2024 (7) TMI 1556 - AT - Income Tax

Reinsurance premium to non-resident reinsurers not taxable, no TDS required under section 195

United India Insurance Co. Limited Versus The Assistant Commissioner of Income Tax Chennai And The Assistant Commissioner of Income Tax Versus United India Insurance Co. Limited Chennai

ITAT Chennai allowed assessee's appeal regarding TDS under section 195, holding that reinsurance premium ceded to non-resident reinsurers is not taxable ... TDS u/s 195 - Disallowance of the reinsurance premium ceded to NRRs - Addition upto the extent of 15% of the reinsurance premium ceded by the Appellant to non-resident reinsurers (NRRs) u/s 40(a)(i) - HELD THAT:- We find that an identical issue has been dealt in assessee’s own case [2023 (6) TMI 1446 - ITAT CHENNAI] by following the earlier decision of the Tribunal [2022 (8) TMI 1549 - ITAT CHENNAI] in assessee’s own case came to the conclusion that reinsurance premium ceded to NRRs, is not taxable in India under the Income Tax Act, 1961 or under DTAA between India and respective countries, where the NRRs are tax residents, and thus, reinsurance premium cannot be disallowed u/s. 40(a)(i) of the Act, for non-deduction of TDS u/s. 195 of the Act. Thus, we set aside order of the CIT(A) in restricting the claim of the assessee to 15% of payment made to NRRs of other countries and direct the AO to delete the additions made towards disallowance of reinsurance premium ceded to NRRs u/s. 40(a)(i) for the assessment years 2013-14 to 2016-17 - Assessee ground allowed. Disallowance of amortization of premium paid on purchase of securities - HELD THAT:- As in assesse’s case for AY 2004-05 [2018 (10) TMI 1096 - ITAT CHENNAI] decided the issue against the assessee by following his own order for assessment year 2003-04. Decided against assessee. Disallowance of provision for IBNR and IBNER - provision for claims incurred, but were not reported (IBNR) and claims incurred, which were not enough reported (IBENR) - HELD THAT:- As we find that an identical issue has been considered by the Tribunal in assessee’s own case [2018 (10) TMI 1096 - ITAT CHENNAI] for relevant assessment years and after considering relevant facts held that provision for IBNR & IBNER is not deductible u/s. 37(1) of the Income Tax Act, 1961, because such provision is only on unascertained liability, which is not accrued to the assessee for the relevant assessment year. We are of the considered view that the assessee is not entitled for deduction towards provision created for IBNR & IBNER and thus, we uphold the findings of the learned CIT(A) on this issue for the assessment years 2014- 15, 2015-16, 2016-17, 2018-19 & 2019-20 and reject grounds taken by the assessee. Further, the assessee has also pleaded that with respect to AY 2017-18, the amount disallowable with respect to provisions for IBNR and IBNER claims cannot exceed Rs. 1250.89 crores being the amount debited to the revenue accounts of the assesse. Assessee submitted that the additional amount of Rs. 1582.58 crores being the amount not debited to the profit & loss account be deleted. We are in conformity with the views of the assessee that amount of monies, as provisions, not debited to the profit & loss account cannot be a part of the disallowance. Accordingly, the AO is directed to recalculate the disallowance with respect to provisions for IBNR and IBNER claims and restrict it to the extent of the amounts debited to profit & loss account as per law during the assessment year 2017-18. MAT computation - disallowance of provision for IBNR and IBNER claimed by the assessee in its return of income while computing book profit u/s. 115JB - HELD THAT:- We agree with the arguments advanced by both sides that facts relating to provision created for IBNR/IBNER relating to relevant assessment years are not available on record and hence, the matter is to be restored back to the file of the Assessing Officer for fresh adjudication for the reason that in case, if the matter is restored to the file of CIT(A), he has to call for remand report and the details cannot be examined at his level. Hence, we remand this issue back to the file of the Assessing Officer for detailed examination of this issue as to whether provision created by the assessee on account of IBNR/IBNER is ascertained liability or unacertained liability for the purpose of computation of book profit u/s. 115JB of the Act only. Accordingly, impugned orders of the Assessing Officer and that of the CIT(A) on this issue are set aside and matter is remitted back to the file of the Assessing Officer for fresh adjudication in term of above. Provision created for reserve for unexpired risk - As Revenue for the assessment year 2013-14 on the issue of creation of reserve for unexpired risk and matter is remitted back to the file of the Assessing Officer to decide the issue afresh as per law, after considering entire facts of this case. In the result, appeals filed by the assessee for the assessment years 2014-15 to 2016-17 & 2018-19 and that of the Revenue for the assessment year 2013-14 on the issue of creation of reserve for unexpired risk are treated as allowed for statistical purposes. Addition to Book Profits u/s 14A - HELD THAT:- As we find that the issue in hand is squarely covered by the decision of Vireet Investments [2017 (6) TMI 1124 - ITAT DELHI] wherein the Special Bench has categorically held that provisions of section 14A read with Rule 8D will not apply while computing the book profit u/s. 115JB of the Act. Respectfully following the Special Bench decision cited above, we delete the disallowance made by invoking the provisions of section 14A read with Rule 8D of Income Tax Rules, 1962 while computing book profit u/s. 115JB of the Act. Disallowance of expenditure relatable to exempt income u/s. 14A of the Act by invoking Rule 8D - HELD THAT:- Insurance Companies are liable for taxation within the meaning of section 44 of the Act. The said section begins with a non-obstante clause thus precluding application of computation of income u/s. 28 to 43 which has bearing with section 14A. Thus, no interference can be made to the assesse’s income by provisions of section 14A. Decided against revenue. Addition u/s.36(1)(va) - AO disallowed a sum on account of failure to deposit Employees’ contribution to PF before due date as specified under the Act - HELD THAT:- As CIT(A) correctly confirmed the disallowance of Employee’s Contribution made by the Assessing Officer, as said late payments are not covered u/s. 43B and by following the latest decision of M/s.Checkmate Services [2022 (10) TMI 617 - SUPREME COURT] Disallowance of amount paid to motor car dealers towards infra payment u/s. 37 - HELD THAT:- In the judgement of the Hon’ble High Court of Madras, it was observed that the addition was made as sequel to information received from the service tax department whose own enquires had not reached finality. The Hon’ble High Court laid down that the Revenue would be free to exercise its authority under the Act in the event of Service tax department holding against the assesse. Respectfully following the said judgement of the Hon’ble High Court of Madras dated 21.06.2019, we confirm the order of the CIT(A) on the issue of infra payments made by the assessee to motor car dealers and reject the grounds raised by the Revenue in assessment years 2014-15 to 2019-20. Issues Involved:1. Condonation of delay in filing appeals.2. Disallowance of reinsurance premium ceded to non-resident reinsurers (NRRs).3. Disallowance of amortization of premium paid on purchase of securities.4. Disallowance of provision for IBNR and IBNER.5. Disallowance of provision for Reserve for Unexpired Risk (URR) while computing book profit u/s 115JB.6. Disallowance of exempt income by invoking section 14A read with Rule 8D while computing book profit u/s 115JB.7. Disallowance of commission paid to non-residents u/s 40(a)(i).8. Disallowance of expenditure incurred for survey fees paid to non-residents.9. Disallowance of amount paid to motor car dealers towards infra payment u/s 37.10. Non-adjudication of certain issues by CIT(A).Detailed Analysis:1. Condonation of Delay:- The Tribunal condoned delays in filing appeals by both the assessee and the Revenue, considering the sufficient cause shown for the period of delay. The appeals were admitted for adjudication.2. Reinsurance Premium:- The Tribunal held that reinsurance premium ceded to NRRs is not taxable in India under the Income Tax Act or under DTAA between India and respective countries. Consequently, the premium cannot be disallowed under section 40(a)(i) for non-deduction of TDS under section 195. This decision was consistent with earlier rulings in the assessee's own case.3. Amortization of Premium:- The Tribunal upheld the disallowance of amortization of premium paid on purchase of securities, following previous decisions against the assessee for earlier assessment years. The amortization was not considered deductible under the relevant provisions.4. Provision for IBNR and IBNER:- The Tribunal ruled that provision for IBNR and IBNER is not deductible under section 37(1) as it represents an unascertained liability. However, for the assessment year 2017-18, the Tribunal directed the AO to recalculate the disallowance, restricting it to the amounts debited to the profit and loss account.5. Reserve for Unexpired Risk (URR):- The Tribunal remanded the issue of URR back to the AO to determine whether the provision is an ascertained liability for the purpose of computing book profit under section 115JB. The Tribunal noted that the issue had not been fully adjudicated by the lower authorities.6. Exempt Income and Section 14A:- The Tribunal, following the Special Bench decision in ACIT vs. Vireet Investments, held that provisions of section 14A read with Rule 8D do not apply while computing book profit under section 115JB. The disallowance made by the AO was deleted.7. Commission Paid to Non-Residents:- The Tribunal confirmed that the assessee is not liable to deduct tax at source on commission payments to non-residents, as these payments were made to entities without a permanent establishment in India. This decision was consistent with the jurisdictional High Court's ruling.8. Survey Fees Paid to Non-Residents:- The Tribunal upheld the CIT(A)'s decision to allow the deduction of survey fees paid to non-residents, as the services were rendered outside India and the non-residents had no business connection in India.9. Infra Payment to Motor Car Dealers:- The Tribunal confirmed the CIT(A)'s decision to allow infra payments made to motor car dealers, following the High Court's ruling that the Revenue could exercise its authority if the service tax department held against the assessee.10. Non-Adjudication of Issues:- The Tribunal remanded several issues back to the CIT(A) for adjudication, as they were not addressed in the original appeal. These included credits for taxes paid, interest levied, and certain additions in the tax computation sheet.In conclusion, the Tribunal provided a comprehensive analysis of each issue, often relying on precedents and consistent rulings in the assessee's own case, while remanding certain issues for further examination by the lower authorities.