United India Insurance Company Limited, CHENNAI V. DCIT, CHENNAI

CO 150/CHNY/2011

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 4089 (ITAT-CHENNAI)
• Duration Of Justice: 6 year(s) 10 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 03-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P H ARVINDH
• Keywords: Retrospective amendment; Permanent establishment; Non-deduction of tax
• Section: 244A; 234B; 115JB; 37(1); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , ! .#$#%, ' !( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ./ ITA NO.2107/CHNY/2008 % *% / ASSESSMENT YEAR : 2004-05 ./ ITA NOS.1753, 1605, 1606, 1607, 1608, 1609 & 1610/C HNY/2011 % *% / ASSESSMENT YEARS : 2003-04 TO 2008-09 ./ ITA NOS.28, 29, 30 & 764/CHNY/2014 % *% / ASSESSMENT YEARS : 2006-07, 2007-08, 2009-10 & 201 0-11 M/S UNITED INDIA INSURANCE CO. LTD., 24, WHITES ROAD, CHENNAI - 600 014. PAN : AAACU 5552 C V. THE JOINT COMMISSIONER OF INCOME TAX, COMPANY RANGE, CHENNAI 34. THE DEPUTY COMMISSIONER OF INCOME TAX / THE ASSISTANT COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI - 600 101. (,-/ APPELLANT) (./,-/ RESPONDENT) ./ ITA NOS.1149 & 364/CHNY/2016 % *% / ASSESSMENT YEARS : 2011-12 & 2012-13 & ./ ITA NO.1085/CHNY/2017 % *% / ASSESSMENT YEAR : 2013-14 M/S UNITED INDIA INSURANCE CO. LTD., 24, WHITES ROAD, CHENNAI - 600 014. V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(2) CHENNAI - 600 034. (,-/ APPELLANT) (./,-/ RESPONDENT) ./ ITA NO.892/CHNY/2007 % *% / ASSESSMENT YEAR : 2003-04 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(3), CHENNAI - 600 034. V. M/S UNITED INDIA INSURANCE CO. LTD., 24, WHITES ROAD, CHENNAI - 600 014. (,-/ APPELLANT) (./,-/ RESPONDENT) 2 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS ./ ITA NO.217/CHNY/2009 % *% / ASSESSMENT YEAR : 2004-05 THE ASSISTANT COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI - 600 101. V. M/S UNITED INDIA INSURANCE CO. LTD., 24, WHITES ROAD, CHENNAI - 600 014. (,-/ APPELLANT) (./,-/ RESPONDENT) ./ ITA NOS.905, 906, 1673, 1989, 1688, 1689, 1690, 169 1, 1692, 1693, 1798, 1799, 1800 & 1801/CHNY/2011 & C.O. NO.150/CHNY/2011 (IN ITA NO.905/CHNY/2007) % *% / ASSESSMENT YEARS : 2003-04 TO 2010-11 ./ ITA NOS.34, 36 & 696/CHNY/2014 % *% / ASSESSMENT YEARS : 2007-08, 2009-10 & 2010-11 THE DY.COMMISSIONER OF INCOME TAX / ASST.COMMISSIONER OF INCOME TAX / ITO (TDS), LARGE TAXPAYER UNIT, CHENNAI - 600 101. V. M/S UNITED INDIA INSURANCE CO. LTD., 24, WHITES ROAD, CHENNAI - 600 014. (,-/ APPELLANT) ( RESPONDENT & CROSS-OBJECTOR) ./ ITA NOS.1511, 626/CHNY/2016 % *% / ASSESSMENT YEARS : 2011-12 2012-13 ./ ITA NO.1571/CHNY/2017 % *% / ASSESSMENT YEAR : 2013-14 THE ASST.COMMISSIONER OF INCOME TAX, THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(2), CHENNAI - 600 034. V. M/S UNITED INDIA INSURANCE CO. LTD., 24, WHITES ROAD, CHENNAI - 600 014. (,-/ APPELLANT) (./,-/ RESPONDENT) # 0 1 /REVENUE BY : SHRI M. SWAMINATHAN, SR.STANDING COUNSEL MS. V. PUSHPA, JR. STANDING COUNSEL %23 0 1 /ASSESSEE BY : SHRI P.H. ARVINDH PANDIAN, SR. ADVOCATE FOR SHRI AMRITH BHARGAV, ADVOCATE SHRI S. SUNDARARAMAN, CA 3 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS 4 0 3' / DATE OF HEARING : 29.05.2018 56* 0 3' / DATE OF PRONOUNCEMENT : 28.08.2018 / O R D E R PER BENCH: THESE APPEALS FILED BY BOTH THE ASSESSEE AND REVE NUE ARE DIRECTED AGAINST THE RESPECTIVE ORDERS OF THE COMMI SSIONER OF INCOME TAX (APPEALS), LARGE TAXPAYER UNIT / COMMISS IONER OF INCOME TAX (APPEALS) 11, CHENNAI AND PERTAIN TO A SSESSMENT YEARS 2003-04 TO 2013-14. THE ASSESSEE HAS ALSO FI LED A CROSS- OBJECTION FOR ASSESSMENT YEAR 2004-05. SINCE COMMO N ISSUES ARISE FOR CONSIDERATION IN ALL THESE APPEALS, WE HE ARD THESE APPEALS AND THE CROSS-OBJECTION TOGETHER AND DISPOSING OF T HE SAME BY THIS COMMON ORDER. 2. THERE WAS A DELAY OF 8 DAYS IN FILING THE APPEA L IN I.T.A. NO.1571/CHNY/2017 BY THE REVENUE. THE REVENUE HAS FILED A PETITION FOR CONDONATION OF DELAY. WE HAVE HEARD T HE LD. D.R. AND THE LD. SR. COUNSEL FOR THE ASSESSEE. WE FIND THAT THERE WAS 4 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS SUFFICIENT CAUSE FOR NOT FILING THE APPEAL BEFORE T HE STIPULATED TIME. THEREFORE, WE CONDONE THE DELAY AND ADMIT THE APPEA L. 3. THE FIRST COMMON ISSUE ARISES FOR CONSIDERATION IN BOTH THE ASSESSEE AND REVENUES APPEALS IS DISALLOWANCE OF R E-INSURANCE PREMIUM PAID BY THE ASSESSEE TO THE NON-RESIDENT RE -INSURANCE COMPANIES. 4. SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL F OR THE ASSESSEE, SUBMITTED THAT THERE ARE FIVE CATEGORIES OF RE-INSURANCE PREMIUMS PAID BY THE ASSESSEE TO THE NON-RESIDENT. (1) DIRECTLY TO NON-RESIDENT RE-INSURANCE COMPANIES WHO ARE RESIDENTS OF COUNTRIES WITH WHOM INDIA HAS DOUBLE T AXATION AVOIDANCE AGREEMENT. (2) DIRECTLY TO NON-RESIDENT RE-INSURANCE COMPANIES THROUGH NON-RESIDENT BROKERS WHO ARE RESIDENTS OF COUNTRIES WITH WHOM INDIA HAS DOUBLE TAXATION AVOIDANCE AGREEMENT. (3) DIRECTLY TO NON-RESIDENT RE-INSURANCE COMPANIES THROUGH RESIDENT BROKERS WHERE THERE IS DOUBLE TAXATION AVO IDANCE AGREEMENT BETWEEN INDIA AND THE RESIDENCE OF RE-INS URANCE COMPANIES. (4) DIRECTLY TO NON-RESIDENT RE-INSURANCE COMPANIES WHERE THERE IS NO DOUBLE TAXATION AVOIDANCE AGREEMENT. (5) DIRECTLY TO NON-RESIDENT COMPANIES THROUGH BROK ERS WHERE THERE IS NO DOUBLE TAXATION AVOIDANCE AGREEMENT. 5 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS ACCORDING TO THE LD. SR. COUNSEL, THE ASSESSEE IS E NGAGED IN THE BUSINESS OF GENERAL INSURANCE IN INDIA AND RECOGNIZ ED AS SUCH BY INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF I NDIA. THE LD. SR. COUNSEL EXPLAINED THAT WHEN AN AIRCRAFT OR SATE LLITE WAS INSURED, THE ASSESSEE HAS TO ASSUME LARGE AMOUNT OF RISK WHI CH THE ASSESSEE MAY NOT BE ABLE TO HANDLE BY ITSELF. THER EFORE, IN ORDER TO DISTRIBUTE THE RISK, THE ASSESSEE ENTERS INTO RE-IN SURANCE CONTRACT WITH NON-RESIDENT RE-INSURANCE COMPANY. ACCORDING TO THE LD. SR. COUNSEL, RE-INSURANCE CONTRACT OR RE-INSURANCE TREA TY IS INDEPENDENT OF INSURANCE BETWEEN THE ASSESSEE-COMPANY AND RE-IN SURER. RE- INSURANCE, ACCORDING TO THE LD. SR. COUNSEL, IS AN INSURANCE FOR INSURER. THE LD. SR. COUNSEL FURTHER SUBMITTED THA T THE RE-INSURER AND THE ASSESSEE-COMPANY BEING AN INSURANCE COMPANY , DEAL WITH THE EACH OTHER ON PRINCIPAL-TO-PRINCIPAL BASIS. RE -INSURANCE, IN FACT, DOES NOT AFFECT THE RELATIONSHIP BETWEEN THE INSURE D PERSON AND THE ASSESSEE-COMPANY. THE INSURED PERSON IS NOT A PART Y TO THE RE- INSURANCE TREATY OR CONTRACT. IN THE EVENT OF LOSS , ACCORDING TO THE LD. SR. COUNSEL, THE ASSESSEE BEING AN INSURANCE CO MPANY, HAS TO COMPENSATE THE INSURED PERSON INDEPENDENTLY. SUBSE QUENTLY, A 6 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS CLAIM WOULD BE MADE BY THE ASSESSEE IN RESPECT OF T HE RE-INSURANCE CONTRACT / TREATY BEFORE THE RE-INSURER. THE RE-IN SURER, AS PER THE RE- INSURANCE TREATY, WOULD COMPENSATE THE ASSESSEE BEI NG THE INSURANCE COMPANY. 5. SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL F OR THE ASSESSEE, FURTHER SUBMITTED THAT IN ORDER TO DISTRI BUTE THE RISK, NORMALLY, RE-INSURANCE WOULD BE MADE WITH NUMBER OF RE-INSURANCE COMPANIES. REFERRING TO SECTION 101A OF THE INSURA NCE ACT, 1938, THE LD. SR. COUNSEL SUBMITTED THAT THE ASSESSEE BEI NG AN INSURANCE COMPANY, MANDATORILY REINSURE WITH INDIAN RE-INSURE R SUCH PERCENTAGE OF SUM ASSURED WITH EACH POLICY AS SPECI FIED BY THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF I NDIA. THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF I NDIA SPECIFIES VARIOUS PERCENTAGES RANGING FROM 10% TO 20% FOR VAR IOUS ACCOUNTING YEARS. THIS IS A MANDATORY REQUIREMENT, THEREFORE, RE- INSURANCE WITH INDIAN RE-INSURER IS KNOWN AS STATUT ORY CEDING OR OBLIGATORY CEDING. THE LD. SR. COUNSEL FURTHER SUB MITTED THAT THE ONLY INDIAN RE-INSURANCE COMPANY IS GENERAL INSURAN CE CORPORATION OF INDIA. THEREFORE, NATURALLY, THE ASSESSEE HAS T O REINSURE THE RISK 7 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS ASSUMED ON EACH POLICY WITH GENERAL INSURANCE CORPO RATION OF INDIA AS SPECIFIED BY THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA. THE LD. SR. COUNSEL FURTHER SU BMITTED THAT IN FACT, THE ASSESSEE COMPLIED WITH THE MANDATORY REQUIREMEN T OF RE- INSURANCE AS SPECIFIED BY INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA AND THERE IS NO DISPUTE ABOUT TH IS. IN OTHER WORDS, THERE IS NO DISPUTE WITH REGARD TO STATUTORY CEDING OR OBLIGATORY CEDING OF REINSURANCE AS REQUIRED UNDER SECTION 101 A(1) OF THE INSURANCE ACT, 1938. 6. SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL F OR THE ASSESSEE, FURTHER SUBMITTED THAT SECTION 101A(7) OF THE INSURANCE ACT, 1938 FURTHER CLARIFIES THAT THE ASSESSEE OVER AND ABOVE THE PERCENTAGE OF RE-INSURANCE SUM FIXED BY THE INSURAN CE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA MAY ALSO AT ITS OPTION, REINSURE THE RISK WITH ANY INDIAN RE-INSURER OR OTHER RE-INS URER THE ENTIRE SUM ASSURED ON THE POLICY OR PORTION THEREOF IN EXCESS OF PERCENTAGE SPECIFIED BY INSURANCE REGULATORY AND DEVELOPMENT A UTHORITY OF INDIA. THEREFORE, ACCORDING TO THE LD. SR. COUNSEL , IN ORDER TO REINSURE THE RISK OVER AND ABOVE SPECIFIED BY THE I NSURANCE 8 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA, THE ASSESSEE OPTED TO REINSURE WITH NON-RESIDENT RE-INSURANCE COMPANIE S. THE LD. SR. COUNSEL FURTHER CLARIFIED THAT WHILE THE ASSESSEE R ETAINS THE MAXIMUM RISK IN INDIA AS PER THE INSURANCE REGULATO RY AND DEVELOPMENT AUTHORITY OF INDIA REGULATION, THEY ALS O CEDED RE- INSURANCE RISK TO NON-RESIDENT RE-INSURANCE COMPANY IN ORDER TO PROTECT ITS RISK. ON A QUERY FROM THE BENCH, WHEN SUB-SECTION (7) OF 101A OF THE INSURANCE ACT, 1938 CLARIFIES THAT T HE INSURANCE COMPANIES MAY HAVE RE-INSURANCE WITH INDIAN RE-INSU RER OR OTHER INSURER THE ENTIRE SUM ASSURED ON SOME POLICY OR AN Y PORTION THEREOF IN EXCESS OF THE PERCENTAGE SPECIFIED BY TH E INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA, HOW CAN THEY HAVE RE-INSURANCE CONTRARY TO THE PROVISIONS OF SECTION 2(9) OF THE INSURANCE ACT, 1938? THE LD. SR. COUNSEL CLARIFIED THAT SECTION 2(9) OF THE INSURANCE ACT, 1938 IS NOT APPLICABLE TO THE ASSESSEE- INSURANCE COMPANY. REFERRING TO SECTION 114A(ZD) O F THE INSURANCE ACT, 1938, THE LD. SR. COUNSEL SUBMITTED THAT THE I NSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA FRAME D REGULATIONS FOR HAVING RE-INSURANCE TREATY WITH NON-RESIDENT RE -INSURANCE 9 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS COMPANY. SINCE THE INSURANCE REGULATORY AND DEVELO PMENT AUTHORITY OF INDIA FRAMED A REGULATION IN EXERCISE OF ITS STATUTORY POWER CONFERRED UNDER SECTION 114A(ZD) OF THE INSUR ANCE ACT, 1938, ACCORDING TO THE LD. SR. COUNSEL, THE PROVISI ONS OF SECTION 2(9) OF THE INSURANCE ACT, 1938 IS NOT APPLICABLE T O THE ASSESSEE. 7. SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL F OR THE ASSESSEE, FURTHER SUBMITTED THAT SECTION 2C OF INSU RANCE ACT, 1938 IN CATEGORICAL TERMS SAYS THAT ONLY AN INDIAN RE-IN SURANCE COMPANY HOLDING A VALID LICENSE FOR DEALING IN INSURANCE BU SINESS CAN OPERATE IN INDIA. IN OTHER WORDS, THE FOREIGN RE-INSURANCE COMPANY CANNOT DO ANY BUSINESS IN INDIA. THE LD. SR. COUNSEL FURT HER SUBMITTED THAT THE FOREIGN INSURANCE COMPANY HAVE NO PLACE OF BUSI NESS IN INDIA OR BUSINESS CONNECTION IN INDIA. MOREOVER, NO LICENS E WAS GRANTED BY THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA TO ANY OF THE NON-RESIDENT RE-INSURANCE COMPANY TO OPERATE IN INDIA. THIS WAS CLARIFIED BY THE INSURANCE REGULATORY AND DEVEL OPMENT AUTHORITY OF INDIA IN ITS LETTER DATED 07/05/2008 A DDRESSED TO CENTRAL BOARD OF DIRECT TAXES. THE LD. SR. COUNSEL FURTHER SUBMITTED THAT FOREIGN RE-INSURANCE COMPANY DEALS ONLY WITH INDIAN INSURER EITHER 10 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS DIRECTLY OR THROUGH INDEPENDENT BROKERS SITUATED EI THER IN INDIA OR OUTSIDE INDIA. THE BROKERS WHO OPERATE IN INDIA NE ED TO GET REGISTERED THEMSELVES WITH THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA. ACCORDING TO THE L D. SR. COUNSEL, THE BROKERS REPRESENTED MULTIPLE INSURANCE COMPANIE S AND RE- INSURANCE COMPANIES. THEREFORE, THEY ARE INDEPENDE NT AGENTS / BROKERS AND THEY ARE NOT ATTACHED TO ANY PARTICULAR INSURANCE COMPANY OR RE-INSURANCE COMPANY. ACCORDING TO THE LD. SR. COUNSEL, THE INDEPENDENT BROKERS ACT ONLY AS A FACI LITATOR BETWEEN THE ASSESSEE-INSURANCE COMPANY AND NON-RESIDENT RE- INSURANCE COMPANY. THE BROKERS HAVE NO ROLE IN NEGOTIATING T HE RE-INSURANCE CONTRACT ON BEHALF OF EITHER THE INDIAN INSURER OR NON-RESIDENT RE- INSURER. ACCORDING TO THE LD. SR. COUNSEL, THE BRO KERS FUNCTION IN THEIR ORDINARY COURSE OF BUSINESS REPRESENTING NO R E-INSURANCE OR INSURANCE COMPANIES. NON-RESIDENT BROKERS CAN ALSO REPRESENT MULTIPLE NON-RESIDENT RE-INSURANCE COMPANIES. THE BROKERS ARE NOT DEPENDENT OF ANY INSURANCE COMPANIES, THEREFORE, TH E BROKERS CANNOT BE CONSTRUED AS DEPENDENT AGENT HAVING A PER MANENT ESTABLISHMENT IN INDIA. ACCORDING TO THE LD. SR. C OUNSEL, EVEN 11 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS THOUGH IN SOME OF THE RE-INSURANCE CONTRACT OR RE-I NSURANCE SLIP, THE BROKERS SIGN IN ADDITION TO RE-INSURANCE COMPANY, T HE BROKERS HAVE NO ROLE EITHER IN NEGOTIATING THE TERMS OF CONTRACT OF RE-INSURANCE OR FOR SETTLEMENT OF CLAIM. THE BROKERS DO NOT TAKE A NY DECISION TO ACCEPT RE-INSURANCE BUSINESS. 8. SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL F OR THE ASSESSEE, FURTHER SUBMITTED THAT THE RE-INSURANCE P ROGRAMME OF THE ASSESSEE-INSURANCE COMPANY IS APPROVED BY THE BOARD OF DIRECTORS OF THE ASSESSEE AND IT WAS SUBMITTED BEFORE THE INS URANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA EVERY YEAR. THE ASSESSEE-COMPANY IS EXPECTED TO IDENTIFY THE RE-INS URANCE COMPANY TO WHOM RE-INSURANCE CONTRACT COULD BE ENTE RED INTO OVER AND ABOVE THE OBLIGATORY CESSION TO THE GENERAL INS URANCE CORPORATION OF INDIA. ON A QUERY FROM THE BENCH HO W THE ASSESSEE-COMPANY IDENTIFIES THE RE-INSURANCE COMPAN Y, EITHER BY CALLING FOR TENDER OR BY INVITING NON-RESIDENT COMP ANY FOR NEGOTIATION? THE LD. SR. COUNSEL SUBMITTED THAT TH E ASSESSEE CONTACTS THE NON-RESIDENT RE-INSURANCE COMPANY DIRE CTLY BY SENDING E-MAIL. IN SOME CASES, THE NON-RESIDENT RE-INSURAN CE COMPANY WAS 12 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS ALSO CONTACTED BY MAILS THROUGH BROKERS. THE RE-IN SURANCE CONTRACT WAS SETTLED OR FINALIZED BY WAY OF EXCHANGE OF COMM UNICATIONS VIA E-MAIL. 9. SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL F OR THE ASSESSEE, FURTHER SUBMITTED THAT NORMALLY THE ASSES SEE-COMPANY DEALS WITH RE-INSURANCE COMPANY OUTSIDE THE COUNTRY DIRECTLY. HOWEVER, IN ORDER TO DISTRIBUTE THE RISK TO VARIOUS NON-RESIDENT COMPANIES, THE ASSESSEE HAS TO NATURALLY CONTACT TH E BROKERS WHO HAVE ENTIRE INFORMATION OF THE INTERNATIONAL BROKER S AND RE-INSURANCE COMPANIES. THE KNOWLEDGE OF BROKERS AND THE INFORM ATION FURNISHED BY THEM HELPED THE ASSESSEE-COMPANY IN SE LECTING THE NON-RESIDENT RE-INSURANCE COMPANIES FOR ENTERING IN TO RE-INSURANCE CONTRACT. 10. SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL FOR THE ASSESSEE, FURTHER SUBMITTED THAT NEGOTIATION WAS NO RMALLY AS PER THE AGREED TERMS WITH GENERAL INSURANCE CORPORATION OF INDIA. ACCORDING TO THE LD. SR. COUNSEL, GENERAL INSURANCE CORPORATION OF INDIA IS THE LEAD-REINSURER, THEREFORE, WHATEVER TE RMS AND CONDITIONS 13 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS ACCEPTED BY GENERAL INSURANCE CORPORATION OF INDIA FOR THE STATUTORY / OBLIGATORY CEDING WOULD ALSO BE ACCEPTED BY NON-R ESIDENT RE- INSURANCE COMPANY. ACCORDING TO THE LD. SR. COUNSE L, NORMALLY, THERE WAS NO NEGOTIATION IN THE TERMS AND CONDITION S. THE RE- INSURANCE PREMIUM WOULD BE PAID IN PROPORTIONATE TO THE RISK TAKEN OVER BY THE NON-RESIDENT COMPANY. THE LD. SR. COUN SEL FURTHER CLARIFIED THAT IF THE NON-RESIDENT RE-INSURANCE COM PANY TAKES OVER THE RISK OF 10% OF RISK ASSUMED BY THE ASSESSEE-COM PANY, THE 10% OF PREMIUM COLLECTED BY THE ASSESSEE-COMPANY WOULD BE PAID TO THE NON-RESIDENT RE-INSURANCE COMPANY. ACCORDING T O THE LD. SR. COUNSEL, THE NEGOTIATION WITH NON-RESIDENT RE-INSUR ANCE COMPANY WOULD ONLY BE WITH RESPECT TO PERCENTAGE OF RISK TH AT WOULD BE TAKEN OVER BY THEM. THE PERCENTAGE OF RISK WOULD NORMAL LY OFFERED BY THE ASSESSEE-COMPANY, AND THEN THERE WOULD BE COUNTER O FFERS FROM THE RE-INSURANCE COMPANY. ACCORDING TO THE LD. SR. COUNSEL, IF THERE IS A BROKER, HE ACTS ONLY AS A COMMUNICATION CHANNE L IN THE TRANSACTION AND THE BROKER WOULD NOT PLAY ANY ROLE FOR NEGOTIATION OR FINALIZATION OF PERCENTAGE OF THE RE-INSURANCE. ON CE THE PERCENTAGE OF RE-INSURANCE IS ACCEPTED BY THE ASSESSEE AND NON -RESIDENT RE- 14 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS INSURANCE COMPANY, THE PROPORTIONATE SHARE AS PER T HE AGREED PERCENTAGE WOULD BE PAID TO NON-RESIDENT RE-INSURAN CE COMPANY AS PER THE TERMS AND CONDITIONS AGREED BY THE LEAD-REI NSURER, NAMELY, GENERAL INSURANCE CORPORATION OF INDIA. THE LD. SR . COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT IN CASE OF NO CLAIM , THE NON- RESIDENT INSURANCE COMPANY WOULD REFUND 85% OF THE INSURANCE PREMIUM AND RETAIN ONLY 15% OF THE REINSURANCE PREM IUM. THE LD. SR. COUNSEL ALSO CLARIFIED THAT 40% OF INSURANCE PR EMIUM WOULD BE RETAINED BY THE ASSESSEE AS ITS COMMISSION. 11. SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL FOR THE ASSESSEE, FURTHER SUBMITTED THAT THE SLIP OR RE-INS URANCE SLIP IS SIGNED BY THE RE-INSURER WHEREVER THE RE-INSURANCE WAS DIRECT OR THROUGH A BROKER. SOMETIMES, EVEN THOUGH THE BROKE R SIGNED THE RE-INSURANCE SLIP SPECIFYING THE SHARE OF RE-INSURE R IN RESPECT OF PARTICULAR LINE OF BUSINESS, RE-INSURERS ALSO SIGN THE RE-INSURANCE SLIP AGREEING THEIR RESPECTIVE SHARE OF RISK. ACCORDING TO THE LD. SR. COUNSEL, THE BROKER CANNOT BIND THE RE-INSURER BY S IGNING THE RE- INSURANCE SLIP IN CASE THE TREATY TERMS HAVE NOT BE EN ACCEPTED BY THE RE-INSURER BY SIGNING THE TREATY OR RE-INSURANC E SLIP. 15 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS 12. THE LD. SR. COUNSEL FOR THE ASSESSEE FURTHER SU BMITTED THAT THE QUARTERLY CLAIM STATEMENT OF ACCOUNTS WAS NORMA LLY SENT TO THE NON-RESIDENT RE-INSURER OR THE BROKER AS THE CASE M AY BE, SPECIFYING THE RE-INSURANCE PREMIUM, RE-INSURANCE CLAIM, COMMI SSION AND NET PAYABLE OR RECEIVABLE FROM THE RE-INSURER. ACCORDI NG TO THE LD. SR. COUNSEL, IN CASE THE ASSESSEE HAS TO PAY MONEY TO T HE RE-INSURER OR BROKER, THE SAME WOULD BE PAID. IN CASE THE RE-INS URER HAS TO PAY MONEY, THE SAME WOULD BE PAID BY THE RE-INSURER EIT HER DIRECTLY OR THROUGH THE BROKER. IN CASE OF CLAIM MADE BY THE INSURED PERSON FOR LOSS OR DAMAGES, ACCORDING TO THE LD. SR. COUNS EL, IT WAS AN OBLIGATION OF THE ASSESSEE-COMPANY TO SETTLE THE CL AIM TO THE INSURED PERSON IRRESPECTIVE OF THE FACT WHETHER THE RE-INSURER ACCEPTS THE CLAIM OR NOT. THE ASSESSEE WOULD NORMA LLY APPOINT INDEPENDENT SURVEYOR TO ASSESS DAMAGES CAUSED TO TH E MACHINERY WHICH WAS SUBJECT MATTER OF INSURANCE AND ACCEPTS T HE OBLIGATION ON THE BASIS OF SURVEY REPORT. THE ASSESSEE SUBSEQUEN TLY COMMUNICATES TO THE RE-INSURER THE AMOUNT OF LOSS A ND CLAIM THE RE- INSURER TO PAY THEIR PROPORTIONATE OBLIGATION AS PE R THE RE-INSURANCE POLICY. ACCORDING TO THE LD. SR. COUNSEL, IT IS OP EN TO THE RE-INSURER 16 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS TO APPOINT INDEPENDENT SURVEYOR TO ASSESS THE EXTEN T OF DAMAGE. HOWEVER, NO SUCH INCIDENT OF APPOINTING INDEPENDENT SURVEYOR BY THE RE-INSURER HAS HAPPENED SOFAR. 13. THE LD. SR. COUNSEL FURTHER SUBMITTED THAT THE RE-INSURANCE IS NOTHING BUT AN INSURANCE TAKEN BY THE INSURANCE COM PANIES TO PROTECT ITSELF AGAINST THE LOSS AND TO SAFEGUARD IT S INTEREST. ACCORDING TO THE LD. SR. COUNSEL, THE ASSESSEE BEIN G AN INSURER TRANSFERS THEIR PART OF RISK TO ANOTHER RE-INSURER OR INSURER IN ORDER TO REDUCE ITS OWN LIABILITY IN THE EVENT OF ANY CLAIM OF DAMAGES. ON A QUERY FROM THE BENCH, THE LD. SR. COUNSEL SUBMITTED THAT NORMALLY THE RE-INSURER ACCEPTS THE CLAIM MADE BY THE ASSESS EE-COMPANY WHEREVER THERE WAS A LOSS TO THE PROPERTY WHICH IS SUBJECT MATTER OF INSURANCE. HOWEVER, TO MEET THE EXTRAORDINARY EVEN T, IN CASE OF DISPUTES, ACCORDING TO THE LD. SR. COUNSEL, THE TRE ATY SLIP PROVIDES FOR APPOINTING OF ARBITRATOR. THE PLACE OF SITTIN G OF ARBITRATOR IS IN INDIA. THE LD. SR. COUNSEL FURTHER SUBMITTED THAT SINCE THE NON- RESIDENT RE-INSURANCE COMPANY OPERATES OUTSIDE THE COUNTRY, THE PROFIT IS NOT CHARGEABLE TO TAX IN INDIA. REFERRIN G TO THE ORDER OF THE CIT(APPEALS), THE LD. SR. COUNSEL SUBMITTED THAT TH E CIT(APPEALS) 17 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS PLACED RELIANCE ON THE JUDGMENT OF BOMBAY HIGH COUR T IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS B.V. V. UNION OF INDIA (2010) 329 ITR 126. SINCE THE JUDGMENT OF BOMBAY HIGH COURT W AS REVERSED BY THE SUPREME COURT (REPORTED IN (2012) 341 ITR 1) , THE ENTIRE BASIS OF FINDING OF THE CIT(APPEALS) WOULD NO LONGE R EXIST. THEREFORE, ACCORDING TO THE LD. SR. COUNSEL, THE CI T(APPEALS)S ORDER CANNOT STAND IN THE EYE OF LAW AFTER THE REVE RSAL OF BOMBAY HIGH COURT JUDGMENT IN THE CASE OF VODAFONE BY THE SUPREME COURT. SINCE THE NON-RESIDENT RE-INSURANCE COMPANY OPERATES OUTSIDE THE COUNTRY, THEIR INCOME IS NOT TAXABLE IN INDIA, THEREFORE, THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX. HENCE, A CCORDING TO THE LD. SR. COUNSEL, THE DISALLOWANCE MADE BY THE ASSES SING OFFICER UNDER SECTION 40(A)(I) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') IS NOT JUSTIFIED. 14. ON THE CONTRARY, SHRI M. SWAMINATHAN, THE LD. S R. STANDING COUNSEL FOR THE REVENUE, SUBMITTED THAT SECTION 101 A OF THE INSURANCE ACT, 1938 CLEARLY SAYS THAT EVERY INSURER SHALL RE-INSURE WITH INDIAN RE-INSURER SUCH PERCENTAGE OF SUM ASSUR ED ON EACH POLICY AS MAY BE SPECIFIED BY THE AUTHORITY. IN TH IS CASE, ACCORDING 18 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS TO THE LD. SR. STANDING COUNSEL, THE AUTHORITY REFE RRED IN SECTION 101A IS INSURANCE REGULATORY AND DEVELOPMENT AUTHOR ITY OF INDIA. IN FACT, INSURANCE REGULATORY AND DEVELOPMENT AUTHO RITY OF INDIA BY WAY OF NOTIFICATION SPECIFIED THE PERCENTAGE OF SUM ASSURED ON EACH POLICY TO BE RE-INSURED WITH INDIAN RE-INSURER. IN FACT, ACCORDING TO THE LD. SR. STANDING COUNSEL, THERE IS NO DISPUTE W ITH REGARD TO RE- INSURANCE PREMIUM PAID BY THE ASSESSEE TO THE INDIA N RE-INSURER. THE LD. SR. STANDING COUNSEL FURTHER SUBMITTED THAT THE INDIAN RE- INSURER IS GENERAL INSURANCE CORPORATION OF INDIA. THEREFORE, THE ASSESSEE BEING AN INSURER HAS OBLIGATION TO RE-INSU RE THE PERCENTAGE OF SUM ASSURED AS SPECIFIED BY THE INSUR ANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA WITH GENERAL INSURANCE CORPORATION OF INDIA. 15. REFERRING TO SUB-SECTION (7) OF SECTION 101A OF THE INSURANCE ACT, 1938, THE LD. SR. STANDING COUNSEL FOR THE REV ENUE SUBMITTED THAT THE PARLIAMENT IN ITS WISDOM CLARIFIED THAT TH E ASSESSEE OR OTHER INSURER, MAY ALSO RE-INSURE WITH ANY INDIAN RE-INSU RER OR OTHER INSURER ANY SUM ASSURED ON ANY POLICY OR ANY PORTIO N THEREOF IN EXCESS OF PERCENTAGE SPECIFIED BY THE INSURANCE REG ULATORY AND 19 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS DEVELOPMENT AUTHORITY OF INDIA UNDER SUB-SECTION (2 ) OF SECTION 101A OF THE INSURANCE ACT, 1938. ACCORDING TO THE LD. SR. STANDING COUNSEL, THE INDIAN RE-INSURER IS DEFINED IN SUB- SECTION (8)(II) OF SECTION 101A. AS PER THIS DEFINITION, INDIAN RE-I NSURER MEANS AN INSURANCE COMPANY WHICH HAS BEEN GRANTED REGISTRATI ON CERTIFICATE UNDER SUB-SECTION (2A) OF SECTION 3 BY INSURANCE RE GULATORY AND DEVELOPMENT AUTHORITY OF INDIA TO CARRY ON EXCLUSIV ELY THE RE- INSURANCE BUSINESS IN INDIA. AS ON DATE, THE AUTHO RITY GRANTED REGISTRATION EXCLUSIVELY FOR CARRYING ON RE-INSURAN CE BUSINESS ONLY TO THE GENERAL INSURANCE CORPORATION OF INDIA. THEREF ORE, ACCORDING TO THE LD. SR. STANDING COUNSEL, THE GENERAL INSURANCE CORPORATION OF INDIA IS THE ONLY INDIAN RE-INSURANCE COMPANY. SUB -SECTION (7) OF SECTION 101A OF INSURANCE ACT, 1938 ALSO ENABLES TH E ASSESSEE TO HAVE RE-INSURANCE WITH OTHER INSURER. THEREFORE, A CCORDING TO THE LD. SR. STANDING COUNSEL, THE REAL QUESTION ARISES FOR CONSIDERATION IS WHO ARE THE OTHER INSURERS OTHER THAN INDIAN RE- INSURER, NAMELY, GENERAL INSURANCE CORPORATION OF INDIA? 16. REFERRING TO SECTION 2(9) OF THE INSURANCE ACT, 1938, THE LD. SR. STANDING COUNSEL FOR THE REVENUE SUBMITTED THAT THE TERM 20 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS INSURER IS DEFINED IN SECTION 2(9) OF THE INSURAN CE ACT, 1938. SECTION 2(9) AS IT STOOD AT THE RELEVANT POINT OF T IME CLEARLY SAYS THAT INSURER MEANS IN RESPECT OF BODY CORPORATE INCORP ORATED UNDER THE LAW OF ANY COUNTRY OTHER THAN INDIA WHICH CARRIES O N THAT BUSINESS IN INDIA OR ITS PRINCIPAL PLACE OF BUSINESS IS IN INDI A OR MAINTAINS A PLACE OF BUSINESS IN INDIA. THE INSURER AS DEFINED IN SECTION 2(9) OF INSURANCE ACT, 1938 ALONE CAN CARRY ON THE INSURANC E OR RE- INSURANCE BUSINESS IN INDIA. THEREFORE, ACCORDING TO THE LD. SR. STANDING COUNSEL, THE TERM OTHER INSURER AS REFER RED IN SUB- SECTION (7) OF SECTION 101A OF THE INSURANCE ACT, 1 938 IS AN INSURER AS DEFINED IN SECTION 2(9). IT DOES NOT INCLUDE AN Y RE-INSURANCE COMPANY OR OTHER INSURANCE COMPANY WHICH IS NOT REF ERRED IN SECTION 2(9). 17. REFERRING TO SECTION 2(7A) OF INSURANCE ACT, 19 38, THE LD. SR. STANDING COUNSEL FOR THE REVENUE SUBMITTED THAT IN DIAN INSURANCE COMPANY WAS ALSO DEFINED IN SECTION 2(7A). THEREF ORE, THE NON- RESIDENT RE-INSURANCE COMPANY WHICH HAS NO PLACE OF BUSINESS IN INDIA OR BUSINESS CONNECTION IN INDIA WOULD NOT FAL L WITHIN THE TERM OTHER INSURER AS PROVIDED IN SUB-SECTION (7) OF S ECTION 101A. 21 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS ACCORDING TO THE LD. SR. STANDING COUNSEL, IF THE A SSESSEE CLAIMS THAT NON-RESIDENT RE-INSURANCE COMPANY HAS NO BUSIN ESS CONNECTION OR PERMANENT ESTABLISHMENT IN INDIA, THE PAYMENT OF REINSURANCE PREMIUM WOULD BE IN VIOLATION OF INSURA NCE ACT, 1938, THEREFORE, THE ENTIRE PREMIUM PAID BY THE ASSESSEE HAS TO BE DISALLOWED UNDER PROVISO TO SECTION 37 OF THE ACT. THE LD. SR. STANDING COUNSEL FURTHER SUBMITTED THAT IF THE ASSE SSEE CLAIMS THAT THERE IS A BUSINESS CONNECTION FOR NON-RESIDENT RE- INSURANCE COMPANY IN INDIA OR NON-RESIDENT COMPANY HAS PERMAN ENT ESTABLISHMENT IN INDIA, THEN NATURALLY THE PROFIT O F NON-RESIDENT RE- INSURANCE COMPANY IS LIABLE FOR TAXATION IN INDIA, HENCE, THE ASSESSEE IS LIABLE TO DEDUCT TAX. IN THIS CASE, AC CORDING TO THE LD. SR. STANDING COUNSEL, ADMITTEDLY, THE ASSESSEE-COMP ANY HAS NOT DEDUCTED ANY TAX, THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE ENTIRE REINSURANCE PREMIUM PAID BY T HE ASSESSEE UNDER SECTION 40(A)(I) OF THE ACT. THE CIT(APPEALS ), HOWEVER, RESTRICTED THE DISALLOWANCE TO 15% WITHOUT ANY RHYM E OR REASON. WHEN THE ASSESSEE FAILED TO DEDUCT TAX, ACCORDING T O THE LD. SR. STANDING COUNSEL, THE ENTIRE AMOUNT HAS TO BE DISAL LOWED UNDER 22 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS SECTION 40(A)(I) OF THE ACT. EVEN OTHERWISE, THE R E-INSURANCE PREMIUM WAS PAID CONTRARY TO THE STATUTORY PROVISIO N, NAMELY, SECTION 2(9) OF THE INSURANCE ACT, 1938, THEREFORE, THE CIT(APPEALS) IS NOT JUSTIFIED IN RESTRICTING THE DISALLOWANCE TO 15%. ACCORDING TO THE LD. SR. STANDING COUNSEL, THE REVENUE FILED APP EAL AGAINST THE ORDER OF THE CIT(APPEALS) WHERE HE RESTRICTED DISAL LOWANCE TO 15%. ACCORDING TO THE LD. SR. STANDING COUNSEL, THE ENTI RE RE-INSURANCE PREMIUM PAID BY THE ASSESSEE-COMPANY HAS TO BE DISA LLOWED UNDER SECTION 37 OF THE ACT SINCE IT WAS PAID IN VIOLATIO N OF SECTION 2(9) OF THE INSURANCE ACT, 1938 AS IT STOOD AT THE RELEVANT POINT OF TIME. 18. BY WAY OF REJOINDER, SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT RE-INSURAN CE PROGRAMME OF THE ASSESSEE-COMPANY WAS MADE AFTER EXTENSIVE DI SCUSSION WITH GENERAL INSURANCE CORPORATION OF INDIA, THE LEAD-RE INSURER. THE LD. SR. COUNSEL FURTHER SUBMITTED THAT SECTION 2(9) OF THE INSURANCE ACT, 1938 IS NOT AT ALL APPLICABLE TO THE ASSESSEE. BY VIRTUE OF THE RULE FRAMED BY THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA, IN EXERCISE OF ITS STATUTORY POWER UNDER SEC TION 114A OF THE INSURANCE ACT, 1938, THE ASSESSEE WAS ALLOWED TO HA VE RE- 23 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS INSURANCE PROGRAMME WITH NON-RESIDENT REINSURER. T HE LD. SR. COUNSEL HAS ALSO REFERRED TO THE MEMORANDUM OF OBJE CT FOR INTRODUCTION OF SECTION 101A IN THE PARLIAMENT. TH E MEMORANDUM CLEARLY SAYS THAT THERE WAS NO PROHIBITION FOR THE INDIAN INSURANCE COMPANIES FOR RE-INSURING THEIR RISK WITH NON-RESID ENT RE-INSURANCE COMPANIES. AFTER 2014, ACCORDING TO THE LD. SR. CO UNSEL, THE ASSESSEE IS DEDUCTING TAXES WHILE MAKING PAYMENT TO NON-RESIDENT RE-INSURANCE COMPANIES IN VIEW OF AMENDED PROVISION OF SECTION 2(9) OF THE INSURANCE ACT, 1938. ON A QUERY FROM T HE BENCH WHETHER THE ASSESSEE CAN HAVE RE-INSURANCE WITH OTH ER INDIAN INSURANCE COMPANIES APART FROM GENERAL INSURANCE CO RPORATION OF INDIA? THE LD. SR. COUNSEL CLARIFIED THAT THE ASSE SSEE CAN ALSO HAVE RE-INSURANCE PROGRAMME WITH OTHER INDIAN INSUR ERS LIKE UNITED INDIA INSURANCE, NEW INDIA ASSURANCE, ETC. APART FR OM GENERAL INSURANCE CORPORATION OF INDIA. IN FACT, ACCORDING TO THE LD. SR. COUNSEL, THE ASSESSEE HAS TAKEN UP RE-INSURANCE PRO GRAMME WITH INDIAN COMPANIES FOR ITS OWN RISK AND ALSO RECEIVED RE-INSURANCE PREMIUMS FROM OTHER INDIAN INSURER BY TAKING PART O F THEIR RISK. 24 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS AN INDIAN INSURANCE COMPANY REGISTERED WITH INSURAN CE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA AS PROVIDED IN S ECTION 3(2A) OF THE INSURANCE ACT, 1938. TILL 2014, THE RE-INSURAN CE PROGRAMMES ARE NOT REGULARIZED IN INDIA. THE PARLIAMENT, FOR THE FIRST TIME INTRODUCED PART IVA BY INSURANCE (AMENDMENT) ACT, 1 961. FOR THE PURPOSE OF CONVENIENCE, PART IVA IS REPRODUCED AS U NDER:- PART IV-A RE-INSURANCE RE-INSURANCE WITH INDIAN REINSURERS 101A. (1) EVERY INSURER SHALL RE INSURE WITH INDIAN RE-I NSURERS SUCH PERCENTAGE OF THE SUM ASSURED ON EACH POLICY AS MAY BE SPECIFIED BY THE AUTHORITY WITH THE PREVIOUS APPROVAL OF THE CENTRAL GOVERNMENT UNDER SUB- SECTION (2). (2) FOR THE PURPOSES OF SUB-SECTION (1), THE AUTHORI TY MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, (A) SPECIFY THE PERCENTAGE OF THE SUM ASSURED ON E ACH POLICY TO BE REINSURED AND DIFFERENT PERCENTAGES MAY BE SPECIFIE D FOR DIFFERENT CLASSES OF INSURANCE: PROVIDED THAT NO PERCENTAGE SO SPECIFIED SHALL EXCEED THIRTY PER CENT OF THE SUM ASSURED ON SUCH POLICY; AND (B) ALSO SPECIFY THE PROPORTIONS IN WHICH THE S AID PERCENTAGE SHALL BE ALLOCATED AMONG THE INDIAN RE-INSURERS. 25 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTIO N (1), AN INSURER CARRYING ON FIRE-INSURANCE BUSINESS IN INDIA MAY, I N LIEU OF RE-INSURING THE PERCENTAGE SPECIFIED UNDER SUB-SECTION (2) OF THE SU M 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 PREMIUM S 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 PREMIUM S ON RE-INSURANCE CEDED OR ACCEPTED) IN RESPECT OF SUCH BUSINESS DURI NG THAT YEAR EXPLANATION- FOR THE PURPOSES OF THIS-SECTION, THE Y EAR 1961 SHALL BE DEEMED TO MEAN THE PERIOD FROM THE 1ST APRIL TO THE 31ST DECEMBER OF THAT YEAR. (4) A NOTIFICATION UNDER SUBSECTION (2) MAY ALSO SPEC IFY THE TERMS AND CONDITIONS IN RESPECT OF ANY BUSINESS OF RE-INSURAN CE REQUIRED TO BE TRANSACTED UNDER THIS SECTION AND SUCH TERMS AND CO NDITIONS SHALL BE BINDING ON INDIAN RE-INSURERS AND OTHER INSURERS. (5) NO NOTIFICATION UNDER SUB-SECTION (2) SHALL BE I SSUED EXCEPT AFTER CONSULTATION WITH THE ADVISORY COMMITTEE CONSTITUTE D UNDER SECTION 101B. (6) EVERY NOTIFICATION ISSUED UNDER THIS SECTION SHA LL BE LAID BEFORE EACH HOUSE OF PARLIAMENT, AS SOON AS MAY BE, AFTER IT IS MADE. (7) FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT NOTHING IN SUBSECTION (1) SHALL BE CONSTRUED AS PREVENTING AN INSURER FROM REINSURING WITH ANY INDIAN RE-INSURER OR OTHER INSURER THE ENT IRE SUM ASSURED ON ANY POLICY OR ANY PORTION THEREOF IN EXCESS OF THE PERCE NTAGE SPECIFIED UNDER SUB-SECTION (2). (8) IN THIS SECTION, (I.) 'POLICY' MEANS A POLICY ISSUED OR RENEWE D ON OR AFTER THE 1ST DAY OF APRIL, 1961, IN RESPECT OF GENERAL INSURANCE BU SINESS TRANSACTED IN INDIA AND DOES NOT INCLUDE A RE-INSURANCE POL ICY; AND (II.) 'INDIAN RE-INSURER' MEANS AN INSURER SP ECIFIED IN SUB-CLAUSE (B) OF 26 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS CLAUSE (9) OF SECTION 2 WHO CARRIES ON EXCLUSIVE LY RE-INSURANCE BUSINESS AND IS APPROVED IN THIS BEHALF BY THE CENTRAL GOVERNMENT. ADVISORY COMMITTEE 101B. (1) THE AUTHORITY WITH THE PREVIOUS APPROVAL OF TH E CENTRAL GOVERNMENT SHALL, FOR THE PURPOSES OF SECTION 101A, CONSTITUTE AN ADVISORY COMMITTEE CONSISTING OF NOT MORE THAN FIVE PERSONS HAVING SPECIAL KNOWLEDGE AND EXPERIENCE OF THE BUSINESS OF INSURANC E. (2) THE TERM OF OFFICE OF, AND THE ALLOWANCE PAYABLE TO, MEMBERS OF THE ADVISORY COMMITTEE, THE PROCEDURE TO BE FOLLOWED BY , AND THE QUORUM NECESSARY FOR THE TRANSACTION OF BUSINESS OF, THE C OMMITTEE AND THE MANNER OF FILLING CASUAL VACANCIES THEREIN SHALL BE SUCH AS MAY BE DETERMINED BY THE REGULATIONS MADE BY THE AUTHORITY . EXAMINATION OF RE-INSURANCE TREATIES 101C. THE AUTHORITY MAY, AT ANY TIME (A) CALL UPON AN INSURER TO SUBMIT FOR HIS EXAMIN ATION AT THE PRINCIPAL PLACE OF BUSINESS OF THE INSURER IN INDIA ALL R E-INSURANCE TREATIES AND OTHER RE-INSURANCE CONTRACTS ENTERED INTO BY TH E INSURER; (B) EXAMINE ANY OFFICER OF THE INSURER ON OATH IN RELATION TO ANY SUCH DOCUMENT AS IS REFERRED TO IN C1AUSE (A) ABOVE; OR (C) BY NOTICE IN WRITING, REQUIRE ANY INSURER TO SUPPLY HIM WITH COPIES OF ANY OF THE DOCUMENTS REFERRED TO IN CLAUSE (A), CERTIFIED BY A PRINCIPAL OFFICER OF THE INSURER. 20. SECTION 114A OF THE INSURANCE ACT, 1938 ENABLES THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF I NDIA TO MAKE REGULATIONS IN CONSISTENT WITH THE PROVISIONS OF IN SURANCE ACT, 1938 27 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS AND THE RULES MADE THEREUNDER, TO CARRY OUT THE PUR POSES OF THE INSURANCE ACT. THE TERM RE-INSURANCE IS ALSO DEF INED IN SECTION 2(16B) OF THE INSURANCE ACT, 1938 WHICH READS AS FO LLOWS:- RE-INSURANCE MEANS THE INSURANCE PART OF ONE INSU RERS RISK BY ANOTHER INSURER WHO ACCEPTS THE RISK FOR A MUTUALLY ACCEPTABLE PREMIUM. 21. THEREFORE, THE ENTIRE BUSINESS OF INSURANCE / R E-INSURANCE IS CODIFIED AND REGULATED BY INSURANCE ACT, 1938. ALL THE INSURANCE COMPANIES WHICH ARE CARRYING ON INSURANCE BUSINESS IN INDIA HAVE TO NECESSARILY COMPLY WITH THE PROVISIONS OF INSURA NCE ACT, 1938 AS AMENDED AND THE RULES MADE THEREUNDER. FOR THE PUR POSE OF REGULARIZING THE INSURANCE BUSINESS IN A BETTER MAN NER, THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF I NDIA WAS ESTABLISHED AND THE SAID AUTHORITY WAS ALSO EMPOWER ED TO FRAME REGULATIONS IN CONSISTENT WITH THE PROVISIONS OF IN SURANCE ACT, 1938 AND RULES MADE THEREUNDER. THEREFORE, IT IS OBVIOU S THAT INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA HAS T O FRAME REGULATIONS IN CONSISTENT WITH THE PROVISIONS OF IN SURANCE ACT AND RULES MADE THEREUNDER. IN OTHER WORDS, INSURANCE R EGULATORY AND 28 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS DEVELOPMENT AUTHORITY OF INDIA CANNOT FRAME ANY REG ULATION CONTRARY TO THE PROVISIONS OF INSURANCE ACT AND THE RULES MADE THEREUNDER. HENCE, THE INSURERS WHO ARE ENGAGED IN THE BUSINESS OF INSURANCE AND RE-INSURANCE ARE GOVERNED BY THE P ROVISIONS OF INSURANCE ACT, 1938. THE INSURANCE ACT, 1938 IS TH E PARENT ACT WHICH REGULATES THE BUSINESS OF INSURANCE AND RE-IN SURANCE IN INDIA. 22. THE TERM INSURER IS DEFINED IN SECTION 2(9) O F INSURANCE ACT, 1938. SECTION 2(9) OF THE INSURANCE ACT, 1938 READ S AS FOLLOWS:- INSURER MEANS - (A) ANY INDIVIDUAL OR UNINCORPORATED BODY OF INDIVIDUA LS OR BODY CORPORATE INCORPORATED UNDER THE LAW OF ANY COUNTRY OTHER THAN INDIA, CARRYING ON INSURANCE BUSINESS [NOT BEING A PERSON SPECIFIED IN SUB-CLAUSE (C) OF THIS CLAUSE] WHICH (I) CARRIES ON THAT BUSINESS IN INDIA, OR (II) HAS HIS OR ITS PRINCIPAL PLACE OF BUSINESS OR IS D OMICILED IN INDIA OR (III) WITH THE OBJECT OF OBTAINING INSURANCE BUSINESS, EMPLOYS A REPRESENTATIVE, OR MAINTAINS A PLACE OF B USINESS, IN INDIA; (B) ANY BODY CORPORATE [NOT BEING A PERSON SPECIFIED I N SUB-CLAUSE (C) OF THIS CLAUSE] CARRYING ON THE BUSINESS OF INS URANCE, WHICH IS A BODY CORPORATE INCORPORATED UNDER ANY LAW FOR THE T IME BEING IN FORCE IN INDIA; OR STANDS TO ANY SUCH BODY CORPORATE IN THE RELATION OF A SUBSIDIARY COMPANY WITHIN THE MEANING OF THE I NDIAN COMPANIES ACT, 1913 (7 OF 1913), AS DEFINED BY SUB- SECTION (2) OF SECTION 2 OF THAT ACT, AND (C) ANY PERSON WHO IN INDIA HAS A STANDING CONTRACT WITH UNDERWRITERS WHO ARE MEMBERS OF THE SOCIETY OF LLOY D'S WHEREBY SUCH PERSON IS AUTHORISED WITHIN THE TERMS OF SUCH CONTRACT TO ISSUE PROTECTION NOTES, COVER NOTES, OR OTHER DOCUM ENTS GRANTING 29 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS INSURANCE COVER TO OTHERS ON BEHALF OF THE UNDERWRI TERS, BUT DOES NOT INCLUDE A PRINCIPAL AGENT, CHIEF AGENT, SPECIAL AGENT, OR AN INSURANCE AGENT OR A PROVIDENT SOCIETY AS DEFINED IN PART III; SECTION 2(9) OF INSURANCE ACT, 1938 WAS AMENDED WIT H EFFECT FROM 26.12.2014 WHICH READS AS FOLLOWS:- INSURER MEANS (A) AN INDIAN INSURANCE COMPANY, OR (B) A STATUTORY BODY ESTABLISHED BY AN ACT OF PARL IAMENT TO CARRY ON INSURANCE BUSINESS, OR (C) AN INSURANCE CO-OPERATIVE SOCIETY, OR (D) A FOREIGN COMPANY ENGAGED IN RE-INSURANCE BUSI NESS THROUGH A BRANCH ESTABLISHED IN INDIA. EXPLANATION FOR THE PURPOSES OF THIS SUB-CLAUSE, THE EXPRESSION FOREIGN COMPANY SHALL MEAN A COMPANY OR BODY ESTA BLISHED OR INCORPORATED UNDER A LAW OF ANY COUNTRY OUTSIDE IND IA AND INCLUDES LLOYDS ESTABLISHED UNDER THE LLOYDS ACT, 1871 (UN ITED KINGDOM) OR ANY OF THE MEMBERS;] 23. THE TERM INDIAN INSURANCE COMPANY IS ALSO DEF INED IN SECTION 2(7A) OF INSURANCE ACT, 1938, WHICH READS A S FOLLOWS:- (7A) INDIAN INSURANCE COMPANY MEANS ANY INSURER BEING A COMPANY (A) WHICH IS FORMED AND REGISTERED UNDER THE COMPANIES ACT, 1956 (1 OF 1956); (B) IN WHICH THE AGGREGATE HOLDINGS OF EQUITY SHARES B Y A FOREIGN COMPANY, EITHER BY ITSELF OR THROUGH ITS SU BSIDIARY COMPANIES OR ITS NOMINEES, DO NOT EXCEED TWENTY-SIX PER CENT. PAID-UP EQUITY CAPITAL OF SUCH INDIAN INSURAN CE COMPANY; (C) WHOSE SOLE PURPOSE IS TO CARRY ON LIFE INSURANCE B USINESS OR GENERAL INSURANCE BUSINESS OR RE-INSURANCE BUSIN ESS. 30 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSION FOREIGN COMPANY SHALL HAVE THE MEANING ASSIGNED TO IT UNDER CLAUSE (23A) OF SECTION 2 OF T HE INCOME-TAX ACT, 1961 (43 OF 1961);] SECTION 2(7A) WAS AMENDED BY INSURANCE LAWS (AMENDM ENT) ACT, 2015 WITH RETROSPECTIVE EFFECT FROM 26.12.2014, WHI CH READS AS FOLLOWS:- (7A) INDIAN INSURANCE COMPANY MEANS ANY INSURER, BEING A COMPANY WHICH IS LIMITED BY SHARES, AND (A) WHICH IS FORMED AND REGISTERED UNDER THE COMP ANIES ACT, 2013 (18 OF 2013) AS A PUBLIC COMPANY IS CONVE RTED INTO SUCH A COMPANY WITHIN ONE YEAR OF THE COMMENCE MENT OF THE INSURANCE LAWS (AMENDMENT) ACT, 2015; (B) IN WHICH THE AGGREGATE HOLDINGS OF EQUITY SHA RES BY FOREIGN INVESTORS, INCLUDING PORTFOLIO INVESTORS, D O NOT EXCEED FORTY-NINE PER CENT OF THE PAID-UP EQUITY CA PITAL OF SUCH INDIAN INSURANCE COMPANY, WHICH IS INDIAN OWNE D AND CONTROLLED, IN SUCH MANNER AS MAY BE PRESCRIBED. EXPLANATION FOR THE PURPOSES OF THIS SUB-CLAUSE, THE EXPRESSION CONTROL SHALL INCLUDE THE RIGHT TO APP OINT A MAJORITY OF THE DIRECTORS OR TO CONTROL THE MANAGEM ENT OR POLICY DECISIONS INCLUDING BY VIRTUE OF THEIR SHARE HOLDING OR MANAGEMENT RIGHTS OR SHAREHOLDERS AGREEMENTS OR VOT ING AGREEMENTS; (C) WHOSE SOLE PURPOSE IS TO CARRY ON LIFE INSURA NCE BUSINESS OR GENERAL INSURANCE BUSINESS OR RE-INSURA NCE BUSINESS OR HEALTH INSURANCE BUSINESS;] 31 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS 24. THE TERM INSURANCE COMPANY IS ALSO DEFINED IN SECTION 2(8) OF INSURANCE ACT, 1938 WHICH WAS OMITTED WITH RETRO SPECT EFFECT FROM 26.12.2014, READS AS FOLLOWS:- (8) INSURANCE COMPANY MEANS ANY INSURER BEING A COMP ANY, ASSOCIATION OR PARTNERSHIP WHICH MAY BE WOUND UP UN DER 18 [THE COMPANIES ACT, 1956 (1 OF 1956)], OR TO WHICH THE I NDIAN PARTNERSHIP ACT, 1932 (9 OF 1932), APPLIES; 25. THE TERM INDIAN RE-INSURER IS ALSO DEFINED IN SECTION 101A(8)(II) OF INSURANCE ACT, 1938 WHICH READS AS F OLLOWS:- INDIAN RE-INSURER MEANS AN INSURER SPECIFIED IN SUB-CLAUSE (B) OF CLAUSE (9) OF SECTION 2 WHO CARRIES ON EXCLUSIVELY RE-INSURANCE BUSINESS AND IS APPROVED IN THIS BEHALF BY THE CENT RAL GOVERNMENT. THE DEFINITION OF INDIAN RE-INSURER WAS SUBSEQUEN TLY AMENDED BY INSURANCE (AMENDMENT) ACT, 2002 WITH EFFECT FROM 23 .9.2002 WHICH READS AS FOLLOWS:- INDIAN RE-INSURER MEANS AN INDIAN INSURANCE COMPANY WHICH HAS BEEN GRANTED A CERTIFICATE OF REGISTRATION UNDER SU B-SECTION (2A) OF SECTION 3 BY THE AUTHORITY TO CARRY ON EXCLUSIVE LY THE RE- INSURANCE BUSINESS IN INDIA. 26. AS OF NOW, AN INDIAN RE-INSURER MEANS AN INDI AN INSURANCE COMPANY WHICH WAS GRANTED A CERTIFICATE OF REGISTRA TION BY INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF I NDIA UNDER 32 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS SECTION 3(2A) OF THE INSURANCE ACT, 1938. IN OTHER WORDS, OTHER THAN GENERAL INSURANCE COMPANY OF INDIA, ALL OTHER INDIAN INSURANCE COMPANIES INCLUDING THE ASSESSEE MAY ENGA GE ITSELF IN REINSURANCE BUSINESS SINCE THEY WERE GRANTED CERTIF ICATE OF REGISTRATION. BY KEEPING THE ABOVE PROVISIONS IN M IND, IF WE EXAMINE THE TRANSACTION OF THE ASSESSEE IN PAYING R E-INSURANCE PREMIUM TO NON-RESIDENT COMPANY, IT IS OBVIOUS THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF INDIAN INSURANCE ACT , 1938. PROVISIONS OF SECTION 101A MAKES IT MANDATORY TO EV ERY INSURER TO RE-INSURE WITH INDIAN RE-INSURERS SUCH PERCENTAGE O F SUM ASSURED ON EACH POLICY AS MAY BE SPECIFIED BY THE AUTHORITY , NAMELY, INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF I NDIA. AN OPTION WAS GIVEN TO THE INSURER UNDER SUB-CLAUSE (7 ) OF SECTION 101A OF INSURANCE ACT, 1938 THAT AN INSURER MAY RE- INSURE OVER AND ABOVE THE PERCENTAGE PRESCRIBED BY INSURANCE REGULA TORY AND DEVELOPMENT AUTHORITY OF INDIA WITH OTHER INSURER. BY TAKING ADVANTAGE OF THIS PROVISIONS OF SUB-CALUSE (7) OF S ECTION 101A, THE ASSESSEE NOW CLAIMS BEFORE THIS TRIBUNAL THAT THERE WAS NO PROHIBITION IN INSURANCE ACT, 1938 OR RULES MADE TH EREUNDER OR ANY 33 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS REGULATION FRAMED BY INSURANCE REGULATORY AND DEVEL OPMENT AUTHORITY OF INDIA FROM RE-INSURING OVER AND ABOVE THE PERCENTAGE PRESCRIBED BY INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA WITH NON-RESIDENT RE-INSURER. THERE IS NO DI SPUTE THAT INSURANCE ACT, 1938 IS THE PARENT ACT WHICH GOVERNS AND REGULATES THE BUSINESS OF INSURANCE AND RE-INSURANCE. AS OBS ERVED EARLIER, INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF I NDIA ACT, 1999 WAS ENACTED TO IMPLEMENT THE PROVISIONS OF INSURANC E ACT, 1938 MORE EFFECTIVELY AND INSURANCE REGULATORY AND DEVEL OPMENT AUTHORITY OF INDIA WAS EMPOWERED TO FRAME REGULATIO NS IN CONSISTENT WITH THE PROVISIONS OF INSURANCE ACT, 1938 AND RULE S MADE THEREUNDER. THEREFORE, INSURANCE OR RE-INSURANCE B USINESS IN INDIA CANNOT BE CARRIED ON CONTRARY TO THE PROVISIONS OF INSURANCE ACT, 1938 AND RULES MADE THEREUNDER. 27. IN THE CASE BEFORE US, THE ASSESSEE HAS PAID RE -INSURANCE PREMIUM TO NON-RESIDENT RE-INSURANCE COMPANY AND CL AIMED THE SAME AS DEDUCTION WHILE COMPUTING THE TAXABLE INCOM E. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE ON THE GROUND THAT TAX WAS NOT DEDUCTED AS REQUIRED. THE CONTENTION OF 34 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS THE LD. SR. COUNSEL FOR THE ASSESSEE BEFORE THIS TR IBUNAL IS THAT THE PROVISIONS OF SECTION 2(9) OF THE INSURANCE ACT, 19 38 IS NOT APPLICABLE TO THE ASSESSEE-INSURANCE COMPANY. THE LD. SR. COUNSEL HAS ALSO REFERRED TO PROVISIONS OF SECTION 114A(ZD) OF THE INSURANCE ACT, 1938 AND SUBMITTED THAT INSURANCE RE GULATORY AND DEVELOPMENT AUTHORITY OF INDIA FRAMED REGULATIONS F OR HAVING RE- INSURANCE TREATY WITH NON-RESIDENT RE-INSURANCE COM PANIES. THE NON-RESIDENT RE-INSURANCE COMPANY, ACCORDING TO THE LD. SR. COUNSEL, WAS NOT GRANTED ANY LICENSE TO DO INSURANC E BUSINESS IN INDIA. THEREFORE, ACCORDING TO THE LD. SR. COUNSEL , THE ENTIRE TRANSACTION OF THE NON-RESIDENT RE-INSURANCE COMPAN Y WAS OUTSIDE THE TERRITORIAL JURISDICTION OF INDIA AND THE INDIV IDUAL BROKERS ACTED ONLY AS FACILITATOR BETWEEN THE ASSESSEE-INSURANCE COMPANY AND NON-RESIDENT RE-INSURANCE COMPANIES, THEREFORE, THE PROFIT OF THE NON-RESIDENT RE-INSURANCE COMPANY IS NOT TAXABLE IN INDIA. HENCE, ACCORDING TO THE LD. SR. COUNSEL, THERE CANNOT BE A NY DISALLOWANCE FOR NON-DEDUCTION OF TAX UNDER SECTION 40(A)(I) OF THE ACT. THE LD. SR. COUNSEL FOR THE ASSESSEE VERY FAIRLY ADMITTED B EFORE THIS TRIBUNAL 35 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS THAT FROM THE YEAR 2014, THE ASSESSEE STARTED DEDUC TING TAX ON RE- INSURANCE PREMIUM PAID TO NON-RESIDENT COMPANIES. 28. WE HAVE GONE THROUGH THE PROVISIONS OF SECTION 2C OF THE INSURANCE ACT, 1938 WHICH READS AS FOLLOWS:- 2C. (1) SAVE AS HEREINAFTER PROVIDED, NO PERSON SHA LL, AFTER THE COMMENCEMENT OF THE INSURANCE (AMENDMENT) ACT, 1950 (47 OF 1950), BEGIN TO CARRY ON ANY CLASS OF INSURANCE BUSINESS I N INDIA AND NO INSURER CARRYING ON ANY CLASS OF INSURANCE BUSINESS IN INDI A SHALL AFTER THE EXPIRY OF ONE YEAR FROM SUCH COMMENCEMENT, CONTINUE TO CAR RY ON ANY SUCH BUSINESS UNLESS HE IS- (A) A PUBLIC COMPANY, OR (B) A SOCIETY REGISTERED UNDER THE CO-OPERATIVE SOC IETIES ACT, 1912 (2 OF 1912), OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE IN ANY STATE RELATING TO CO-OPERATIVE SOCIETIES, OR (C) A BODY CORPORATE INCORPORATED UNDER THE LAW OF ANY COUNTRY OUTSIDE INDIA NOT BEING OF THE NATURE OF A PRIVATE COMPANY: PROVIDED THAT THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION I N THE OFFICIAL GAZETTE, EXEMPT FROM THE OPERATION OF THIS SECTION T O SUCH EXTENT FOR SUCH PERIOD AND SUBJECT TO SUCH CONDITIONS AS IT MA Y SPECIFY, ANY PERSON OR INSURER FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF GRANTING SUPERANNUATION ALLOWANCES AND ANNUITIES OF THE NATU RE SPECIFIED IN SUB- CLAUSE (C) OF CLAUSE (11) OF SECTION 2 OR FOR THE PU RPOSE OF CARRYING ON ANY GENERAL INSURANCE BUSINESS: PROVIDED FURTHER THAT IN THE CASE OF AN INSURER CARRYING ON ANY GENERAL INSURANCE BUSINESS NO SUCH NOTIFICATION SHALL BE IS SUED HAVING EFFECT FOR MORE THAN THREE YEARS AT ANY ONE TIME: 36 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS PROVIDED ALSO THAT NO INSURER OTHER THAN AN INDIAN INSURANCE COM PANY SHALL BEGIN TO CARRY ON ANY CLASS OF INSURANCE BUSINESS I N INDIA UNDER THIS ACT ON OR AFTER THE COMMENCEMENT OF THE INSURANCE REGULATO RY AND DEVELOPMENT AUTHORITY ACT, 1999. PROVIDED ALSO AN INSURER, BEING AN INDIAN INSURANCE COMPANY, INS URANCE CO- OPERATIVE SOCIETY OR A BODY CORPORATE REFERRED TO I N CLAUSE (C) OF THIS SUB- SECTION CARRYING ON THE BUSINESS OF INSURANCE, MAY CARRY ON ANY BUSINESS OF INSURANCE IN ANY SPECIAL ECONOMIC ZONE AS DEFINED I N CLAUSE (ZA) OF SECTION 2 OF THE SPECIAL ECONOMIC ZONES ACT, 2005. (2) EVERY NOTIFICATION ISSUED UNDER SUBSECTION (1) S HALL BE LAID BEFORE PARLIAMENT AS SOON AS MAY BE AFTER IT IS ISSUED. (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTIO N (1), AN INSURANCE CO- OPERATIVE SOCIETY MAY CARRY ON ANY CLASS OF INSURAN CE BUSINESS IN INDIA UNDER THIS ACT ON OR AFTER THE COMMENCEMENT OF THE INSURANCE (AMENDMENT) ACT, 2002. 29. SECTION 2C OF THE INSURANCE ACT, 1938 PROHIBITS FROM CARRYING ON INSURANCE BUSINESS OTHERWISE THAN THEY ARE PERMI TTED UNDER THE INSURANCE ACT, 1938. THIRD PROVISO TO SECTION 2C C LEARLY SAYS THAT NO INSURER OTHER THAN INDIAN INSURANCE COMPANY SHAL L BEGIN TO CARRY ON ANY CLASS OF INSURANCE BUSINESS IN INDIA. WE HA VE ALSO CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 2(9) OF THE INSURANCE ACT, 1938. THE LD. SR. COUNSEL FOR THE ASSESSEE VERY FA IRLY SUBMITTED BEFORE THIS TRIBUNAL THAT AFTER 2014, THE ASSESSEE STARTED DEDUCTING TAX ON THE RE-INSURANCE PREMIUM PAID TO THE NON-RES IDENT RE- 37 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS INSURANCE COMPANY. THIS IS BECAUSE OF THE AMENDMEN T CARRIED OUT BY THE PARLIAMENT IN SECTION 2(9) OF THE ACT BY INS URANCE LAWS (AMENDMENT) ACT, 2015 WAS WITH RETROSPECTIVE EFFECT FROM 26.12.2014. THEREFORE, THE LD. SR. COUNSEL FOR THE ASSESSEE ADMITS THAT FROM 26.12.2014, SECTION 2(9) OF INSURANCE ACT , 1938 IS APPLICABLE IN RESPECT OF RE-INSURANCE PREMIUM PAID TO NON-RESIDENT COMPANIES. 30. THE QUESTION NOW ARISES FOR CONSIDERATION IS WH EN THE PROVISIONS OF SECTION 2(9) OF THE INSURANCE ACT, 19 38 IS APPLICABLE WITH EFFECT FROM 26.12.2014, WHY IT IS NOT APPLICAB LE FOR EARLIER ASSESSMENT YEARS? THIS TRIBUNAL IS OF THE CONSIDER ED OPINION THAT THE PROVISIONS OF SECTION 2(9) OF THE INSURANCE ACT , 1938 IS APPLICABLE AS IT STOOD AT RELEVANT POINT OF TIME EV EN FOR EARLIER ASSESSMENT YEARS, I.E. EVEN BEFORE 26.12.2004. THE WORD OTHER INSURER PROVIDED IN SECTION 101A(7) OF THE INSURAN CE ACT, 1938 ENABLES THE INDIAN INSURERS FOR RE-INSURING OVER AN D ABOVE THE PERCENTAGE FIXED BY THE INSURANCE REGULATORY AND DE VELOPMENT AUTHORITY OF INDIA. THE RE-INSURANCE MAY BE EITHER WITH INDIAN RE- INSURER OR OTHER INSURER AS DEFINED IN SECTION 2(9) . BY TAKING 38 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS ADVANTAGE OF THE TERM OTHER INSURER, NOW THE ASSE SSEE CLAIMS THAT THEY CAN RE-INSURE WITH NON-RESIDENT RE-INSURANCE C OMPANY IGNORING THE PROVISIONS OF SECTION 2(9) OF THE INDIAN INSURA NCE ACT, 1938. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE RE IS NO MERIT IN THE CONTENTION OF THE LD. SR. COUNSEL FOR THE ASSES SEE. THE TERM OTHER INSURER AS PROVIDED IN SECTION 101A(7) OF T HE INSURANCE ACT, 1938 REFERS ONLY THE INSURER AS DEFINED IN SECTION 2(9) OF THE INSURANCE ACT, 1938. THERE CANNOT BE ANY EXTENDED MEANING WHICH CAN BE GIVEN TO THE TERM OTHER INSURER. TH E DEFINITION GIVEN IN SECTION 2(9) OF INSURANCE ACT, 1938 IS NOT INCLU SIVE ONE. IT IS AN EXHAUSTIVE ONE. THEREFORE, AN INDIAN INSURER CANNO T HAVE ANY RE- INSURANCE ARRANGEMENT WITH RE-INSURANCE OR INSURANC E COMPANY OTHER THAN THE INSURER AS DEFINED / REFERRED IN SEC TION 2(9) OF INSURANCE ACT, 1938. 31. AFTER 2014, SECTION 2(9) OF THE INSURANCE ACT, 1938 WAS AMENDED WHICH ENABLES FOREIGN COMPANY ENGAGED IN RE -INSURANCE BUSINESS TO ESTABLISH A BRANCH IN INDIA. THEREFORE , UNLESS A BRANCH WAS ESTABLISHED IN INDIA, THE NON-RESIDENT INSURANC E COMPANY CANNOT DO ANY BUSINESS AFTER 2014. HENCE, NATURALL Y THE PROFIT OF 39 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS NON-RESIDENT RE-INSURANCE COMPANY IS TAXABLE IN IND IA. ACCORDINGLY, THE ASSESSEE-INSURANCE COMPANY HAS TO DEDUCT TAX UNDER SECTION 40(A)(I) OF THE ACT ON THE RE-INSURANCE PREMIUM PAI D TO NON-RESIDENT RE-INSURANCE COMPANY. 32. BEFORE AMENDMENT, THE TERM INSURER CLEARLY SA YS THAT ANY PERSON WHO IN INDIA HAS A STANDING CONTRACT WITH UN DERWRITERS WHO ARE MEMBERS OF THE SOCIETY OF LLOYDS, WHEREBY SUCH PERSON IS AUTHORIZED WITHIN THE TERMS OF SUCH CONTRACT, TO IS SUE PROTECTION NOTES, COVER NOTES OR OTHER DOCUMENTS GRANTING INSU RANCE COVER TO OTHER ON BEHALF OF THE UNDERWRITERS. THEREFORE, IT IS OBVIOUS THAT THE FIRST CONDITION IS THAT THE PERSON, NAMELY, THE INS URER OR RE-INSURER SHALL BE IN INDIA. THE SECOND CONDITION IS THAT SU CH PERSON SHALL HAVE STANDING CONTRACT WITH UNDERWRITERS WHO ARE ME MBERS OF THE SOCIETY OF LLOYDS, WHEREBY SUCH PERSON IN INDIA WA S AUTHORIZED TO ISSUE PROTECTION NOTE OR COVER NOTE OR OTHER DOCUME NTS GRANTING INSURANCE COVER. THE QUESTION NOW MAY ARISE WHAT I S MEANT BY LLOYDS? LLOYDS IS NOTHING BUT AN INSURANCE MARKE T LOCATED IN THE CITY OF LONDON. LLOYDS IS A BODY CORPORATE ESTAB LISHED BY LLOYDS ACT, 1871 TO OPERATE AS A PARTIALLY- MUTUALISED MAR KET PLACE WITHIN 40 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS WHICH MULTIPLE FINANCIAL BROKERS, GROUPED IN SYNDIC ATES, COME TOGETHER TO POOL AND SPREAD RISK. THESE UNDERWRIT ERS OR MEMBERS ARE A COLLECTION OF BOTH CORPORATIONS AND PRIVATE I NDIVIDUALS, THE LATTER BEING TRADITIONALLY KNOWN AS NAMES. THERE FORE, A PERSON IN INDIA HAS A STANDING CONTRACT WITH UNDERWRITERS WHO ARE MEMBERS OF THE LLOYDS, CAN BE AN INSURER OR RE-INSURER IN INDI A BEFORE 2014. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT SEC TION 2(9) OF INSURANCE ACT, 1938 BEFORE AMENDMENT IS ALSO EQUALL Y APPLICABLE FOR INSURANCE AND RE-INSURANCE BUSINESS IN INDIA. IT CANNOT BE THE INTENTION OF THE PARLIAMENT TO AUTHORISE INDIAN INS URER TO HAVE RE- INSURANCE OUTSIDE THE COUNTRY IGNORING THE PROVISIO NS OF INSURANCE ACT, 1938. SECTION 2(9) OF THE INSURANCE ACT, 1938 WAS AMENDED BY INSURANCE LAWS (AMENDMENT) ACT, 2015. THEREFORE , THE CONTENTION OF THE LD. SR. COUNSEL FOR THE ASSESSEE THAT THE PROVISIONS OF SECTION 2(9) OF INSURANCE ACT, 1938, AS IT STOOD BEFORE 2014, IS NOT APPLICABLE TO THE ASSESSEE-COMPANY HAS NO MERIT AT ALL. 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 RE- 41 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS INSURANCE COMPANY OR THE PERSON IN INDIA WHO HAS ST ANDING CONTRACT WITH UNDERWRITERS, WHO ARE MEMBERS OF THE LLOYDS, IS TAXABLE IN INDIA. HENCE, THE ASSESSEE HAS TO NECES SARILY DEDUCT TAX ON THE PREMIUM PAID TO NON-RESIDENT RE-INSURANCE CO MPANY FOR RE- INSURANCE. 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 DIRE CTLY TO NON- RESIDENT RE-INSURANCE COMPANY, THEN THE TRANSACTION OF THE ASSESSEE IS CLEARLY IN VIOLATION OF PROVISIONS OF S ECTION 2(9)(C) OF INSURANCE ACT, 1938. IN OTHER WORDS, 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 DISALLOWE D UNDER SECTION 37 OF THE ACT. IN THIS CASE, THE ASSESSING OFFICER DISALLOWED THE RE- INSURANCE PREMIUM FOR NON-DEDUCTION OF TAX. SECTIO N 2C READ WITH SECTION 2(9)(C) OF INSURANCE ACT, 1938 PROHIBITS AN Y PERSON FROM DOING INSURANCE OR RE-INSURANCE BUSINESS IN INDIA O THERWISE PERMITTED UNDER INSURANCE ACT, 1938. THEREFORE, TH ERE IS A CLEAR PROHIBITION FOR PAYMENT OF RE-INSURANCE PREMIUM TO THE NON-RESIDENT 42 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS RE-INSURANCE COMPANIES. HENCE, THE DISALLOWANCE HA S TO BE MADE UNDER EXPLANATION 1 TO SECTION 37 OF THE ACT ALSO. 33. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT THE ASSESSING OFFICER HAS RIGHTLY DISA LLOWED THE RE- INSURANCE PREMIUM UNDER SECTION 40(A)(I) OF THE ACT . THEREFORE, THE CIT(APPEALS) IS NOT JUSTIFIED IN RESTRICTING THE CL AIM OF THE ASSESSEE TO 15% WITHOUT ANY REASON. 34. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF APEX COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS (SUP RA). THE PROVISIONS OF INSURANCE ACT, 1938, MORE PARTICULARL Y SECTION 2(9) WAS NOT CONSIDERED BY THE APEX COURT AND THAT IS NO T THE SUBJECT MATTER OF ADJUDICATION BEFORE THE APEX COURT. THER EFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE JUDG MENT OF APEX COURT IN VODAFONE INTERNATIONAL HOLDINGS (SUPRA) IS NOT APPLICABLE AT ALL. 35. WE HAVE CAREFULLY GONE THROUGH THE DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN SWISS RE-INSURANCE COMPAN Y LIMITED V. DDIT (38 ITR 568) AND OTHER DECISIONS CITED BY THE LD. SR. COUNSEL 43 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS FOR THE ASSESSEE ON IDENTICAL ISSUE. IN ALL THESE CASES, THE PROVISIONS OF SECTION 2(9) OF INSURANCE ACT, 1938 W AS NOT BROUGHT TO THE NOTICE OF THE BENCHES OF THE TRIBUNAL WHICH DEC IDED 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 T O NON-RESIDENT RE-INSURANCE COMPANY, THE ASSESSEE IS LIABLE TO DED UCT TAX. THEREFORE, THE ABOVE DECISIONS OF MUMBAI BENCH AND PUNE BENCH OF THIS TRIBUNAL ALSO MAY NOT BE OF ANY ASSISTANCE TO THE ASSESSEE. 36. IN VIEW OF THE ABOVE, THE ORDERS OF THE CIT(APP EALS) ARE SET ASIDE AND THAT OF THE ASSESSING OFFICER ARE RESTORE D. 37. THE NEXT ISSUE ARISES FOR CONSIDERATION IS AMOR TIZATION OF PREMIUM ON SECURITIES. THIS ISSUE ARISES FOR CONSI DERATION IN THE ASSESSEES APPEALS FOR ASSESSMENT YEARS 2004-05 TO 2013-14. 38. SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE CIT(APPEALS) DECIDED T HE ISSUE 44 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS AGAINST THE ASSESSEE BY FOLLOWING HIS OWN ORDER FOR ASSESSMENT YEAR 2003-04. ON APPEAL BY THE ASSESSEE AGAINST TH E ORDER OF THE CIT(APPEALS) FOR ASSESSMENT YEAR 2003-04, ACCORDING TO THE LD. SR. COUNSEL, THIS TRIBUNAL CONFIRMED AN IDENTICAL ORDER OF CIT(APPEALS). 39. WE HEARD SHRI M. SWAMINATHAN, THE LD. SR. STAND ING COUNSEL ALSO. THIS TRIBUNAL FOR THE ASSESSMENT YEA R 2003-04, CONFIRMED A SIMILAR DISALLOWANCE TOWARDS AMORTIZATI ON OF PREMIUM ON SECURITIES. FOR THE REASON STATED BY THIS TRIBU NAL FOR ASSESSMENT YEAR 2003-04 IN I.T.A. NO.801/MDS/2007, THIS TRIBUN AL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 40. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF PROVISION CREATED TOWARDS CLAIM INCURRED BUT NOT RE PORTED AND CLAIM INCURRED BUT NOT ENOUGH REPORTED. THIS ISSUE ARISE S FOR CONSIDERATION IN REVENUES APPEAL FOR ASSESSMENT YE ARS 2003-04, 2011-12, 2012-13 AND 2013-14. 41. SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT DURING THE RELEVANT YEARS, CLAIMS WERE 45 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS INCURRED BUT WERE NOT REPORTED. MOREOVER, THE FEW CLAIMS INCURRED WHICH WERE NOT ENOUGH REPORTED. THE LD. SR. COUNSE L EXPLAINED THAT THE ASSESSEE-COMPANY HAS MADE PROVISION ON ACC OUNT OF CLAIM INCURRED BUT NOT REPORTED AND CLAIM INCURRED BUT NO T ENOUGH REPORTED. A PROVISION HAS BEEN MADE FOR ALL THE UN SETTLED CLAIMS ON THE BASIS OF THE CLAIM LODGED BY THE INSURED PERSON S. ACCORDING TO LD. SR. COUNSEL, THE DATE OF DAMAGE / LOSS WAS CONS IDERED FOR RECOGNIZING THE CLAIM IN A PARTICULAR YEAR. IN CER TAIN CIRCUMSTANCES, THE DAMAGES / LOSSES WERE NOT REPORTED IN THE BALAN CE SHEET OF THE INSURANCE COMPANY. SUCH CLAIMS ARE KNOWN AS CLAIMS INCURRED BUT NOT REPORTED. SOMETIMES, ACCORDING TO THE LD. SR. COUNSEL, THE DAMAGES / LOSSES INCURRED MAY BE REPORTED. HOWEVER , IT WAS NOT ENOUGH REPORTED. ACCORDING TO THE LD. SR. COUNSEL, THE LIABILITY OF THE ASSESSEE HAS TO BE MET BY MAKING NECESSARY PROV ISION AS PER THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA GUIDELINES. THE LIABILITY OF THE ASSESSEE-COMPANY IS DETERMINED BASED ON THE ACTUAL LOSS / DAMAGE. ACCORDING TO TH E LD. SR. COUNSEL, THE METHODOLOGY TO DETERMINE THE LIABILITY IS ALSO CERTIFIED BY THE ACTUARY IN ACCORDANCE WITH GUIDELINES AND NO RMS ISSUED BY 46 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS THE INSTITUTE OF ACTUARIES OF INDIA AND INSURANCE R EGULATORY AND DEVELOPMENT AUTHORITY OF INDIA. THE LD. SR. COUNSE L FURTHER SUBMITTED THAT THE ASSESSEE CLAIMED BEFORE THE ASSE SSING OFFICER UNDER SECTION 37(1) OF THE ACT SINCE ALL THE CONDIT IONS WERE FULFILLED. THE LD. SR. COUNSEL FURTHER SUBMITTED THAT THE PROV ISIONS WERE MADE ON THE BASIS OF THE DAMAGES / LOSSES OCCURRED DURIN G THE YEAR UNDER CONSIDERATION, THEREFORE, THE LIABILITY OF THE ASSE SSEE-COMPANY IS ASCERTAINED. THE PROVISIONS MADE WERE IN RESPECT OF THE LIABILITY INCURRED BY THE ASSESSEE AND NOT BASED ON ANY FUTUR E LIABILITY. THEREFORE, ACCORDING TO THE LD. SR. COUNSEL, THE CI T(APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 42. ON THE CONTRARY, SHRI M. SWAMINATHAN, THE LD. S R. STANDING COUNSEL FOR THE REVENUE, SUBMITTED THAT THE ASSESSE E CREATED PROVISION IN ANTICIPATION OF SETTLEMENT OF CLAIMS T HAT WERE NOT ASCERTAINED. WHAT WAS REPORTED TO THE ASSESSEE IS DAMAGE / LOSS CAUSED TO THE INSURED PERSONS. ACCORDING TO THE LD . SR. STANDING COUNSEL, THE ASSESSEE IS YET TO ASSESS THE LOSS AND DETERMINE THE AMOUNT TO BE COMPENSATED, THEREFORE, IT IS UNASCERT AINABLE LIABILITY. WHAT IS TO BE ALLOWED UNDER THE INCOME-TAX ACT IS A SCERTAINABLE 47 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS LIABILITY AND NOT THE UNASCERTAINABLE LIABILITY. I N THIS CASE, ACCORDING TO THE LD. SR. STANDING COUNSEL, AT THE BEST, THE A SSESSEE MAY CLAIM THAT THERE IS A LIABILITY FOR COMPENSATION. BUT, THE AMOUNT OF COMPENSATION IS NOT QUANTIFIED ON THE LAST DAY OF T HE FINANCIAL YEAR. THEREFORE, ACCORDING TO THE LD. SR. STANDING COUNSE L, IT HAS TO BE ALLOWED IN THE YEAR IN WHICH THE LIABILITY WAS QUAN TIFIED. REFERRING TO THE ORDER OF THE CIT(APPEALS), THE LD. SR. STANDING COUNSEL IT IS NOT KNOWN HOW MUCH AMOUNT WAS ACTUALLY PAID BY THE ASSE SSEE TOWARDS COMPENSATION. NO DETAILS WERE AVAILABLE EV EN AFTER LONG TIME. THEREFORE, ACCORDING TO THE LD. SR. STANDING COUNSEL, IT HAS TO BE ASCERTAINED WHEN THE ACTUAL COMPENSATION OR LOSS WAS QUANTIFIED BY THE INSURANCE COMPANY. THE YEAR IN W HICH THE ACTUAL LOSS OR COMPENSATION WAS QUANTIFIED IS THE YEAR IN WHICH THE ASSESSEE IS LIABLE TO MAKE THE PAYMENT. THEREFORE, ACCORDING TO THE LD. SR. STANDING COUNSEL, EVEN THOUGH TECHNICAL LY LOSS OR DAMAGE SUFFERED IS THE POINT FOR DETERMINING THE CO MPENSATION, AS FAR AS THE ASSESSEE IS CONCERNED, THE ACTUAL COMPEN SATION OR DAMAGE IS TO BE QUANTIFIED ONLY AFTER ASSESSMENT OF ACTUAL DAMAGES. THEREFORE, ACCORDING TO THE LD. SR. STAND ING COUNSEL, 48 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS WHETHER THE CLAIM INCURRED BUT NOT REPORTED OR INCU RRED BUT NOT ENOUGH REPORTED, THE YEAR IN WHICH THE ACTUAL DAMAG ES OR LOSSES WERE DETERMINED AND CRYSTALIZED IS THE YEAR IN WHIC H THE ASSESSEE IS ELIGIBLE TO CLAIM THE DAMAGES. 43. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE MADE PROVISION IN RESPECT OF CLAIMS INCURR ED BUT NOT REPORTED AND IN RESPECT OF CLAIMS INCURRED BUT NOT ENOUGH REPORTED. THE COMPENSATION FOR MAKING INSURANCE CLAIM ARISES ON THE DATE OF LOSS OR DAMAGE OCCURRED TO THE INSURED PROPERTY. B UT, THE ACTUAL LIABILITY TO MAKE THE PAYMENT ARISES ON THE DATE ON WHICH THE LOSS OR DAMAGE WAS ASSESSED AND THE AMOUNT WAS DETERMINED. IN THIS CASE, THE ACCIDENT OR LOSS WAS REPORTED TO THE ASSE SSEE BUT THE ACTUAL LOSS OR COMPENSATION WAS NOT DETERMINED. TH EREFORE, AS RIGHTLY SUBMITTED BY THE LD. SR. STANDING COUNSEL F OR THE REVENUE, THE LIABILITY TO MAKE THE PAYMENT ACCRUES TO THE AS SESSEE ONLY IN THE YEAR IN WHICH THE LOSS OR DAMAGE WAS ASCERTAINED AN D COMPENSATION PAYABLE TO INSURED PERSON IS DETERMINE D. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT MER ELY BECAUSE THE 49 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS INCIDENT HAPPENED DURING THE YEAR WHICH IS THE BASI S FOR MAKING CLAIM, THAT CANNOT BE A REASON FOR ALLOWING THE COM PENSATION PAYABLE BY THE ASSESSEE. IN OTHER WORDS, THE COMPE NSATION PAYABLE BY THE ASSESSEE HAS TO BE ALLOWED IN THE YE AR IN WHICH THE AMOUNT OF COMPENSATION WAS DETERMINED. SINCE THE C OMPENSATION AMOUNT WAS NOT DETERMINED DURING THE YEAR UNDER CON SIDERATION, 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 T HE CIT(APPEALS) IS SET ASIDE AND THAT OF THE ASSESSING OFFICER IS REST ORED. 44. FOR THE ASSESSMENT YEAR 2003-04, THE REVENUE HA S ALSO RAISED A GROUND WITH REGARD TO DEFERRED INTEREST ON LOANS AND DEBENTURES. 45. WE HEARD SHRI M. SWAMINATHAN, THE LD. SR. STAND ING COUNSEL FOR THE REVENUE AND SHRI P.H. ARVINDH PANDI AN, THE LD. SR. COUNSEL FOR THE ASSESSEE. THE CIT(APPEALS) BY PLAC ING RELIANCE ON HIS OWN ORDER FOR THE ASSESSMENT YEAR 1998-99 TO 20 01-02 IN THE ASSESSEE'S OWN CASE, DIRECTED THE ASSESSING OFFICER TO RECOMPUTE 50 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS THE INTEREST ON ACCRUAL BASIS. SINCE THE CIT(APPEA LS) DIRECTED THE ASSESSING OFFICER TO RECOMPUTE THE INTEREST ON ACCR UAL BASIS, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRM ED. 46. THE NEXT ISSUE ARISES FOR CONSIDERATION IS PROF IT ON SALE OF INVESTMENTS. THIS ISSUE ARISES FOR CONSIDERATION I N THE REVENUES APPEALS FOR ASSESSMENT YEARS 2003-04, 2004-05, 2005 -06, 2007-08 TO 2013-14. THIS ISSUE ALSO ARISES FOR CONSIDERATI ON IN THE ASSESSEES APPEALS FOR ASSESSMENT YEAR 2011-12. 47. WE HEARD SHRI M. SWAMINATHAN, THE LD. SR. STAND ING COUNSEL FOR THE REVENUE AND SHRI P.H. ARVINDH PANDI AN, THE LD. SR. COUNSEL FOR THE ASSESSEE. IT WAS BROUGHT TO THE NO TICE OF THIS TRIBUNAL THAT AN IDENTICAL ISSUE WAS DECIDED FOR AS SESSMENT YEARS 1985-86 TO 1987-88, 1989-90 AND 1997-98 IN FAVOUR O F THE ASSESSEE. SINCE THE CO-ORDINATE BENCH OF THIS TRIB UNAL HAS ALREADY CONFIRMED A SIMILAR DECISION OF THE CIT(APPEALS), T HIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 51 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS 48. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DEDU CTION UNDER SECTION 36(1)(VIIA) (C) OF THE ACT. THIS ISSUE ARI SES FOR CONSIDERATION IN THE REVENUES APPEAL FOR ASSESSMENT YEARS 2003-0 4 AND 2004- 05. 49. WE HEARD SHRI M. SWAMINATHAN, THE LD. SR. STAND ING COUNSEL FOR THE REVENUE AND SHRI P.H. ARVINDH PANDI AN, THE LD. SR. COUNSEL FOR THE ASSESSEE. THE CIT(APPEALS) FOUND THAT THE ASSESSING OFFICER HAS NOT CONSIDERED PROVISO TO SEC TION 36(1)(VIIA)(C) OF THE ACT. WE HAVE CAREFULLY GONE THROUGH THE PROVISO TO SECTION 36(1)(VIIA)(C) OF THE ACT WHICH READS AS FOLLOWS:- 36(1)(VIIA)(C) A PUBLIC FINANCIAL INSTITUTION OR A ST ATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTM ENT CORPORATION, AN AMOUNT NOT EXCEEDING FIVE PER CENT O F THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI-A) PROVIDED THAT A PUBLIC FINANCIAL INSTITUTION OR A S TATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTM ENT CORPORATION REFERRED TO IN THIS SUB-CLAUSE SHALL, A T ITS OPTION, BE ALLOWED IN ANY OF THE TWO CONSECUTIVE AS SESSMENT YEARS COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 2003 AND ENDING BEFORE THE 1 ST DAY OF APRIL, 2005, DEDUCTION IN RESPECT OF ANY PROVISION MADE BY IT FOR ANY ASSETS CLASSIFIED BY THE RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR L OSS 52 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS ASSETS IN ACCORDANCE WITH THE GUIDELINES ISSUED BY IT IN THIS BEHALF, OF AN AMOUNT NOT EXCEEDING TEN PER CENT OF T HE AMOUNT OF SUCH ASSETS SHOWN IN THE BOOKS OF ACCOUNT OF SUCH INSTITUTION OR CORPORATION, AS THE CASE MAY BE , ON THE LAST DAY OF THE PREVIOUS YEAR. 50. THE ASSESSEE-COMPANY IS AN INSURANCE COMPANY AN D IT IS NOT A FINANCIAL COMPANY, THEREFORE, THE APPLICABILI TY OF SECTION 36(1)(VIIA)(C) OF THE ACT OUGHT TO HAVE BEEN EXAMIN ED. THE ASSESSING OFFICER HAD NO OCCASION TO EXAMINE THE SA ME. THE CIT(APPEALS) SIMPLY DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE SAME W AS NOT EXAMINED BY THE ASSESSING OFFICER. THERE IS NO DIS CUSSION IN THE ORDER WITH REGARD TO THE APPLICABILITY OF PROVISION S OF SECTION 36(1)(VIIA)(C) OF THE ACT. THEREFORE, THIS TRIBUNA L IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-E XAMINED BY THE ASSESSING OFFICER. ACCORDINGLY, ORDERS OF BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ISSUE OF DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 36(1)(VIIA)(C) OF THE ACT IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFIC ER SHALL RE- EXAMINE THE MATTER IN THE LIGHT OF THE MATERIAL THA T MAY BE FILED BY 53 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 51. THE NEXT ISSUE ARISES FOR CONSIDERATION IS PAYM ENT OF SURVEY FEES TO NON-RESIDENTS AND REIMBURSEMENT OF EXPENDIT URE. THIS ISSUE ARISES FOR CONSIDERATION IN THE REVENUES APPEALS F OR ASSESSMENT YEAR 2003-04, 2008-09, 2011-12, 2012-13 AND 2013-14 . 52. SHRI M. SWAMINATHAN, THE LD. SR. STANDING COUNS EL FOR THE REVENUE, SUBMITTED THAT THE ASSESSEE HAS PAID SURVE Y FEES TO THE NON-RESIDENT WITHOUT DEDUCTING TAX. SINCE TAX WAS NOT DEDUCTED, ACCORDING TO THE LD. SR. STANDING COUNSEL, THE ASSE SSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE. HOWEVER, THE CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THA T THE PAYMENT MADE TO SURVEYORS OUTSIDE THE COUNTRY WAS NOT TAXAB LE IN INDIA AND THE SURVEYORS DID NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE TO THE ASSESSEE. ACCORDING TO THE LD. SR. STANDING COUNSE L, IN VIEW OF THE BOARDS CIRCULAR IN CIRCULAR NO.715 OF 1995, THE RE IMBURSEMENT OF EXPENDITURE HAS TO BE DISALLOWED FOR NON-DEDUCTION OF TAX. ACCORDING TO THE LD. SR. STANDING COUNSEL, PAYMENT OF SURVEY FEES 54 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS TO THE NON-RESIDENT IS NOTHING BUT A TECHNICAL AND MANAGERIAL SERVICE, THEREFORE, THE PROVISIONS OF EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT WOULD COME INTO OPERATION. 53. ON THE CONTRARY, SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE SURVEY ORS RENDERED THEIR SERVICE OUTSIDE THE COUNTRY. ACCORDING TO TH E LD. SR. COUNSEL, WHENEVER THERE WAS A DAMAGE OR CLAIM, THE SURVEYORS EXAMINED THE INSURED PROPERTY AND ESTIMATED THE DAMAGES. TH E ENTIRE SERVICES WERE OUTSIDE THE COUNTRY AND THE SURVEYORS HAVE NO BUSINESS CONNECTION IN INDIA. THEREFORE, ACCORDING TO THE LD. SR. COUNSEL, THE INCOME OF THE SURVEYORS IS NOT LIABLE FOR TAXATION IN INDIA. MOREOVER, IT IS ONLY A REIMBURSEMENT OF EXP ENDITURE ACTUALLY INCURRED BY THE SURVEYORS, THEREFORE, THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX. 54. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, IT IS A REIMBURSEMENT OF EXPENDITURE INCURRED BY NON-RESIDE NT SURVEYORS WHO WERE ENGAGED BY THE ASSESSEE TO ESTIMATE / QUAN TIFY THE 55 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS DAMAGES OCCURRED OUTSIDE THE COUNTRY. THE ENTIRE S ERVICES OF SURVEYORS WERE RENDERED OUTSIDE THE COUNTRY, THEREF ORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE INCO ME OF THE SURVEYORS IS NOT LIABLE FOR TAXATION IN INDIA IN RE SPECT OF SERVICE RENDERED TO THE ASSESSEE. THEREFORE, THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX. AS RIGHTLY SUBMITTED BY THE LD. SR. CO UNSEL FOR THE ASSESSEE, THE ASSESSEE IS EXPECTED TO DEDUCT TAX PR OVIDED THE RECIPIENT IS LIABLE FOR TAXATION ON THE AMOUNT RECE IVED FROM THE ASSESSEE. IN VIEW OF THE ABOVE, WE HAVE NO REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAME IS CONFIRMED. 55. THE NEXT ISSUE ARISES FOR CONSIDERATION IS ADDI TION OF RESERVE FOR UNEXPIRED RISK WHILE COMPUTING BOOK PROFIT UNDE R SECTION 115JB OF THE ACT. THIS ISSUE ARISES FOR CONSIDERATION IN THE REVENUES APPEALS FOR ASSESSMENT YEARS 2003-04, 2004-05 AND 2 007-08 TO 2013-14 AND IN THE ASSESSEES APPEALS FOR ASSESSMEN T YEARS 2003- 04 AND 2007-08 TO 2013-14. 56. WE HEARD SHRI M. SWAMINATHAN, THE LD. SR. STAND ING COUNSEL FOR THE REVENUE AND SHRI P.H. ARVINDH PANDI AN, THE LD. SR. 56 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS COUNSEL FOR THE ASSESSEE. SINCE SECTION 115JB IS N OT APPLICABLE TO THE INSURANCE COMPANIES, THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(APPEALS). ACCORDINGLY, THE SA ME IS CONFIRMED. 57. THE NEXT ISSUE ARISES FOR CONSIDERATION IS FAIL URE OF THE ASSESSEE TO DEDUCT TAX IN RESPECT OF COMMISSION PAY MENTS. THIS ISSUE ARISES FOR CONSIDERATION IN THE REVENUES APP EALS FOR ASSESSMENT YEARS 2007-08 TO 2013-14. 58. SHRI M. SWAMINATHAN, SR. STANDING COUNSEL FOR T HE REVENUE, SUBMITTED THAT THE ASSESSEE HAS PAID COMMI SSIONS WHILE ACCEPTING RE-INSURANCE PREMIUM FROM VARIOUS OTHER I NSURANCE COMPANIES IN INDIA. HOWEVER, NO TAX WAS DEDUCTED W HILE MAKING THE PAYMENT OF COMMISSIONS TO THE INSURANCE COMPANI ES. ACCORDING TO THE LD. SR. STANDING COUNSEL, IT IS TH E OBLIGATORY OF THE ASSESSEE TO DEDUCT TAX WHILE MAKING COMMISSION PAYM ENT IN RESPECT OF RE-INSURANCE PREMIUM. SINCE TAX WAS NOT DEDUCTED, ACCORDING TO THE LD. SR. STANDING COUNSEL, THE ASSE SSING OFFICER DISALLOWED THE COMMISSION PAID TO INSURANCE COMPANI ES IN INDIA UNDER SECTION 194D OF THE ACT. 57 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS 59. ON THE CONTRARY, SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT AS PER THE PRACTICE OF INSURANCE COMPANIES, WHILE MAKING PAYMENT FOR RE-IN SURANCE, THE RE-INSURANCE PREMIUM WILL BE PAID AFTER RETAINING T HE AGREED PERCENTAGE OF COMMISSION BY THE RESPECTIVE COMPANIE S. IN OTHER WORDS, THE ASSESSEE, ACCORDING TO THE LD. SR. COUNS EL, IS NOT PAYING ANY COMMISSION TO INSURANCE COMPANIES. THE SO-CALL ED COMMISSION WAS DEDUCTED BY THE RESPECTIVE INSURANCE COMPANIES FROM THE RE-INSURANCE PREMIUM AND WHAT WAS PAID TO THE ASSESSEE IS ONLY NET OF RE-INSURANCE PREMIUM. REFERRING TO SECTION 194D OF THE ACT, THE LD. SR. COUNSEL SUBMITTED THAT WHEN TH E ASSESSEE IS MAKING PAYMENT, THE ASSESSEE IS LIABLE TO DEDUCT TA X. IN THIS CASE, ACCORDING TO THE LD. SR. COUNSEL, THE ASSESSEE IS N OT MAKING ANY PAYMENT. THE INSURANCE COMPANIES, WHO ARE APPROACH ING THE ASSESSEE-COMPANY FOR RE-INSURANCE, DEDUCTING THE CO MMISSION FROM THE PREMIUM PAYABLE AND WHAT WAS PAID TO THE A SSESSEE IS ONLY THE BALANCE AMOUNT. THEREFORE, THE ASSESSEE I S NOT EXPECTED TO DEDUCT TAX. IN OTHER WORDS, ACCORDING TO THE LD . SR. COUNSEL, IT IS PRACTICALLY IMPOSSIBLE FOR THE ASSESSEE TO DEDUCT T AX WHEN THE PAYER 58 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS OF THE RE-INSURANCE PREMIUM IS RETAINING THE PORTIO N OF RE-INSURANCE PREMIUM AS COMMISSION. 60. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 19 4D OF THE ACT. SECTION 194D OF THE ACT VERY CLEARLY SAYS THAT THE PERSON RESPONSIBLE FOR PAYING TO A RESIDENT ANY INCOME BY WAY OF REMUNERATION OR REWARD BY WAY OF COMMISSION OR OTHE RWISE, FOR SOLICITING OR PROCURING INSURANCE BUSINESS, SHALL D EDUCT THE PRESCRIBED PERCENTAGE TOWARDS TAX AT SOURCE. IN TH IS CASE, THE PRACTICE FOLLOWED IN THE BUSINESS OF RE-INSURANCE I S THAT THE INSURANCE COMPANIES RETAIN THE COMMISSION BY THEMSE LVES AND WHAT WAS PAID TO THE RE-INSURER IS ONLY THE BALANCE AMOUNT. THEREFORE, THE RESPONSIBILITY OF PAYING COMMISSION IS NOT ON THE ASSESSEE. THE COMMISSION WAS DEDUCTED BY THE RESPE CTIVE INSURANCE COMPANIES WHO ARE PAYING RE-INSURANCE PRE MIUM 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 59 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS CASE THE ASSESSEE, AFTER RECEIVING ENTIRE RE-INSURA NCE PREMIUM, MAKES PAYMENT OF COMMISSION. IN THIS CASE, THE RES PECTIVE INSURANCE COMPANIES THEMSELVES ACT AS AGENTS AND DE DUCT THE COMMISSION BY THEMSELVES. HENCE, THE CIT(APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 61. THE NEXT ISSUE ARISES FOR CONSIDERATION IS PROV ISION TOWARDS EMPLOYEES SHORT TERM BENEFITS IN THE COMPUTATION OF BOOK PROFIT. THIS ISSUE ARISES FOR CONSIDERATION IN THE REVENUE S APPEALS FOR ASSESSMENT YEARS 2008-09, 2009-10 AND 2010-11. 62. SHRI M. SWAMINATHAN, THE LD. SR. STANDING COUNS EL FOR THE REVENUE, SUBMITTED THAT THE ASSESSEE HAS MADE PROVI SION OF 8 CRORES TOWARDS EMPLOYEES SHORT TERM BENEFITS . ACC ORDING TO THE LD. SR. STANDING COUNSEL, THE ASSESSEE CLAIMED BEFO RE THE ASSESSING OFFICER AND THE CIT(APPEALS) THAT AS PER THE ACCOUNTING STANDARD 15 ISSUED BY THE INSTITUTE OF CHARTERED AC COUNTANTS OF INDIA, THE ASSESSEE HAS MADE THE PROVISION. ACCORD ING TO THE LD. 60 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS SR. STANDING COUNSEL, THE ACCOUNTING STANDARD ISSUE D BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA HAS NO STATUTORY FORCE. THE ASSESSEE IS EXPECTED TO COMPUTE THE INCOME UNDE R SECTION 44 OF THE ACT READ WITH FIRST SCHEDULE. THEREFORE, AC CORDING TO THE LD. SR. STANDING COUNSEL, IN THE GUISE OF ACCOUNTING ST ANDARD, THE ASSESSEE CANNOT OVERRIDE THE PROVISIONS OF INCOME-T AX ACT WHICH MANDATES THAT THE ASSESSEE HAS TO COMPUTE THE INCOM E AS PER THE FIRST SCHEDULE TO THE INCOME-TAX ACT. 63. ON THE CONTRARY, SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESS EE WAS EXPECTED TO MAINTAIN THE BOOKS AS PER THE ACCOUNTIN G STANDARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE INSTITUTE ISSUED THE ACCOUNTING STANDARD FOR INSURA NCE COMPANIES TO PROVIDE EMPLOYEE SHORT TERM BENEFIT IN TERMS OF ACC OUNTING STANDARD 15. THEREFORE, ACCORDING TO THE LD. SR. C OUNSEL, THE CIT(APPEALS) FOUND THAT THE PROVISION MADE CANNOT B E TREATED AS PROVISION UNDER EXPLANATION 1(C) TO SECTION 115JB O F THE ACT, THEREFORE, THE CIT(APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 61 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS 64. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE PROVISIONS OF COMPANIES ACT ARE NOT APPLICABLE TO THE INSURANCE C OMPANIES. THEREFORE, AS FOUND BY THIS TRIBUNAL IN THE EARLIER PART OF THIS ORDER, THE PROVISIONS OF SECTION 115JB OF THE ACT ARE NOT APPLICABLE TO THE INSURANCE COMPANIES. MOREOVER, THE INCOME-TAX ACT PROVIDES FOR COMPUTATION OF INCOME OF THE ASSESSEE UNDER RULE 5 OF FIRST SCHEDULE TO THE ACT. THEREFORE, AS RIGHTLY SUBMITT ED BY THE LD. SR. STANDING COUNSEL FOR THE REVENUE, THE ACCOUNTING ST ANDARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA CANNOT OVERRIDE THE PROVISIONS OF RULE 5 OF FIRST SCHEDULE TO THE I NCOME-TAX ACT. THEREFORE, 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 PROVIS ION WHICH IS NOT ADMISSIBLE UNDER THE PROVISIONS OF SECTION 30 TO 43 B 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(APP EALS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM. IN VIEW OF THE AB OVE, WE ARE UNABLE 62 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS TO UPHOLD THE ORDER OF THE LOWER AUTHORITY. ACCORD INGLY, THE ORDER OF THE CIT(APPEALS) IS SET ASIDE AND THAT OF THE ASSES SING OFFICER IS RESTORED. 65. THE NEXT ISSUE ARISES FOR CONSIDERATION IS COMP UTATION OF MAT UNDER SECTION 115JB OF THE ACT. THIS ISSUE ARI SES FOR CONSIDERATION IN THE REVENUES APPEAL FOR ASSESSMEN T YEAR 2008- 09. 66. SHRI P.H. ARVINDH PANDIAN, 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 A S PER THE GUIDELINES ISSUED BY INSURANCE REGULATORY AND DEVEL OPMENT AUTHORITY OF INDIA AND NOT AS PER PART II AND III O F SCHEDULE VI OF COMPANIES ACT. ACCORDING TO THE LD. SR. COUNSEL, T HE APPLICABILITY OF SCHEDULE VI OF THE COMPANIES ACT WAS SPECIFICALL Y EXCLUDED IN RESPECT OF INSURANCE COMPANIES. 63 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS 67. WE HEARD SHRI M. SWAMINATHAN, THE LD. SR. STAND ING COUNSEL FOR THE REVENUE ALSO. IT IS NOT IN DISPUTE THAT THE APPLICABILITY OF PROVISIONS OF SCHEDULE VI OF THE C OMPANIES ACT WAS EXCLUDED IN RESPECT OF INSURANCE COMPANIES. THEREF ORE, THE PROVISIONS OF 115JB OF THE ACT, WHICH ENABLES THE C OMPANIES TO COMPUTE THE BOOK PROFIT, MAY NOT BE APPLICABLE TO T HE INSURANCE COMPANIES. THEREFORE, THIS TRIBUNAL DO NOT FIND AN Y INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAM E IS CONFIRMED. 68. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DEDU CTION OF SECURITIES TRANSACTION TAX WHILE COMPUTING THE BOOK PROFIT. THIS ISSUE WAS RAISED BY THE REVENUE FOR ASSESSMENT YEAR 2008-09. 69. WE HEARD SHRI M. SWAMINATHAN, THE LD. SR. STAND ING COUNSEL FOR THE REVENUE AND SHRI P.H. ARVINDH PANDI AN, THE LD. SR. COUNSEL FOR THE ASSESSEE. THE ASSESSING OFFICER RE JECTED THE CLAIM OF THE ASSESSEE TOWARDS SECURITIES TRANSACTION TAX WHILE COMPUTING BOOK PROFIT. IT IS NOT IN DISPUTE THAT T HE ASSESSEE HAS PAID SECURITIES TRANSACTION TAX. IT IS NOT A PROVI SION, THEREFORE, IT NEED NOT BE ADDED BACK TO THE PROFIT OF THE ASSESSE E IN VIEW OF RULE 64 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS 5(A) OF FIRST SCHEDULE TO THE INCOME-TAX ACT. MORE OVER, AS DISCUSSED IN THE EARLIER PART OF THIS ORDER, THE PR OVISIONS OF SECTION 115JB OF THE ACT ARE NOT APPLICABLE TO THE INSURANC E COMPANIES. IN VIEW OF THE ABOVE, THIS TRIBUNAL DO NOT FIND ANY RE ASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDING LY THE SAME IS CONFIRMED. 70. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF INFRA PAYMENT MADE TO CAR DEALERS UNDER SECTION 37( 1) OF THE ACT. THIS ISSUE ARISES FOR CONSIDERATION IN THE REVENUE S APPEAL FOR ASSESSMENT YEAR 2013-14. 71. WE HEARD SHRI M. SWAMINATHAN, THE LD. SR. STAND ING COUNSEL FOR THE REVENUE AND SHRI P.H. ARVINDH PANDI AN, THE LD. SR. COUNSEL FOR THE ASSESSEE. THE ASSESSING OFFICER DI SALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT GENUINENES S OF PAYMENT WAS NOT PROVED. THE ENTIRE PAYMENT WAS SAID TO BE MADE TO MOTOR CAR DEALERS AS PER THE AGREEMENT. THE COPY OF THE AGREEMENT IS NOT AVAILABLE ON RECORD. THE CLAIM OF THE ASSESSEE BEF ORE THE CIT(APPEALS) WAS THAT THE SERVICES WERE ACTUALLY RE NDERED BY THE 65 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS MOTOR CAR DEALERS BY PROVIDING SPACE, COMPUTER STAT IONERIES, ETC. IN THEIR SHOWROOM FOR ENABLING SOFTWARE INTEGRATION WI TH THE ASSESSEE- COMPANY. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT TAX WAS DEDUCTED AT SOURCE AND PAID TO THE GOVERNME NT ACCOUNT. FROM THE MATERIAL AVAILABLE ON RECORD IT APPEARS TH AT THE ASSESSEE- COMPANY IN ORDER TO PROPAGATE ITS INSURANCE BUSINES S, HAD ARRANGEMENT WITH MOTOR CAR DEALERS IN THEIR SHOWROO M FOR PROVIDING SPACE, COMPUTER STATIONERIES, ETC. FOR THAT, THE A SSESSEE APPEARS TO HAVE MADE THE PAYMENT. THE ASSESSEE HAS FILED C OPIES OF INVOICE, CONFIRMATION LETTERS FROM SERVICE PROVIDER S 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. 72. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DEPR ECIATION ON INVESTMENTS. THIS ISSUE ARISES FOR CONSIDERATION I N THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2005-06. 66 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS 73. WE HEARD SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL FOR THE ASSESSEE AND SHRI M. SWAMINATHAN, THE LD. SR. S TANDING COUNSEL FOR THE REVENUE. THE CIT(APPEALS) BY PLACI NG RELIANCE ON THE ORDER OF THIS TRIBUNAL DATED 18.08.2005 CONFIRM ED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. RIGHT FROM THE ASSESSMENT YEAR 1989-90 TO 2004-05, SIMILAR CLAIM O F THE ASSESSEE WAS DISALLOWED. THEREFORE, THIS TRIBUNAL DO NOT FI ND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 74. THE NEXT ISSUE ARISES FOR CONSIDERATION IS PROF IT ON SALE / REDEMPTION OF INVESTMENT. THIS ISSUE ARISES FOR CO NSIDERATION IN THE REVENUES APPEALS FOR ASSESSMENT YEARS 2003-04, 200 4-05, 2005- 06 AND 2007-08 TO 2013-14 AND IN THE ASSESSEES APP EAL FOR ASSESSMENT YEAR 2011-12. 75. WE HEARD SHRI M. SWAMINATHAN, THE LD. SR. STAND ING COUNSEL FOR THE REVENUE AND SHRI P.H. ARVINDH PANDI AN, THE LD. SR. COUNSEL FOR THE ASSESSEE. THE CIT(APPEALS) BY PLAC ING RELIANCE ON THE ORDER OF HIS PREDECESSOR FOR ASSESSMENT YEARS 1 996-97, 1997- 67 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS 98, 1998-99, 2001-02 AND 2002-03, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 76. THE NEXT ISSUE ARISES FOR CONSIDERATION IS CONT RIBUTION TO PENSION FUND. THIS ISSUE ARISES FOR CONSIDERATION IN THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2006-07. 77. SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE CONTRIBUTED 73,56,87,649/- TO AN APPROVED PENSION FUND DURING THE YEAR UNDER C ONSIDERATION. SINCE THE PENSION FUND WAS CONTRIBUTED TOWARDS THOS E EMPLOYEES WHO OPTED FOR PENSION IN LIEU OF CONTRIBUTION TOWAR DS PROVIDENT FUND, THEREFORE, THE ASSESSEES CONTENTION BEFORE T HE ASSESSING OFFICER WAS THAT FRINGE BENEFIT TAX IS NOT ATTRACTE D. THE ASSESSEE ALSO PLACED ITS RELIANCE ON THE CBDT CIRCULAR NO.8 OF 2005 DATED 29.08.2005. ACCORDING TO THE LD. SR. COUNSEL, CONT RIBUTION TO PENSION FUND IS A STATUTORY OBLIGATION, THEREFORE, IT HAS TO BE ALLOWED WHILE COMPUTING THE TAXABLE INCOME. 68 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS 78. ON THE CONTRARY, SHRI M. SWAMINATHAN, THE LD. S R. STANDING COUNSEL FOR THE REVENUE, SUBMITTED THAT ANY CONTRIB UTION MADE BY THE ASSESSEE TOWARDS AN APPROVED FUND HAS TO BE TRE ATED AS FRINGE BENEFIT. ACCORDING TO THE LD. SR. STANDING COUNSEL , THE SUPERANNUATION FUND IS ON PAR WITH APPROVED PENSION FUND, THEREFORE, IT HAS TO BE TREATED AS FRINGE BENEFIT. 79. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 11 5WB OF THE ACT. THE PROVISIONS OF SUB-CLAUSE (C) TO SECTION 115WB(1 ) CLEARLY SAYS THAT ANY CONTRIBUTION BY THE EMPLOYER TO AN APPROVE D SUPERANNUATION FUND FOR EMPLOYEES HAS TO BE TREATED AS FRINGE BENEFIT. THE CLAIM OF THE ASSESSEE BEFORE THIS TRI BUNAL IS THAT SUPERANNUATION FUND IS NOT A PENSION FUND. WHAT W AS CONTRIBUTED BY THE ASSESSEE IS TO THE PENSION FUND AND NOT SUPERANNUATION FUND. THE CIT(APPEALS) FOUND THAT T HE FUNDS PAYABLE AFTER THE SUPERANNUATION OF AN EMPLOYEE WHE THER AS ONE TIME SETTLEMENT OR MONTHLY AS A PENSION CAN BE TAKE N AS 69 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS SUPERANNUATION FUNDS. THIS TRIBUNAL IS OF THE CONS IDERED OPINION THAT SUPERANNUATION FUND IS NOTHING BUT A FUND CREA TED BY THE RESPECTIVE EMPLOYER TO COMPENSATE THE EMPLOYEES WHO ARE RETIRING FROM SERVICE ON SUPERANNUATION. THEREFORE, THE NOM ENCLATURE OF FUND IS IMMATERIAL. THE BENEFIT GIVEN TO AN EMPLOY EE BY THE EMPLOYER ON SUPERANNUATION HAS TO BE CONSTRUED AS SUPERANNUATION FUND. THEREFORE, THIS TRIBUNAL IS U NABLE TO UPHOLD THE CONTENTION OF THE ASSESSEE THAT THE PENSION FUN D IS DIFFERENT FROM SUPERANNUATION FUND. HENCE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 80. THE ASSESSEE HAS ALSO TAKEN ONE MORE GROUND WIT H REGARD TO FAILURE OF THE ASSESSING OFFICER TO GIVE CREDIT ON THE TDS AMOUNT. THIS ISSUE ARISES FOR CONSIDERATION FOR ASSESSMENT YEAR 2007-08. 81. WE HEARD SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL FOR THE ASSESSEE AND SHRI M. SWAMINATHAN, THE LD. SR. S TANDING COUNSEL FOR THE REVENUE. ACCORDING TO THE LD. SR. COUNSEL FOR THE ASSESSEE, A SUM OF 24,70,569/- WAS DEDUCTED AT SOURCE TOWARDS 70 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS TAX. HOWEVER, THE SAME WAS NOT GIVEN CREDIT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT SINCE THE ASSESSEE CLAI MS A SUM OF 24,70,569/- WAS DEDUCTED AT SOURCE FOR THE ASSESSME NT YEAR 2007-08, THE ASSESSING OFFICER SHALL VERIFY THE SAM E AND IF TAX WAS DEDUCTED, CORRESPONDING CREDIT SHALL BE GIVEN TOWAR DS THE TAX DUE. ACCORDINGLY, ORDERS OF BOTH THE AUTHORITIES BELOW A RE SET ASIDE AND THE ISSUE OF TAX DEDUCTED AT SOURCE IS REMITTED BAC K TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE- EXAMINE THE MATTER AND FIND OUT WHETHER THE TAX WAS ACTUALLY DE DUCTED AT SOURCE IN RESPECT OF THE ASSESSEE AND THEREAFTER DECIDE TH E ISSUE AFRESH IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPO RTUNITY TO THE ASSESSEE. 82. THE ASSESSEE HAS ALSO RAISED AN ISSUE AGAINST L EVY OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT AND ALSO INTEREST TO BE GRANTED UNDER SECTION 244A OF THE ACT. THIS ISS UE ARISES FOR CONSIDERATION FOR ASSESSMENT YEARS 2004-05, 2007-08 , 2008-09 AND 2009-10. IN FACT, FOR ASSESSMENT YEAR 2004-05, THI S ISSUE WAS RAISED BY THE ASSESSEE IN THE CROSS-OBJECTION. THE INTEREST UNDER 71 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS SECTION 244A OF THE ACT WAS RAISED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05. 83. WE HEARD SHRI P.H. ARVINDH PANDIAN, THE LD. SR. COUNSEL FOR THE ASSESSEE AND SHRI M. SWAMINATHAN, THE LD. SR. S TANDING COUNSEL FOR THE REVENUE. LEVY OF INTEREST UNDER SE CTION 234B AND 234C OF THE ACT IS MANDATORY. THEREFORE, THE ASSES SING 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. THE ASSESSING OFFICER SHALL RECOMPUTE THE INTEREST PAYABLE UNDER SECTION 234B AND 234C OF THE ACT AFTER GIVING A REA SONABLE OPPORTUNITY TO THE ASSESSEE. SIMILARLY, INTEREST U NDER SECTION 244A OF THE ACT ALSO NEEDS TO BE RECOMPUTED BY THE ASSES SING OFFICER AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESS EE. 84. IN THE RESULT, THE APPEALS OF THE REVENUE AND A SSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 72 I.T.A.NO.1753, 1605 TO 1610/CHNY/11 I.T.A.NOS.28 T O 30 & 764/CHNY/14 I.T.A.NOS.905,9 06,1673,1989, 1688 TO 1693,1798 TO 1801/CHNY/11 C.O.NO.150/CHNY/11 & OTHERS ORDER PRONOUNCED ON 28 TH AUGUST, 2018 AT CHENNAI. SD/- SD/- ( ! .#$#% ) ( . . . ) (ABRAHAM P. GEORGE) (N.R.S. GANESAN) ' / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 8 /DATED, THE 28 TH AUGUST, 2018. KRI. 0 .39: ;:*3 /COPY TO: 1. ,- /APPELLANT 2. ./,- /RESPONDENT 3. 4 <3 () /CIT(A), LTU, CHENNAI 4. 4 <3 /CIT, LTU, CHENNAI 5. := .3 /DR 6. >% ? /GF.