AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (4) TMI 1093
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.... has been filed by Royal Sundaram General Insurance Co. Ltd under Section 260A of the Income tax Act 1961 (Act). The appeals relate to assessment years (AYs) 2009-10 (TC(A) 755 of 2018), 2010-11 (TC(A) No.855 of 2018), 2010-11 (TC(A) No.51 of 2023), 2013-14 (TC(A) No.52 of 2023) and 2014-15 (TC(A) No.49 of 2023). 2. The substantial questions of law admitted for consideration in T.C.(A)Nos.755 and 855 of 2018 are as follows: 'Reinsurance Premium: 1. Whether the Tribunal has the jurisdiction to adjudicate upon validity and legality of payments of reinsurance premium made by the appellant to non-resident reinsurers under the Insurance Act, 1938 ? 2. Whether the Tribunal has the jurisdiction to adjudicate upon the grounds, which were never raised by the appellant and the respondent in its grounds of appeal ? 3. When this issue did not arise out of appeal before the Tribunal, whether the Tribunal was correct in holding that the payments of reinsurance premium made by the appellant to non-resident reinsurers are in violation of the provisions of the Insurance Act, 1938 ? 4. Whether the Tribunal has the jurisdiction to adjudicate upon va....
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....bunal in favour of the assessee? 12. Whether the Tribunal was correct in distinguishing the decisions of the Mumbai and the Pune Benches of the Tribunal without referring the appeal to a Larger Bench ? Disallowance of IBNR and IBNER : 13. Whether the Tribunal was correct in holding that the provisions on account of IBNR and IBNER was not determined during the subject assessment year and consequently, not to be allowed in the subject assessment year? 14. Whether the order of the Tribunal is erroneous and perverse as it did not consider the IRDA (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002 basis, which the appellant has worked out the liability for IBNR and IBNER certified by actuary on basis of actuarial valuation ? 15. Whether the order of the Tribunal is erroneous and perverse as it did not consider the decision of the Kolkata Tribunal in National Insurance Company Limited and the Mumbai Tribunal in Export Credit Guarantee Corporation, which has decided the grounds in appeal before the Tribunal in favour of the assessee? 16. Whether the Tribunal was correct in distinguishing the dec....
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.... Disallowance of IBNR and IBNER: 1. Whether the Tribunal was correct in holding that the provisions on account of IBNR and IBNER was not determined during the subject assessment year and consequently, not to be allowed in the subject assessment year? 2. Whether the Tribunal erred in not allowing the claim of IBNR and IBNER which was determined by an independent actuary based on IRDA (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulation, 2002 and the methodology of the same was not in dispute? 3. Whether the Tribunal was correct in following the decision in appellant's own case in ITA NO.2372 dt.31/07/2018 for AY 2009-10, when the view taken by the Chennai Bench of the Tribunal was found to be per-incuriam by the Bombay High Court in General Insurance Corporation of India V. ACIT 422 ITR 248 (Bom)? 4. Whether the Tribunal erred in failing to follow the co-ordinate bench decisions on the very question of disallowance of IBNR and IBNER? 5. Whether the order of the Tribunal is perverse as it failed to take note of binding judicial precedents which were placed on record and referred to for its cons....
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....the Court held as follows:- "38. Thus, the major change, therefore, sought to be brought about by the 2009 amendment was to align it with the IRDA Regulations regarding preparation of accounts of general insurance companies. The changed norms, in terms of said Regulations, required a non-life insurance company to include in its Profit and Loss ('P & L') Account or Revenue Account "profit or loss on realisation/sale of investment". This was said to be consistent with the international standards. 39.With the Assessee carrying on a general insurance business, it was bound by the provisions of the IA as well as the IRDA Regulations referred to hereinbefore. Even the CBDT, in its Circular No.5/2010 dated 3rd June, 2010, acknowledged that, after the introduction of the IRDA Regulations in 2002, non-life insurance companies are required to credit income from the sale of investments directly to the P&L Account. This requirement, which would make the income so earned amenable to tax, was made applicable only from AY 2011-12. Prior to 1st April, 2011, there was no provision which required the Revenue to disallow the deduction of loss on sale of investments." ....
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....f omitting Rule 5(b) was specifically noticed. 17. That apart, the operative portion of CBDT Circular dated 16.12.1988 touching upon this aspect is also relevant and is extracted below: CBDT Circular No.528 dated 16.12.1988 . . . . Liberalisation of provisions in respect of taxation of profits and deduction of tax at source applicable to the General Insurance Corporation and its subsidiaries 45.1 Under the existing provisions of s. 44 of the IT Act, the profits and gains of any Insurance business is computed in accordance with the rules contained in the First Schedule to the Act. Under r. 5 of this Schedule, profits and gains of any business of insurance other than life insurance are taken to be balance of profits disclosed in the annual accounts furnished to the Controller of Insurance subject to certain adjustments. One of the adjustments provided therein is in respect of any amount either written off or reserved in the accounts to meet depreciation or loss on the realisation of investment which is to be allowed as deduction. Similarly, any sum credited to the account, due to appreciation of or gain on the realisation of investment, is....
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....ys that the methodology for computation shall be as per Rule 5 of the First Schedule that excludes specifically the application of Sections 28 to 43B and Section 199 of the Act. We are thus of the considered view that in a specialised assessment of this nature, where the methodology for computation is not as stipulated under Section 28 to 43B, there is no role for Section 14A at all. 15. The fact that such an assessment would stand outside the ambit of application of Section 14A is made clear by the non-obstante clause contained in Section 44 which states that notwithstanding anything to the contrary contained in this Act relating to the computation of income chargeable under the heads of interest on securities, house property, Capital gains or other sources, or Section 199 or Sections 28 to 43B dealing with the computation of business income, the assessment of insurance business would be in accordance with the Rules contained in the First Schedule alone. 16. Rule 5 of the First Schedule provides for a self-contained methodology for computation of profits and gains of other insurance businesses. It sets out the manner by which the profits and gains of other insurance business....
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....ding marine and motor vehicle insurance. In the course of assessments and on verification of the financials, the Assessing Authority had noted the deduction claimed from the profits on account of IBNR and IBNER. Being provisions, and being of the view that they were contingent and unascertained, the Assessing Authority sought a justification for the claim. 22. Explanations were tendered to the effect that both IBNR and IBNER claims were made on scientific basis. The determination of liability was on actuarial principles made by the appointed actuary, and in line with the guidelines and norms issued by the Institute of Actuaries of India as well as the Insurance Regulatory and Development Authority (IRDA). 23. Thus, the appellant companies had reiterated their claims as being appropriate and in line with the mandate of Section 37 of the Act. Reliance was placed on the judgments of the Supreme Court in Bharath Earth Movers v Commissioner of Income-Tax 245 ITR 428 (SC), Metal Box Company of India Ltd v Their Workmen 73 ITR 53 (SC) and Rotork Controls India (P) Ltd v Commissioner of Income-Tax 314 ITR 62 (SC). 24. Overriding the submissions made, the Assessing Authority disall....
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....ance Companies) Regulations, 2002 (in short, IRDA 2002 Regulations) which the Appellant is bound to follow. 30. He also takes us through a sample actuarial certificate which reflects the summary of IBNR and IBNER proceedings issued by an appointed actuary who is a fellow of Institute of Actuaries of India. It is that figure which has been adopted by the appellant companies as their claim towards provisions made. 31. Apart from the decisions already cited before the authorities, Appellants rely on the decisions of the Delhi High Court in Principal Commissioner of Income-Tax v Care Health Insurance Ltd (2024) 164 Taxmann.com 53 (Delhi), Commissioner of Income-Tax v Whirlpool of India Ltd 242 CTR 245 (Del), Calcutta High Court in Principal Commissioner of Income-Tax v National Insurance Co. Ltd (Calcutta HC) ITA No. 76 of 2019 dated 16.07.2019, Bombay High Court in General Insurance Corporation of India v Assistant-Commissioner of Income-Tax and others 422 ITR 248 (Bom) and Kerala High Court in Commissioner of Income-Tax v Kerala Transport Company 239 ITR 183 (Ker) praying that the appeals be allowed. 32. Per contra, Ms.V.Pushpa, learned Senior Standing Counsel for the Depart....
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....nce, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule. 36. The computational methodology as stipulated under the First Schedule to the Act and under Part B, extracted below, sets out the detailed manner by which the computation of profits and gains of other Insurance business is to be carried out. To be noted, Part A deals with the Life Insurance business with which we are not concerned in these appeals. B.-Other insurance business Computation of profits and gains of other insurance business. 5. The profits and gains of any business of insurance other than life insurance shall be taken to be the profit before tax and appropriations as disclosed in the profit and loss account prepared in accordance with the provisions of the Insurance Act, 1938 (4 of 1938) or the rules made thereunder or the provisions of the Insurance Regulatory and Development Authority Act, 1999 (4 of 1999) or the regulations made thereunder, subject to the following adjustments:- (a) subject to the other provisions of this rule, any expenditure or....
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....art, the Actuarial Certificate issued by a registered Actuary sets out the summary of IBNR and IBNER proceedings which is the basis of the claim made by the appellants towards provision. A copy of the sample summary as on 31.03.2009 has been placed before us in the paper book to indicate the basis on which the claims have been made. 41. Section 37 encompasses claims which are general in nature, not covered under Sections 30 to 36 that are specific in nature. A combined reading of Section 44 with the First Schedule indicates to us that the IRDA guidelines stand incorporated into the very scheme of taxation of an insurance business, by reference therein, to those guidelines. Thus, it follows that once an insurance company applies those guidelines and parametres in the maintenance of its accounts and computation of claims, there remains nothing further to be verified qua the veracity of the claims made. 42. Various High Courts, the Delhi High Court in Care Health Insurance Ltd and Whirlpool of India Ltd, Calcutta High Court in National Insurance Co. Ltd, Bombay High Court in General Insurance Corporation of India and Kerala High Court in Kerala Transport Company have considered ....