, as found by this Tribunal in the earlier part of this order, the provisions of Section 115JB of the Act are not applicable to the insurance companies. Moreover, the Income-tax Act provides for computation of income of the assessee under Rule 5 of First Schedule to the Act. Therefore, as rightly submitted by the Ld. Sr. Standing Counsel for the Revenue, the Accounting Standard issued by the Institute of Chartered Accountants of India cannot override the provisions of Rule 5 of First Schedule to the Income-tax Act. Therefore, the provisions made for Employees Short Term Benefit cannot be allowed as deduction. Rule 5(a) of First Schedule to the Act clearly says that the expenditure or any provision which is not admissible under the provisions of Section 30 to 43B in computing the profits and gains of a business shall be added back. In view of the specific provision in Rule 5(a) of the Act, the claim of the assessee cannot be allowed. Therefore, the CIT(Appeals) is not justified in allowing the claim. In view of the above, we are unable 62 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others to uphold the order of the lower authority. Accordingly, the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored.
65. The next issue arises for consideration is computation of MAT under Section 115JB of the Act. This issue arises for consideration in the Revenue's appeal for assessment year 2008-
09.
66. Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, submitted that the provisions of Section 115JB of the Act, which enables the Department to compute the income, is not applicable to insurance companies, therefore, there cannot be any addition to the book profit. According to the Ld. Sr. counsel, the insurance companies prepare Profit & Loss account as per the guidelines issued by Insurance Regulatory And Development Authority of India and not as per Part II and III of Schedule VI of Companies Act. According to the Ld. Sr. counsel, the applicability of Schedule VI of the Companies Act was specifically excluded in respect of insurance companies.
63
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others
67. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue also. It is not in dispute that the applicability of provisions of Schedule VI of the Companies Act was excluded in respect of insurance companies. Therefore, the provisions of 115JB of the Act, which enables the companies to compute the book profit, may not be applicable to the insurance companies. Therefore, this Tribunal do not find any infirmity in the order of the lower authority. Accordingly, the same is confirmed.
68. The next issue arises for consideration is deduction of Securities Transaction Tax while computing the book profit. This issue was raised by the Revenue for assessment year 2008-09.
69. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue and Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee. The Assessing Officer rejected the claim of the assessee towards Securities Transaction Tax while computing book profit. It is not in dispute that the assessee has paid Securities Transaction Tax. It is not a provision, therefore, it need not be added back to the profit of the assessee in view of Rule 64 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others 5(a) of First Schedule to the Income-tax Act. Moreover, as discussed in the earlier part of this order, the provisions of Section 115JB of the Act are not applicable to the insurance companies. In view of the above, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
70. The next issue arises for consideration is disallowance of infra payment made to car dealers under Section 37(1) of the Act. This issue arises for consideration in the Revenue's appeal for assessment year 2013-14.
71. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue and Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee. The Assessing Officer disallowed the claim of the assessee on the ground that genuineness of payment was not proved. The entire payment was said to be made to motor car dealers as per the agreement. The copy of the agreement is not available on record. The claim of the assessee before the CIT(Appeals) was that the services were actually rendered by the 65 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others motor car dealers by providing space, computer stationeries, etc. in their showroom for enabling software integration with the assessee- company. The assessee claimed before the Assessing Officer that tax was deducted at source and paid to the Government account. From the material available on record it appears that the assessee- company in order to propagate its insurance business, had arrangement with motor car dealers in their showroom for providing space, computer stationeries, etc. For that, the assessee appears to have made the payment. The assessee has filed copies of invoice, confirmation letters from service providers and details of premium collected by the motor vehicle dealers from the customers. There is no doubt about the genuineness of service rendered by the car dealers. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
72. The next issue arises for consideration is depreciation on investments. This issue arises for consideration in the assessee's appeal for assessment year 2005-06.
66
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others
73. We heard Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee and Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue. The CIT(Appeals) by placing reliance on the order of this Tribunal dated 18.08.2005 confirmed the disallowance made by the Assessing Officer. Right from the assessment year 1989-90 to 2004-05, similar claim of the assessee was disallowed. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
74. The next issue arises for consideration is profit on sale / redemption of investment. This issue arises for consideration in the Revenue's appeals for assessment years 2003-04, 2004-05, 2005- 06 and 2007-08 to 2013-14 and in the assessee's appeal for assessment year 2011-12.
75. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue and Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee. The CIT(Appeals) by placing reliance on the order of his predecessor for assessment years 1996-97, 1997- 67 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others 98, 1998-99, 2001-02 and 2002-03, decided the issue in favour of the assessee. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
76. The next issue arises for consideration is contribution to Pension Fund. This issue arises for consideration in the assessee's appeal for assessment year 2006-07.
77. Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, submitted that the assessee contributed ₹73,56,87,649/- to an approved Pension Fund during the year under consideration. Since the Pension Fund was contributed towards those employees who opted for pension in lieu of contribution towards Provident Fund, therefore, the assessee's contention before the Assessing Officer was that fringe benefit tax is not attracted. The assessee also placed its reliance on the CBDT circular No.8 of 2005 dated 29.08.2005. According to the Ld. Sr. counsel, contribution to Pension Fund is a statutory obligation, therefore, it has to be allowed while computing the taxable income. 68
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others
78. On the contrary, Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue, submitted that any contribution made by the assessee towards an approved fund has to be treated as fringe benefit. According to the Ld. Sr. Standing Counsel, the Superannuation Fund is on par with approved Pension Fund, therefore, it has to be treated as fringe benefit.
79. We have considered the rival submissions on either side and perused the relevant material available on record. We have carefully gone through the provisions of Section 115WB of the Act. The provisions of sub-clause (c) to Section 115WB(1) clearly says that any contribution by the employer to an approved superannuation fund for employees has to be treated as fringe benefit. The claim of the assessee before this Tribunal is that Superannuation Fund is not a Pension Fund. What was contributed by the assessee is to the Pension Fund and not Superannuation Fund. The CIT(Appeals) found that the funds payable after the superannuation of an employee whether as one time settlement or monthly as a pension can be taken as 69 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others superannuation funds. This Tribunal is of the considered opinion that Superannuation Fund is nothing but a fund created by the respective employer to compensate the employees who are retiring from service on superannuation. Therefore, the nomenclature of fund is immaterial. The benefit given to an employee by the employer on superannuation has to be construed as Superannuation Fund. Therefore, this Tribunal is unable to uphold the contention of the assessee that the Pension Fund is different from Superannuation Fund. Hence, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
80. The assessee has also taken one more ground with regard to failure of the Assessing Officer to give credit on the TDS amount. This issue arises for consideration for assessment year 2007-08.
81. We heard Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee and Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue. According to the Ld. Sr. counsel for the assessee, a sum of ₹24,70,569/- was deducted at source towards 70 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others tax. However, the same was not given credit. This Tribunal is of the considered opinion that since the assessee claims a sum of ₹24,70,569/- was deducted at source for the assessment year 2007-08, the Assessing Officer shall verify the same and if tax was deducted, corresponding credit shall be given towards the tax due. Accordingly, orders of both the authorities below are set aside and the issue of tax deducted at source is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter and find out whether the tax was actually deducted at source in respect of the assessee and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.
82. The assessee has also raised an issue against levy of interest under Section 234B and 234C of the Act and also interest to be granted under Section 244A of the Act. This issue arises for consideration for assessment years 2004-05, 2007-08, 2008-09 and 2009-10. In fact, for assessment year 2004-05, this issue was raised by the assessee in the cross-objection. The interest under 71 I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others Section 244A of the Act was raised by the assessee for the assessment year 2004-05.
83. We heard Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee and Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue. Levy of interest under Section 234B and 234C of the Act is mandatory. Therefore, the Assessing Officer shall recompute the interest while giving effect to the order of this Tribunal. Accordingly, the levy of interest under Section 234B and 234C of the Act is remitted back to the file of the Assessing Officer. The Assessing Officer shall recompute the interest payable under Section 234B and 234C of the Act after giving a reasonable opportunity to the assessee. Similarly, interest under Section 244A of the Act also needs to be recomputed by the Assessing Officer after giving a reasonable opportunity to the assessee.
84. In the result, the appeals of the Revenue and assessee are partly allowed for statistical purposes.
72
I.T.A.No.1753, 1605 to 1610/Chny/11 I.T.A.Nos.28 to 30 & 764/Chny/14 I.T.A.Nos.905,906,1673,1989, 1688 to 1693,1798 to 1801/Chny/11 C.O.No.150/Chny/11 & others Order pronounced on 28th August, 2018 at Chennai.
sd/- sd/-
(अ ाहम पी.जॉज%) (एन.आर.एस. गणेशन)
(Abraham P. George) (N.R.S. Ganesan)
लेखा सद य/Accountant Member या यक सद य/Judicial Member
चे नई/Chennai,
th
8दनांक/Dated, the 28 August, 2018.
Kri.
आदे श क0 . त9ल:प अ;े:षत/Copy to:
1. अपीलाथ-/Appellant 2. ./यथ-/Respondent
3. आयकर आयु<त (अपील)/CIT(A), LTU, Chennai
4. आयकर आयु<त/CIT, LTU, Chennai
5. :वभागीय . त न ध/DR 6. गाड% फाईल/GF.