TaxTMI 
TaxTMI 
2022 (9) TMI 1178
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....ant assessment years 2005-06 to 2010-11, 2013-14 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....
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....ion whatsoever to bar Indian General Insurance Companies 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 mome....
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....able u/s.5 of the Income Tax Act, 1961, because as per 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 ....
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....n insurance companies have a fixed place of PE or agency 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 c....
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..... Swaminathan, learned Sr. Standing Counsel for the Income Tax Department, on the 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 rece....
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....er DTAA between India and other countries and thus, income of non-resident reinsurer 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. Stan....
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....g General Insurance Corporation (GIC). However, over and above specified percentage of reinsurance, general insurance companies 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 b....
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....SURANCE PREMIUM ceded to NRRI where there is DTAA between India and other contracting States, the Assessing Officer was of the opinion that there 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....
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....an avail provisions of the DTAA which are more beneficial whereby premium would be taxed in India only in case PE to foreign enterprise is situated 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....
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....NRRI. Although, allegations were made that brokers sign treaty, settle accounts and verify claim, but nothing was brought on record by way of evidence 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. AO....
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....ountry, where India does not have DTAA with other countries. In case of DTAA with Switzerland, Thailand, Malaysia, Qatar and Kuwait, it excludes reinsurance 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 reinsu....
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...., on that basis it cannot be said that Mitsui Sumitomo, Japan had service PE in India. Therefore, in our considered view, foreign reinsurers do not have PE 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. L....
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.... tax was deducted under section 195 and the same could not be considered as business expenditure. The CIT(A) held that the payment made to the NRRI was not taxable in India. On appeal by the Revenue, the Mumbai Tribunal, 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 P....
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....ad no authority to conclude contract or settle claims on its own or on behalf of the NRRI. (f) The Tribunal also found that in reinsurance arrangements the privity of contract is between the Indian Insurer and the NRRI (g) The Tribunal also held that the manner and mode of carrying on of the transaction is not the proper test to 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 i....
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....um/2011, had quashed the revision proceedings u/s.263 of the Act by observing as under:- 2.3. Thus, the Tribunal by the aforesaid order held that invocation of revisional jurisdiction was not valid. In view of this uncontroverted factual matrix, the appeal of the Revenue is dismissed as infructuous. 3.18. We further find that the Co-ordinate Bench of this Tribunal in the case of General Reinsurance 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 her....
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....stituting a 'business connection' or a PE of assessee in India. The learned representative asserted that it is only in this year that the function of the LO (for part of the year) has been understood by the Assessing Officer to be giving rise to a 'business connection' or existence of PE in India so as to hold that the income from the premium on reinsurance earned by the assessee is taxable in India. In our 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....
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.... assists the assessee in such matters. The privity of contract is between the assessee and the Indian insurance companies and, it is abundantly clear from the terms of engagement between the assessee and the Indian subsidiary that the Indian subsidiary is not authorised to execute any contract or settle claims on its own or on behalf of the assessee. In fact, there is no factual support for the stand of the Assessing Officer, as 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 perso....
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....t have any authority to secure contracts or solicit business on its behalf in India independent of the assessee. According to the Revenue, the Indian subsidiary uses brand name of the assessee while carrying out its activities in India. In our view, the same cannot be a ground to say that there existed a dependent PE in India. In fact, a point which has been emphasised before us is that the assertions of the Revenue that the Indian subsidiary 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 ....
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....planation-2 to Sec. 9(1) of the Act as well as the provisions of India-Switzerland DTAA, which was the subject matter before it, and concluded that the foreign company therein did not have any 'business connection' in India or a PE in India. The aforesaid precedent fully supports the inference which has been drawn by us in the earlier paras. Similarly, in the context of Sections 201/201(1A) of the Act proceedings in the ITA Nos. 4805 to 4808/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 earni....
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....he said order is reproduced hereunder:- "5.3 Assuming that conditions of (i) & (ii) mentioned herein above are fulfilled, we do not find that the employees of SRSIPL are providing services to the assessee as if they were the employees of the assessee. Therefore, condition laid down under Article-5 of the Treaty are also not fulfilled to treat SRSIPL as PE of the assessee. Article 5(4) of the Treaty reads as under:- "Notwithstanding the preceding provisions of this Article, 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 insuran....
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....Supreme Court in the case of Kanchanganga were not considered. We find that the Hon'ble Supreme Court has reversed decision of the Hon'ble Bombay High Court in the case of Vodafone International Holdings and thus, basis of the CIT(A) to rest his decision on basis of said judgement is no longer justifiable. As regards decision of the Hon'ble Supreme Court in the case of Kanjanganga, we find that facts of the said case is completely distinguishable and only issue which was decided therein was whether there was receipt of 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 a....
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....ounting treatment of UPR, submitted that but for terminology of reserve in books of account, it is nothing but deferral of advance premium collected pertain to subsequent assessment year on the basis of period of policy to give true and correct position of income and expenditure in the relevant financial year. The assessee being in the insurance business has issued insurance policy for period of 12 months which may spread to subsequent financial years. The premium income has been accounted on the basis of policy issued, however at the end 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....
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....s which have been specified in Rule 1(b) of section 115JB(2) of the Act, and thus, deleted additions made by the Assessing Officer towards excess provision on UPR to book profit computed u/s.115JB(2) of the Income Tax Act, 1961. The relevant findings of the Tribunal are as under:- "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 Insuranc....
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....ear 2008-09. Accordingly, the assessee submitted that the "Reserve for Unexpired Risks" not being of the nature as specified in clause (b) of Explanation 1 to section 115JB(2), the action of the ld AO in making an addition of such Reserve should be held as unjustified. 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....
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.... the assessment year 2014-15 is disallowance u/s.14A read with Rule 8D of the Income Tax Rules, 1962. 33. During the previous year relevant to assessment years under consideration, the assessee has earned exempt income, but not made any suo motu disallowance towards expenditure relatable to exempt income. The Assessing Officer has disallowed expenditure relatable to exempt income u/s.14A of the Act by invoking Rule 8D of Income Tax Rules, 1962. It was explanation of the assessee before the Assessing Officer that a provision of section 14A of the Income Tax Act, 1961 does not 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 f....
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....ar. In certain circumstances, damages / loss were not reported in the balance sheet of the insurance company and such claims are known as claims incurred, but not reported. Sometimes, damage/loss incurred may be reported, however, it was not enough reported and therefore, the assessee has made provision as per IRDAI guidelines. The liability of the assessee company is determined based on the actual loss / damage. Therefore, such provision is in accordance with guidelines and norms issued by IDRAI and thus, is deductible u/s.37(1) of the Income Tax Act, 1961. 38. Mr. M. Swaminathan learned Sr. Standing Counsel 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 assessme....
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....unt was not determined during the year under consideration, this Tribunal is of the considered opinion that the same cannot be allowed for assessment year 2009-10. 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." 40. In this view of the matter and consistent with view taken by the co-ordinate Bench, we are of the considered view that the assessee is not entitled for deduction towards provision created for IBNR & IBNER and thus, we reverse findings of the learned CIT(A) on this issue for 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 ha....
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....be given to the assessee, who is buying motor vehicles for his own business. Therefore, the Assessing Officer has rightly disallowed depreciation claimed by the assessee over and above normal rate of depreciation and thus, their order should be upheld. 45. We have heard both the parties, perused material available on record and gone through orders of the authorities below. As per new Appendix 1 read with Rule 5 of Income Tax Rules, 1962, Motor cars, other than those used in a business of running them on hire, acquired or put to use on or after the 1st day of April, 1990, except those covered under entry (ii) are eligible for 15% 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 a....
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....e basis of statements of some employees opined that the motor vehicle dealers do not provide any service to the assessee and thus, disallowed payment made to motor vehicle dealers on the ground that the assessee could not file any evidences to prove rendering of services against payment. 48. The learned Sr. counsel for the assessee Mr. Percy J. Pardiwalla submitted that sole basis for the Assessing Officer to disallow payment made to motor vehicle dealers is investigation carried out by the service tax authorities and statements recorded from certain persons to allege that the assessee has made payment to motor vehicle dealers without 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 / annull....
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....ore, opined that dealers have provided services to the assessee and thus, allowed service tax credit taken by the assessee. Since, sole basis for the Assessing Officer to doubt genuineness of payment made by the assessee to motor vehicle dealers is proceedings before the service tax authorities and such proceedings has been held to be incorrect by the CESTAT, we are of the considered view that the Assessing Officer has erred in disallowing payment made by the assessee to motor vehicle dealers only on the basis of findings of Service Tax Directorate, more particularly, when the assessee has filed sufficient evidences, including invoices and 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 renderin....
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.... Rule 5 of first schedule, the assessee has to offer to tax profits as disclosed in the annual accounts prepared in accordance with Insurance Act and subject to adjustments only in accordance with Rule 5A & 5C. The learned CIT(A) ought to have appreciated that Rule 5B had been omitted by Finance Act, 1988 and therefore, as per law applicable for the relevant assessment year, there was no provision for any adjustment with regard to profit on sale of investments. The learned Sr. Standing Counsel further submitted that learned CIT(A) failed to appreciate fact that the Department has not accepted decision of the ITAT in the case of Royal Sundaram 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 i....
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....TDS on such payments. It was the contention of the assessee that as per CBDT Circular No.8/2009 dated 24.11.2009; it is responsibility of third party administrators to deduct TDS while making payments to hospitals, but not the assessee. 56. We have heard both the sides and considered relevant materials on record. There is no dispute with regard to applicability of provisions of section 194H of the Act to payments made by the assessee to hospitals through third party administrators. However, as per CBDT circular No.8/2009 dated 24.11.2009, it is very clear that services rendered by hospitals to various patients of primarily medical services and therefore, 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 as....
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....anding Counsel for the Revenue also. It is not in dispute that the applicability of provisions of Schedule VI of the Companies Act was excluded in respect of insurance companies. Therefore, the provisions of 115JB of the Act, which enables the companies to compute the book profit, may not be applicable to the insurance companies. Therefore, this Tribunal is unable to uphold the orders of both the authorities below. Accordingly, orders of both the authorities below are set aside and the Assessing Officer is directed to delete additions." 60. In this view of the matter and consistent with view taken by the co-ordinate Bench, we are of the considered view that provisions of 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 an....
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....e insurance and health solutions. The assessee is registered with Insurance Regulatory and Development Authority of India ('IRDAI') from 01/02/2017 and carries on various activities through its Indian Branch including receipts of premium on re-insurance treaties and purchase / sale of investment as per IRDAI guidelines. The assessee is regulated by the IRDAI and it maintains books of account as per the IRDAI guidelines. The assessee maintains its regular books of accounts by preparing a policyholders account (called revenue account) and shareholders account (profit and loss account) separately and a balance sheet as a whole which is mandated by IRDAI. The assessee is also audited 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....
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....3AC of the Act. c) The ld. AO observed that the assessee has deferred its income by creating 'the Reserve for Unexpired Risk' but has not deferred the expenditure incurred for earning the same during the year and is accumulating the premium over time by a reserve for unexpired risk without any taxation. The ld. AO observed that the accounting treatment of the assessee does not fulfil the matching concept of accounting. d) Further, the ld. AO while making the adjustment, considered the reserve for unexpired risks as an unascertained liability which is required to be added and included for the purpose of book profits u/s 115JB of the Act. The reliance placed by the assessee on Bharat Earth Movers v. CIT (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 deficie....
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.... by way of creation of a reserve for unexpired risk which is in accordance with the Insurance Act, 1938. In this regard, the ld. AR also submitted that every year adjustments are made to the existing reserve for unexpired risk by way of crediting or debiting the amount of difference between the reserve created in the immediately preceding year and the reserve required to be credited during the current accounting year. Accordingly, we hold that it cannot be considered as any "amount carried to any reserve" debited to the Profit & Loss Account, but it represents that part of premium income which does not relate to the current accounting period. Hence, in our considered opinion, the creation of a reserve for unexpired risk cannot be considered to 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 acco....
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....atistical method and the same has been duly certified by the actuary and the auditors of the assessee. Hence we hold that the same should be excluded for the purpose of computing book profit. 10. Our aforesaid view is also fortified by the decision of Coordinate Bench of Kolkata Tribunal in the case of DC1T v. National Insurance Co.Ltd reported in 72 taxmann.com 116, wherein it was held that a reserve created for unexpired risk in case of general insurance business cannot be added back for the purpose of computation of book profits u/s 115JB of the Act as it does not fall in the category of reserves specified in clause (b) of Explanation 1 to section 115JB(2) of the Act. The relevant facts and the adjudication thereon by the Kolkata Tribunal are reproduced 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 A....
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....lause (b) of Explanation (1) to Section 115JB(2). It may also be appreciated that the "Reserve for Unexpired Risk" can, in any case, not be considered as any provision made for meeting liabilities, other than ascertained liabilities as referred to in Clause(c) of Explanation (1) to Section 115JB(2). On the basis of the above facts it may kindly be appreciated that there has not been any requirement to add back any sum in relation to the "Reserve for Unexpired Risk" while computing "Book Profit" u/s.115JB(2) for the Assessment Year 2008-09. Accordingly, the assessee submitted that the "Reserve for Unexpired Risks" not being of the nature as specified in clause (b) of Explanation 1 to section 115JB(2), the action of the ld AO in making an addition of such Reserve should be held as unjustified. 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 ....
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....The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA. 11.4 We have heard the rival submissions. We find that the ld CITA had dealt this issue very elaborately and had given proper finding that the reserve created for unexpired risk need not be added back for the purpose of computation of book profits u/s 115JB of the Act. The revenue was not able to controvert the findings of the ld CITA before us. Hence we find no infirmity in the order passed by the ld CITA in this regard. Accordingly, the Ground No. 4 raised by the revenue for Asst Year 2008-09 is dismissed. 10.1. We further find that this decision of Kolkata Tribunal has been subsequently affirmed by the Hon'ble Calcutta High Court in ITA No. 76 of 2019. 11. Before we conclude the 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-t....
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.... The next issue that came up for consideration from appeal of the Revenue for the assessment year 2013-14 is addition of IBNR & IBNER to book profit u/s.115JB of the Income Tax Act, 1961. We find that provisions of section 115JB of the Income Tax Act, 1961, has no application to insurance companies upto assessment year 2013-14 and thus, no addition can be made to book profit computed u/s.115JB of the Act, including addition towards IBNR & IBNER upto assessment year 2013-14 and thus, we direct the Assessing Officer to delete additions made towards IBNR & IBNER to book profit u/s.115JB of the Act for the assessment year 2013-14. 67. The next issue that came up for our consideration from appeal of the assessee for the assessment year 2010-11 is validity of reopening of assessment. At the time of hearing, learned counsel for the assessee submitted that the assessee does not want to press grounds taken for challenging validity of reopening of assessment and thus, ground taken by the assessee challenging validity of reopening of assessment is dismissed as not pressed for the assessment year 2010-11. 68. The next issue that came up for our consideration from appeal of the assessee f....