TaxTMI 
TaxTMI 
2018 (10) TMI 1096
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....r 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 through non-resident brokers who are residents of countries with whom In....
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....ity 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 Section 101A(7) of the Insurance Act, 1938 further clarifies that the assessee over and above the p....
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....mpany 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-resident re-insurance company. The brokers have no role in negotiating the re-insurance contract ....
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....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 by them. The percentage of risk would normally offered by the assessee-company, and then there would be cou....
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....point 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-company wherever there was a loss to the property which is subject matter of insurance. However, to meet the extraordin....
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....nce 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, according to the Ld. Sr. Standing Counsel, the General Insurance Corporation of India is the only Indian re-insurance company. Sub-....
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.... 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 Insurance Act, 1938 as it stood at the relevant point of time. 18. By way of rejoinder, Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for th....
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....us 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 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 Exp....
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....ument 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 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 t....
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....ian Insurance Company, or (b) a statutory body established by an Act of Parliament to carry on insurance business, or (c) an insurance co-operative society, or (d) a foreign company engaged in re-insurance business through a branch established in India. Explanation - For the purposes of this sub-clause, the expression "foreign company" shall mean a company or body established or incorporated under a law of any country outside India and includes Lloyd's established under the Lloyd's Act, 1871 (United Kingdom) or any of the Members;] 23. The term "Indian insurance company" is also defined in Section 2(7A) of Insurance Act, 1938, which reads as follows:- (7A) "Indian insurance company" means any insurer being a company- (a) which is formed and registered under the Companies Act, 1956 (1 of 1956); (b) in which the aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed twenty-six per cent. paid-up equity capital of such Indian insurance company; (c) whose sole purpose is to carry on life insurance business or general insurance business or re-insurance business. Explanation.- For the....
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....sively 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. 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 wit....
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....e 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 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 operatio....
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....cable in respect of re-insurance premium paid to non-resident companies. 30. The question now arises for consideration is when the provisions of Section 2(9) of the Insurance Act, 1938 is applicable with effect from 26.12.2014, why it is not applicable for earlier assessment years? This Tribunal is of the considered opinion that the provisions of Section 2(9) of the Insurance Act, 1938 is applicable as it stood at relevant point of time even for earlier assessment years, i.e. even before 26.12.2004. The word "other insurer" provided in Section 101A(7) of the Insurance Act, 1938 enables the Indian insurers for re-insuring over and above the percentage fixed by the Insurance Regulatory And Development Authority of India. The re-insurance may be either with Indian reinsurer or other insurer as defined in Section 2(9). 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 provide....
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....r 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 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 re41 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 reinsurance. Even otherwise, if the assessee claims that there wa....
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....ent in 2014, is applicable to the payment of re-insurance premium to non-resident re-insurance company, the assessee is liable to deduct tax. Therefore, the above decisions of Mumbai Bench and Pune Bench of this Tribunal also may not be of any assistance to the assessee. 36. In view of the above, the orders of the CIT(Appeals) are set aside and that of the Assessing Officer are restored. 37. The next issue arises for consideration is amortization of premium on securities. This issue arises for consideration in the assessee's appeals for assessment years 2004-05 to 2013-14. 38. Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee, submitted that the CIT(Appeals) decided the issue against the assessee by following his own order for assessment year 2003-04. On appeal by the assessee against the order of the CIT(Appeals) for assessment year 2003-04, according to the Ld. Sr. counsel, this Tribunal confirmed an identical order of CIT(Appeals). 39. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel also. This Tribunal for the assessment year 2003-04, confirmed a similar disallowance towards amortization of premium on securities. For the reason stated by this Tribun....
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....ure liability. Therefore, according to the Ld. Sr. counsel, the CIT(Appeals) has rightly allowed the claim of the assessee. 42. On the contrary, Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue, submitted that the assessee created provision in anticipation of settlement of claims that were not ascertained. What was reported to the assessee is damage / loss caused to the insured persons. According to the Ld. Sr. Standing Counsel, the assessee is yet to assess the loss and determine the amount to be compensated, therefore, it is unascertainable liability. What is to be allowed under the Income-tax Act is ascertainable liability and not the unascertainable liability. In this case, according to the Ld. Sr. Standing Counsel, at the best, the assessee may claim that there is a liability for compensation. But, the amount of compensation is not quantified on the last day of the financial year. Therefore, according to the Ld. Sr. Standing Counsel, it has to be allowed in the year in which the liability was quantified. Referring to the order of the CIT(Appeals), the Ld. Sr. Standing Counsel it is not known how much amount was actually paid by the assessee towards compens....
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....see. 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. Since the CIT(Appeals) directed the Assessing Officer to recompute the interest on accrual basis, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 46. The next issue arises for consideration is profit on sale of investments. This issue arises for consideration in the Revenue's appeals for assessment years 2003-04, 2004-05, 2005-06, 2007-08 to 2013-14. This issue also arises for consideration in the assessee's appeals for assessment year 2011-12. 47. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Reven....
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....mined 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 may be filed by the assessee and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. 51. The next issue arises for consideration is payment of survey fees to non-residents and reimbursement of expenditure. This issue arises for consideration in the Revenue's appeals for assessment year 2003-04, 2008-09, 2011-12, 2012-13 and 2013-14. 52. Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue, submitted that the assessee has paid survey fees to the non-resident without deducting tax. Since tax was not deducted, according to the Ld. Sr. Standing C....
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....fit 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 confirmed. 57. The next issue arises for consideration is failure of the assessee to deduct tax in respect of commission payments. This issue arises for consideration in the Revenue's appeals for assessment years 2007-08 to 2013-14. 58. Shri M. Swaminathan, Sr. Standing Counsel for the Revenue, submitted that the assessee has paid commissions while accepting re-insurance premium from various other insurance companies in India. However, no tax was deducted while making the payment of commissions to the insurance companies. According to the Ld. Sr. Standing Counsel, it is the obligatory of the assessee to deduct tax while making commiss....
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....essee 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 order of the lower authority and accordingly the same is confirmed. 61. The next issue arises for consideration is provision towards Employees Short Term Benefits in the computation of book profit. This issue arises for consideration in the Revenue's appeals for assessment years 2008-09, 2009-10 and 2010-11. 62. Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue, submitted that the assessee has made provision of _8 Crores towards Employees Short Term Benefits . According to the Ld. Sr. Standing Counsel, the assessee claimed before the Assessing Officer and the CIT(Appeals) that as per the Accounting Standard 15 issued by the Insti....
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....ls) 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 115JB of the Act, which enables the Department to compute the income, is not applicable to insurance companies, therefore, there cannot be any addition to the book profit. According to the Ld. Sr. counsel, the insurance companies prepare Profit & Loss account as per the guidelines issued by Insurance Regulatory And Development Authority of India and not as per Part II and III of Schedule VI of Companies Act. According to the Ld. Sr. counsel, the applicability of Schedule VI of the Companies Act was specifically excluded in respect of insurance companies. 67. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue also. It is not in dispute that t....
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....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 Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 72. The next issue arises for consideration is depreciation on investments. This issue arises for consideration in the assessee's appeal for assessment year 2005-06. 73. We heard Shri P.H. Arvindh Pandian, the Ld. Sr. counsel for the assessee and Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue. The CIT(Appeals) by placing reliance on the order of this Tribunal dated 18.08.2005 confirmed the disallowance made by the Assessing Officer. Right from the assessment year 1989-90 to 2004-05, similar claim of the assessee was disallowed. Therefore, th....
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....uperannuation 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 Superannuation Fund is nothing but a fund created by the respective employer to compensate the employees who are retiring from service on superannuation. Therefore, the nomenclature of fund is immaterial. The benefit given to an employee by the employer on superannuation has to be construed as Superannuation Fund. Therefore, this Tribunal is unable to uphold the contention of the assessee that the Pension Fund is different from Superannuation Fund. Hence, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 80. The assessee has also taken one more ground with regard to failure of the Assessing Officer to give credit on the TDS amount....