Circular of CBDT dated 23.07.2009 about PAN for Insurance Premium - whether valid or exercise of power without authority?

[C.A. DEV KUMAR KOTHARI]

Circular No: 021/IRDA/LIFE/PAN/Jul-2009 Dated 23-7-2009 has been issued about requirement of PAN. The Circular ( effective part of it) reads as follows:

"It has been decided to mandate the requirement of PAN on all high value insurance products.

All Insurers are therefore advised to collect PAN from all persons purchasing insurance products where the contracted annual premium payable on the insurance policies, per policy basis, exceeds Rs. 1.00 lakh.

This circular comes into force with immediate effect. All Insurers are advised to comply with the directions issued in this circular under confirmation to the Authority not later than 01.08.2009.

Analysis:

It apply to all high value insurance product where annual insurance premium per policy exceeds Rs. one lakh. - This apply to all type of insurance policies e.g. life insurance policies, Keymans insurance policies, all kind of other or  general  insurance policies, like marine insurance policy, personal accident insurance policies, group health insurance policy, industrial policies, professional or business risk policies etc.

All Insurers are advised to obtain PAN in applicable cases of insurance policies.

This circular is immediately effective. The insurers are advised to comply with the requirement of not only obtaining PAN but also to confirm the same to the authority not later than 01.08.2009. That is within five days. This is a unreasonable requirement.

Whether the circular is valid ?:

In this regard we need to refer to powers to make Rules as prescribed in Section 295. Relevant part of which read as follows:

Power to make rules.

295. (1) The Board may, subject to the control of the Central Government, by notification in the Gazette of India, make rules for the whole or any part of India for carrying out the purposes of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters :—

xxxxx

(eeb) the time within which any person may apply for the allotment of a permanent account number, the form and the manner in which such application may be made and the particulars which such application shall contain and the transactions with respect to which permanent account numbers shall be quoted on documents relating to such transactions under section 139A;

139A

1[Permanent account number.

139A.

xxxxx

(8) The Board may make rules providing for—

 (b) the categories of transactions in relation to which Permanent Account Numbers [or the General Index Register Number] shall be quoted by every person in the documents pertaining to such transactions;

(c) the categories of documents pertaining to business or profession in which such numbers shall be quoted by every person;

[(d) class or classes of persons to whom the provisions of this section shall not apply;

(e) the form and the manner in which the person who has not been allotted a Permanent Account Number or who does not have General Index Register Number shall make his declaration;

(f) the manner in which the Permanent Account Number or the General Index Register Number shall be quoted in respect of the categories of transactions referred to in clause (c);

(g) the time and the manner in which the transactions referred to in clause (c)  shall be intimated to the prescribed authority.]

Rules are required :

A bare reading of the above provisions shows that the CBDT has been given specific power to make Rules in this regard. According to the provisions, the Board can make Rules as to quoting of PAN- the documents, transactions, manner of quoting , intimation to concerned authority etc. Therefore, Rules can provide for quoting of PAN on proposals for insurance policy or related correspondence and documents. A mere circular is not sufficient. The mandate issued by the Board by way of Circular asking insurers to obtain PAN and furnish the details to concerned authority within a period of four- five days is totally unjust and unreasonable besides apparently not in accordance with the provisions of the Act.

 To comply with the Circular the insurers are required to :

Ascertain relevant policies,

To communicate with insured person or proposers of policy and seek PAN. The policy holders/ proposers are located all over Indian and many are located abroad.

To obtain PAN.

To make out a report.

To intimate the concerned authorities.

This is a very difficult task, if not impossible.

Circular appears to be invalid:

As observed above, there appears no Rule making power to direct any other person to obtain and send information as to PAN.

There is no such apparent or implied authority of the Board to issue such circular to insurers.

The Circular is therefore is not a proper medium to issue such directions to insurers. The proper course is to make Rules in this regard. 

The exercise appears to be theoretical:

Insurance premium is usually paid to cover risks and also to get tax benefits. Tax benefits is a major reason. Many time insurance premium is paid because it is compulsory to get insurance coverage e.g. in case of motor vehicles, security provided to bankers or other financiers as per requirement of loan agreement. In all such cases most of proposers for big insurance premium policies generally have PAN. Any person who pay Rs. one lakh as premium on a single policy is likely to have a PAN. Therefore, it seems that some stray cases of high insurance premium but without PAN  have prompted CBDT to issue a Circular in a great hurry without looking into relevant provisions. This is also pertinent to mention that the Circular does not indicate any purpose and also the enabling provision under which it has been issued.

Note:

The circular has been considered as appears on website of TMI and also in e-taxman. On visiting the website of the GOI  www.incometaxindia.gov.in only the following circulars were found at 10Pm on 28.07.09.

CIRCULAR NO. 1/2009, DATED 27/3/2009

CIRCULAR NO. 2/2009, DATED 21/5/2009

CIRCULAR NO. 3/2009, DATED 21/5/2009

CIRCULAR NO. 4/2009, DATED 29/6/2009

 CIRCULAR NO. 5/2009, DATED 2/7/2009

The Circular is dated 23.07.09 means it should have been issued on 23.07.09 to public and by display on website of GOI. However, it has not yet been possible to place the same on the website though five days have lapsed. Other websites also could display it on 28.07.09: In such circumstances how CBDT expect compliance from all insures by 01.08.09?