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2018 (11) TMI 1539 - AT - Income TaxDisallowance of re-insurance premium paid by the assessee to the non-resident re-insurance companies - Failure to dedcution TDS on Reinsurance premium - Additions u/s 40(a)(i) - Held that - As carefully gone through the decision of Mumbai Bench of this Tribunal in Swiss Re-Insurance Company Limited v. DDIT (2015 (4) TMI 905 - ITAT MUMBAI) and other decisions cited by the 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 Benches of the Tribunal which decided the above cases. Therefore, the Mumbai Bench and Pune Bench had no occasion to decide the applicability of Section 2(9) of Insurance Act, 1938. Since this Bench of the Tribunal finds that Section 2(9) of Insurance Act, 1938 as it stood before amendment in 2014, is applicable to the payment of re-insurance premium to non-resident re-insurance company, the assessee is liable to deduct 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 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 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. Profit from insurance busniss - disallowance made by the Assessing Officer u/s 14A - contention u/s 37 the expenditure relating to income has to be disallowed in respect of insurance company - Held that - In view of Rule 5(a), the expenditures which are not for insurance business cannot be allowed and it has to be added back. 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. Taxability of profit on sale of investments - Held that - It is not in dispute that Rule 5(b) of the First Schedule to the Income-tax Act, 1961 was deleted by Finance Act, 1988 with effect from 01.04.1989 and it was re-inserted by Finance (No.2) Act, 2009 with effect from 01.04.2011. Therefore, during the years under consideration, i.e. 2008-09 and 2009-10, the provisions of Rule 5(b) were not in statute book. Hence, as rightly contended by the Ld. Sr. Standing Counsel for the Revenue, the Assessing Officer has rightly taken the sale of investments as taxable income of the assessee. In the earlier order of this Tribunal the fact of deletion of provisions of Rule 5(b) of the First Schedule to the Act by Finance Act, 1988 was not brought to the notice of the Bench. Therefore, the earlier order of this Tribunal may not be applicable to the facts of the case. Accordingly, the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored. Depreciation on UPS - Held 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. 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 of both the authorities below. Accordingly, orders of both the authorities below are set aside and the Assessing Officer is directed to delete the additions.
Issues Involved:
1. Disallowance of re-insurance premium paid to non-resident re-insurance companies. 2. Validity of reopening of assessment for certain years. 3. Disallowance of provision created towards claims incurred but not reported. 4. Disallowance under Section 14A of the Income-tax Act. 5. Taxability of profit on sale of investments. 6. Depreciation on UPS. 7. Disallowance of exemption under Section 10(23G) of the Act. 8. Addition while computing book profit under Section 115JB. Detailed Analysis: 1. Disallowance of Re-insurance Premium: The primary issue was whether the re-insurance premium paid by the assessee to non-resident re-insurance companies is allowable as a deduction. The Tribunal noted that the assessee, an Indian insurance company, engaged in re-insurance with non-resident companies to distribute risk. The Revenue argued that such payments violated Section 2(9) of the Insurance Act, 1938, which defines "insurer" and mandates re-insurance with Indian re-insurers. The Tribunal concluded that the term "other insurer" in Section 101A(7) of the Insurance Act, 1938, refers to insurers defined under Section 2(9) and does not include non-resident re-insurance companies. Therefore, the re-insurance premium paid to non-resident companies without deducting tax was disallowed under Section 40(a)(i) of the Income-tax Act. 2. Validity of Reopening of Assessment: For the assessment years 2003-04 and 2004-05, the Tribunal examined the validity of reopening the assessment. The Tribunal found that the Assessing Officer had no new tangible material for reopening the assessments and relied on existing records. Citing the Madras High Court decision in TANMAC India v. DCIT, the Tribunal held that reopening based on material already on record is not justified. Consequently, the reopening of assessments for these years was set aside. 3. Disallowance of Provision for Claims Incurred but Not Reported: The assessee created a provision for claims incurred but not reported (IBNR) and claims incurred but not enough reported (IBNER). The Tribunal held that the liability to pay arises when the actual loss or damage is assessed and quantified, not merely when the incident occurs. Since the compensation was not determined during the assessment year 2009-10, the Tribunal disallowed the provision for that year. 4. Disallowance under Section 14A: The Revenue contended that expenditure related to exempt income should be disallowed under Section 14A. However, the Tribunal noted that Section 44 of the Income-tax Act specifies that the profits of insurance companies should be computed according to the First Schedule, which excludes the applicability of Sections 28 to 43B. Therefore, the Tribunal held that Section 14A is not applicable to insurance companies and set aside the disallowance. 5. Taxability of Profit on Sale of Investments: The Tribunal addressed whether the profit on the sale of investments is taxable for the assessment years 2008-09 and 2009-10. Rule 5(b) of the First Schedule, which allowed adjustments for gains or losses on realization of investments, was omitted by the Finance Act, 1988, and re-inserted in 2009. Since the rule was not in effect during the relevant years, the Tribunal upheld the Assessing Officer's decision to tax the profit on the sale of investments. 6. Depreciation on UPS: The Tribunal referred to its earlier decisions, which held that UPS is part of a computer and eligible for 60% depreciation. Consequently, the Tribunal directed the Assessing Officer to allow 60% depreciation on UPS. 7. Disallowance of Exemption under Section 10(23G): The assessee claimed exemption under Section 10(23G) for investments in companies engaged in electricity distribution. The Tribunal upheld the CIT(A)'s decision that these companies do not qualify as eligible businesses under Section 80(IA)(4) since they are not involved in generating or producing electricity. Therefore, the exemption claim was disallowed. 8. Addition while Computing Book Profit under Section 115JB: The Tribunal noted that Section 115JB, which pertains to the computation of book profit, does not apply to insurance companies as their accounts are not prepared according to Schedule VI of the Companies Act. Therefore, the Tribunal set aside the additions made by the Assessing Officer while computing book profit. Conclusion: The appeals filed by both the Revenue and the assessee were partly allowed, with specific directions provided for each issue. The Tribunal's order emphasized adherence to statutory provisions and clarified the applicability of various sections of the Income-tax Act and the Insurance Act, 1938.
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