TaxTMI 
TaxTMI 
2018 (10) TMI 603
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....l these appeals, we heard these appeals together and disposing of the same by this common order. 2. 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. 3. Shri Percy J. Pardiwala, 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 Dou....
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....efore, naturally, the assessee has to reinsure the risk 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. 5. Shri Percy J. Pardiwala, 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 o....
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....ounsel further submitted that foreign re-insurance company deals only with Indian insurer either 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. They can also represent multiple non-resident re-insurance companies as non-resident brokers. The brokers are not dependent and agent of any other insurance companies, therefore, the brokers canno....
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....tory 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-insurance company, the proportionate share....
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..... However, no such incident of appointing independent surveyor by the re-insurer has happened. 12. 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) placed reliance on the judgment of B....
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.... re-insurer or other insurer the entire sum assured on any policy or any portion thereof in excess of percentage specified by the Insurance Regulatory And 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 is who are the other insurers other than Indian re-insurer, namely, General....
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....hen the assessee failed to deduct tax, according to the Ld. Sr. Standing Counsel, the entire amount has to be disallowed under Section 40(a)(i) of the Act. Even otherwise, the re-insurance premium was paid contrary to the statutory provision, namely, 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. 17. By way of rejoinder, Shri Percy J. Pardiwala, 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 Insur....
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....tages 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. (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 conditi....
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.... the documents referred to in Clause (a), certified by a principal officer of the insurer. 19. 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 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. 20. 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 m....
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....blished 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;] 22. 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. Explanation.- Fo....
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....r sub-section (2A) of section 3 by the Authority to carry on exclusively the re-insurance business in India. 25. 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 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. 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 Author....
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....sel, 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 that from the year 2014, the assessee started deducting tax on re-insurance premium paid to non-resident companies. 27. 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 notif....
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....l 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. 29. 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. 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. By taking 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 assesse....
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....is 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-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 c....
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....f 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. 35. In view of the above, the orders of the CIT (Appeals) are set aside and that of the Assessing Officer are restored. 36. The assessee has taken one more ground with regard to validity of reopening of assessments for the assessment years 2002-03, 2003-04, 2004-05 and 2005-06. 37. Shri Percy J. Pardiwalla, the Ld. Sr. counsel for the assessee, submitted that for the assessment year 2002-03, the assessment was reopened within 6 years. For assessment year 2003-04, the assessment was reopened within four years. There was a reassessment for second time that was within 6 years. For assessment years 2004-05 and 2005-06, the assessments were opened within four years. According to the Ld. Sr. counsel, all the details were part of financials made available during the course of original assessment. According to the Ld. Sr. counsel, the assessee has disclosed all the information during the course of original assessment, therefore, the reopening of assessment....
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....ppeal for assessment year 2010-11. 41. Shri Percy J. Pardiwalla, the Ld. Sr. counsel for the assessee, submitted that during the relevant year, claims were incurred but were not reported. Moreover, the claims incurred which were not enough reported. The Ld. Sr. counsel explained that the assessee-company has made provision of Rs. 1,24,97,27,939/- on account of claim incurred but not reported and claim incurred but not enough reported. Hence, 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 recognising 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-com....
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....e 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 quantified only after assessment of actual damages. Therefore, according to the Ld. Sr. Standing Counsel, 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 compens....
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....e disallowed in respect of insurance company. 47. We have considered the rival submissions on either side and perused the relevant material available on record. In respect of insurance companies, the profit has to be computed as per the provisions contained in the First Schedule of the Income-tax Act, 1961. Section 44 of the Act reads as follows:- Insurance business "44. Notwithstanding anything to the contrary contained in the provisions of this Act relating to the computation of income chargeable under the head "Interest on securities", "Income from house property", "Capital gains" or "Income from other sources", or in section 199 or in sections 28 to 43B, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule." Rule 5 of First Schedule to Income-tax Act, 1961 read as follows:- Computation of profits and gains of other insurance business. 5. The profits and gains of any business insurance other than life insurance shall be taken to be the profit before tax and approp....
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....ence, according to the Ld. Sr. Standing Counsel, the CIT (Appeals) is not justified in allowing the claim of the assessee. 51. On the contrary, Shri Percy J. Pardiwalla, the Ld. Sr. counsel for the assessee, submitted that the CIT (Appeals) followed the order of this Tribunal in the case of DCIT v. Royal Sundaram Alliance Insurance Co. Ltd. in [IT Appeal Nos.847-849 (Mds) of 2008 dated 5-3-2010], therefore, no interference is called for. 52. We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that Rule 5(b) of the First Schedule to the Income-tax Act, 1961 was deleted by Finance Act, 1988 with effect from 01.04.1989 and it was re-inserted by Finance (No.2) Act, 2009 with effect from 01.04.2011. Therefore, during the years under consideration, i.e. 2006-07, 2007-08, 2008-09 and 2009-10, the provisions of Rule 5(b) were not in statute book. Hence, as rightly contended by the Ld. Sr. Standing Counsel for the Revenue, the Assessing Officer has rightly taken the sale of investments as taxable income of the assessee. In the earlier order of this Tribunal the fact of deletion of provisions of Rule 5(b) o....
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....available on record. As rightly submitted by the Ld. Sr. Standing Counsel for the Revenue, EPABX is just a telecommunication exchange which receives voice signal from one end and transmitting the same to the other end. This cannot be equated with computer system. Therefore, this Tribunal is of the considered opinion that EPABX is not eligible for depreciation at the rate of 60%. Hence, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 59. The next issue arises for consideration is disallowance of provision made towards contribution to solatium fund. This issue is raised by the Revenue for assessment years 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11. 60. Shri Percy J. Pardiwalla, the Ld. Sr. counsel for the assessee, submitted that solatium fund is created on the recommendation made at the General Insurance Council meeting on 04.02.2005. According to the Ld. Sr. counsel, solatium fund was payable to the Government and the assessee has no right to use the fund. According to the Ld. Sr. counsel, 0.1% of gross premium from motor vehicle insurance has to be paid as solatium fund. Therefore, according t....
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....IT (Appeals), in fact, placed his reliance on the decision of Mumbai Bench of this Tribunal in General Insurance Corporation of India (supra). 65. We have considered the rival submissions on either side and perused the relevant material available on record. While making re-insurance premium, the assessee can retain the commission at the agreed rate and pay the balance to the re-insurer. The re-insurer may be either domestic insurance company or General Insurance Corporation. Hence, the assessee can retain the so-called commission. It is not a case of payment of commission. At the best, it can be termed as discount given to the insurance companies for making re-insurance premium. Therefore, as rightly found by Mumbai Bench of this Tribunal in General Insurance Corporation of India (supra), such payment cannot be construed as commission. Therefore, the assessee is not liable for deduction of tax. 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. 66. The next issue arises for consideration is disallowance of payments made to Mr. R.W. Clarke and M/s. Royal & Sun Alliances Plc toward....
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....considered opinion that such payments made to surveyors are not liable for taxation in India. Hence no TDS is liable to be made. Therefore, 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 brokerage and other acquisition charges pertaining to investments. In the assessee's appeal, this issue arises for consideration for assessment year 2007-08. 71. During the course of hearing, the Ld. Sr. counsel for the assessee submitted that the assessee is not pressing this issue. Therefore, the ground relating to disallowance of brokerage and other acquisition charges is dismissed as not pressed. 72. The next issue arises for consideration is addition made on account of unexplained expenditure under Section 69 of the Act. This issue arises for consideration in the assessee's appeal for assessment year 2008-09. 73. During the course of hearing, Shri Percy J. Pardiwalla, the Ld. Sr. counsel for the assessee, submitted that the assessee is not pressing this ground. Therefore, this ground relating to unexplained expenditure under Section 69 of the Act is also di....