TaxTMI 
TaxTMI 
2018 (10) TMI 1096
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....lso filed a crossobjection 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 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 throu....
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....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, reinsurance 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 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 reinsurance 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 Secti....
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....ot 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 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 reinsurance 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-r....
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....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 accepted by General Insurance Corporation of India for the statutory / obligatory ceding would also be accepted by non-resident reinsurance company. According to the Ld. Sr. counsel, normally, there was no negotiation in the terms and conditions. The reinsurance 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....
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.... 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 reinsurer to pay their proportionate obligation as per the re-insurance policy. According to the Ld. Sr. counsel, it is open to the re-insurer 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-c....
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.... 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 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 reinsurance 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, acc....
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....on-resident reinsurance 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 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 In....
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....y 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 subsection (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. (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 ....
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....r 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 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 busine....
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....ng 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 o....
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....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 reinsurance 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 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. ....
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....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 that from the year 2014, the assessee started deducting tax on reinsurance 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 ....
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....ions 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 re37 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 abo....
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....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 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 reinsurance 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 applicab....
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....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 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, t....
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....ssued 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 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 ....
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..... 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 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 the interest on accrual basis....
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.... 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 reexamine the matter in the light of the material that ....
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....ribunal 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. 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 confir....
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....ct 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 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 ord....
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....ed 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 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 1....
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..... 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 motor car dealers by providing space, computer stationeries, etc. in their showroom for enabling software integration with the assesseecompany. 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 assesseecompany 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....
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....le computing the taxable income. 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 superannuation funds. This Tribunal is of the considered opinion that Super....