2021 (11) TMI 1200 - HC - Income Tax

Disallowance u/s 37(1) - payments of reinsurance premium made by the appellant to non-resident re-insurers - addition as same is prohibited under the Insurance Act, 1938 - HELD THAT - The above question was considered by this Court in the matter of Cholamandalam General Insurance Company Ltd 2019 (2) TMI 335 - MADRAS HIGH COURT wherein after finding that no inference could be drawn as done by the Tribunal therein, that there can be a bar or prohibition under the Insurance Company Act, which prohibits ceding with foreign reinsurance outside India, remanded the matter back to the Tribunal. We are informed that the matters are pending before the Tribunal pursuant to the order of this Hon'ble High Court in 2019 (2) TMI 335 - MADRAS HIGH COURT . We are thus inclined to remit the matter back to the Tribunal, issuing the very same directions and directing the Tribunal to examine the above aspects in these appeals as well. Disallowance u/s 14A in computation of Income of an Insurance Company - HELD THAT - We find that the issue stands resolved by the decision of Oriental Insurance Company Ltd 2020 (3) TMI 507 - DELHI HIGH COURT wherein as clear that Section 14A of Income Tax Act, 1961 stands excluded while computing the Income Tax of an Insurance Company, in view of the non-obstante clause contained in Section 44 of Income Tax Act, 1961, the questions of law stand decided against the assessee. Whether the profit on sale of investments by the appellant company is exempted? - As appellant and the respondent have submitted that the matter may be remitted to the Tribunal to re-examine the issue in the light of the order of the Division Bench of this Court in the matter of United India Insurance Co. 2019 (7) TMI 387 - MADRAS HIGH COURT . Though the question of disallowance of exemption under Section 10(23G) we are informed by the learned counsel for the appellant on instructions that the same has not been pressed. In view of the above, the question of law stands decided against the assessee.

Summary

Issues:
1. Whether reinsurance premium payments to non-resident reinsurers are disallowed under Section 37 with Explanation 1 of the Act.
2. Whether deductions under Section 14A are excluded in computing an Insurance Company's income.
3. Whether profits on the sale of investments are exempt under the Income Tax Act.
4. Whether exemption under Section 10(23G) is unavailable for investments in certain companies.

Analysis:

Reinsurance Premium Payments Issue:
The appeals by two insurance companies challenged the Income Tax Appellate Tribunal's orders on various issues. The first issue pertained to reinsurance premium payments to non-resident reinsurers. The Court referred to a previous case and remanded the matter back to the Tribunal to consider if the disallowance of reinsurance premium was justified under Section 40(a)(i) of the Act. The Court directed the Tribunal to address specific aspects related to this issue.

Deductions under Section 14A Issue:
Regarding the applicability of Section 14A in computing an Insurance Company's income, the Court relied on a Delhi High Court decision. The Court held that Section 14A stands excluded while computing an Insurance Company's income due to the provisions of Section 44 of the Income Tax Act, 1961. Consequently, the questions of law on this issue were decided against the assessee.

Profit on Sale of Investments Issue:
The issue of whether profits on the sale of investments are exempt was addressed by referring to a previous decision involving another insurance company. The Revenue mentioned that the matter was challenged before the Supreme Court. Both parties agreed to remit the matter back to the Tribunal for re-examination in light of the previous decision. The question of disallowance of exemption under Section 10(23G) was raised but not pressed by the appellant, leading to a decision against the assessee on this issue.

Exemption under Section 10(23G) Issue:
Although the exemption under Section 10(23G) was raised in one of the appeals, it was not pressed by the appellant. The Court decided this issue against the assessee as it was not pursued during the proceedings.

Conclusion:
The Court disposed of the tax case appeals by remanding some issues back to the Tribunal for further examination and deciding certain questions of law against the assessee. The judgment provided detailed directions for each issue and clarified the outcomes based on legal precedents and arguments presented during the proceedings.