TMI Blog2018 (11) TMI 1539X X X X Extracts X X X X X X X X Extracts X X X X ..... t tax. Therefore, the above decisions of Mumbai Bench and Pune Bench of this Tribunal also may not be of any assistance to the assessee - the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored except for the assessment years 2003-04 and 2004-05. Reopening of assessment - Held that:- Unless there is a tangible material found after completion of assessment, the High Court found that the completed assessment cannot be reopened on the basis of the material already available on record. In view of the above, this Tribunal is of the considered opinion that reopening of assessment for the assessment years 2003-04 and 2004-05 in the absence of any tangible material after assessment under Section 143(3) of the Act is not justified. Therefore, the consequential orders passed by the Assessing Officer for both the assessment years 2003-04 and 2004-05 are set aside and the appeals of the assessee for those years are allowed. Disallowance of provision created towards claim incurred but not reported - Held that:- Admittedly, the compensation payable to insured person was not determined during the assessment year 2009-10. Therefore, this Tribunal is of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside the orders of both the authorities below and direct the Assessing Officer to allow 60% in respect of UPS also. Disallowance of exemption under Section 10(23G) - CIT(Appeals) by referring to Section 80(IA(4) of the Act found that the companies in which the assessee made investments were not eligible for business - Held that:- It is not in dispute that investments were made by the assessee in the companies which are not producing or generating electricity. All these companies are admittedly distributing the electricity. Therefore, as rightly found by the CIT(Appeals), they are not eligible business under Section 80(IA)(4) of the Act. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Addition made while computing book profit - Held that:- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnized as such by Insurance Regulatory And Development Authority of India. The Ld. Sr. counsel explained that when an aircraft or satellite was insured, the assessee has to assume large amount of risk which the assessee may not be able to handle by itself. Therefore, in order to distribute the risk, the assessee enters into re-insurance contract with non-resident re-insurance company. According to the Ld. Sr. counsel, re-insurance contract or re-insurance treaty is independent of insurance between the assessee-company and re-insurer. Reinsurance, according to the Ld. Sr. counsel, is an insurance for insurer. The Ld. Sr. counsel further submitted that the re-insurer and the assessee-company being an insurance company, deal with the each other on principal-to-principal basis. Re-insurance, in fact, does not affect the relationship between the insured person and the assessee-company. The insured person is not a party to the reinsurance treaty or contract. In the event of loss, according to the Ld. Sr. counsel, the assessee being an insurance company, has to compensate the insured person independently. Subsequently, a claim would be made by the assessee in respect of the re-insurance c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies. The Ld. Sr. counsel further clarified that while the assessee retains the maximum risk in India as per the Insurance Regulatory And Development Authority of India regulation, they also ceded reinsurance risk to non-resident re-insurance company in order to protect its risk. On a query from the Bench, when sub-section (7) of 101A of the Insurance Act, 1938 clarifies that the insurance companies may have re-insurance with Indian re-insurer or other re7 insurer the entire sum assured on some policy or any portion thereof in excess of the percentage specified by the Insurance Regulatory And Development Authority of India, how can they have re-insurance contrary to the provisions of Section 2(9) of the Insurance Act, 1938? The Ld. Sr. counsel clarified that Section 2(9) of the Insurance Act, 1938 is not applicable to the assesseeinsurance company. Referring to Section 114A(zd) of the Insurance Act, 1938, the Ld. Sr. counsel submitted that the Insurance Regulatory And Development Authority of India framed regulations for having re-insurance treaty with non-resident re-insurance company. Since the Insurance Regulatory And Development Authority of India framed a regulation in exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or re-insurance slip, the brokers sign in addition to re-insurance company, the brokers have no role either in negotiating the terms of contract of re-insurance or for settlement of claim. The brokers do not take any decision to accept re-insurance business. 7. Shri Percy J. Pardiwala, the Ld. Sr. counsel for the assessee, further submitted that the re-insurance programme of the assesseeinsurance company is approved by the Board of Directors of the assessee and it was submitted before the Insurance Regulatory And Development Authority of India every year. The assesseecompany is expected to identify the re-insurance company to whom re-insurance contract could be entered into over and above the obligatory cession to the General Insurance Corporation of India. On a query from the Bench how the assessee-company identifies the re-insurance company, either by calling for tender or by inviting non-resident company for negotiation? The Ld. Sr. counsel submitted that the assessee contacts the non-resident re-insurance company by sending e-mail. In some cases, the non-resident reinsurance company was also contacted by mails through brokers. The contract was settled by way of communicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Corporation of India. 10. Shri Percy J. Pardiwala, the Ld. Sr. counsel for the assessee, further submitted that the slip or re-insurance slip is signed by the re-insurer wherever the re-insurance was direct or through a broker. Sometimes, even though the broker may sign the re-insurance slip specifying the share of each re-insurer in respect of particular line of business, each re-insurer signs the re-insurance slip agreeing their respective share of risk. According to the Ld. Sr. counsel, the broker cannot bind the re-insurer by signing the re-insurance slip in case the treaty terms have not been accepted by the re-insurer by signing the treaty or re-insurance slip. 11. The Ld. Sr. counsel for the assessee further submitted that the quarterly statement of accounts is normally sent to the nonresident re-insurer or the broker as the case may be, specifying the re-insurance premium, re-insurance claim, commission and net payable or receivable from the re-insurer. According to the Ld. Sr. counsel, in case the assessee has to pay money to the re-insurer or broker, the same would be paid. In case the re-insurer has to pay money, the same would be paid by the re-insurer either d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident re-insurance company operates outside the country, their income is not taxable in India, therefore, the assessee is not liable to deduct tax. Hence, according to the Ld. Sr. counsel, the disallowance made by the Assessing Officer under Section 40(a)(i) of the Income-tax Act, 1961 (in short 'the Act') is not justified. 13. On the contrary, Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue, submitted that Section 101A of the Insurance Act, 1938 clearly says that every insurer shall re-insure with Indian re-insurer such percentage of sum assured on each policy as may be specified by the authority. In this case, according to the Ld. Sr. Standing Counsel, the authority referred in Section 101A is Insurance Regulatory And Development Authority of India. In fact, Insurance Regulatory And Development Authority of India by way of notification specified the percentage of sum assured on each policy to be re-insured with Indian re-insurer. In fact, according to the Ld. Sr. Standing Counsel, there is no dispute with regard to reinsurance premium paid by the assessee to the Indian re-insurer. The Ld. Sr. Standing Counsel further submitted that the Indian reins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurer as defined in Section 2(9) of Insurance Act, 1938 alone can carry on the re-insurance business. Therefore, according to the Ld. Sr. Standing Counsel, the other insurer as referred in sub-section (7) of Section 101A of the Insurance Act, 1938 is an insurer as defined in Section 2(9). It does not include non-resident re-insurance company or other insurance company which is not referred in Section 2(9). 16. Referring to Section 2(7A) of Insurance Act, 1938, the Ld. Sr. Standing Counsel for the Revenue submitted that Indian insurance company was also defined in Section 2(7A). Therefore, the non resident re-insurance company which has no place of business in India or business connection in India would not fall within the term other insurer as provided in sub-section (7) of Section 101A. According to the Ld. Sr. Standing Counsel, the assessee has business connection by making re-insurance with non-resident reinsurance company in violation of Insurance Act, 1938, therefore, the entire premium paid by the assessee has to be disallowed under proviso to Section 37 of the Act. According to the Ld. Sr. Standing Counsel, if the assessee claims that there is a business connection f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies in view of amended provision of Section 2(9) of the Insurance Act, 1938. On a query from the Bench whether the assessee can have re-insurance as such with other Indian insurance companies apart from General Insurance Corporation of India? The Ld. Sr. counsel clarified that the assessee can also have re-insurance programme with other Indian insurers like United India Insurance, New India Assurance, etc. apart from General Insurance Corporation of India. In fact, according to the Ld. Sr. counsel, the assessee has taken up reinsurance programme with Indian companies for its own risk and also received re-insurance premiums from other Indian insurer by taking part of their risk. 18. We have considered the rival submissions on either side and perused the relevant material available on record. The assessee is an Indian insurance company registered with Insurance Regulatory And Development Authority of India as provided in Section 3(2A) of the Insurance Act, 1938. Till 2014, the re-insurance programmes are not regularized in India. The Parliament for the first time amended the Insurance Act, 1938 by introducing Part IVA by Insurance (Amendment) Act, 1961. For the purpose of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r from reinsuring with any Indian re-insurer or other insurer the entire sum assured on any policy or any portion thereof in excess of the percentage specified under sub-section (2). ( 8) In this section, ( i.) policy means a policy issued or renewed on or after the 1st day of April, 1961, in Respect of general insurance business transacted in India and does not include a re-insurance policy; and ( ii.) 'Indian re-insurer means an insurer specified in sub-clause (b) of Clause (9) of Section 2 who carries on exclusively re-insurance business and is approved in this behalf by the Central Government. Advisory Committee 101B. (1) The Authority with the previous approval of the Central Government shall, for the purposes of Section 101A, constitute an Advisory Committee consisting of not more than five persons having special Knowledge and experience of the business of insurance. ( 2) The term of office of, and the allowance payable to, members of the Advisory Committee, the procedure to be followed by, and the quorum necessary for the transaction of business of, the Committee and the manner of filling casual vacancies therein shall be such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia. 21. The term insurer is also defined in Section 2(9) of Insurance Act, 1938. Section 2(9) of the Insurance Act, 1938 reads as follows:- Insurer means - ( a) any individual or unincorporated body of individuals or body corporate incorporated under the law of any country other than India, carrying on insurance business [not being a person specified in sub-clause (c) of this clause] which- ( i) carries on that business in India, or ( ii) has his or its principal place of business or is domiciled in India or ( iii) with the object of obtaining insurance business, employs a representative, or maintains a place of business, in India; ( b) any body corporate [not being a person specified in sub-clause (c) of this clause] carrying on the business of insurance, which is a body corporate incorporated under any law for the time being in force in India; or stands to any such body corporate in the relation of a subsidiary company within the meaning of the Indian Companies Act, 1913 (7 of 1913), as defined by sub-section (2) of section 2 of that Act, and ( c) any person who in India has a standing contract with underwriters who are membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( b) in which the aggregate holdings of equity shares by foreign investors, including portfolio investors, do not exceed forty-nine per cent of the paid-up equity capital of such Indian insurance company, which is Indian owned and controlled, in such manner as may be prescribed. Explanation For the purposes of this sub-clause, the expression control shall include the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements; ( c) whose sole purpose is to carry on life insurance business or general insurance business or re-insurance business or health insurance business;] 23. The term insurance company is also defined in Section 2(8) of Insurance Act, 1938 which was omitted with retrospect effect from 26.12.2014, reads as follows:- ( 8) insurance company means any insurer being a company, association or partnership which may be wound up under 18 [the Companies Act, 1956 (1 of 1956)], or to which the Indian Partnership Act, 1932 (9 of 1932), applies; 24. The term Indian re-insurer is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of India was empowered to frame regulations in consistent with the provisions of Insurance Act, 1938 and rules made thereunder. Therefore, insurance or re-insurance business in India cannot be carried on contrary to the provisions of Insurance Act, 1938 and rules made thereunder. 26. In the case before us, the assessee has paid re-insurance premium to non-resident re-insurance company and claimed the same as deduction while computing the taxable income. The Assessing Officer disallowed the claim of the assessee on the ground that tax was not deducted as required. The contention of the Ld. Sr. counsel for the assessee before this Tribunal is that the provisions of Section 2(9) of the Insurance Act, 1938 is not applicable to the assessee-insurance company. The Ld. Sr. counsel has also referred to provisions of Section 114A(zd) of the Insurance Act, 1938 and submitted that Insurance Regulatory And Development Authority of India framed regulations for having reinsurance treaty with non-resident re-insurance companies. The non-resident re-insurance company, according to the Ld. Sr. counsel, was not granted any license to do insurance business in India. Therefore, according to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment Authority Act, 1999. Provided also an insurer, being an Indian Insurance Company, insurance cooperative society or a body corporate referred to in clause (c) of this subsection carrying on the business of insurance, may carry on any business of insurance in any Special Economic Zone as defined in clause (za) of section 2 of the Special Economic Zones Act, 2005. ( 2) Every notification issued under subsection (1) shall be laid before Parliament as soon as may be after it is issued. ( 3) Notwithstanding anything contained in sub-section (1), an insurance cooperative society may carry on any class of insurance business in India under this Act on or after the commencement of the Insurance (Amendment) Act, 2002. 28. Section 2C of the Insurance Act, 1938 prohibits from carrying on insurance business otherwise they are permitted under the Insurance Act, 1938. Third proviso to Section 2C clearly says that insurer other than Indian insurance company shall begin to carry on any class of insurance business in India. We have also carefully gone through the provisions of Section 2(9) of the Insurance Act, 1938. The Ld. Sr. counsel for the assessee very fairly su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of non-resident re-insurance company is taxable in India. Hence, the assessee-insurance company has to deduct tax under Section 40(a)(i) of the Act. 31. Before amendment, the term insurer clearly says that any person who in India has a standing contract with underwriters who are members of the Society of Lloyd s, whereby such person is authorized within the terms of such contract, to issue protection notes, cover notes or other documents granting insurance cover to other on behalf of the underwriters. Therefore, it is obvious that the first condition is that the person, namely, the insurer or re-insurer shall be in India. The second condition is that such person shall have standing contract with underwriters who are members of the Society of Lloyd s, whereby such person in India was authorized to issue protection note or cover note or other documents granting insurance cover. The question now may arise what is meant by Lloyds ? Lloyds is nothing but an insurance market located in the city of London. Lloyds is a body corporate established by Lloyds Act, 1871 to operate as a partially- mutualised market place within which multiple financial brokers, grouped in syndicates, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce companies. Hence, the disallowance has to be made under Explanation 1 to Section 37 of the Act also. 32. In view of the above, this Tribunal is of the considered opinion that the Assessing Officer has rightly disallowed the reinsurance premium under Section 40(a)(i) of the Act. Therefore, the CIT(Appeals) is not justified in restricting the claim of the assessee to 15% without any reason. 33. We have carefully gone through the judgment of Apex Court in the case of Vodafone International Holdings (supra). The provisions of Insurance Act, 1938, more particularly Section 2(9) was not considered by the Apex Court and that is not the subject matter of adjudication before the Apex Court. Therefore, this Tribunal is of the considered opinion that the judgment of Apex Court in Vodafone International Holdings (supra) is not applicable at all. 34. We have carefully gone through the decision of Mumbai Bench of this Tribunal in Swiss Re-Insurance Company Limited v. DDIT (38 ITR 568) and other decisions cited by the Ld. Sr. counsel for the assessee on identical issue. In all these cases, the provisions of Section 2(9) of Insurance Act, 1938 was not brought to the notice of the Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admittedly issued on 25.03.2008. It is not the case of the Revenue that any new material was found for the purpose of reopening the assessments. On the basis of the material already available while processing the assessment under Section 143(3) of the Act on 27.02.2006, the Assessing Officer came to a conclusion that the assessee has not deducted tax while making payment towards re-insurance premium. This Tribunal is of the considered opinion that when the Assessing Officer examined the material available on record while passing order under Section 143(3) of the Act and the assessee also disclosed the payment of re-insurance premium, it cannot be said that there was any negligence on the part of the assessee in disclosing the relevant material for completing assessment. The Madras High Court in the case of TANMAC India v. DCIT in Tax Case (Appeal) No.1426 of 2007 dated 19.12.2016 found that provisions of Sections 147 148 of the Act are not giving extended time for completing assessment. Unless there is a tangible material found after completion of assessment, the High Court found that the completed assessment cannot be reopened on the basis of the material already available on re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee-company is ascertained. The provisions made were in respect of the liability incurred by the assessee and not based on any future liability. Therefore, according to the Ld. Sr. counsel, the CIT(Appeals) has rightly allowed the claim of the assessee. 42. On the contrary, Shri M. Swaminathan, Sr. Standing Counsel for the Revenue, submitted that the assessee created provision in anticipation of settlement of claims that were not ascertained. What was reported to the assessee is damage / losse caused to the insured persons. According to the Ld. Sr. Standing Counsel, the assessee is yet to assess the loss and determine the amount to be compensated, therefore, it is unascertainable liability. What is to be allowed under the Income-tax Act is ascertainable liability and not the unascertainable liability. In this case, according to the Ld. Sr. Standing Counsel, at the best, the assessee may claim that there is a liability for compensation. But, the amount of compensation is not quantified on the last day of the financial year. Therefore, according to the Ld. Sr. Standing Counsel, it has to be allowed in the year in which the liability was quantified. Referring to the order of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee for the assessment year 2009-10. In other words, the compensation payable by the assessee has to be allowed in the year in which the amount of compensation was determined. Since the amount 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. 44. The Revenue has taken one more ground for assessment years 2008-09 and 2009-10 with regard to disallowance made by the Assessing Officer under Section 14A of the Act. 45. Shri M. Swaminathan, Sr. Standing Counsel for the Revenue, submitted that the CIT(Appeals) has deleted the disallowance on the ground that provisions of Section 14A of the Act are not applicable to the insurance company. According to the Sr. Standing Counsel, expenditure relating to exempted income is not allowable under Section 37 of the Act. Therefore, according to the Sr. Standing Counsel, it ought to have been quantified under Section 14A of the Act. 46. On the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness shall be added back; ( b) (i) any gain or loss on realization of investments shall be added or deducted, as the case may be, if such gain or loss is not credited or debited to the profit and loss account; ( ii) any provision for diminution in the value of investment debited to the profit and loss account, shall be added back; ( c) such amount carried over to a reserve for unexpired risks as may be prescribed in this behalf shall be allowed as a deduction. In view of Rule 5(a), the expenditures which are not for insurance business cannot be allowed and it has to be added back. 48. In view of the above, this Tribunal is unable to uphold the order of the CIT(Appeals). Accordingly, the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored. 49. The next issue arises for consideration is taxability of profit on sale of investments. This issue arises for consideration for the assessment years 2008-09 and 2009-10. 50. Shri M. Swaminathan, Sr. Standing Counsel for the Revenue, submitted that as per Rule 5 of the First Schedule of the Income-tax Act, 1961, the assessee has to offer to tax the profit as disclosed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D 17) also found that UPS is a part of computer. 55. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue also. Since the co-ordinate Bench of this Tribunal found that UPS is a part of computer and allowed depreciation at the rate of 60%, we are unable to uphold the orders of the lower authorities. Accordingly, we set aside the orders of both the authorities below and direct the Assessing Officer to allow 60% in respect of UPS also. 56. The next issue arises for consideration is disallowance of exemption under Section 10(23G) of the Act. 57. Shri Percy J. Pardiwalla, the Ld. Sr. counsel for the assessee, submitted that for the assessment year 2006-07, the assessee claimed exemption under Section 10(23G) of the Act. The Ld. Sr. counsel submitted that the Assessing Officer found that the assessee is not entitled for exemption under Section 10(23G) of the Act. According to the Ld. Sr. counsel, investments were made by the assessee in Rural Electrification Corporation Ltd., Power Grid Corporation of India Ltd. and Bombay Suburban Electricity Supply and Transport Ltd. Since all the companies in which the investments were made were engaged in the distributi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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