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TMI Blog2019 (2) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... ve re-insurance outside the country ignoring the provisions of Insurance Act referred above. The Tribunal had no jurisdiction to declare any provisions of the regulations to be inconsistent with the provisions of the Insurance Act. This was wholly outside the purview of the Tribunal. Tribunal clearly exceeded its jurisdiction in stating that the assessee have engaged in a transaction, which is prohibited by law and therefore, not entitled for deduction under Section 37. This has never been the case of the Revenue either before the Assessing Officer or before the CIT(A) or before the Tribunal, when they filed appeals challenging that portion of the order passed by the CIT(A), which was against the Revenue. Tribunal while upholding the order of the AO did not assign any independent reasons. The discussion in the impugned order relates to the validity of re-insurance business outside India done by an Indian insurer. Tribunal did not consider the correctness of the order passed by the AO or that of the CIT(A). Tribunal could not have held that the Assessing Officer rightly disallowed the re-insurance premium under Section 40(a)(i). This finding is not supported with any reasons. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year 2007-08; I.T.A.No.2146/Chny/2008, dated 31.07.2018, for the assessment year 2005-06; I.T.A.No.1759/Chny/2011, dated 31.07.2018, for the assessment year 2006-07; I.T.A.No.40/Chny/2009, dated 31.07.2018, for the assessment year 2005-06; I.T.A.No.1666/Chny/2011, dated 06.08.2018, for the assessment year 2005-06; I.T.A.No.1626/Chny/2011, dated 06.08.2018, for the assessment year 2005-06; I.T.A.No.1356/Chny/2013, dated 06.08.2018, for the assessment year 2009-10; I.T.A.No.2310/Chny/2014, dated 06.08.2018, for the assessment year 2010-11; I.T.A.No.1689/Chny/2011, dated 28.08.2018, for the assessment year 2005-06; I.T.A.No.1691/Chny/2011, dated 28.08.2018, for the assessment year 2006-07; I.T.A.No.1688/Chny/2011, dated 28.08.2018, for the assessment year 2004-05; I.T.A.No.1673/Chny/2011, dated 28.08.2018, for the assessment year 2003-04; I.T.A.No.1692/Chny/2011, dated 28.08.2018, for the assessment year 2007-08; I.T.A.No.36/Chny/2014, dated 28.08.2018, for the assessment year 2009-10; I.T.A.No.696/Chny/2014, dated 28.08.2018, for the assessment year 2010-11; I.T.A.No.1693/Chny/2011, dated 28.08.2018, for the assessment year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e challenged by way of writ petitions, which were not numbered, however, were tagged along with the tax case appeals. 6.The Division Bench, by judgment dated 17.06.2013, in Cholamandalam MS General Insurance Co. vs. Assistant/Deputy commissioner of Income-tax, [2013] 357 ITR 597 (Madras), allowed the appeals filed by the assessee and set aside the order of remand passed by the Tribunal. The Division Bench pointed out that there is absolutely no material, which necessitated the remand of the case to the Assessing Officer, as the admitted factual position was that the materials, which were relied on by the assessee and the Revenue, were admitted before the Assessing Officer. In the background of such a conclusion, the appeals were allowed with the following directions:- 18. We may point out that the order of the Tribunal makes no mention at all as to what were the documents filed before the Tribunal as by way of fresh document, necessitating remand. In the background of the facts pleaded and admitted by the Revenue, we set aside the order of the Tribunal and remand the appeal to the Tribunal to bestow its attention in all sincerity to the issues raised by the Revenue as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n merits. 10.Section 254 of the Act states that the Appellate Tribunal, may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. What is to be borne in mind is the words such orders thereon . Therefore, the Tribunal is required to take a decision on the appeal petition and in the instant case, on the grounds raised by the assessee and the Revenue questioning the order passed by the Assessing Officer. Unfortunately, in the impugned decision taken by the Tribunal, it proceeded on an independent issue, which was never raised by the assessee or the Revenue, this, in our considered view, was without jurisdiction and wholly unwarranted. 11.From a reading of the impugned order passed by the Tribunal, more particularly, in para 6, it shows that the decision of the Tribunal on the effect of certain provisions of the Insurance Act, 1938 (for brevity the Insurance Act ) whether reinsurance was permissible with foreign entities and whether the same was prohibited or valid in law, were all queries, which were raised by the Tribunal suo motu, when the appeals were heard. It is true that the learned counsels appearing for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illegal occurring under a different statute over which, it has no control. In other words, the Income-tax Officer cannot declare a transaction as illegal under the provisions of the Insurance Act or the Regulations framed thereunder. The Incometax Officer can examine as to whether any income accrued in the hands of the assessee is required to be taxed. In the instant case, neither the Assessing Officer, nor the Commissioner of Income-tax (Appeals)-II (for brevity the CIT(A) ) has made any such endeavour, but the Tribunal has done such an exercise which, in our considered opinion, was without jurisdiction. Nevertheless, as we have heard elaborate arguments on the side of the assessees as well as the Revenue, we are constrained to test the correctness of the order passed by the Tribunal in this regard. Thus, we have to decide as to whether there is a prohibition under law for insurance payments to non-residents so as to attract the rigour of Explanation 1 to Section 37 of the Act. 16.In this regard, we may straightaway refer to the statement of objects and reasons for the Insurance (Amendment) Bill, 1961, which was introduced in the Lok Sabha on 14th February, 1961. This Bill wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsuring the percentage specified under sub-section (2) of the sum assured on each policy in respect of such business, re-insure with Indian re-insurers such amount out of the first surplus in respect of that business as he thinks fit, so however that, the aggregate amount of the premiums payable by him on such re-insurance in any year is not less than the said percentage of the premium income (without taking into account premiums on re-insurance ceded or accepted) in respect of such business during that year. Explanation .-For the purposes of this subsection, the year 1961 shall be deemed to mean the period from 1st April to the 31st December of that year. (4) A notification under sub-section (2) may also specify the terms and conditions in respect of any business of re-insurance required to be transacted under this section and such terms and conditions shall be binding on Indian re-insurers and other insurers. (5) No notification under sub-section (2) shall be issued except after consultation with the Advisory Committee constituted under section 101B. (6) Every notification issued under this section shall be laid before each House of Parliament, as soon a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rance Act is only the insurer, which is defined in Section 2(9) of the Insurance Act and there cannot be any extended meaning, which can be given to the term other insurer . Thus, it held an Indian insurer cannot have any reinsurance arrangement with reinsurance company other than the insurer, as defined in Section 2(9) of the Insurance Act. In our considered view, the conclusion of the Tribunal is not sustainable. We support such conclusion with the following reasons. 19.In exercise of the powers under Section 114A of the Insurance Act, and Sections 14 and 26 of the Insurance Regulatory and Development Authority Act, 1999, the Central Government framed the Insurance Regulatory and Development Authority Regulations pertaining to General Insurance Reinsurance called Insurance Regulatory and Development Authority (General Insurance Reinsurance) Regulations, 2000. Chapter II of the said Regulations deals with procedure to be followed for re-insurance arrangements and it would be beneficial to refer to the said provision, which reads as follows:- Chapter II:- 3. Procedure to be followed for Reinsurance Arrangements:- (1) The Reinsurance Programme shall con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis, limits and terms which are fair to all insurers and assist in maintaining the retention of business within India as close to the level achieved for the year 1999-2000 as possible. The arrangements so made shall be submitted to the Authority within three months of these regulations coming into force, for approval. (9) Surplus over and above the domestic reinsurance arrangements class wise can be placed by the insurer independently with any of the reinsurers complying with sub-regulation (7) subject to a limit of 10% of the total reinsurance premium ceded outside India being placed with any one reinsurer. Where it is necessary in respect of specialised insurance to cede a share exceeding such limit to any particular reinsurer, the insurer may seek the specific approval of the Authority giving reasons for such cession. (10) Every insurer shall offer an opportunity to other Indian insurers including the Indian Reinsurer to participate in its facultative and treaty surpluses before placement of such cessions outside India. (11) The Indian Reinsurer shall retrocede at least 50% of the obligatory cessions received by it to the ceding insurers after protecting the port ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Corporation Re is the only national re-insurer operating in India and also has re-insurance business in international market and its share of international business is 44 per cent. The Chairman of the General Insurance Corporation (GIC), who is one of the respondents in these appeals, has deposed before the Standing Committee on Finance and would state that the legal position as of 2008, there was no bar on doing re-insurance business by any foreign re-insurance company in India. The Chairman, GIC expressed deep concern that when GIC has to transact international business in various countries, they are subjected to lot of crosschecks and regulation and there is no corresponding regulation in India, as a result of which, foreign re-insurance companies can accept re-insurance business without taking any licence and without opening any branch in India. Thus, the suggestion was there is a need for regulation for any foreign country coming into India and doing re-insurance business. Ultimately, the Standing Committee on Finance noted that there is no bar on foreign re-insurance business companies carrying on reinsurance business in the country without any licence or opening a branch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. Furthermore, the Reserve Bank of India, Exchange Control Department, Central Office, Mumbai notified the Foreign Exchange Management (Insurance) Regulations, 2000. The major changes in the procedure as per the memorandum of Exchange Control Regulations relating to General Insurance in India (GIM) were summarised and the relevant Regulation, pertaining to reinsurance arrangement, is as follows:- S.No. Subject Matter Changes 1 Reinsurance Arrangement The reinsurance arrangement of public sector general insurance companies registered with ITDA are to be decided by the respective Boards of the insurance companies and IRDA is to be kept informed. ADs designated by these insurance companies are now permitted to make remittances falling under such approved reinsurance arrangements without reference to the bank. 24.The above will clearly show that re-insurance arrangement with a foreign insurance company is permissible. Thus, it is evidently clear that on and after the introduction of Section 101A to the Insurance Act, there is a mandatory requirement f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under Section 37 of the Act. This has never been the case of the Revenue either before the Assessing Officer or before the CIT(A) or before the Tribunal, when they filed appeals challenging that portion of the order passed by the CIT(A), which was against the Revenue. 26.The Tribunal while upholding the order of the Assessing Officer did not assign any independent reasons. The discussion in the impugned order relates to the validity of re-insurance business outside India done by an Indian insurer. The Tribunal did not consider the correctness of the order passed by the Assessing Officer or that of the CIT(A). Therefore, the Tribunal could not have held that the Assessing Officer rightly disallowed the re-insurance premium under Section 40(a)(i). This finding is not supported with any reasons. Therefore, the Tribunal misdirected itself, exceeded the scope of remand as ordered by the Division Bench and ventured into a jurisdiction, which is wholly prohibited in the light of the plain language of Section 254(1) of the Act. 27.Thus, for the above reasons, we are of the clear view that the order passed by the Tribunal calls for interference. Accordingly, the appeals, filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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