9911796707
TMI Blog2022 (9) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... le in India under the Income Tax Act, 1961 or under DTAA between India and respective countries where NRRs are tax residents and thus, on impugned payments the assessee is not liable to deduct TDS u/s.195 of the Income Tax Act, 1961. Consequently, payments made to NRR cannot be disallowed u/s.40(a)(i) of the Act, 1961. Hence, we direct the Assessing Officer to delete additions made towards disallowance of reinsurance premium ceded to NRRs. Excess depreciation on UPS - HELD THAT:- UPS is part of computer and eligible for depreciation @ 60% and directed the Assessing Officer to allow 60% on UPS also. Therefore, consistent with the view taken by the coordinate Bench [ 2018 (11) TMI 1539 - ITAT CHENNAI] we are inclined to uphold findings of the learned CIT(A) and direct the Assessing Officer to allow depreciation on UPS @ 60% as claimed by the assessee. MAT computation u/s 115JB - Excess claim of deduction on unexpired premium reserve - AO has added back provision made for UPR to book profit computed u/s.115JB of the Act on the ground that when the assessee has received entire premium income for the relevant assessment year, in the books of account, then any reserve created ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in own case [ 2018 (11) TMI 1539 - ITAT CHENNAI] provision for IBNR IBNER is not deductible u/s.37(1) of the Income Tax Act, 1961, because such provision is only on unascertained liability, which is not accrued to the assessee for the relevant assessment year. Thus assessee is not entitled for deduction towards provision created for IBNR IBNER and thus, we reverse findings of the learned CIT(A) on this issue for the assessment years 2010-11 2013-14 and uphold findings of the learned CIT(A) for the assessment year 2014-15 and reject ground taken by the assessee. Contention of the assessee that actual utilization of IBNR IBNER should be allowed - We find that what was disallowed by the Assessing Officer is only provision created for the relevant assessment year, but there was no discussion on the spending in respect of IBNR IBNER. In case, the assessee has made actual utilization towards IBNR IBNER, then same needs to be allowed as deduction on payment basis. In other words, the compensation payable by the assessee has to be allowed in the year in which amount of compensation was determined. Therefore, we direct the Assessing Officer to verify claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to order passed by the CESTAT in the assessee s own case with reference to investigation carried out by the Service Tax Directorate. AO finds that there is finding on rendering of services, then the Assessing Officer is directed to delete additions made towards disallowances of payment made to motor vehicle dealers. Addition towards profit on sale of investments - AO has considered profit on sale of investments as taxable income - HELD THAT:- We find that the Hon'ble High Court of Madras had considered an identical issue in the case of United India Insurance Co. [ 2019 (7) TMI 387 - MADRAS HIGH COURT ] and held that profit on sale of investments is not taxable in the hands of insurance companies - In the case of M/s.Bajaj Allianz General Insurance Co. Ltd. [ 2009 (8) TMI 810 - ITAT PUNE-A ] had considered identical issue and held that income from profit on sale of investments by insurance companies is not taxable, after deletion of sub-rule (b) of Rule 5 of First Schedule. Therefore, from the above, it is very clear that profit on sale of investments is not taxable in the case of insurance companies. The learned CIT(A), after considering relevant facts has rightly de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application to insurance companies upto assessment year 2013-14 and thus, no addition can be made to book profit computed u/s.115JB of the Act, including addition towards IBNR IBNER upto assessment year 2013-14 and thus, we direct the Assessing Officer to delete additions made towards IBNR IBNER to book profit u/s.115JB of the Act for the assessment year 2013-14. - ITA No. : 2146/Chny/2008, 1620/Chny/2011, 1621/Chny/2011, 1350/Chny/2013, 2276/Chny/2014, 782 to 784/Chny/2018, 711/Chny/2020 And 40/Chny/2009, 1759/Chny/2011, 1676/Chny/2011, 1366/Chny/2013, 949 to 951/Chny/2018 - - - Dated:- 26-8-2022 - Shri V. Durga Rao, Judicial Member And Shri G. Manjunatha, Accountant Member For the Assessee : Mr. Percy J. Pardiwalla, Sr. Advocate Mr. Sandeep Bagmar, Advocate For the Revenue : Mr. M. Swaminathan, Sr. Standing Counsel Ms. V. Pushpa, Jr. Standing Counsel ORDER PER G. MANJUNATHA, AM: This bunch of 16 appeals filed by the assessee and the Revenue are directed against orders of the Commissioner of Income Tax (Appeals)-5 / CIT(A), Chennai dated 28.12.2017 /29.08.2008 / 28.07.2011 / 03.08.2011 / 26.03.2013 and pertain to relevant assessment years 2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PE in India, because in some cases the assessee has made payment through insurance brokers which constitutes agency PE and thus, the reinsurance companies are liable to tax in India for their profits and consequently assessee is liable to deduct tax at source u/s.195 of the Income Tax Act, 1961. Since, the assessee is failed to deduct TDS on impugned payment to NRR s, disallowed reinsurance premium ceded to NRR s u/s 40(a)(i) of the Income Tax Act, 1961. 4. The learned senior counsel Mr. Percy J Pardiwalla appearing for the assessee submitted that contract of insurance and contract of reinsurance are two separate and distinct contracts. A reinsurance contract is completely independent of insurance between the insured and insurer. The term reinsurance was not defined under the Insurance Act, 1938, until 2015. However, by the Insurance laws (Amendment) Act, 2015, definition of term reinsurance was inserted, as per which reinsurance means insurance of part of one insurer s risk by another insurer, who accepts risk for mutually acceptable premium . The learned counsel for the assessee further submitted under the Insurance Act, 1938, there is no prohibition whatsoever to bar Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasoning of the Assessing Officer, qua, other submissions on the issue of accrual of income to the non-resident insurance companies. The learned counsel further submitted that it was not a case of the Department that payments made to non-resident reinsurers are prohibited under insurance laws. The fact that the Department has not filed any appeal in respect of reinsurance premium ceded to foreign insurers located in Switzerland, Thailand, Malaysia and Qatar further amplifies that it is not case of the Revenue that payment of reinsurance premium is in any manner illegal or prohibited under insurance laws. Therefore, the issue of legality of payments now cannot be questioned by the Tribunal, when the same is not subject matter of dispute in appeal. The only dispute before the Tribunal is whether amount paid to non-resident reinsurers is chargeable to tax under the Act and if so, then, the assessee is liable to deduct TDS u/s.195 of the Income Tax Act, 1961. 6. The learned counsel for the assessee further submitted that reinsurance premium ceded to non-resident reinsurers is not taxable under the Income Tax Act, 1961, or under DTAA. Further, it is not taxable u/s.5 of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermine tax liability of premium paid to reinsurance companies. As per relevant provisions of the Act, and considering facts of the instant case, reinsurance premium ceded can be taxable only as business profits. Further, business profits will be taxable in India only if foreign reinsurers have permanent establishment in India. The learned counsel further submitted that without prejudice to the contention that reinsurance premium received by the foreign reinsurers in India is not taxable under the Act, it is submitted that reinsurance premium paid to foreign reinsurers, who are resident of countries with which India has DTAA are not liable to tax in India, because specific exclusion of reinsurance premium paid to non-resident reinsurers from the scope of chargeability, as there is no permanent establishment of non-resident reinsurer in India. Further, the learned CIT(A) has deleted disallowance in cases where there is a specific exclusion in the DTAA, and the Department has not appealed against same in any of the assessment years except assessment year 2009-10. In other cases, premium paid to foreign reinsurance companies can be taxed in India only if foreign insurance companies hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riggering PE are satisfied, merely by virtue of being a joint venture partner, the assessee would not create a PE for Mitsui Sumitomo in India. Therefore, it cannot be said Mitsui Sumitomo constituted PE in India. Further, India-Japan treaty does not contain a service PE clause and therefore, joint partner cannot be said to constitute service PE in India. To sum up, the learned counsel submitted that foreign reinsurers do not have PE or business connection in India under relevant DTAA or the Act. Therefore, the assessee is not liable to deduct TDS u/s 195 of the Act, on payments towards reinsurance premium ceded to NRR s and thus, the Assessing Officer cannot disallow impugned sums u/s 40(a)(i) of the Income Tax Act, 1961. In this regard, the learned counsel relied upon following judicial precedents:- i) ITAT., Mumbai in the case of ADIT vs. M/s. AON Global Insurance Service Ltd. ii) ITAT., Pune in the case of Bajaj Allianz General Insurance Co. Ltd. in ITA No.2560/PN/2012 iii) ITAT., Mumbai in the case of Swiss reinsurance Co. Ltd. Vs. DDIT and ICICI Lombard General Insurance Co. Ltd Vs ACIT (2014) 52 taxmann.com 471. 9. Mr. M. Swaminathan, learned Sr. Standing Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia attracts tax, irrespective of whether income accrued or arose in India or outside India. The learned Sr. Standing Counsel further referring to decision of the Hon'ble Supreme Court in the case of Kanchenjunga Sea Foods Ltd Vs. CIT (2010) 325 ITR 540 (SC) submitted that Hon'ble Supreme Court reiterated that income is received at a place where recipient first controls it. In the facts of the present case, non-resident reinsurer was held to have gained control over specific percentage in insurance premium only when it was apportioned by Indian insurer in India as part of IRDAI regulations and based on agreement entered with non-resident insurer. 10. The learned Sr. Standing Counsel for the Revenue submitted there is an agency PE of non-resident reinsurers in India, because they do business of reinsurance through brokers in India which is evident from the fact that reinsurance brokers do many activities on behalf of their principal, including signing of contract notes and receipt of premium in India. Therefore, such activities carried on by brokers constitute principal and agent relationship and thus, comes under agency PE as per DTAA between India and other countries a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndependent of contract of insurance between insured and insurer. The term reinsurance was not defined under the Insurance Act, 1938 until 2015. However, by Insurance Laws (Amendment) Act, 2015, definition of term reinsurance was inserted in the Insurance Act, 1938. As per which, the term reinsurance means insurance of part of one insurer s risk by another insurer, who accepts risk for mutually acceptable premium. Therefore, the assessee being in general insurance business as part of their strategy has taken reinsurance policy with reinsurance companies. Further, every insurance company in India has to place their reinsurance program 45 days prior to commencement of financial year before the IRDAI in terms of para 3.4 of IRDAI (General insurance, Reinsurance) Regulation, 2000, and within 30 days of commencement of the financial year, every insurance company has to file reinsurance treaty slips with IRDAI in terms of para 3.5 of IRDAI (General insurance, Reinsurance) Regulation, 2000. As per IRDAI Regulation, 2000, the insurance companies in India have to mandatorily reinsure with the Indian reinsurer being General Insurance Corporation (GIC). However, over and above specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant DTAA between India and other contracting States. 12. The Assessing Officer has disallowed reinsurance premium ceded to non-residents on the sole premise of non-deduction of tax at source u/s.195 of the Income Tax Act, 1961. According to the Assessing Officer, income of NRRI are accrued or arose in India and or deemed to have accrued or arose in India, because they have business connection in India in respect of reinsurance business. Therefore, the Assessing Officer held that wherever there is no DTAA between India and other contracting States, to whom the assessee has ceded reinsurance premium, question of examining case with reference to DTAA and more particularly, concept of PE does not arise. Therefore, the Assessing Officer held that in respect of reinsurance premium ceded to NRRI, where there is no DTAA between India and other contracting States, sum paid by the assessee to NRRI is taxable in India in terms of section 5 read with section 9(1) of the Income Tax Act, 1961, and consequently, the assessee is liable to deduct TDS u/s.195 of the Income Tax Act, 1961. As regards REINSURANCE PREMIUM ceded to NRRI where there is DTAA between India and other contracting State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or is deemed to accrue in India. Further, wherever DTAA applies, income chargeable to tax has to be additionally considered under terms of relevant DTAA. In the present case, reinsurance premium ceded to non-resident reinsurers is not chargeable to tax in India under the Income Tax Act, 1961, because income is not received in India, which is evident from fact that except for payment to Indian brokers in few cases, all other payments of reinsurance premium to NRRI have been paid outside India to non-resident brokers or NRRI bank account. Further, payment to brokers in India would not tantamount to receipt in India, having regard to ratio of the judgement of the Hon'ble Supreme Court in the case of Toshoku Ltd. Vs. CIT (1980) 125 ITR 525 (SC), where it was held that amounts credited in favour of non-resident were not at the disposal or control of statutory agent and therefore, cannot be charged to tax on the basis of receipt of income, actual or constructive in the taxable countries. Further, even assuming for a moment, payment to resident brokers is treated as received in India, but one can avail provisions of the DTAA which are more beneficial whereby premium would be taxed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to non-resident foreign insurers are raising in India only where the same arises out of business connection in India and even if, exists business connection, the business operations are carried out in India. In the present case, nor do foreign insurers have any fixed place of business in India, neither do they carry on any business operations in India. The term business connection is defined in Explanation 2 below section 9(1)(i) of the Act. None of the conditions that are required to be fulfilled before existence of business connection can be established or complied with. Although, the Assessing Officer has heavily based his finding in light of reinsurance brokers insofar as with NRRI, but fact remains that brokers are merely acting as facilitator or communication channel and do not engage themselves in negotiation of terms or finalize percentage of reinsurance contract. The brokers act in their independent capacity as service provider and are neither agents of the assessee nor agents of the NRRI. The Revenue has not brought any material on record to show that brokers are agents of the NRRI. Although, allegations were made that brokers sign treaty, settle accounts and verify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was categorically held by the Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd. Vs. DIT, 288 ITR 408 (SC) that contract signed in India is of no material consequence. In the present case, signing of reinsurance treaty is either in India or outside India cannot be a ground that income has deemed to accrue or arise in India. 16. Let us now come to chargeability of reinsurance premium ceded to NRRI under DTAA. It is an admitted fact that provisions of Act or provisions of DTAA, whichever is more favourable to the assessee, can be invoked to determine taxability of premium paid to reinsurance companies. It is an undisputed position that reinsurance premium is business profits for reinsurer and therefore, taxability thereof will have to be tested in terms of Article 7 of the respective DTAAs. As per Article 7, business profits are taxable in India only if, foreign reinsurers have PE in India. The assessee has paid reinsurance premium to various NRR. In some cases, NRR are resident of countries where India is having DTAA and in some cases, NRR are resident of country, where India does not have DTAA with other countries. In case of DTAA with Switzerla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-resident insurers. They do not conclude any contract for NRRI and thus, we are of the considered view that there cannot be said to constitute business connection for agency PE for foreign reinsurers in India. The Revenue has also not placed any material on record to demonstrate that reinsurance brokers constitute agency PE for NRRI under DTAA. 18. As regards service PE as considered by the Assessing Officer in light of press release dated 08.01.2003, we find that there is no concept of service PE in DTAA between India and Japan and hence, conclusion of the Assessing Officer is fundamentally flawed. Further, Mitsui Sumitomo Corporation, Japan has seconded three employees to the assessee in India to familiarize the assessee with Japanese companies operating in India and to enable the assessee to pitch for business of Japanese companies. From the above, it is abundantly clear that personnel were not engaged for business of Mitsui Sumitomo, but were only deputed for advancing business of the assessee by developing contact with the India entities of Japan Multinational Corporation. Therefore, on that basis it cannot be said that Mitsui Sumitomo, Japan had service PE in India. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urers in India. The Mumbai Bench of the Tribunal reversing the decision of the AO held as follows:- (a)The subsidiary of the NRRI in India does not constitute a PE of its holding company b) Conditions specified in cl (a) to (c) of Explanation 2 to section 9(1)(i) of the Act are not satisfied, therefore, the NRRI does not have any business connection in India. (c) Reinsurance is specifically excluded from the ambit of PE in India-Switzerland DTAA, therefore, there is no PE in India. (d) The services rendered by the subsidiary of NRRI does not constitute a Service PE or Agency PE of the NRRI in India. Thus, the Tribunal held that the reinsurance premium received by the NRRI from Indian reinsurer is not taxable in India both under the Act and the DTAA. (ii) DCIT ICICI Lombard General Insurance Co. Ltd. - ITA No. 2769 Mum, 2011 dt. 30/08/20133 Summary: :In the case of the Indian insurer (ICICI Lombard General Insurance Co. Ltd) the AO disallowed a sum of Rs. 5.84 crores paid to the NRRI in respect of reinsurance premium as no tax was deducted under section 195 and the same could not be considered as business expenditure. The CIT(A) held that the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO in this case held that the reinsurance proposals are procured from the insurance companies or brokers in India, which is a regular and continuous activity, therefore there is business connection. The Mumbai Bench of the Tribunal reversing the decision of the AO held as follows: (a) The onus is on the AO to establish that the foreign company has a business connection or PE in India. (b) Subsidiary of a foreign company would not be conclusive to say that there exists a PE in India. (c) Activities of Liaison Office which are in nature of preparatory and auxiliary cannot be construed to be the existence of business connection in India within the meaning of section 9(1)(i) or PE under the DTAA. (d) The Tribunal rejected the argument of the AO that there is business connection on account of regular and continuous activity. (e) Activities of subsidiary which are merely in nature of support services do not constitute PE of the NRRI. It also found that the subsidiary had no authority to conclude contract or settle claims on its own or on behalf of the NRRI. (f) The Tribunal also found that in reinsurance arrangements the privity of contract is between the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight in disallowing the reinsurance premium u/s. 40(a)(i) of the Act. Hence, that question needs to be decided by the Tribunal. Accordingly, the issue of applicability of provisions of section 40(a)(i) of the Act is adjudicated by us independently. We find that the Co-ordinate Bench of this Mumbai Tribunal in the case of DCIT vs. ICICI Lombard General Insurance Co. Pvt. Ltd., in ITA Nos. 6837 6832/Mum/2014 for A.Y. 2005-06 and 2009-10 vide order dated 04/10/2016 had adjudicated the very same issue in respect of payments made to M/s. Odyssey America Reinsurance Corporation, Singapore for providing reinsurance business, without deduction of tax at source and applicability of provisions of Section 40(a)(i) of the Act. We find that the Tribunal in the aforesaid case placed reliance in assessee s own case for A.Y.2004-05 reported in 152 ITD 855 and also in yet another case rendered in the context of revision proceedings u/s.263 of the Act in ITA No.5777/Mum/2011, had quashed the revision proceedings u/s.263 of the Act by observing as under:- 2.3. Thus, the Tribunal by the aforesaid order held that invocation of revisional jurisdiction was not valid. In view of this uncontroverted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Revenue to establish that the foreign company has a 'business connection' or a PE in India so as to invite any tax liability under the Indian tax laws. Ostensibly, the aforesaid is supported by the judgment of the Hon'ble Supreme Court in the case of E funds IT Solution Inc vs ADIT, (2017) 86 taxmann.com 240. Therefore, in this background, we may now examine the facts of the instant case as to whether such an onus has been discharged by the Revenue or not. 17. It has been asserted before us that the instant year is the first year when the assessee has filed a return of income as it had some taxable income, while in the past years there was no taxable income. In the past, there was no income other than premium on reinsurance business, yet the existence of LO since 2007 is in the knowledge of the assessing authority and no steps have been taken in any of the earlier years to construe the activities of the LO as constituting a 'business connection' or a PE of assessee in India. The learned representative asserted that it is only in this year that the function of the LO (for part of the year) has been understood by the Assessing Officer to be giving rise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contentions put forth by the Revenue as well as the material on record, namely, the Master Service Agreement and the Addendum to the Master Service agreement between assessee and the Indian subsidiary and find that the approach of the Assessing Officer is quite misdirected. In fact, the services that have been provided by the Indian subsidiary are support services in the field of actuarial and underwriting functions undertaken by the assessee and not services of actuarial or underwriting of insurance risks per se. We have already quite succinctly noted the nature and scope of the services rendered by the Indian subsidiary in the earlier paras 12 and 13 above. In fact, the Assessing Officer is grossly wrong in holding in para 9.7.8 of his order that all the functions with respect to the claim settlement are carried out by the Indian subsidiary itself; rather, it is a case where the Indian subsidiary provides support functions and assists the assessee in such matters. The privity of contract is between the assessee and the Indian insurance companies and, it is abundantly clear from the terms of engagement between the assessee and the Indian subsidiary that the Indian subsidiary i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d place PE or not. Similarly, the manner and mode of carrying on of transaction was also not found to be a proper test to determine as to whether there existed a fixed place of business or not. Taking a cue from the reasoning approved by the Hon'ble Supreme Court, in the present case too, the mere rendering of support services in connection with actuarial or underwriting services cannot be a ground to say that there exists a fixed place or a PE of the assessee in India. Therefore, on parity of reasoning which prevailed with the Hon'ble Supreme Court in the case of E funds IT Solution Inc (supra), in the present case too, the arguments of the Revenue do not deserve any indulgence. Accordingly, the same are rejected. 20. So far as the case of the Revenue that there is a dependent PE in India is concerned, herein also, the Revenue has merely brushed aside the claim of the assessee that the Indian subsidiary does not have any authority to secure contracts or solicit business on its behalf in India independent of the assessee. According to the Revenue, the Indian subsidiary uses brand name of the assessee while carrying out its activities in India. In our view, the same can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reinsurance company based in Switzerland which was receiving income for providing reinsurance to various insurance companies in India. Swiss re-Insurance company had a wholly owned subsidiary in India which was rendering administrative, market intelligence and other risk assessment services, which is quite similar to the services being rendered to assessee before us by its Indian subsidiary. Therein also, the appellant was remunerating its Indian subsidiary on the basis of cost plus mark-up. Therein also, the Assessing Officer had sought to tax the income by invoking 'business connection' in terms of Sec. 9(1)(i) of the Act as well as treating the Indian subsidiary as a PE in India. In nutshell, the facts as well as the dispute before our coordinate Bench in the case of Swiss re-Insurance Co. Ltd. (supra) stood on a similar footing as is the case before us. Our co- ordinate Bench considered the provisions of Explanation-2 to Sec. 9(1) of the Act as well as the provisions of India-Switzerland DTAA, which was the subject matter before it, and concluded that the foreign company therein did not have any 'business connection' in India or a PE in India. The aforesaid pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reinsurer in terms of Section 195(1) of the Income Tax Act. Hence, there is no obligation on the part of the assessee payer to deduct tax at source thereon. Reliance in this regard is placed on the decision of the Hon ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd., vs CIT reported in 327 ITR 456. Accordingly, the provisions of Section 40(a)(i) of the Act would not come into operation at all. Moreover, these decisions were duly quoted by the assessee before the ld. CIT(A) vide its submission dated 25/02/2020 which was completely ignored by the ld. CIT(A) while adjudicating the issue. 3.21. We further find that the Co-ordinate Bench decision of this Tribunal in Swiss Reinsurance Co. Ltd., vs. DDIT International Taxation, Mumbai reported in 55 taxmann.com 520 (Mumbai Trib.) dated 13/02/2015 for A.Y.2010-11 had also addressed the very same issue. The relevant operative portion of the said order is reproduced hereunder:- 5.3 Assuming that conditions of (i) (ii) mentioned herein above are fulfilled, we do not find that the employees of SRSIPL are providing services to the assessee as if they were the employees of the assessee. Therefore, condition laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a payer, to deduct tax at source and consequently there cannot be any disallowance u/s.40(a)(i) of the Act. Accordingly, assessee succeeds on this ground also. 20. Insofar as case laws relied upon by the learned CIT(A), of the Hon ble Bombay High Court in case of Vodafone International Holdings (329 ITR 126), in upholding action of the AO of subjecting reinsurance premium to tax in India, we find that the Hon ble Supreme Court has subsequently overruled this decision and same has been reported in 341 ITR 1 (SC) and thus, entire basis for the decision of the CIT(A) for the assessment year 2007-08 has no legs to stand. Further, the learned CIT(A) for the assessment year 2007-08 did not follow order of his predecessor for the assessment year 2005-06 on the ground that judgement of the Hon ble Bombay High Court in Vodafone International Holdings (supra) and of the Hon'ble Supreme Court in the case of Kanchanganga were not considered. We find that the Hon'ble Supreme Court has reversed decision of the Hon ble Bombay High Court in the case of Vodafone International Holdings and thus, basis of the CIT(A) to rest his decision on basis of said judgement is no longer justifiabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re inclined to uphold findings of the learned CIT(A) and direct the Assessing Officer to allow depreciation on UPS @ 60% as claimed by the assessee. 26. The next issue that came up for our consideration from the Revenue appeal for the assessment years 2010-11 201314 and the assessee appeal for the assessment year 2014-15 is excess claim of deduction on unexpired premium reserve. The assessee had made provision for unexpired premium reserve and deducted from premium income on the basis of period of insurance policy and transferred it to subsequent assessment year. The Assessing Officer has disallowed unexpired premium reserve on the ground that when the assessee has received entire premium during the financial year, there is no reason to make provision for UPR by claiming that it has received advance premium receipt. 27. The learned counsel for the assessee explaining accounting treatment of UPR, submitted that but for terminology of reserve in books of account, it is nothing but deferral of advance premium collected pertain to subsequent assessment year on the basis of period of policy to give true and correct position of income and expenditure in the relevant financial yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to relevant assessment year. Therefore, when the assessee has made provision for unexpired premium and reduced it from income of the relevant assessment year and also accounted said income in subsequent financial year, question of making additions to book profit u/s.115JB of the Act does not arise, because income does not pertain to impugned assessment year. 30. Having heard both sides and considered relevant material on record, we find that this issue is squarely covered in favour of the assessee by the decision of the ITAT, Kolkata Bench in the case of DCIT Vs. National Insurance Co.Ltd. (2016) 72 taxmann.com 116, where the Tribunal, after considering relevant facts and also Rule 6E of Income Tax Rules, 1962, held that if provision for unexpired premium reserve is within allowable limit as prescribed under Rule 6E, then same does not fall in the category of those reserves which have been specified in Rule 1(b) of section 115JB(2) of the Act, and thus, deleted additions made by the Assessing Officer towards excess provision on UPR to book profit computed u/s.115JB(2) of the Income Tax Act, 1961. The relevant findings of the Tribunal are as under:- 11. Addition towards R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the current accounting period, should find places in 'the Revenue/Profit Loss Account of the year. Hence it was submitted that in case of an Insurance Company (carrying on General Insurance Business), the creation of Reserve for Unexpired Risk cannot be considered to be similar to those Reserves which have been referred to in Clause (b) of Explanation (1) to Section 115JB(2). It may also be appreciated that the Reserve for Unexpired Risk can, in any case, not be considered as any provision made for meeting liabilities, other than ascertained liabilities as referred to in Clause(c) of Explanation (1) to Section 115JB(2). On the basis of the above facts it may kindly be appreciated that there has not been any requirement to add back any sum in relation to the Reserve for Unexpired Risk while computing Book Profit u/s.115JB(2) for the Assessment Year 2008-09. Accordingly, the assessee submitted that the Reserve for Unexpired Risks not being of the nature as specified in clause (b) of Explanation 1 to section 115JB(2), the action of the ld AO in making an addition of such Reserve should be held as unjustified. Hence, the assessee submitted that the ld AO may kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contention of the Assessing Officer that the assessee has not furnished necessary break up of premium received during the year to prove that such provision is within permissible limit of Rule 6E of Income Tax Rules, 1962. Therefore, we are of the considered view that issue needs further verification from the Assessing Officer. Hence, we set aside the issue to file of the Assessing Officer and direct the Assessing Officer to examine claim of the assessee and if provision made for UPR is in accordance with Rule 6E of Income Tax Rules, 1962, then, the Assessing Officer is directed to delete additions made towards excess claim of deduction towards UPR to book profit computed u/s.115JB(2) of the Income Tax Act, 1961. 32. The next issue that came up for our consideration from the Revenue appeal for the assessment years 2010-11 201314 and the assessee appeal for the assessment year 2014-15 is disallowance u/s.14A read with Rule 8D of the Income Tax Rules, 1962. 33. During the previous year relevant to assessment years under consideration, the assessee has earned exempt income, but not made any suo motu disallowance towards expenditure relatable to exempt income. The Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we direct the Assessing Officer to delete additions made towards disallowance u/s.14A read with Rule 8D of Income Tax Rules, 1962. 36. The next issue that came up for our consideration from the Revenue appeal for the assessment years 2010-11 201314 and the assessee appeal for the assessment year 2014-15 is disallowance of provision for IBNR and IBNER. 37. The learned Senior counsel Mr. Percy J Pardiwalla appearing for the assessee submitted that during the relevant assessment years, the assessee has made provision for claims incurred, but were not reported (IBNR) and claims incurred, which were not enough reported (IBENR) and such provision has been made for all unsettled claims on the basis of claim lodged by insured persons. According to the learned Sr. counsel, date of damage/loss was considered for recognizing the claim in a particular year. In certain circumstances, damages / loss were not reported in the balance sheet of the insurance company and such claims are known as claims incurred, but not reported. Sometimes, damage/loss incurred may be reported, however, it was not enough reported and therefore, the assessee has made provision as per IRDAI guidelines. The lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation was not determined during the assessment year 2009-10. Therefore, as rightly submitted by the according to the Ld. Sr. Standing Counsel for the Revenue, the liability to make the payment accrues to the assessee only in the year in which the loss or damage was ascertained and compensation payable to insured person is determined. 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 restore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.07.1991 and judgement of Hon ble Bombay High Court in the case of CIT Vs S.C. Takur Brothers 322 ITR 252 and disallowed excess claim of depreciation over and above normal depreciation of 15% applicable to general category. The learned Sr. counsel further submitted that the Hon ble Bombay High Court in the case of CIT Vs. Birla Global Asset Finance Co. Ltd. in ITA No.828 of 2010 dated 08.08.2012 has held that the assessee was entitled to claim depreciation @ 50% in respect of commercial vehicles used by them in their business as per the term commercial vehicles has been defined into light motor vehicles Act. 44. Mr. Swaminathan, Sr. Standing Counsel for the Revenue submitted that additional higher depreciation is applicable to new motor vehicles acquired and put to use in the business of run them on hire, but such higher depreciation cannot be given to the assessee, who is buying motor vehicles for his own business. Therefore, the Assessing Officer has rightly disallowed depreciation claimed by the assessee over and above normal rate of depreciation and thus, their order should be upheld. 45. We have heard both the parties, perused material available on record and gone thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment years 2013-14 and 2014-15 is disallowance of payment made to motor vehicle dealers. The facts with regard to impugned dispute are that during the course of assessment proceedings, information was received from DIT(Investigation), Chennai, that the assessee made some payment to motor vehicle dealers and claimed deduction u/s.37(1) of the Income Tax Act, 1961. The DGCEI investigation made in this case was aimed at identifying input credit availed on service tax. The assessee company entered into an agreement with certain automobile manufactures like Toyota, Kirloskar Motor India P. Ltd., M/s. Ashok Leyland, Nissan etc. In these cases, statements from employees of the manufacturing companies and its retailers were recorded by service tax authorities and they have found that no service was rendered to them. The Assessing Officer on the basis of statements of some employees opined that the motor vehicle dealers do not provide any service to the assessee and thus, disallowed payment made to motor vehicle dealers on the ground that the assessee could not file any evidences to prove rendering of services against payment. 48. The learned Sr. counsel for the assessee Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectorate of Income Tax (Investigation), which was further supported by investigation carried out by Directorate of Service Tax on the issue of input credit availed by motor vehicle dealers. The Assessing Officer, on the basis of report of DIT (Investigation) which was further supported by investigation carried out by Service Tax Directorate opined that the assessee has made payment without there being any services rendered by motor vehicle dealers and such finding is based on statement of certain employees. We find that the assessee has challenged assessment proceedings of service tax authorities before CESTAT and the CESTAT vide their order dated 24.02.2021 in Service Tax Appeal No.40938/2017 held that if the department contends that no service has been provided, crucial question arises as to why service tax was collected from the dealer, therefore, opined that dealers have provided services to the assessee and thus, allowed service tax credit taken by the assessee. Since, sole basis for the Assessing Officer to doubt genuineness of payment made by the assessee to motor vehicle dealers is proceedings before the service tax authorities and such proceedings has been held to be inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort term capital gain, even though, profit on sale of investments is not taxable in the case of general insurance company by virtue of deletion of clause (b) in Rule 5 of first schedule to Income tax Rules, 1962 by the Finance Act, 1988. In this regard, the assessee has relied upon CBDT circular No.14(HL)35 dated 11.04.1955. The learned CIT(A) has allowed claim of the assessee and deleted additions by following decision of ITAT., Chennai in the case of M/s.Royal Sundaram Alliance General Insurance Co.Ltd., in ITA Nos.847 to 849/Mds/2008 dated 05.03.2010, where it has been held that profit on sale of investments is not taxable in case of general insurance companies. 52. The Sr. Standing Counsel for the Revenue submitted that the learned CIT(A) erred in deleting additions towards profit on sale of investments without appreciating fact that as per Rule 5 of first schedule, the assessee has to offer to tax profits as disclosed in the annual accounts prepared in accordance with Insurance Act and subject to adjustments only in accordance with Rule 5A 5C. The learned CIT(A) ought to have appreciated that Rule 5B had been omitted by Finance Act, 1988 and therefore, as per law applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d additions made by the Assessing Officer towards profit on sale of investments and thus, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the Revenue for the assessment years 2008-09 to 2010-11. 55. The next issue that came up for our consideration from the Revenue appeal for the assessment years 2010-11 and 2013-14 is disallowance of payment made to Third Party Administrators. The facts with regard to impugned dispute are that the assessee in the business of General Insurance entered into an agreement with Third Party Administrators like M/s. Paramount Health Services, which in turn makes payment to hospitals for cashless treatment to insured people. The Assessing Officer has disallowed payment made to Third Party Administrators u/s.40(a)(ia) of the Act on the ground that the assessee ought to have deducted TDS on such payments. It was the contention of the assessee that as per CBDT Circular No.8/2009 dated 24.11.2009; it is responsibility of third party administrators to deduct TDS while making payments to hospitals, but not the assessee. 56. We have heard both the sides and considered relevant materials on record. There is no dispute wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AI and not as per part II III of Schedule VI of the Companies Act. The relevant findings of the Tribunal are as under:- 61. Shri Percy J. Pardiwalla, the Ld. Sr. counsel for the assessee, submitted that the provisions of Section 115JB of the Act, which enables the Department to compute the income, is not applicable to insurance companies, therefore, there cannot be any addition to the book profit. According to the Ld. Sr. counsel, the insurance companies prepare Profit Loss account as per the guidelines issued by Insurance Regulatory And Development Authority of India and not as per Part II and Ill of Schedule VI of Companies Act. According to the Ld. Sr. counsel, the applicability of Schedule VI of the Companies Act was specifically excluded in respect of insurance companies. 62. We heard Shri M. Swaminathan, the Ld. Sr. Standing Counsel for the Revenue also. 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 Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deliberations by the ITAT., Mumbai in the case of M/s. Munchener Ruckversicherungs Gesellschaft Aktiengesellschaft in Munchen Vs. CIT in ITA No. 937/Mum/2021 dated 13.05.2022, where the Tribunal by following decision of the ITAT., Kolkatta Bench in the case of DCIT Vs. M/s. National Insurance Co.Ltd. (supra), held that provision for UPR is not an item contemplated to be added in Explanation 1 to section 115JB(2) of the Income Tax Act, 1961. The relevant findings of the Tribunal are as under:- 3. We have heard the rival submissions and perused the materials available on record. We find that the assessee is a German re-insurance company Munchener Ruckversichrungs Gesellschaft Aktiengesellschaft in Munchen (Munich Re) which provides re-insurance solutions worldwide and operates in three segments namely, non-life reinsurance, life insurance and health solutions. The assessee is registered with Insurance Regulatory and Development Authority of India ('IRDAI') from 01/02/2017 and carries on various activities through its Indian Branch including receipts of premium on re-insurance treaties and purchase / sale of investment as per IRDAI guidelines. The assessee is regulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14,13,00,000/- on account of provision for unexpired risk and premium deficiency reserve of Rs. 7,73,000/- totaling Rs. 14,20,95,000/- for the year under consideration for the purpose of calculating book profits u/s 115JB of the Act. b) The ld. AO in his draft assessment order relied on clause (b) of Explanation 1 to section 115JB(2) of the Act which provides that the amount carried to any reserves, by whatever name called, should be added and held that the entry passed in respect of the reserve for unexpired risk should be added for the purpose of computation of book profit. The ld. AO observed that the word 'any reserve in clause (b) of Explanation 1 to section 115JB(2) of the Act refers to all kinds of reserves and encompasses all types and categories and only excludes the reserve specified under section 33AC of the Act. c) The ld. AO observed that the assessee has deferred its income by creating 'the Reserve for Unexpired Risk' but has not deferred the expenditure incurred for earning the same during the year and is accumulating the premium over time by a reserve for unexpired risk without any taxation. The ld. AO observed that the accounting treatment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. 7. We find that the aforesaid facts and submissions made by the ld. AR remain undisputed and hence the same are not reiterated for the sake of brevity. From the perusal of the above, in our considered opinion, the reserve for unexpired risk does not fall under clause (b) of Explanation 1 to section 115JB(2) of the Act as the premium is recognized as income over the contract period or the period of risk, whichever is appropriate. Premium received in advance which represents premium income not relating to the particular accounting period in which the said premium has been received, is separately disclosed in the financial statements. Hence logically that part of income which is attributable to the succeeding accounting period is reduced from the total premiums received during an accounting period by way of creation of a reserve for unexpired risk which is in accordance with the Insurance Act, 1938. In this regard, the ld. AR also submitted that every year adjustments are made to the existing reserve for unexpired risk by way of crediting or debiting the amount of difference between the reserve created in the immediately preceding year and the reserve required to be credited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility. Hence the same would not fall under clause (c ) of Explanation 1 to section 115JB(2) of the Act also under the category of unascertained liability. We find that the Hon ble Supreme Court in the case of Bharat Earth Movers reported in 245 ITR 428 (SC) has held that the provision for leave encashment based on actuarial valuation is allowed although the liability may have to be quantified and discharged at a future date. The fact that it is capable of being estimated with reasonable certainty although actual quantification may not be possible and such liability cannot be a contingent one. This decision would be squarely applicable for the reserve for unexpired risk and premium deficiency made by the assessee in the instant case as they are not only estimated but are also derived based on statistical method and the same has been duly certified by the actuary and the auditors of the assessee. Hence we hold that the same should be excluded for the purpose of computing book profit. 10. Our aforesaid view is also fortified by the decision of Coordinate Bench of Kolkata Tribunal in the case of DC1T v. National Insurance Co.Ltd reported in 72 taxmann.com 116, wherein it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Reserve required to be credited during the current accounting year. This cannot be considered as any alleged Amount carried to any Reserve debited to the Profit Loss Account, but it should be appreciated that this Reserve represents that part of Premium Income which does not relate to the current accounting period. It must be appreciated that as per the Mercantile System of accounting, it is only that Income/Expenditure which relate to the current accounting period, should find places in 'the Revenue/Profit Loss Account of the year. Hence it was submitted that in case of an Insurance Company (carrying on General Insurance Business), the creation of Reserve for Unexpired Risk cannot be considered to be similar to those Reserves which have been referred to in Clause (b) of Explanation (1) to Section 115JB(2). It may also be appreciated that the Reserve for Unexpired Risk can, in any case, not be considered as any provision made for meeting liabilities, other than ascertained liabilities as referred to in Clause(c) of Explanation (1) to Section 115JB(2). On the basis of the above facts it may kindly be appreciated that there has not been any requirement t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Risk in the case of a General Insurance business, should not be added back for the purpose of computation of Book Profit u/s. 115JB(2) for MAT purposes. On the basis of this observation, it was held that the ld AO's action in adding back a sum of Rs.169,45,00,000/- being reserve created for Unexpired Risk, was not in accordance with the relevant provisions of the Income-tax Act, 1961 and accordingly deleted the addition. 11.2 Aggrieved, the revenue is in appeal before us on the following ground:- 4. The CIT(A) erred on the facts of the case and in law in holding the sum of Rs.1694500000 being the reserve created for unexpired risk should be considered as reserve for computing the Book Profit under section 115JB of the Income-tax Act. 11.3 The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA. 11.4 We have heard the rival submissions. We find that the ld CITA had dealt this issue very elaborately and had given proper finding that the reserve created for unexpired risk need not be added back for the purpose of computation of book profits u/s 115JB of the Act. The revenue was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 1 to section 115JB(2) of the Act. Hence the revenue grossly erred in adding back the same while computing book profits u/s 115JB of the Act. 13. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we direct the ld. AO to delete the addition made in respect of reserve for unexpired risk and premium deficiency while computing the book profits u/s 115JB of the Act. Accordingly, the grounds raised by the assessee are allowed. 65. In this view of the matter and consistent with the view taken by the co-ordinate Bench, we direct the Assessing Officer to delete additions made towards UPR to book profit u/s.115JB of the Income Tax Act, 1961, for both the assessment years. 66. The next issue that came up for consideration from appeal of the Revenue for the assessment year 2013-14 is addition of IBNR IBNER to book profit u/s.115JB of the Income Tax Act, 1961. We find that provisions of section 115JB of the Income Tax Act, 1961, has no application to insurance companies upto assessment year 2013-14 and thus, no addition can be made to book profit computed u/s.115JB of the Act, including addition towards IBNR IBNE ..... X X X X Extracts X X X X X X X X Extracts X X X X
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