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2025 (6) TMI 1488
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.... Assessee was not liable to deduct tax at source on the payments made to surveyors outside the Country and that they are not taxable in India? (T.C.(A) Nos.182, 193, 195, 196, 183, 192, 181, 197, 175, 174, 176, 177, 184, 178, 179 and 180, of 2023 - A.Ys. 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11, 2013-14 and 2014-15). 2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that assessee is not liable to deduct the tax at source towards the commission paid for receipt of reinsurance premiums? (T.C.(A) Nos.182, 193, 195, 196, 183, 192, 181, 197, 175, 174, 176, 177, 184, 178, 179 and 180, of 2023 - A.Ys. 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, 2010-11, 2013-14 and 2014-15). 3. Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the profit on sale of investment is exempt ignoring the fact that the profits realized from investments are real and hypothetical ? (T.C.(A) Nos. 197, 175, 174, 176, 177 and 184 of 2023 - A.Ys. 2008-09, 2009-10, and 2010-11). 4. Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that UPS is....
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.... read thus: 6. So far as the first substantial question of law is concerned, viz., profit on sale of investments whether it is exempt or not, the issue came up for consideration before the High Court of Delhi in the case of Oriental Insurance Co. Ltd., vs. Deputy Commissioner of Income-tax reported in [2017] 84 taxmann.com 312 (Delhi). The Court analysed Rule 5(b) of the First Schedule to the Act, which stood omitted by Finance Act, 1988 and was re-introduced by Finance Act, 2009 with effect from 1st April, 2011. It was pointed out that the rationale for omitting Rule 5(b) was to exempt profits and gains in investments by the General Insurance Corporation of India and the four companies formed under Section 16 of the General Insurance Business (Nationalisation) Act, 1972. After referring to the relevant provisions, the explanation offered in the memorandum to the Finance Bill, 1988, and the circular of the CBDT in Circular No.528, dated 16.12.1988, 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 chan....
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....). We are concerned with the applicability of the said clause for the interregnum period. 15. The purport behind clause (b) to Rule 5 was clear, to either include or exclude profits/losses from sale of investments, specific to insurance businesses. With the deletion of that clause for the periods 1988 to 2011, there is no justification whatsoever to continue to tax profits/losses from sale of investments. Such an interpretation would result in reading clause (b) as continuing on the stature book, even for a period when it had stood deleted. 16. This very issue had come up for consideration before this Court in Commissioner of Income Tax V. United India Insurance Company 2019-111 Taxman.com 217 (Mad). The co-ordinate Bench of this Court noted the decision of the Delhi High Court in the case of Oriental Insurance Co. Ltd V. Deputy Commissioner of Income- Tax (2018) 407 ITR 658, wherein the purpose of 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 o....
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....cally excluded in respect of Insurance Companies. The revenue has not been able to dislodge this finding before us in these appeals. We find that the conclusion arrived at by the Tribunal in this regard is proper and valid. Accordingly, the appeals filed by the revenue on this ground are dismissed and consequently, the above substantial question of law is answered in favour of the assessee. 7. The substantial questions of law in regard to the issue relating to Commission paid for receipt of re-insurance are also answered in favour of the assessee in light of the decision of the Madras High Court in Royal Sundaram Alliance Insurance Co. Ltd. (supra). The relevant paragraphs read thus: Commission for receipt of reinsurance: 11.The assessee had succeeded on this issue before the CIT(A) and the finding has been affirmed by the Tribunal. The CIT(A) took note of the decision taken in the assessee's own case for the assessment year 2009-2010 in which the assessment for the year 2008-2009 was followed and the assessee succeeded before the CIT(A) for the assessment year 2008-2009, wherein the CIT(A) noted that as a matter of industrial practice it was termed as "commission on rei....
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..... to settle the amounts of various surveyors on cost to cost basis and the surveyor does not make available any technical knowledge which can independently be applied by the assessee and consequently, held that the payment by the assessee would not be taxable as fees for technical services in the hands of the recipient. Furthermore, it is noted that in the absence of permanent establishment, the income in the hands of the recipient is also not taxable in India. The above view taken by the CIT(A) was rightly affirmed by the Tribunal and we find that the revenue has not made out any grounds to interfere with the said finding. Accordingly, the appeals filed by the revenue on this ground are dismissed and consequently, the above substantial question of law is answered against the revenue. 9. The substantial questions of law in regard to the issue of Depreciation on UPS are also answered in favour of the assessee in light of the decision of the Madras High Court in T.V.Sundaram Iyengar & Sons Ltd vs The Commissioner Of Income Tax T.C.(A) No.684 of 2009 dated 30.11.2021 The relevant paragraphs read thus: 4. As regards the third question of law, the learned counsel for the appellan....
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....e depreciation at 60% as against 25% assessed by the respondent / revenue. 10. Coming to the substantial questions of law in relation to disallowance under Section 14A, the Tribunal has concluded the issue adverse to the assessee holding that Rule 5(a) militates against the grant of expenses, which are not for the purposes of insurance business and, directing that the same are to be added back. 11. The Assessing Authority, in the course of assessment, had disallowed the expenditure on the ground that it relates to income which is exempt and applying the computational methodology in Rule 8D. However, there was no impact, since the profit on sale of investments had been taxed as income from regular business activity. 12. By virtue of the present order, we have allowed the issue in relation to profit on sale of investments in favour of the assessee, and hence there would be a revenue impact by virtue of the disallowance under Section 14A. 13. The assessees arguments are that the computational methodology governing them are set out under Section 44 read with Rule 5 of the First Schedule to the Act and hence there would be no application of Section 14A to their case. 14. Section 4....
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.... income which does not form part of the total income under the Act. However, in framing of assessments in the case of insurance companies, it is purely Section 44 read with Rule 5 of the First Schedule that would apply. 16. This position is made clear by Section 44 itself which says 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. 17. 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 w....
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....n filed, of which 8 have been numbered and listed today (C.M.P.Nos. 575, 584, 588, 596, 607, 614, 624 & 637 of 2025). The remaining 8 are listed under a special list today (C.M.P.Nos.792 to 797, 799 and 800 of 2025). A common counter has been filed to all the Miscellaneous Petitions. Hence, this order disposes all Miscellaneous Petitions also. 24. The substantial questions of law that are sought to be admitted now are as follows: 1. Whether on facts and circumstances of the case, was the Hon'ble Tribunal right in holding that the re-insurance premium ceded to NRRs are not liable to be taxed under the Indian Income Tax Act? 2. Whether on facts and circumstances of the case, was the Hon'ble Tribunal right in deleting the additions made by the Ld. AO towards disallowance of reinsurance premium ceded to NRRs under Sec.40(a)(i) of the Act, for non-deduction of TDS under Sec.195 of the Act?' 25. We have heard Dr.S.Muralidhar, learned Senior Counsel for Mr.R.Sandeep Bagmar for the appellant and Mrs.V.Pushpa, learned Senior Standing Counsel for the Income Tax Department. 26. The Department pleads that the above substantial questions of law have inadvertently been omitted from bein....
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....e is thus no justification in the Department seeking to re-open that very issue now, that too for the previous years. 31. In respect of assessment year 2020-21, proceedings were initiated under Section 263 of the Act for revision of assessment. Notably, the Commissioner of Income Tax did not believe it necessary to advert to the issue in regard to Section 40(a)(i). A copy of order under Section 263 dated 20.11.2024 is placed before us that illustrates that the Commissioner of Income Tax has proceeded only on other issues, extraneous to Section 40(a)(i) of the Act. 32. Incidentally, it is the same Commissioner of Income Tax who has also filed the present Miscellaneous Petitions seeking admission of the substantial questions of law. 33. The question of liability under Section 40(a)(i) has been a matter of litigation for various assessment years between 2003-04 to 2010-11. In the assessments framed originally for those assessment years, the Assessing Authority proceeded on the basis that the assessee ought to have deducted tax under Section 195 of the Act, effecting disallowance under Section 40(a)(i) of the Act. 34. In appeal before the Income Tax Appellate Tribunal, the Tribunal....
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....unal while upholding the order of the Assessing Officer did not assign any independent reasons. The discussion in the impugned order relates to the validity of re-insurance business outside India done by an Indian insurer. The Tribunal did not consider the correctness of the order passed by the Assessing Officer or that of the CIT(A). Therefore, the Tribunal could not have held that the Assessing Officer rightly disallowed the re-insurance premium under Section 40(a)(i). This finding is not supported with any reasons. Therefore, the Tribunal misdirected itself, exceeded the scope of remand as ordered by the Division Bench and ventured into a jurisdiction, which is wholly prohibited in the light of the plain language of Section 254(1) of the Act. 27. Thus, for the above reasons, we are of the clear view that the order passed by the Tribunal calls for interference. Accordingly, the appeals, filed by the assessee are allowed and the substantial questions of law framed are answered in favour of the assessee. 28. In the light of the above, the matter stands remanded to the Tribunal to take a decision on the following points:- (i) Whether the Assessing Officer was right in disal....
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....ings and thus, basis of the CIT (A) to rest his decision on basis of said judgment 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 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/s40(a)(i) of the Act, 1961. Hence, we dir....
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....s a facilitator and nothing more. 47. Moreover, it is only after in-depth examination of the matter for AY 2020-21, that the Assessing Authority has concluded the issue in favour of the assessee. Clearly, the intention of the Department is to accept the findings in the order of the Tribunal dated 26.08.2022 for all subsequent years. We hence, we find no justification in the present lukewarm attempt to re-open and re-argue this issue. 48. In this context, we draw support from the judgment of the Supreme Court in Berger Paints India Ltd. V. CIT 266 ITR 99, where the Supreme Court has held that where the Department has accepted the interpretation of a statutory provision in a given factual matrix, that interpretation should govern the assessments of that issue in regard to other assessees as well, who stand on an identical/comparable footing. 49. In the present case, the assessee stands on a better plane, seeing as in its own case, the question of liability under Section 40(a)(i) has been accepted by the Department for A.Y.2020-2021. We may, in this regard, make useful reference to the ratio of the judgment in Commissioner of Income-tax V. Excel Industries Ltd. 358 ITR 295, where t....