2018 (10) TMI 1096 - AT - Income Tax

Disallowance of re-insurance premium paid by the assessee to the non-resident re-insurance companies under Section 40(a)(i) - when the provisions of Section 2(9) of the Insurance Act, 1938 is applicable with effect from 26.12.2014, why it is not applicable for earlier assessment years? - Held that - This Tribunal is of the considered opinion that the provisions of Section 2(9)(c) of Insurance Act, 1938 is very much applicable to the re-insurance business, therefore, the profit of non-resident insurance company or the person in India who has standing contract with underwriters, who are members of the Lloyds, is taxable in India. Hence, the assessee has to necessarily deduct tax on the premium paid to non-resident re-insurance company for reinsurance. Even otherwise, if the assessee claims that there was no person in India, who has standing contract with underwriters who are members of the Lloyds and premium was paid directly to nonresident re-insurance company, then the transaction of the assessee is clearly in violation of provisions of Section 2(9)(c) of Insurance Act, 1938. The entire re-insurance arrangement of the assessee- company is in violation and contrary to the provisions of Section 2(9) of Insurance Act, 1938. Therefore, the entire re-insurance premium has to be disallowed under Section 37 of the Act. In this case, the Assessing Officer disallowed the reinsurance premium for non-deduction of tax. Section 2C read with Section 2(9)(c) of Insurance Act, 1938 prohibits any person from doing insurance or re-insurance business in India otherwise permitted under Insurance Act, 1938. Therefore, there is a clear prohibition for payment of re-insurance premium to the non-resident re-insurance companies. Hence, the disallowance has to be made under Explanation 1 to Section 37 of the Act also. 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. - Decided in favour of revenue. Disallowance of provision created towards claim incurred but not reported and claim incurred but not enough reported - Held that - This Tribunal is of the considered opinion that merely because the incident happened during the year which is the basis for making claim, that cannot be a reason for allowing the compensation payable by the assessee. The compensation payable by the assessee has to be allowed in the year in which the amount of compensation was determined. Since the compensation amount was not determined during the year under consideration, this Tribunal is of the considered opinion that the same cannot be allowed. 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. Deduction u/s 36(1)(viia)(c) - Held that - The assessee-company is an insurance company and it is not a financial company, therefore, the applicability of Section 36(1)(viia)(c) of the Act ought to have been examined. The Assessing Officer had no occasion to examine the same. The CIT(Appeals) simply directed the Assessing Officer to allow the claim of the assessee on the ground that the same was not examined by the Assessing Officer. There is no discussion in the order with regard to the applicability of provisions of Section 36(1)(viia)(c) of the Act. Therefore, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer. Payment of survey fees to non-residents and reimbursement of expenditure - Held that - Admittedly, it is a reimbursement of expenditure incurred by non-resident surveyors who were engaged by the assessee to estimate / quantify the damages occurred outside the country. The entire services of surveyors were rendered outside the country, therefore, this Tribunal is of the considered opinion that the income of the surveyors is not liable for taxation in India in respect of service rendered to the assessee. Therefore, the assessee is not liable to deduct tax. As rightly submitted by the Ld. Sr. counsel for the assessee, the assessee is expected to deduct tax provided the recipient is liable for taxation on the amount received from the assessee. No reason to interfere with the order of the lower authority. MAT computation - Addition of reserve for unexpired risk while computing book profit under Section 115JB - Held that - Since Section 115JB is not applicable to the insurance companies, this Tribunal do not find any infirmity in the order of the CIT(Appeals). Accordingly, the same is confirmed. TDS U/S 194D - assessee has paid commissions while accepting re-insurance premium from various other insurance companies in India without deduction of tds - Held that - The responsibility of paying commission is not on the assessee. The commission was deducted by the respective insurance companies who are paying re-insurance premium to the assessee at the time of making payment. Therefore, this Tribunal is of the considered opinion that the assessee cannot be found fault for non-deducting the tax. The situation may stand otherwise in case the assessee, after receiving entire re-insurance premium, makes payment of commission. In this case, the respective insurance companies themselves act as agents and deduct the commission by themselves. Hence, the CIT(Appeals) has rightly allowed the claim of the assessee. Provision towards Employees Short Term Benefits in the computation of book profit - Held that - the provisions made for Employees Short Term Benefit cannot be allowed as deduction. Rule 5(a) of First Schedule to the Act clearly says that the expenditure or any provision which is not admissible under the provisions of Section 30 to 43B in computing the profits and gains of a business shall be added back. In view of the specific provision in Rule 5(a) of the Act, the claim of the assessee cannot be allowed. Therefore, the CIT(Appeals) is not justified in allowing the claim. We are unable to uphold the order of the lower authority. Accordingly, the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored. Computation of MAT under Section 115JB - 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 do not find any infirmity in the order of the lower authority. Accordingly, the same is confirmed. Deduction of Securities Transaction Tax while computing the book profit - Held that - It is not in dispute that the assessee has paid Securities Transaction Tax. It is not a provision, therefore, it need not be added back to the profit of the assessee in view of Rule 5(a) of First Schedule to the Income-tax Act. Moreover, as discussed in the earlier part of this order, the provisions of Section 115JB of the Act are not applicable to the insurance companies. In view of the above, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Disallowance of infra payment made to car dealers under Section 37(1) - genuineness of payment was not proved - Held that - From the material available on record it appears that the assessee-company in order to propagate its insurance business, had arrangement with motor car dealers in their showroom for providing space, computer stationeries, etc. For that, the assessee appears to have made the payment. The assessee has filed copies of invoice, confirmation letters from service providers and details of premium collected by the motor vehicle dealers from the customers. There is no doubt about the genuineness of service rendered by the car dealers. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Depreciation on investments - Held that - The CIT(Appeals) by placing reliance on the order of this Tribunal dated 18.08.2005 confirmed the disallowance made by the Assessing Officer. Right from the assessment year 1989-90 to 2004-05, similar claim of the assessee was disallowed. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Profit on sale / redemption of investment to be allowed by placing reliance on the order of his predecessor for assessment years 1996-97, 1997-98, 1998-99, 2001-02 and 2002-03, decided the issue in favour of the assessee. Contribution to Pension Fund - Held that - This Tribunal is of the considered opinion that Superannuation Fund is nothing but a fund created by the respective employer to compensate the employees who are retiring from service on superannuation. Therefore, the nomenclature of fund is immaterial. The benefit given to an employee by the employer on superannuation has to be construed as Superannuation Fund. Therefore, this Tribunal is unable to uphold the contention of the assessee that the Pension Fund is different from Superannuation Fund. Hence, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Failure of AO give credit on the TDS amount - Held that - Orders of both the authorities below are set aside and the issue of tax deducted at source is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter and find out whether the tax was actually deducted at source in respect of the assessee and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. Levy of interest under Section 234B and 234C of the Act is mandatory. Therefore, the Assessing Officer shall recompute the interest while giving effect to the order of this Tribunal. Accordingly, the levy of interest under Section 234B and 234C of the Act is remitted back to the file of the Assessing Officer.

Summary

Issues Involved:

1. Delay in filing appeal.
2. Disallowance of re-insurance premium paid to non-resident companies.
3. Amortization of premium on securities.
4. Disallowance of provision for claims incurred but not reported.
5. Deferred interest on loans and debentures.
6. Profit on sale of investments.
7. Deduction under Section 36(1)(viia)(c).
8. Payment of survey fees to non-residents and reimbursement of expenditure.
9. Addition of reserve for unexpired risk in book profit under Section 115JB.
10. Failure to deduct tax on commission payments.
11. Provision for Employees Short Term Benefits in book profit computation.
12. Computation of Minimum Alternate Tax (MAT) under Section 115JB.
13. Deduction of Securities Transaction Tax in book profit computation.
14. Disallowance of infra payments to car dealers under Section 37(1).
15. Depreciation on investments.
16. Profit on sale/redemption of investments.
17. Contribution to Pension Fund.
18. Credit for Tax Deducted at Source (TDS).
19. Levy of interest under Sections 234B and 234C, and interest under Section 244A.

Detailed Analysis:

1. Delay in Filing Appeal:
The tribunal condoned an 8-day delay in filing the appeal by the Revenue, finding sufficient cause for the delay.

2. Disallowance of Re-insurance Premium Paid to Non-Resident Companies:
The tribunal examined the re-insurance premiums paid by the assessee to non-resident re-insurance companies across five categories. It was argued that the re-insurance contracts were independent and necessary for distributing risk. The tribunal found that the provisions of Section 2(9) of the Insurance Act, 1938, as amended, applied to the assessee for earlier assessment years. Consequently, the tribunal held that the assessee was liable to deduct tax on re-insurance premiums paid to non-resident companies and upheld the disallowance under Section 40(a)(i) of the Act.

3. Amortization of Premium on Securities:
The tribunal confirmed the disallowance of amortization of premium on securities based on its earlier decision for the assessment year 2003-04.

4. Disallowance of Provision for Claims Incurred but Not Reported:
The tribunal ruled that the provision for claims incurred but not reported or not enough reported could not be allowed as the liability was not ascertained during the year under consideration. It set aside the CIT(Appeals) order and restored the Assessing Officer's decision.

5. Deferred Interest on Loans and Debentures:
The tribunal upheld the CIT(Appeals) order directing the Assessing Officer to recompute interest on an accrual basis.

6. Profit on Sale of Investments:
The tribunal confirmed the CIT(Appeals) decision favoring the assessee, citing earlier tribunal decisions for similar issues.

7. Deduction under Section 36(1)(viia)(c):
The tribunal remitted the issue back to the Assessing Officer for re-examination, as the applicability of Section 36(1)(viia)(c) to the insurance company was not initially considered.

8. Payment of Survey Fees to Non-Residents and Reimbursement of Expenditure:
The tribunal upheld the CIT(Appeals) decision, stating that the surveyors' services were rendered outside India and their income was not taxable in India, thus no tax deduction was required.

9. Addition of Reserve for Unexpired Risk in Book Profit under Section 115JB:
The tribunal confirmed that Section 115JB was not applicable to insurance companies, supporting the CIT(Appeals) decision.

10. Failure to Deduct Tax on Commission Payments:
The tribunal found that the insurance companies themselves deducted the commission from the re-insurance premium. Therefore, the assessee was not responsible for tax deduction, and the CIT(Appeals) decision was upheld.

11. Provision for Employees Short Term Benefits in Book Profit Computation:
The tribunal ruled that the provision for Employees Short Term Benefits could not be allowed as a deduction under Rule 5(a) of the First Schedule to the Income-tax Act, setting aside the CIT(Appeals) order.

12. Computation of MAT under Section 115JB:
The tribunal confirmed that Section 115JB was not applicable to insurance companies, supporting the CIT(Appeals) decision.

13. Deduction of Securities Transaction Tax in Book Profit Computation:
The tribunal upheld the CIT(Appeals) decision, stating that the Securities Transaction Tax paid by the assessee need not be added back to the profit.

14. Disallowance of Infra Payments to Car Dealers under Section 37(1):
The tribunal found the payments to car dealers for services rendered were genuine and upheld the CIT(Appeals) decision.

15. Depreciation on Investments:
The tribunal confirmed the disallowance of depreciation on investments, consistent with earlier tribunal decisions.

16. Profit on Sale/Redemption of Investments:
The tribunal upheld the CIT(Appeals) decision favoring the assessee, citing earlier tribunal decisions for similar issues.

17. Contribution to Pension Fund:
The tribunal ruled that the Pension Fund is on par with the Superannuation Fund and treated it as fringe benefit, confirming the CIT(Appeals) decision.

18. Credit for TDS:
The tribunal remitted the issue back to the Assessing Officer to verify the TDS amount and provide corresponding credit if tax was deducted.

19. Levy of Interest under Sections 234B and 234C, and Interest under Section 244A:
The tribunal remitted the issue back to the Assessing Officer to recompute interest under Sections 234B and 234C, and interest under Section 244A, after giving a reasonable opportunity to the assessee.

Conclusion:
The appeals of both the Revenue and the assessee were partly allowed for statistical purposes, with various issues being remanded for re-examination or upheld based on prior tribunal decisions and statutory provisions.