2013 (11) TMI 116 - AT - Income Tax

Disallowance of reinsurance premium paid to non-resident reinsurance companies GE India Technology Cen. (P.) Ltd. v. CIT 2010 (9) TMI 7 - SUPREME COURT OF INDIA - assessee contended that Reinsurance premium paid to non-resident reinsurance companies directly, where DTAA exists, and they having no place of permanent establishment in India, cannot be disallowed in the hands of the assessee under section 40(a)(i), as they are not liable to tax in India - Held that - many of the fine details now placed by the assessees before us, were not available before the lower authorities - matter remanded back for de novo disposal in accordance with law after giving the assessees reasonable opportunity of being heard.

Summary

Issues involved:
- Disallowance of reinsurance premium paid to non-resident reinsurance companies
- Treatment of unexpired premium reserve as income
- Disallowance of depreciation, unexplained expenditure, unexplained investment, profit on sale of investment
- Disallowance made under section 40(a)(i) and other grounds

Analysis:

Issue 1: Disallowance of reinsurance premium paid to non-resident reinsurance companies
- The main issue in all appeals was the disallowance of reinsurance premium paid to non-resident reinsurance companies. The assessees argued that such payments should not be disallowed as they are not taxable in India. They relied on the GE India Technology case to support their stance. The Commissioner of Income-tax(Appeals) also emphasized the need to establish the chargeability of reinsurance premium in India for each case. The absence of TDS led to disallowance under section 40(a)(i). The appellate tribunal found that finer details presented by assessees were not available before lower authorities, and recent judicial pronouncements were relevant. The tribunal remitted the files back to assessing authorities for reassessment in light of new materials and judicial decisions to ensure a consistent approach by the Revenue.

Issue 2: Treatment of unexpired premium reserve as income
- Another common issue raised was the treatment of unexpired premium reserve as income. This was specifically relevant in the case of M/s. Cholamandalam MS Insurance Company Limited. The appeals highlighted the importance of considering this aspect along with the reinsurance premium disallowance.

Issue 3: Disallowance of depreciation, unexplained expenditure, unexplained investment, profit on sale of investment
- In the case of M/s. Royal Sundaram Alliance Insurance Company Limited, additional issues like disallowance of depreciation, unexplained expenditure, unexplained investment, and profit on sale of investment were raised. These issues were separate from the common grounds related to reinsurance premium and unexpired premium reserve.

Issue 4: Disallowance made under section 40(a)(i) and other grounds
- For United India Insurance Company Limited, apart from common issues, there were grounds related to disallowance under section 40(a)(i) and other grounds. The tribunal acknowledged the complexity and variety of grounds raised by different assessees for different assessment years.

Conclusion:
- The tribunal set aside the orders of lower authorities and remitted the files for reassessment to ensure a uniform and consistent approach by the department. The decision was made to reflect a fair view based on new materials and recent judicial pronouncements. The appeals and cross objection were treated as allowed for statistical purposes, pending the reassessment by the concerned authorities after providing the assessees with a reasonable opportunity to present their case.