TaxTMI 
TaxTMI 
2018 (10) TMI 603
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....gether 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 Double Taxation Avoidance Agreement. According to the Ld. Sr. counsel, the assessee....
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....eneral 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 over and above specified by the Insurance Regulatory And Development Authority of India,....
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.... 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 cannot be construed as dependent agent having a permanent establishment in India. According to....
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....r. 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 as per the agreed percentage would be paid to non-resident re-insurance company as per the ter....
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.... 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 Bombay High Court in the case of Vodafone International Holdings B.V. v. Union of India [2010] 329 ITR....
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....centage 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 Insurance Corporation of India? 15. Referring to Section 2(9) of the Insurance Act, 1938, the Ld. Sr. S....
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.... 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 Insurance Regulatory And Development Authority of India, in exercise of its statutory power under Section 114A of th....
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....ured 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 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.....
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.... 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 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 Development Authority of India cannot frame....
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....f 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.- 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) ....
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....surance 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 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 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 I....
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....nsurance (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 sh....
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....ears. 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 assessee. The term "other insurer" as provided in Section 101A(7) of the Insurance Act, 1938 is only the insurer which was 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 company other than the insurer as defined / referred in Section 2(9) of Insurance Act, 1938. 30. After 2014, Section....
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....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 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 for non-deduction of ta....
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....ee, 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 assessments were only on account of change of opinion, hence it cannot be allowed to happen. 38. On the contrary, Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue, submitted that the Assessing Officer disallowed the re-insurance premium paid to non-resident companies in the original assessment itself for all the years, therefore, the assessments were not reopened in respect of re-insurance premium. Moreover, according to the Ld. Sr. Standing Counsel, the Assessing Officer obtained permission of the Commissioner for reopening the assessments, therefore, the reassessme....
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....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-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 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 d....
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..... 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 during the assessment year 2010-11. Therefore, as rightly submitted by the 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. Admittedly, the compensation payable to insured person was not determined during the assessment year 2010-11. Therefore, this Tribunal is of the considered opinion that merely because the incident happened during the year which is the basis for making claim, that cannot b....
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....ncome 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 appropriations as disclosed in the profit and loss account prepared in accordance with the provisions of the Insurance Act, 1938 (4 of 1938) of the rules made thereunder or the provisions of Insurance Regulatory And Development Authority Act, 1999 (4 of 1999) or the regulations made thereunder,] subject to the following adjustments - (a) subject to the other provisions of this rule, any expenditure or allowance [including any amount debited to the profit and loss account either by way of a provision for any tax, dividend, reserve or any other provision as may be described] which is not admissible under the provisions of sections ....
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....ct, 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) of the First Schedule to the Act by Finance Act, 1988 was not brought to the notice of the Bench. Therefore, the earlier order of this Tribunal may not be applicable to the facts of the case. Accordingly, the order of the CIT (Appeals) is set aside and that of the Assessing Officer is restored. 53. The next issue arises for consideration in the assessee's appeals for assessment years 2002-03, 2003-04, 2004-05 and 2005-06 and 2008-09 is with regard to depreciation on UPS. The Revenue has also raised the same issue for assessment year 2010-11. 54. We heard Shri Percy J. Pardiwalla, the Ld. Sr. counsel for the assessee, and Shri M. Swaminathan, the Ld. Sr. Standing C....
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....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 to the Ld. Sr. counsel, the CIT (Appeals) has rightly allowed the claim of the assessee. 61. On the contrary, Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue, submitted that the assessee on estimate basis, in a routine manner, made a provision of 0.1% of gross premium from motor vehicle insurance. According to the Ld. Sr. Standing Counsel, this amount is unascertainable liability, therefore, liable to be disallowed while computing the book profit under Section 115JB of the Act. 61.1 We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that 0.1% of gross premium from motor vehicle insu....
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.... 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 towards survey fee. This issue was raised by the Revenue for assessment years 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10. 67. Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue, submitted that the assessee incurred an expenditure of Rs. 3,22,275/- in foreign currency towards so-called reimbursement of expenditure to Mr. R.W. Clarke, Royal & Sun Alliance Plc and the London Assurance. The assessee has also paid survey fees to the extent of Rs. 18,49,458/- to Royal & Sun Alliance Plc. According to the Ld. Sr. Standing Counsel, even though the assessee claims that it is only a reimbursement of expenditure, the same is liable for taxation. Therefore, according to the Ld. Sr. Standing C....