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TMI Blog2025 (4) TMI 1093X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Co. Ltd under Section 260A of the Income tax Act 1961 (Act). The appeals relate to assessment years (AYs) 2009-10 (TC(A) 755 of 2018), 2010-11 (TC(A) No.855 of 2018), 2010-11 (TC(A) No.51 of 2023), 2013-14 (TC(A) No.52 of 2023) and 2014-15 (TC(A) No.49 of 2023). 2. The substantial questions of law admitted for consideration in T.C.(A)Nos.755 and 855 of 2018 are as follows: 'Reinsurance Premium: 1. Whether the Tribunal has the jurisdiction to adjudicate upon validity and legality of payments of reinsurance premium made by the appellant to non-resident reinsurers under the Insurance Act, 1938 ? 2. Whether the Tribunal has the jurisdiction to adjudicate upon the grounds, which were never raised by the appellant and the respondent in its grounds of appeal ? 3. When this issue did not arise out of appeal before the Tribunal, whether the Tribunal was correct in holding that the payments of reinsurance premium made by the appellant to non-resident reinsurers are in violation of the provisions of the Insurance Act, 1938 ? 4. Whether the Tribunal has the jurisdiction to adjudicate upon validity and legality of the IRDA (General Insurance- Reinsurance) Regulations, 2000, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ches of the Tribunal without referring the appeal to a Larger Bench ? Disallowance of IBNR and IBNER : 13. Whether the Tribunal was correct in holding that the provisions on account of IBNR and IBNER was not determined during the subject assessment year and consequently, not to be allowed in the subject assessment year? 14. Whether the order of the Tribunal is erroneous and perverse as it did not consider the IRDA (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002 basis, which the appellant has worked out the liability for IBNR and IBNER certified by actuary on basis of actuarial valuation ? 15. Whether the order of the Tribunal is erroneous and perverse as it did not consider the decision of the Kolkata Tribunal in National Insurance Company Limited and the Mumbai Tribunal in Export Credit Guarantee Corporation, which has decided the grounds in appeal before the Tribunal in favour of the assessee? 16. Whether the Tribunal was correct in distinguishing the decisions of the Kolkata and the Mumbai Tribunals without referring the matter to a Larger Bench ? Disallowance under Section 14A : 17. Whether the Tribunal was correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year? 2. Whether the Tribunal erred in not allowing the claim of IBNR and IBNER which was determined by an independent actuary based on IRDA (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulation, 2002 and the methodology of the same was not in dispute? 3. Whether the Tribunal was correct in following the decision in appellant's own case in ITA NO.2372 dt.31/07/2018 for AY 2009-10, when the view taken by the Chennai Bench of the Tribunal was found to be per-incuriam by the Bombay High Court in General Insurance Corporation of India V. ACIT 422 ITR 248 (Bom)? 4. Whether the Tribunal erred in failing to follow the co-ordinate bench decisions on the very question of disallowance of IBNR and IBNER? 5. Whether the order of the Tribunal is perverse as it failed to take note of binding judicial precedents which were placed on record and referred to for its consideration? 4. An additional question of law that has been raised for consideration in TC(A)No. 49 of 2023 is as follows: Disallowance of payments made to Motor vehicle dealers. Whether the Tribunal was correct in remitting the issue of disallowance of payments made to motor veh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to include in its Profit and Loss ('P & L') Account or Revenue Account "profit or loss on realisation/sale of investment". This was said to be consistent with the international standards. 39.With the Assessee carrying on a general insurance business, it was bound by the provisions of the IA as well as the IRDA Regulations referred to hereinbefore. Even the CBDT, in its Circular No.5/2010 dated 3rd June, 2010, acknowledged that, after the introduction of the IRDA Regulations in 2002, non-life insurance companies are required to credit income from the sale of investments directly to the P&L Account. This requirement, which would make the income so earned amenable to tax, was made applicable only from AY 2011-12. Prior to 1st April, 2011, there was no provision which required the Revenue to disallow the deduction of loss on sale of investments." 7.In terms of the above decision, prior to 1st April, 2011, there was no provision which required the Revenue to disallow the deduction of loss on sale of investments. 8.In the respondent/assessee's case, identical view was taken by the Commissioner of Income-tax (Appeals), Large Taxpayer Unit, Chennai (for brevity, "the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation and its subsidiaries 45.1 Under the existing provisions of s. 44 of the IT Act, the profits and gains of any Insurance business is computed in accordance with the rules contained in the First Schedule to the Act. Under r. 5 of this Schedule, profits and gains of any business of insurance other than life insurance are taken to be balance of profits disclosed in the annual accounts furnished to the Controller of Insurance subject to certain adjustments. One of the adjustments provided therein is in respect of any amount either written off or reserved in the accounts to meet depreciation or loss on the realisation of investment which is to be allowed as deduction. Similarly, any sum credited to the account, due to appreciation of or gain on the realisation of investment, is taken as part of the profits and gains of the business. To enable the General Insurance Corporation and its subsidiaries to play a more active role in capital markets for the benefit of policy holders, the Finance Act has amended sub-r.(b) of R. 5 of the First Schedule to provide for exemption of the profits earned by them on the sale of investment. As a corollary, it has also been provided that the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would stand outside the ambit of application of Section 14A is made clear by the non-obstante clause contained in Section 44 which states that notwithstanding anything to the contrary contained in this Act relating to the computation of income chargeable under the heads of interest on securities, house property, Capital gains or other sources, or Section 199 or Sections 28 to 43B dealing with the computation of business income, the assessment of insurance business would be in accordance with the Rules contained in the First Schedule alone. 16. Rule 5 of the First Schedule provides for a self-contained methodology for computation of profits and gains of other insurance businesses. It sets out the manner by which the profits and gains of other insurance business would be computed and stipulates specifically what the adjustments are, that are to be made to the profit before tax and appropriations as per the profit and loss account prepared in accordance with the Insurance and IRDA Acts and the Rules and Regulations. 17. Clause (a) of Rule 5 is specific in that, it states that expenditure or allowances inadmissible under the provisions of Sections 30 to 43B in computing profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere made on scientific basis. The determination of liability was on actuarial principles made by the appointed actuary, and in line with the guidelines and norms issued by the Institute of Actuaries of India as well as the Insurance Regulatory and Development Authority (IRDA). 23. Thus, the appellant companies had reiterated their claims as being appropriate and in line with the mandate of Section 37 of the Act. Reliance was placed on the judgments of the Supreme Court in Bharath Earth Movers v Commissioner of Income-Tax 245 ITR 428 (SC), Metal Box Company of India Ltd v Their Workmen 73 ITR 53 (SC) and Rotork Controls India (P) Ltd v Commissioner of Income-Tax 314 ITR 62 (SC). 24. Overriding the submissions made, the Assessing Authority disallowed the provisions on the ground that they were unascertained. While noting that the provisions had been created as per the extant Regulations and guidelines, the assessing authority sill proceeds to disallow the same on the ground that the liabilities had not crystallized under either regular provisions or Minimum Alternate Tax (MAT) under Section 115JB of the Act. 25. The first appeal filed by the appellant companies came to be allowed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cited before the authorities, Appellants rely on the decisions of the Delhi High Court in Principal Commissioner of Income-Tax v Care Health Insurance Ltd (2024) 164 Taxmann.com 53 (Delhi), Commissioner of Income-Tax v Whirlpool of India Ltd 242 CTR 245 (Del), Calcutta High Court in Principal Commissioner of Income-Tax v National Insurance Co. Ltd (Calcutta HC) ITA No. 76 of 2019 dated 16.07.2019, Bombay High Court in General Insurance Corporation of India v Assistant-Commissioner of Income-Tax and others 422 ITR 248 (Bom) and Kerala High Court in Commissioner of Income-Tax v Kerala Transport Company 239 ITR 183 (Ker) praying that the appeals be allowed. 32. Per contra, Ms.V.Pushpa, learned Senior Standing Counsel for the Department contests the matter pointing out that the settlement of the insurance claim is based on a contract between the parties. There is no record, according to her, to show how that the claim has evolved from the time of entering into a contract of insurance, occurrence of an event, processing of the claim and thereafter settlement of the claim. 33. There is no material produced by the appellant companies that would support their stand that the claims have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals. B.-Other insurance business Computation of profits and gains of other insurance business. 5. The profits and gains of any business of insurance other than life insurance shall be taken to be the profit before tax and appropriations as disclosed in the profit and loss account prepared in accordance with the provisions of the Insurance Act, 1938 (4 of 1938) or the rules made thereunder or the provisions of the Insurance Regulatory and Development Authority Act, 1999 (4 of 1999) or the regulations made thereunder, subject to the following adjustments:- (a) subject to the other provisions of this rule, any expenditure or allowance including any amount debited to the profit and loss account either by way of a provision for any tax, dividend, reserve or any other provision as may be prescribed which is not admissible under the provisions of sections 30 to 43B in computing the profits and gains of a business shall be added back; (b) (i) any gain or loss on realisation of investments shall be added or deducted, as the case may be, if such gain or loss is not credited or debited to the profit and loss account; (ii) any provision for diminution in the value of investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme of taxation of an insurance business, by reference therein, to those guidelines. Thus, it follows that once an insurance company applies those guidelines and parametres in the maintenance of its accounts and computation of claims, there remains nothing further to be verified qua the veracity of the claims made. 42. Various High Courts, the Delhi High Court in Care Health Insurance Ltd and Whirlpool of India Ltd, Calcutta High Court in National Insurance Co. Ltd, Bombay High Court in General Insurance Corporation of India and Kerala High Court in Kerala Transport Company have considered the identical issue, allowing them in favour of the Insurance companies. 43. The objection of the Department is that the claim is based merely on a contract between the parties. In our view, this is an over simplification of the matter, as it has been demonstrated that the claim is based on a scientific assessment of the risk as well as other parametres. The materials placed before us now are on record from the stage of assessment and point to the unambiguous position that the Appellant has been adhering to the mandate of the stipulations under the Second Schedule to the Income Tax Act and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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