TaxTMI 
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TaxTMI 
2022 (9) TMI 1178
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....13-14 and 2014-15. Since, facts are identical and issues are common, for the sake of convenience these appeals were heard together and are being disposed off, by this consolidated order. 2. The assessee has more or less raised common grounds for all assessment years and challenged various additions made by the Assessing Officer. The Revenue had also raised common grounds for all assessment years and challenged deletion of certain additions made by the Assessing Officer. Since, multiple issues need to be decided, we deem it appropriate not to reproduce grounds of appeal filed by the assessee as well as the Revenue. 3. The first issue that came up for consideration from assessee as well as revenue appeals for all assessment years is disallowance of reinsurance premium ceded to non-resident re-insurance companies u/s.40(a)(i) of the Act for non-deduction of TDS u/s.195 of the Income Tax Act, 1961. The fact with regard to impugned dispute are that the assessee is engaged in business of general insurance business in India, is registered with Insurance Regulatory & Development Authority of India (IRDA) as per section 3(2a) of Insurance Act, 1938. The assessee is engaged in the business....
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....mpanies from reinsuring their risk with a foreign insurers, which is evident from section 101A, which was introduced to set out objects that reinsurance is permissible and by introduction of section 101A, the legislature has only mandated obligatory cessation of reinsurance to be ceded to Indian insurance companies. The learned counsel of the assessee referring to various provisions of Insurance Act, 1938 and rules made there under submitted that except certain percentage of reinsurance business to be mandatorily insured with General Insurance Corporation of India, there is no bar on doing reinsurance business with any foreign insurance company. Further, as per IRDAI Regulations, all general insurance companies in India, should submit their reinsurance plan with the IRDAI and as per IRDAI Regulation, 2000 insurers can reinsure their risk outside India. But, the only condition to be complied with by the insurers is that non- resident insurers have over a period of past five years, enjoyed rating of at least BBB or equivalent rating of any other international rating agency. The learned counsel further submitted that assuming for a moment, non-resident insurance companies are not perm....
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....r DTAA between India and other countries reinsurance premium is treated as business profit and thus, same needs to be examined in light of PE to tax in India. In this case, except for payments to Indian brokers in few cases, all other payments of reinsurance premium to NRRIs have been paid outside India. Insofar as payment made to Indian brokers, one can avail provisions of DTAA, which are more beneficial whereby premium would be taxed in India only in case PE of the foreign enterprise is situated in India. The learned counsel further submitted that income does not accrue or arise in India in the hands of NRRIs, because accrual of income has to take place in the country, where the revenue generating functions are carried on. In this case, foreign reinsurers did not carry on business functions in India. Therefore, decision of the Assessing Officer regarding taxability of reinsurance premium paid to them in India is absolutely contrary to the facts of the case and well settled law. The learned counsel further submitted that income is not deemed to accrue or arise in India, because reinsurance premium ceded to foreign reinsurer can be deemed to accrue or arise in India, only where sam....
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....y in India. The learned counsel further submitted that non-resident reinsurance companies do not have PE in India, because in most of the DTAA PE has been defined to mean a fixed place of business through which business of the enterprises is wholly or partly carried on and includes branch, office, factory, workshop etc. Thus, to constitute PE, there must be fixed place of business and business activity should be carried on through this place. In this case, foreign reinsurers to whom the assessee has remitted reinsurance premium during the subject assessment year do not have any fixed place of business in India and would therefore, not trigger fixed place PE in India. 8. The learned counsel further submitted that non-resident reinsurers does not have agency PE, because during the subject assessment years, the assessee has remitted reinsurance premium through brokers outside India. Further, these brokers are not dependent agents constituting PE in India of such foreign reinsurers. The reinsurance brokers act just as communication channel in the transaction and do not negotiate terms or finalize percentage of reinsurance that can be taken up by the NRRI. The reinsurance brokers act i....
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....e other hand, explained concept of reinsurance and submitted that reinsurance is an arrangement, whereby an insurer having accepted risk transfers either fully or partly to another company called reinsurer, in order to reduce its own liability in the event of loss or damage to the risk. The reinsurer issues policies covering risk of its clients in their own name and not in the name of reinsurance companies. The reinsurance does not affect relationship between insured and direct insurer, in particular, liability of the insurer to indemnify the insured. In the event of any insurer failing to honour reinsurance contract, the insurer cannot escape from his liability to the direct insured. Therefore, from the above, it appears that insurance and reinsurance are not separate contracts, but having one to one nexus and thus, moment the assessee issues policies covering risk of its clients reinsurance arrangement starts. Therefore, the moment reinsurance premium is paid to non-resident reinsurers; income has arisen and accrued for non-resident in India. In the instant case, entire insurance premium has been received by Indian insurer based on the rules and regulations of IRDAI in India. The....
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....er is liable to tax in India. The learned Sr. Standing Counsel further referring to Press note dated 08.01.2003 submitted that there is service PE of Mitsui Sumitomo Insurance Co. Ltd., because foreign joint venture partner has sent three representatives to New Delhi, Mumbai and Bangalore and even provided advisory activities, including rates and conditions to Japanese corporate clients, liaisoning with local insurance companies. From the above, it is abundantly clear employees of the above company from Japan are being seconded to India for the purpose of business promotion of insurance of the Mitsui Sumitomo, Japan. Hence, presence of the above employees will time bound to service PE in India in terms of Article 5(3) of UN model convention and thus, income of non-resident is taxable in India and consequently, the assessee is liable to deduct TDS u/s.195 of the Act. Since, the assessee has failed to deduct TDS u/s.195 of the Income Tax Act, 1961, the Assessing Officer has rightly disallowed reinsurance premium ceded to NRRs u/s.40(a)(i) of the Income Tax Act, 1961. In this regard, the learned Sr. Standing Counsel relied upon following judicial precedents:- (i) In the case of Chol....
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....ompanies in India can have their reinsurance arrangement with foreign reinsurer in terms of para 3.7 of said regulations. In this case, there is no dispute with regard to fact that the assessee has complied with provisions of Insurance Act, 1938 and regulations made there under by the IRDAI. In fact, the Assessing Officer has accepted fact that the assessee has complied with reinsurance regulations by taking required percentage of reinsurance contract with General Insurance Corporation of India. But disputed reinsurance premium ceded to non-resident reinsurer companies. In the earlier round of litigation, the Tribunal had discussed the issue of payments made to non-resident reinsurer, in light of provisions of section Insurance Act, 1938 and IRDAI Regulations on reinsurance and concluded that the assessee has violated provisions of Insurance Act, 1938 and consequently, reinsurance premium ceded to NRRI is not deductible u/s.37(1) Of the Income Tax Act, 1961. The matter travelled to the Hon'ble High Court of Madras and the Hon'ble High Court has remanded the issue back to the Tribunal and directed the Tribunal to decide the issue on three points:- i) Whether the Assessing Officer ....
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....e is agency PE of NRRI in India, because of availing services of insurers brokers by the non-resident insurer companies in India. The Assessing Officer had also imputed concept of service PE on the basis of press release dated 08.01.2003 with reference to joint venture partnership between Mitsui Sumitomo, Japan and the assessee and argued that Japanese joint venture partners has dispatched three representatives to India to assist and liaisoning reinsurance business in India. Therefore, opined that there is service PE and income of NRRI is liable to be taxed in India and consequently, the assessee is liable to deduct TDS u/s.195 of the Income Tax Act, 1961. The Assessing Officer had also taken support from the decision of the Hon'ble Supreme Court in the case of Transmission Corporation of Andhra Pradesh Vs CIT (1999) 239 ITR 587 and observed that a person making payment to non-resident is duty bound under section 195(2) of the Income Tax Act, 1961 to file an application to the income-tax authority, if payment is not chargeable to tax or smaller amount is chargeable to tax. If no such application is filed, then tax has to be withheld on whole of such sum. The sum and substance o....
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....d in India. Further, income of NRRI does not accrue or arise in India, because accrual of income is said to take place in country, where revenue generating functions are carried on. Thus, in respect of sale, it is place where sale takes place, and in case of rendering service, place where service is rendered and in case of interest, where the money is lent etc. In this case, foreign reinsurers do not carry out their business functions in India, in fact, during the relevant assessment years they were statutorily prohibited from doing so. The reinsurance premium they receive is recompensated for risk there may be exposed in which event insurer makes a claim on them, in which event assets of the reinsurer that are situated outside India that were utilized to make good the claim and thus premium accrues where their funds and assets are situated, which is outside India. The source of income of NRRI is also outside India. Therefore, in our considered view observations of the Assessing Officer regarding taxability of reinsurance premium ceded to NRRI in India is absolutely contrary to facts and also well settled law. Further, only activity in reinsurance contract is bearing of risk and ac....
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....ce before us to justify their stand. Therefore, in our considered view, findings of the learned CIT(A) and Assessing Officer that brokers are agents of NRRI is sans any evidence. Further, brokers have also declared that they merely act as facilitator and do not have any authority to conclude contract. Even the IRDAI (Insurance Brokers) Regulations, 2002, makes it clear that reinsurance agent / broker merely acts as facilitator and do not have authority to conclude contracts on behalf of the NRRI. This apart, amount collected by reinsurance broker in India is only as trustee of insurance money and same is to be held in separate bank account. Therefore, in our considered view, in absence of any authority to conclude contracts on behalf of foreign reinsurer, brokers cannot constitute business connection of foreign reinsurer in India in terms of Explanation 2 to section 9(1)(i) of the Income Tax Act, 1961. 15. At this point, we would like to take support from decision of the co-ordinate Bench of Mumbai Tribunal in the case of ADIT Vs. AON Global Insurance Service Ltd. in ITA Nos.5184 to 5186/Mum/2009 dated 30.11.2015, where it has been held that insurance broker is an independent brok....
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....ance premium paid to non-resident insurer from the scope of chargeability, as there is no permanent establishment (PE) of non-resident insurer in India. In fact, the learned CIT(A) has deleted disallowance in cases, where there is specific exclusion in the DTAA and the Department has not appealed against order of the learned CIT(A) for all assessment years, except assessment year 2009-10. In our considered view the view taken by the CIT(A) is perfectly in order, because, in those DTAAs there is specific exclusion of reinsurance premium from the ambit of business profits and thus, reinsurance premium ceded to NRRs where there is specific exclusion, same cannot be taxed in India and thus, provisions of section 195 is not applicable while making payments and consequently, the assessee is not required to deduct TDS. In other cases, where there is no specific exclusion of reinsurance premium, said amount can be taxed in India only if foreign reinsurance companies have PE in India. It is the allegation of the Assessing Officer that reinsurer had fixed place of PE or an agency PE or service PE in India. Most of the DTAAs define PE to mean fixed place of business, through which business of....
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....or business connection in India under relevant DTAA or the I.T. Act, 1961. Therefore, payments are not chargeable to tax in India and are not liable to deduct tax at source u/s.195 of the Act. Consequently, disallowance u/s.40(a)(i) of the Act is wholly unwarranted. Further, the IRDAI which is regulatory authority of Insurance companies has also written letter dated 07.05.2008 to CBDT stating that NRR having reinsurance arrangements with Indian insurers do not have PE or branch in India. In respect of reinsurance arrangements with brokers, IRDAI has stated that brokers are not agents of NRR and carry out transaction on principal to principal basis. Therefore, even as per understanding of the regulator, reinsurance arrangements with NRR are not chargeable to tax in India. Since, payments made to NRR are not chargeable to tax in India, question of application u/s.195(2) of the Income Tax Act, 1961, does not arise and this principle is explained by the Hon'ble Supreme Court in the case of M/s. G.E.India Technology Centre Pvt. Ltd., 327 ITR 456 (SC), where it was held that application to deduct TDS arises only if income of non-resident is chargeable to tax in India. The Hon'ble....
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....confirmed the order of the CIT(A) and held that the NRRI did not have any PE in India and, therefore, the reinsurance premium was not taxable in India. (iii) ICICI Lombard General Insurance Co. Ltd. V ACIT- ITA No. 5777/Mum/2011 dt. 14/11/201414 Summary: In the case of Indian insurer (ICICI Lombard General Insurance Co. Ltd) the CIT invoked provisions of section 263 to disallow a sum of Rs. 16.85 crores under section 40(a)(i) in respect of reinsurance premium paid to NRRI. The Mumbai Bench of the Tribunal following the order of the coordinate bench in assessee's own case held that the action of the CIT under section 263 was unwarranted. (iv) Bajaj Allianz General Insurance Co. Ltd. V DCIT - ITA No. 2560/PN/2012 dt. 03/02/20165 Summary: In the case of Indian insurer (Bajaj Allianz General Insurance Co. Ltd.) the AO disallowed a sum of Rs. 62.67 crores under section 40(a)(i) in respect of reinsurance premium paid to NRRI. The Pune Bench of the Tribunal reversing the disallowance held as follows: (a) Under re-insurance arrangements, the re-insurer enters into a reinsurance arrangement for a specific reason and the same is an independent contract (b) Following the decis....
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....o determine whether there exists a fixed place of business or not. (h) The Tribunal concurred with views expressed by co-ordinate benches in the case of Swiss Reinsurance Co. Ltd., Bajaj Allianz General Insurance Co. Ltd. and Bharati AXA Life Insurance Co. Ltd. Therefore, on all counts the foreign reinsurance company earning reinsurance premium from Indian Insurance companies was not liable for tax in India. (vii) ITO v Bharti AXA Life Insurance Co. Ltd. - ITA No. 4805 -4808/Mum/2015 dt. 5/07/2017. Summary: In the case of Indian insurer (Bharti AXA Life Insurance Co. Ltd.) the AO treated the assessee as assessee in default under section 201 for not withholding tax under section 195 for remittance of reinsurance premium made NRRI. The CIT(A) relying on the decision of the co-ordinate Bench of the Tribunal in case of Swiss Reinsurance Co. Ltd. decided in favour of assessee. On appeal before the Tribunal by the Department, the same was dismissed by following the decision in Swiss Reinsurance Co. Ltd. 14.2. The above decisions of various benches of the Tribunal unequivocally hold that the reinsurance premium paid by Indian insurers to NRRI is not taxable under the Act as well....
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....insurance AG, General Reinsurance AG India Branch vs. DCIT in ITA No.7433/Mum/2018 for A.Y.2015-16 dated 14/06/2019 had an occasion to address the same issue from the perspective of the recipient foreign company. In the said Tribunal order dated 14/06/2019, in para 5, this Tribunal had categorically stated that assessee company in that case had challenged the decision of the income tax authorities in treating the receipt of reinsurance premium as taxable in India. Hence, the question that was raised before Mumbai Tribunal in that said case was from the perspective of foreign reinsurance company. The decision rendered thereon could be made applicable to the assessee's case before us also by drawing the same analogy. The relevant operative portion of the judgement is reproduced herein below:- 11. We have carefully considered the rival submissions and perused the relevant material and record. As our discussion in the earlier paras show, the substantive dispute in this appeal relates to the taxability or otherwise in India of the reinsurance premium earned by the non- resident foreign assessee by underwriting the risks of various Indian insurance companies. It is not in dispute that ....
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....ur considered opinion, factually as well as on point of law, we do not find any merit in the stand of the Revenue that the activities of the LO of assessee generate any scope for treating it as a PE of assessee in India or a 'business connection' in India. We say so for the reason that the conditions under which the LO has been allowed to operate clearly bring out that the activities were preparatory or auxiliary in nature and the same cannot lead to determination of a PE in India, considering the provisions of Article 5(4)(e) of the India-Germany Tax Treaty. As per the statement made by the learned representative at the Bar, the LO has complied with the conditions imposed by IRDA and there is no adverse view determined by IRDA. Thus, on facts we do not find any force in the plea of the Revenue; and, even on the point of law, as has been brought out by the Hon'ble Delhi High Court in the case of National Petroleum Construction Co. (supra), the LO merely acts as a channel of communication between the Head office and the parties in India and cannot undertake any commercial, trading or industrial activity, and thus, the activities of the LO cannot give rise to a 'busin....
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....s there is nothing either as per the Service agreement or any material to say that the Indian subsidiary has provided actuarial and risk underwriting services, which are core and crucial activities of the reinsurance business. Even the use of 'Electronic Underwriting Software' by the Indian subsidiary is a misnomer. The software is a standard tool which is used by global entities of the group for entering the data in respect of the reinsurance transactions of the assessee. The software is owned by the assessee and not the Indian subsidiary, and the software is used by the Indian subsidiary to enter the data of the Indian insurance companies, but no further recommendations are made by the Indian subsidiary. It is only the assessee through its own personnel who examines the proposal and negotiates the terms and conditions of the reinsurance contracts. There is nothing to dispute the assertions of the assessee that the infrastructure, personnel and approvals to carry out reinsurance activities are from outside India. Thus, there is nothing to suggest that the core activities of the reinsurance business of the assessee are carried out in or from India by the Indian subsidiary. ....
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....y has a decision making authority is a mere bald assertion and is devoid of any factual support. We have perused the order of the Assessing Officer as well as of the DRP and find that the assertions of the assessee in this regard have been completely brushed aside. The income- tax authorities have not referred to any particular arrangement or agreement or any other piece of evidence to show that the Indian subsidiary could enter into contracts or was authorised to enter into any business in India on behalf of the assessee. Considering that it was imperative for the Revenue to bring out instances where the Indian subsidiary had concluded contract or secured orders on behalf of the assessee, we find that such burden has not been discharged by the Revenue. In fact, at the time of hearing, the learned representative for the assessee referred to an illustrative agreement placed at pages 28 to 102 of the Paper Book, which is a reinsurance arrangement with SBI Group Life, which has been entered into by assessee and the Indian insurance company, i.e. SBI Group Life directly. Therefore, factually also, we find no support for the case of the Revenue that the Indian subsidiary constitutes a d....
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....8/Mum/2015 dated 05.07.2017 in the case of M/s. Bharti-AXA Life Insurance Co. Ltd., the foreign company in India was held not to be liable for tax in India on its reinsurance premium earned from the Indian insurance companies. In fact, our co-ordinate Bench in the case of M/s. Bharti-AXA Life Insurance Co. Ltd. (supra) followed the earlier decision in the case of Swiss re-Insurance Co. Ltd. (supra). Similar was the situation in the case of Bajaj Allianz General Insurance Co. Ltd., ITA No. 2560/PN/2012 dated 03.02.2016 wherein also, payments by Indian concerns to the foreign reinsurance company was disallowed on the ground of failure to deduct the requisite tax at source. Our coordinate Bench held that the foreign reinsurance company earning reinsurance premium from the Indian concerns was not liable for tax in India and, therefore, the action of the Assessing Officer was set aside. 22. All these decisions as well as our discussion aforesaid enables us to come to a conclusion that the income-tax authorities have erred in holding that there exists a 'business connection' in India under Section 9(1)(i) of the Act and also that there exists a PE in India within the meaning of....
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...., an insurance enterprise of Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of an independent status to whom paragraph 6 applies." 3.22. From the perusal of the relevant clause of Article 5(4) of the treaty reproduced supra, it could be concluded that the said Article is not at all applicable for reinsurer. This is relevant in view of the observations made by the ld. CIT(A) in 4.2.6 as under:- "As per the appellant there are certain treaties which provides that insurance business except reinsurance business would be deemed to be a PE of the non-resident in the other contracting state. AO has allowed reinsurance premium ceded to such non-resident where there is a specific exclusion for the insurance companies from the purview of PE. As a corollary implies that where there is no specific exclusion, the reinsurance business would be deemed to be a PE in the other contracting state." (Underlining provided by this Tribunal) 3.23. We hold that the aforesaid observation....
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....f income in India which gave rise to a charge. In this case, it was clearly held that sum paid by the assessee to NRR is not taxable in India under the Act as well as DTAA between India and respective countries and thus, case laws relied upon by the Assessing Officer on the issue is incorrect. 21. In this view of the matter and considering facts and circumstances of the case and also by following various case laws discussed hereinabove, we are of the considered view that reinsurance premium ceded to non-resident reinsurer is not taxable in India under the Income Tax Act, 1961 or under DTAA between India and respective countries where NRRs are tax residents and thus, on impugned payments the assessee is not liable to deduct TDS u/s.195 of the Income Tax Act, 1961. Consequently, payments made to NRR cannot be disallowed u/s.40(a)(i) of the Act, 1961. Hence, we direct the Assessing Officer to delete additions made towards disallowance of reinsurance premium ceded to NRRs. 22. The next issue that came up for our consideration from the Department appeal for the assessment year 2010-11 and 2013-14 is disallowance of excess depreciation on UPS. 23. Mr. Percy J. Pardiwalla, learned Sr. ....
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....of the financial year premium pertains to subsequent financial year has been reduced from income account and transferred to liability. However, the Assessing Officer has misconstrued the term used 'reserve' and understand that the assessee has created reserve for unexpired premium and disallowed and added back to the total income. 28. The learned Sr. Standing Counsel for the Revenue, on the other hand, submitted that Rule 6E of Income Tax Rules, 1962 governed allowability of UPR in determining taxable income of insurance company. The Rule 6E states that deduction for UPR from total income of non-life insurance companies shall not exceed certain limits prescribed in rules thereunder. The assessee has not furnished any details to prove that provision made for UPR is governed by Rule 6E of I.T. Rules, 1962. The Assessing Officer, after considering relevant facts has disallowed excess claim of deduction on UPR. The learned CIT(A) without understanding above facts deleted additions made by the Assessing Officer and hence, order passed by the Assessing Officer should be upheld. 29. We have heard both the parties, perused material available on record and gone through orders of the autho....
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....expired Risk created as per the requirement of law, as allegedly required to be added back. The ld AO added back the aforesaid sum of Rs.169,45,00,000/- in computing the Book profit. The assessee submitted that as per the Insurance Act, 1938, in case of an Insurance Company carrying on General Insurance business, Premium is recognised as income over the contract period or the period of risk, whichever is appropriate. Premium received in advance which represents Premium Income not relating to that particular accounting period in which the said Premium has been received, is separately disclosed in the Financial Statements of an Insurance Company. That part of income which is attributable to the succeeding accounting period or periods is reduced from the total Premiums received during an accounting period by way of creation of a Reserve for Unexpired Risk in accordance with Section 64V(l)(ii)(b) of the Insurance Act, 1938. The aforesaid Reserve is to be created for a minimum amount as prescribed under the above mentioned section. Appreciating the special nature of the Insurance Business, the Law makers prescribed special procedure for Computation of Total Income of an Insurance Compan....
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....Section 115JB(2)- Explanation (1)(b) requires increasing "the amounts carried to any reserve, by whatever name called, other than a reserve specified u/s 33AC" if such amount is debited to the Profit & Loss Account. It is held that the Reserve for Unexpired Risk has not been debited in the Profit & Loss account at any point of time, therefore explanation 1 to sub-section 2 of section115JB is not applicable in the peculiar facts of the general insurance business carried out by the assessee. In the assessee's case, firstly the concerned reserve for Unexpired Risk has not been created through any debit entry made in the Profit & Loss Account. The reserve has been created in accordance with the relevant provisions of the Insurance Act, 1938, by way of debiting the premium received for adjusting the amount of premium that may be related to future year or years. It is noted that Rule 5 of the First Schedule of the Income-tax Act, 1961, which specifies the procedure to be followed for computing the business income of a General Insurance business, specifically allows deduction for reserve carried over for Unexpired Risk and Rule 6E of the Income-tax Rules, 1962 provides that such deduc....
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....apply to insurance companies. 34. We have heard both the parties, perused material available on record and gone through orders of the authorities below. We find that the Hon'ble High Court of Madras in the case of the assessee in TCA No. 755& 842 of 2018 vide order dated 18.11.2021, had considered an identical issue and held that section 14A of the Income Tax Act, 1961, stands excluded while computing income tax of an insurance company, in view of non-obstante clause contained in section 44 of the Income Tax Act, 1961. The relevant findings of the Hon'ble High Court are as under:- "4. In so far as the second issue namely applicability of Section 14A of the Income Tax Act,1961 in computation of Income of an Insurance Company, we find that the issue stands resolved by the decision of the Delhi High Court in the matter Principal Commissioner of Income Tax, LTU, New Delhi Vs Oriental Insurance Company Ltd reported in [2020] 118 taxmann.com 245 (Delhi) wherein in para No.9 it is held that: "For computing the profits and gains of the business of insurance company, the AO had to resort to section 44 and the prescribed rules and could not have applied section 28 to 43B, since the ....
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....sel for the Revenue, on the other hand, submitted that the assessee has created provision in anticipation of settlement of claims that were not ascertained. What is reported to the assessee is damage/ loss caused to the insured persons. According to the Sr. Standing Counsel, the assessee is yet to assess loss and determine amount to be compensated. Therefore, it is unascertained liability and same cannot be allowed as deduction. The Sr. Standing Counsel further submitted that this issue is covered by the decision of the ITAT., Chennai in assessee's own case for earlier assessment years, where the Tribunal has held that provision made for IBNR and IBNER is not deductible, because merely incident happened during the year which is basis for making claim, that cannot be a reason for allowing compensation payable by the assessee in the subsequent financial years. 39. We have heard both the parties, perused material available on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in assessee's own case in ITA Nos.1674 to 16756 & 1759/Chny/2011 & Ors. vide order dated 31.07.2018 for relevant assessment years and aft....
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.... the assessment years 2010-11 & 2013-14 and uphold findings of the learned CIT(A) for the assessment year 2014-15 and reject ground taken by the assessee. The appeal filed by the Revenue on this issue for the assessment year 2010-11 & 2013-14 is allowed. 41. As regards contention of the assessee that actual utilization of IBNR & IBNER should be allowed, we find that what was disallowed by the Assessing Officer is only provision created for the relevant assessment year, but there was no discussion on the spending in respect of IBNR & IBNER. In case, the assessee has made actual utilization towards IBNR & IBNER, then same needs to be allowed as deduction on payment basis. In other words, the compensation payable by the assessee has to be allowed in the year in which amount of compensation was determined. Therefore, we direct the Assessing Officer to verify claim of the assessee and in case, the assessee is able to prove actual utilization towards IBNR & IBNER, then the Assessing Officer is directed to allow claim of the assessee. 42. The next issue that came up for our consideration from the assessee appeals for the assessment years 2010-11 & 2013-14 is disallowance of excess depre....
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....5% depreciation. Further, as per S.No.3 of plant and machinery clause (via), new commercial vehicles which are acquired on or after the 1st day of January, 2009, but before the 1st day of October, 2009 is eligible for higher depreciation of 50%. The assessee has claimed depreciation @ 50% on the ground that commercial vehicles, includes light motor vehicle. Therefore, any light motor vehicle, which is purchased on or after certain date by any assessee in the business is entitled for 50% depreciation, but not 15% under general entry 2(i) of Item 3 of plant and machinery. The Assessing Officer has disallowed excess depreciation over and above normal depreciation of 15% on the ground that higher depreciation is allowable to only those assessees, who had been engaged in the business of running them on hire. Since, the assessee has not in a business of hiring motor buses, motor lorries and motor cars, it cannot claim higher rate of 50% depreciation. 46. Having heard both the sides and considered material on record, we find that this issue is squarely covered in favour of the assessee by the decision of the Hon'ble High Court of Bombay in the case of CIT vs. M/s. Birla Global Asset ....
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....ut any services rendered by them. However, fact remains that assessment framed by the service tax authorities on the basis of investigation has been challenged before the Appellate Tribunal for Service Tax (CESTAT), where the Tribunal held that motor vehicle dealers have rendered service. Therefore, the learned Sr. counsel submitted that since, sole basis for the Assessing Officer to make disallowances towards payment made to motor vehicle dealers is the assessment proceedings of service tax authorities and such assessments has been cancelled / annulled by the CESTAT, additions made by the Assessing Officer towards payment made to motor vehicle dealers cannot be sustained. 49. Mr. M. Swaminathan, learned Sr. Standing Counsel for the Revenue, submitted that the assessee could not file any evidences to justify huge payment made to motor vehicle dealers. Further, investigation carried out by Service Tax Directorate reveals that the assessee has availed input tax credit without any services being rendered and on that basis; the Assessing Officer has disallowed payment made to motor vehicle dealers. Although, the assessee claims that the CESTAT has held that motor vehicle dealers have ....
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.... agreements to prove that there is agreement for providing services to the assessee. Moreover, this issue is covered in favour of the assessee by the decision of ITAT, Chennai in the case of United India Insurance Co. Ltd., where an identical issue has been considered by the Tribunal and held that payment made to motor vehicle dealers is allowable deduction. Therefore, we are of the considered view that in principle, the assessee is eligible for deduction towards payment made to motor vehicle dealers, because there is sufficient proof for rendering services by said dealers. However, fact remains that the order passed by the CESTAT is not available to the Assessing Officer, we are of the considered view that the issue needs to be set aside to the file of the Assessing Officer for limited purpose of verifying the issue with reference to the CESTAT order and allow the claim of the assessee. Hence, we set aside the issue to the file of the Assessing Officer and direct that Assessing Officer to verify facts with reference to order passed by the CESTAT in the assessee's own case with reference to investigation carried out by the Service Tax Directorate. In case, the Assessing Officer fin....
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....Alliance General Insurance Co.Ltd. (supra) and had preferred further appeal and therefore, the CIT(A) ought not to have followed said decision and allowed relief to the assessee. 53. The learned Sr. counsel for the assessee, on the other hand, supporting order of the learned CIT(A) submitted that this issue is squarely covered in favour of the assessee by the decision of the Hon'ble High Court of Madras in the case of CIT Vs. United India Insurance Company, (2019) 111 taxmann.com 217(Mad), where it has been held that profit on sale of investments is not taxable in the hands of insurance companies. The learned Sr. counsel for the assessee further submitted this issue is covered in favour of the assessee by the decision of ITAT., Chennai in the case of Royal Sundaram Alliance General Insurance Co.Ltd. (supra). Therefore, the learned CIT(A) has rightly deleted additions made by the Assessing Officer and their findings should be affirmed. 54. We have heard both the parties, perused material available on record and gone through orders of the authorities below. We find that the Hon'ble High Court of Madras had considered an identical issue in the case of United India Insurance ....
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....efore, provisions of section 194J are applicable on payment made by the TPAs to hospitals etc. In the said circular, it was clarified that TPAs who are making payment on behalf of insurance companies to hospitals for settlement of medical/insurance bills etc., are liable to be deduct TDS u/s.194J on such payments. Therefore, we are of the considered view that when the CBDT itself clarified that payments made by the assessee to hospital through TPAs are subjected to TDS from the TPAs, question of deducting TDS on such payments by the assessee does not arise. It is practically impossible to deduct TDS on payment made to beneficiaries / hospitals, when the assessee is not directly making payment to hospitals. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer and thus, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken by the Revenue for the assessment years 2010-11 & 2013-14. 57. The next issue that came up for our consideration from appeal of the Revenue for the assessment years 2010-11 & 2013-14 is non-applicability of section 115JB of the Income Tax Act, 1961 for insurance companies. 58.....
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....f section 115JB of the Act, has no application to insurance companies and thus, adjustments made by the Assessing Officer towards book profit cannot be sustained and thus, we direct the Assessing Officer to delete additions made to book profit u/s.115JB of the Income Tax Act, 1961. 61. The next issue that came up for our consideration from appeal of the assessee for the assessment years 2013-14 & 2014-15 is addition made towards UPR to book profit u/s.115JB of the Act. The assessee has made provision for UPR and deducted income and shown under the head 'liabilities'. The Assessing Officer has disallowed excess claim of UPR on the ground that the assessee could not file necessary evidence to prove said provision is in accordance with Rule 5 of First Schedule of the Act. The Assessing Officer had also made similar adjustments towards UPR u/s.115JB of the Income Tax Act, 1961. 62. The learned Sr. counsel for the assessee submitted that this issue is squarely covered in favour of the assessee by the decision of ITAT., Mumbai in the case of M/s. Munchener Ruckversicherungs Gesellschaft Aktiengesellschaft in Munchen Vs. CIT in ITA No. 937/Mum/2021 dated 13.05.2022 and also decision....
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.... under the regulation of IRDAI. The creation of reserves, accounting of liabilities, etc. is determined by the actuary in accordance with the Insurance Regulatory and Development Authority of India Act, 1999 ('IRDA Act') and its regulations related thereto. 4. We find that the expenditure and "reserves" are created as per IRDAI guidelines and one such entry booked by the assessee pertains to "reserve for unexpired risk". The "reserve for unexpired risk" is an amount calculated using statistical method for covering risks which have not expired on the reporting date but the premium for which is received during the year under consideration and it reflected the same as a reduction from the premium earned. Hence, the reserve for unexpired risk is not ad-hoc but a sum created statistically to cover the risk of reinsurance policies underwritten by the assessee. We find that the assessee has claimed a deduction for the "reserve for unexpired risk" to the extent of Rs. 5,24,000/- in accordance with Rule 6E while computing its total income under the normal provisions of the Act. However, while computing its book profits u/s 115JB of the Act, no adjustment was made in respect thereo....
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....2000) 245 ITR 428 (SC) was disregarded on the basis that it is in respect of actuarial valuation of leave encashment and not applicable to facts of the assessee. 6. We find that the ld. AR submitted that the "Reserve for Unexpired Risk" represents that part of net premium which is attributable to and set aside for subsequent risks to be borne by the assessee under contractual obligations on contract period basis or risk period basis. Premium deficiency is recognised if the ultimate amount of expected net claim costs, related expenses and maintenance costs exceeds the sum of related premium carried forward to the subsequent accounting period as the reserve for unexpired risk. The reserve for unexpired risk is provided as determined by the actuary and the expected claim costs is also calculated and duly certified by the actuary. It was submitted that the premium received in advance which is not related to a particular accounting period is separately disclosed in the financial statements of the assessee and is reduced from the total premium received during the accounting period by way of creation of a 'Reserve for Unexpired Risk'. The Unexpired Risk Reserve is created to cov....
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....o be similar to those "reserves" which have been referred to in clause (b) of Explanation (1) to section 115JB(2) of the Act. The amount of provision for unexpired risk has been reduced from the net premium received and there is no debit to the profit and loss account at any point of time. It is elementary that the provisions of section 115JB of the Act require an amount referred to in clause (a) to (k) to be debited to the profit and loss account. Since, there is no debit to the profit and loss account, there is no need to make an addition to the provision for unexpired risk and premium deficiency. 8. Further, the ld. AR also drew our attention to the Companies Act, 1956 and also relied on certain decisions of Hon'ble Supreme Court to cull out the meanings of "provision" and "reserve" as understood by the courts. We do not deem it fit to get into the same as we would like to address the entire issue in dispute on first principle itself as above. 9. We find that the assessee has prepared the financial statements as per the principles and guidelines prescribed by IRDAI. The expenditure claimed by the reinsurer are calculated and certified by the actuary and the computation of ex....
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....ed hereunder for the sake of convenience:- 11. Addition towards Reserve created for Unexpired risk u/s 115JB of the Act The brief facts of this issue is that while computing the Book Profit u/s. 115JB of the Act for the purpose of MAT, the ld AO considered a sum of Rs.169,45,00,000/- being the Reserve for Unexpired Risk created as per the requirement of law, as allegedly required to be added back. The ld AO added back the aforesaid sum of Rs.169,45,00,000/- in computing the Book profit. The assessee submitted that as per the Insurance Act, 1938, in case of an Insurance Company carrying on General Insurance business, Premium is recognised as income over the contract period or the period of risk, whichever is appropriate. Premium received in advance which represents Premium Income not relating to that particular accounting period in which the said Premium has been received, is separately disclosed in the Financial Statements of an Insurance Company. That part of income which is attributable to the succeeding accounting period or periods is reduced from the total Premiums received during an accounting period by way of creation of a Reserve for Unexpired Risk in accordance with Sec....
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....justified. Hence, the assessee submitted that the ld AO may kindly be directed to delete the addition of Rs.169,45,00,000/-made by him in computing the Book profit u/s 115JB of the Act. 11.1 The ld CITA observed that the provisions contained in Rule 6E of the Income-tax Rules, 1962 has also been considered. Section 115JB(2)- Explanation (1)(b) requires increasing "the amounts carried to any reserve, by whatever name called, other than a reserve specified u/s 33AC" if such amount is debited to the Profit & Loss Account. It is held that the Reserve for Unexpired Risk has not been debited in the Profit & Loss account at any point of time, therefore Explanation 1 to sub-section 2 of section115JB is not applicable in the peculiar facts of the general insurance business carried out by the assessee. In the assessee's case, firstly the concerned reserve for Unexpired Risk has not been created through any debit entry made in the Profit & Loss Account. The reserve has been created in accordance with the relevant provisions of the Insurance Act, 1938, by way of debiting the premium received for adjusting the amount of premium that may be related to future year or years. It is noted that....
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.... issue, we would also like to address the issue in dispute that Rule 5 of the First Schedule of the Act specifies the computation mechanism of profits/gains arising from general insurance business and specifically allows deduction for reserve for unexpired risk while computing taxable income for the year under consideration. Rule 6E of the Income-tax Rules, 1962 prescribes certain percentage of the net premium for creating reserve for unexpired risks which is allowed as a deduction. Accordingly, in view of the special nature of insurance business, the Act prescribes special procedure for computation of total Income of an Insurance Company. The creation of a reserve for unexpired risk out of the premium received during the year, is a statutory requirement and the same is duly recognised by the provisions of the Act. Accordingly, it can be inferred that the intent of the law has been to allow the said reserve for unexpired risk created by the insurance companies to the extent of specified limits which is derived as a percentage of net premium. Therefore, in our considered opinion, making an addition of reserve for unexpired risk u/s 115JB of the Act would defeat the purpose of the Ac....