Appeal Details
Counselvise Citation
[2018] 125 COUNSELVISE.COM (IT) 7371 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
5 year(s) 1 month(s) 12 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-07-2018
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
16-04-2018
Assessment Year
2008-2009
Appeal Filed On
18-06-2013
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 NOS.1674, 1675, 1759 & 1676/CHNY/2011 % *% / ASSESSMENT YEARS : 2003-04, 2004-05, 2006-07 & 2 007-08 ./ ITA NO.40/CHNY/2009 % *% / ASSESSMENT YEAR : 2005-06 ./ ITA NO.1366/CHNY/2013 % *% / ASSESSMENT YEAR : 2008-09 & ./ ITA NO.2372/CHNY/2014 % *% / ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, THE ASSISTANT COMMISSIONER OF INCOME TAX. LARGE TAXPAYER UNIT, CHENNAI - 600 101. V. M/S CHOLAMANDALAM MS GENERAL INSURANCE CO. LTD., DARE HOUSE, NO.2, NSC BOSE ROAD, CHENNAI - 600 001. PAN : AABCC 6633 K (,-/ APPELLANT) (./,-/ RESPONDENT) ./ ITA NOS.1618, 1619, 1620 & 1621/CHNY/2011 % *% / ASSESSMENT YEARS : 2003-04, 2004-05, 2006-07, 200 7-08 ./ ITA NO.2146/CHNY/2008 % *% / ASSESSMENT YEAR : 2005-06 ./ ITA NO.1350/CHNY/2013 % *% / ASSESSMENT YEAR : 2008-09 & ./ ITA NO.2276/CHNY/2014 % *% / ASSESSMENT YEAR : 2009-10 M/S CHOLAMANDALAM MS GENERAL INSURANCE CO. LTD., DARE HOUSE, NO.2, NSC BOSE ROAD, CHENNAI - 600 001. V. THE ACIT, LTU / COMPANY CIRCLE I(3), THE DCIT, LTU, CHENNAI. (,-/ APPELLANT) (./,-/ RESPONDENT) 2 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 # 0 1 /REVENUE BY : SHRI M. SWAMINATHAN, SR.STANDING COUNSEL MS. V. PUSHPA, JR. STANDING COUNSEL %23 0 1 /ASSESSEE BY : SHRI PERCY J. PARDIWALLA, SR. ADVOCATE SHRI SANDEEP BAGMAR.R., ADVOCATE MS. NITIKA FERNANDAS, CA MS. RAUNAK CHORDIA, CA 4 0 3' / DATE OF HEARING : 03.05.2018 56* 0 3' / DATE OF PRONOUNCEMENT : 31.07.2018 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THE APPEALS FILED BY BOTH THE ASSESSEE AND REVENU E ARE DIRECTED AGAINST THE RESPECTIVE ORDERS OF THE COMMI SSIONER OF INCOME TAX (APPEALS), LARGE TAXPAYER UNIT, CHENNAI AND PERTAIN TO ASSESSMENT YEARS 2003-04 TO 2009-10. SINCE COMMON ISSUES ARISE FOR CONSIDERATION IN ALL THESE APPEALS, WE HEARD TH ESE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON O RDER. 2. 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. 3 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 3. SHRI PERCY J. PARDIWALA, THE LD. SR. COUNSEL FOR 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. 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. 4 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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 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. 4. SHRI PERCY J. PARDIWALA, THE LD. SR. COUNSEL FOR 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, 5 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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 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 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 5. SHRI PERCY J. PARDIWALA, THE LD. SR. COUNSEL FOR 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 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 RE- 7 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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 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. 6. SHRI PERCY J. PARDIWALA, THE LD. SR. COUNSEL FOR 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 8 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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 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 9 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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. THEY CAN ALSO REPRESENT MULTI PLE NON- RESIDENT RE-INSURANCE COMPANIES AS NON-RESIDENT BRO KERS. THE BROKERS ARE NOT DEPENDENT AND AGENT OF ANY OTHER IN SURANCE COMPANIES, THEREFORE, THE BROKERS CANNOT BE CONSTRU ED AS DEPENDENT AGENT HAVING A PERMANENT ESTABLISHMENT IN INDIA. ACCORDING TO THE LD. SR. COUNSEL, EVEN THOUGH IN SO ME OF THE RE- INSURANCE CONTRACT OR RE-INSURANCE SLIP, THE BROKER S SIGN IN ADDITION TO RE-INSURANCE COMPANY, THE BROKERS HAVE NO ROLE E ITHER IN NEGOTIATING THE TERMS OF CONTRACT OF RE-INSURANCE O R FOR SETTLEMENT OF CLAIM. THE BROKERS DO NOT TAKE ANY DECISION TO ACC EPT RE-INSURANCE BUSINESS. 7. SHRI PERCY J. PARDIWALA, THE LD. SR. COUNSEL FOR THE ASSESSEE, FURTHER SUBMITTED THAT THE RE-INSURANCE PROGRAMME O F THE ASSESSEE- INSURANCE COMPANY IS APPROVED BY THE BOARD OF DIREC TORS OF THE ASSESSEE AND IT WAS SUBMITTED BEFORE THE INSURANCE REGULATORY 10 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 AND DEVELOPMENT AUTHORITY OF INDIA EVERY YEAR. THE ASSESSEE- COMPANY IS EXPECTED TO IDENTIFY THE RE-INSURANCE CO MPANY TO WHOM RE-INSURANCE CONTRACT COULD BE ENTERED INTO OVER AN D ABOVE THE OBLIGATORY CESSION TO THE GENERAL INSURANCE CORPORA TION OF INDIA. ON A QUERY FROM THE BENCH HOW THE ASSESSEE-COMPANY IDENTIFIES THE RE-INSURANCE COMPANY, EITHER BY CALLING FOR TEN DER OR BY INVITING NON-RESIDENT COMPANY FOR NEGOTIATION? THE LD. SR. COUNSEL SUBMITTED THAT THE ASSESSEE CONTACTS THE NON-RESIDE NT RE-INSURANCE COMPANY BY SENDING E-MAIL. IN SOME CASES, THE NON- RESIDENT RE- INSURANCE COMPANY WAS ALSO CONTACTED BY MAILS THROU GH BROKERS. THE CONTRACT WAS SETTLED BY WAY OF COMMUNICATION EX CHANGE VIA E- MAIL. 8. SHRI PERCY J. PARDIWALA, THE LD. SR. COUNSEL FOR THE ASSESSEE, FURTHER SUBMITTED THAT NORMALLY THE ASSESSEE-COMPAN Y DEALS WITH RE-INSURANCE COMPANY OUTSIDE THE COUNTRY DIRECTLY. HOWEVER, IN ORDER TO DISTRIBUTE THE RISK TO VARIOUS COMPANIES A ND THE ASSESSEE MAY NOT HAVE THE ENTIRE LIST OF RE-INSURANCE COMPAN IES ACROSS THE GLOBE, THE ASSESSEE HAS TO NATURALLY CONTACT THE BR OKERS WHO HAVE ENTIRE INFORMATION OF THE INTERNATIONAL BROKERS AND RE-INSURANCE 11 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 COMPANIES. THE KNOWLEDGE OF BROKERS HELP THE ASSES SEE-COMPANY IN SELECTING THE NON-RESIDENT RE-INSURANCE COMPANIE S AND PLACEMENT OF RE-INSURANCE POLICIES. 9. SHRI PERCY J. PARDIWALA, THE LD. SR. COUNSEL FOR THE ASSESSEE, FURTHER SUBMITTED THAT NEGOTIATION WAS NORMALLY 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 TERMS AND CONDI TIONS ACCEPTED BY GENERAL INSURANCE CORPORATION OF INDIA FOR THE S TATUTORY / OBLIGATORY CEDING WOULD ALSO BE ACCEPTED BY NON-RES IDENT 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 12 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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- 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. 10. SHRI PERCY J. PARDIWALA, THE LD. SR. COUNSEL FO R THE ASSESSEE, FURTHER SUBMITTED THAT THE SLIP OR RE-INSURANCE SLI P IS SIGNED BY THE RE-INSURER WHEREVER THE RE-INSURANCE WAS DIRECT OR THROUGH A BROKER. SOMETIMES, EVEN THOUGH THE BROKER MAY SIGN THE RE-I NSURANCE SLIP SPECIFYING THE SHARE OF EACH RE-INSURER IN RESPECT OF PARTICULAR LINE OF BUSINESS, EACH RE-INSURER SIGNS THE RE-INSURANCE SL IP AGREEING THEIR RESPECTIVE SHARE OF RISK. ACCORDING TO THE LD. SR. COUNSEL, THE 13 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 BROKER CANNOT BIND THE RE-INSURER BY SIGNING THE RE -INSURANCE SLIP IN CASE THE TREATY TERMS HAVE NOT BEEN ACCEPTED BY THE RE-INSURER BY SIGNING THE TREATY OR RE-INSURANCE SLIP. 11. THE LD. SR. COUNSEL FOR THE ASSESSEE FURTHER SU BMITTED THAT THE QUARTERLY STATEMENT OF ACCOUNTS IS NORMALLY SEN T TO THE NON- RESIDENT RE-INSURER OR THE BROKER AS THE CASE MAY B E, SPECIFYING THE RE-INSURANCE PREMIUM, RE-INSURANCE CLAIM, COMMISSIO N 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, ACCORDING T O THE LD. SR. COUNSEL, IT IS OBLIGATION OF THE ASSESSEE-COMPANY T O SETTLE THE CLAIM IRRESPECTIVE OF THE FACT WHETHER THE RE-INSURER ACC EPTS THE CLAIM OR NOT. THE ASSESSEE WOULD NORMALLY APPOINT INDEPENDE NT SURVEYOR TO ASSESS DAMAGES CAUSED TO THE MACHINERY WHICH WAS SU BJECT MATTER OF INSURANCE AND ACCEPTS THE OBLIGATION ON THE BASI S OF SURVEY REPORT. THE ASSESSEE SUBSEQUENTLY COMMUNICATES TO THE RE-INSURER THE AMOUNT OF LOSS AND CLAIM THE RE-INSURER TO PAY THEIR 14 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 PROPORTIONATE OBLIGATION AS PER THE RE-INSURANCE PO LICY. ACCORDING TO THE LD. SR. COUNSEL, IT IS OPEN TO THE RE-INSURE R TO APPOINT INDEPENDENT SURVEYOR TO ASSESS THE EXTENT OF DAMAGE . HOWEVER, NO SUCH INCIDENT OF APPOINTING INDEPENDENT SURVEYOR BY THE RE-INSURER HAS HAPPENED. 12. 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 15 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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) 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. 13. 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 16 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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 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. 14. 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, OVER AND ABOVE OBLIGATORY RE-INSURANCE AS SPECIFIED BY THE 17 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 INSURANCE REGULATORY DEVELOPMENT AUTHORITY OF INDIA WITH GENERAL INSURANCE CORPORATION OF INDIA ALSO RE-INSURES WITH ANY INDIAN RE- INSURER OR OTHER INSURER THE ENTIRE SUM ASSURED ON ANY POLICY OR ANY PORTION THEREOF IN EXCESS OF PERCENTAGE SPECIFIED B Y THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA UNDER SUB-SECTION (2) OF SECTION 101A OF THE INSURANCE ACT, 1938. AC CORDING TO THE LD. SR. STANDING COUNSEL, THE INDIAN RE-INSURER I S DEFINED IN SUB- SECTION (8)(II) OF SECTION 101A. AS PER THIS DEFIN ITION, INDIAN RE- INSURER MEANS AN INSURANCE COMPANY WHICH HAS BEEN GRANTED REGISTRATION CERTIFICATE UNDER SUB-SECTION (2A) OF SECTION 3 BY INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF I NDIA TO CARRY ON EXCLUSIVELY THE RE-INSURANCE BUSINESS IN INDIA. AS ON DATE, THE AUTHORITY GRANTED REGISTRATION EXCLUSIVELY FOR CARR YING ON RE- INSURANCE BUSINESS IS THE GENERAL INSURANCE CORPORA TION OF INDIA. THEREFORE, ACCORDING TO THE LD. SR. STANDING COUNSE L, THE GENERAL INSURANCE CORPORATION OF INDIA IS THE ONLY INDIAN R E-INSURANCE COMPANY. SUB-SECTION (7) OF SECTION 101A OF INSURA NCE ACT, 1938 ALSO ENABLES THE ASSESSEE TO HAVE RE-INSURANCE WITH OTHER INSURER. THEREFORE, ACCORDING TO THE LD. SR. STANDING COUNSE L, THE REAL 18 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 QUESTION IS WHO ARE THE OTHER INSURERS OTHER THAN I NDIAN RE-INSURER, NAMELY, GENERAL INSURANCE CORPORATION OF INDIA? 15. REFERRING TO SECTION 2(9) OF THE INSURANCE ACT, 1938, THE LD. SR. STANDING COUNSEL FOR THE REVENUE SUBMITTED THAT THE TERM 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 RE-INSUR ANCE BUSINESS. THEREFORE, ACCORDING TO THE LD. SR. STANDING COUNSE L, THE OTHER INSURER AS REFERRED IN SUB-SECTION (7) OF SECTION 1 01A OF THE INSURANCE ACT, 1938 IS AN INSURER AS DEFINED IN SEC TION 2(9). IT DOES NOT INCLUDE NON-RESIDENT RE-INSURANCE COMPANY OR OT HER INSURANCE COMPANY WHICH IS NOT REFERRED IN SECTION 2(9). 16. 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- 19 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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. ACCORDING TO THE LD. SR. STANDING COUNSEL, THE ASSE SSEE HAS BUSINESS CONNECTION BY MAKING RE-INSURANCE WITH NON -RESIDENT RE- INSURANCE COMPANY IN VIOLATION OF INSURANCE ACT, 19 38, THEREFORE, THE ENTIRE PREMIUM PAID BY THE ASSESSEE HAS TO BE D ISALLOWED UNDER PROVISO TO SECTION 37 OF THE ACT. ACCORDING TO THE LD. SR. STANDING COUNSEL, IF THE ASSESSEE CLAIMS THAT THERE IS A BUS INESS CONNECTION FOR NON-RESIDENT RE-INSURANCE COMPANY IN INDIA OR N ON-RESIDENT COMPANY HAS PERMANENT ESTABLISHMENT IN INDIA, THEN NATURALLY THE PROFIT OF NON-RESIDENT COMPANY IS LIABLE FOR TAXATI ON IN INDIA, HENCE, THE ASSESSEE IS LIABLE TO DEDUCT TAX. IN THIS CASE , ACCORDING TO THE LD. SR. STANDING COUNSEL, ADMITTEDLY, THE ASSESSEE- COMPANY HAS NOT DEDUCTED ANY TAX, THEREFORE, THE ASSESSING OFFI CER HAS RIGHTLY DISALLOWED THE ENTIRE PREMIUM PAID BY THE ASSESSEE UNDER SECTION 40(A)(I) OF THE ACT. THE CIT(APPEALS), HOWEVER, RE STRICTED THE DISALLOWANCE TO 15% WITHOUT ANY RHYME OR REASON. W HEN THE ASSESSEE FAILED TO DEDUCT TAX, ACCORDING TO THE LD. SR. STANDING COUNSEL, THE ENTIRE AMOUNT HAS TO BE DISALLOWED UND ER SECTION 20 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 40(A)(I) OF THE ACT. EVEN OTHERWISE, THE RE-INSURA NCE PREMIUM WAS PAID CONTRARY TO THE STATUTORY PROVISION, NAMELY, T HE INSURANCE ACT, 1938, THEREFORE, THE CIT(APPEALS) IS NOT JUSTIFIED IN RESTRICTING THE DISALLOWANCE TO 15%. ACCORDING TO THE LD. SR. STAN DING COUNSEL, THE REVENUE FILED APPEAL AGAINST THE ORDER OF THE C IT(APPEALS) WHERE HE RESTRICTED DISALLOWANCE TO 15%. ACCORDING TO THE LD. SR. STANDING COUNSEL, THE ENTIRE RE-INSURANCE PREMIUM P AID BY THE ASSESSEE-COMPANY HAS TO BE DISALLOWED UNDER SECTION 37 OF THE ACT SINCE IT WAS PAID IN VIOLATION OF SECTION 2(9) OF THE INSURANCE ACT, 1938 AS IT STOOD AT THE RELEVANT POINT OF TIME . 17. BY WAY OF REJOINDER, SHRI PERCY J. PARDIWALA, T HE 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- 21 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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 AS SUCH WITH OTHER INDIAN INSURANCE COMPANIES APART FROM GENERAL INSUR ANCE CORPORATION OF INDIA? THE LD. SR. COUNSEL CLARIFIE D THAT THE ASSESSEE CAN ALSO HAVE RE-INSURANCE PROGRAMME WITH OTHER INDIAN INSURERS LIKE UNITED INDIA INSURANCE, NEW INDIA ASS URANCE, ETC. APART FROM GENERAL INSURANCE CORPORATION OF INDIA. IN FACT, ACCORDING TO THE LD. SR. COUNSEL, THE ASSESSEE HAS TAKEN UP RE- INSURANCE PROGRAMME WITH INDIAN COMPANIES FOR ITS O WN RISK AND ALSO RECEIVED RE-INSURANCE PREMIUMS FROM OTHER INDI AN INSURER BY TAKING PART OF THEIR RISK. 22 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 18. 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 T HE FIRST TIME AMENDED THE INSURANCE ACT, 1938 BY INTRODUCING PART IVA BY INSURANCE (AMENDMENT) ACT, 1961. FOR THE PURPOSE O F CONVENIENCE, PART IVA IS REPRODUCED AS UNDER:- 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. 23 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 (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 24 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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. 19. 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 AND THE RULES MADE THEREUNDER, TO CARRY OUT THE PURPOSE S OF THE 25 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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. 20. 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 DEVELOPMENT AUTHORITY OF INDIA CANNOT FRAME ANY REG ULATION CONTRARY TO THE PROVISIONS OF INSURANCE ACT AND THE RULES MADE 26 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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. 21. THE TERM INSURER IS ALSO DEFINED IN SECTION 2 (9) OF INSURANCE ACT, 1938. SECTION 2(9) OF THE INSURANCE ACT, 1938 READS 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 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; 27 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 SECTION 2(9) OF INSURANCE ACT, 1938 WAS AMENDED WIT H EFFECT FROM 1.11.1956 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;] 22. 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. 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);] 28 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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;] 23. 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 29 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 COMPANIES ACT, 1956 (1 OF 1956)], OR TO WHICH THE I NDIAN PARTNERSHIP ACT, 1932 (9 OF 1932), APPLIES; 24. 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. 25. 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 SECTION 3(2A) OF THE INSURANCE ACT, 1938. BY KEEPI NG THE ABOVE PROVISIONS IN MIND, LET US NOW EXAMINE THE TRANSACT ION OF THE ASSESSEE IN PAYING RE-INSURANCE PREMIUM TO NON-RESI DENT COMPANY. IT IS OBVIOUS THAT THE ASSESSEE HAS VIOLATED THE PR OVISIONS OF INDIAN INSURANCE ACT. PROVISIONS OF SECTION 101A MAKES IT MANDATORY TO 30 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 EVERY INSURER TO RE-INSURE WITH INDIAN RE-INSURERS SUCH PERCENTAGE OF SUM ASSURED ON EACH POLICY AS MAY BE SPECIFIED BY T HE AUTHORITY, NAMELY, INSURANCE REGULATORY AND DEVELOPMENT AUTHOR ITY OF INDIA. 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 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 31 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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. 26. 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 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 32 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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 THAT FROM THE YEAR 2014, THE ASSESSEE STARTED DEDUC TING TAX ON RE- INSURANCE PREMIUM PAID TO NON-RESIDENT COMPANIES. 27. 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 33 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 (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: 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. 28. SECTION 2C OF THE INSURANCE ACT, 1938 PROHIBITS FROM CARRYING ON INSURANCE BUSINESS OTHERWISE THEY ARE PERMITTED UNDER THE 34 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 INSURANCE ACT, 1938. THIRD PROVISO TO SECTION 2C C LEARLY SAYS THAT INSURER OTHER THAN INDIAN INSURANCE COMPANY SHALL B EGIN TO CARRY ON ANY CLASS OF INSURANCE BUSINESS IN INDIA. WE HAVE 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- 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. 29. 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 35 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 APPLICABLE AS IT STOOD AT RELEVANT POINT OF TIME EV EN FOR EARLIER ASSESSMENT YEARS. THE WORD OTHER INSURER PROVIDE D IN SECTION 101A(7) OF THE INSURANCE ACT, 1938 ENABLES THE INDI AN INSURERS FOR RE-INSURING OVER AND ABOVE THE PERCENTAGE FIXED BY THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA. THE RE-INSURANCE MAY BE EITHER WITH INDIAN RE-INSURER OR OTHER INSUR ER. BY TAKING 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 INDIAN INSURANCE ACT, 1938. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THERE IS NO MERIT IN THE CO NTENTION OF THE LD. SR. COUNSEL FOR THE ASSESSEE. THE TERM OTHER INSU RER AS PROVIDED IN SECTION 101A(7) OF THE INSURANCE ACT, 1938 IS ON LY THE INSURER WHICH WAS DEFINED IN SECTION 2(9) OF THE INSURANCE ACT, 1938. THERE CANNOT BE ANY EXTENDED MEANING WHICH CAN BE G IVEN TO THE TERM OTHER INSURER. THE DEFINITION GIVEN IN SECT ION 2(9) OF INSURANCE ACT, 1938 IS NOT INCLUSIVE ONE. IT IS AN EXHAUSTIVE ONE. THEREFORE, AN INDIAN INSURER CANNOT HAVE ANY RE-INS URANCE ARRANGEMENT WITH RE-INSURANCE COMPANY OTHER THAN TH E INSURER AS DEFINED / REFERRED IN SECTION 2(9) OF INSURANCE ACT , 1938. 36 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 30. 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. THEREFORE, NATU RALLY THE PROFIT OF NON-RESIDENT RE-INSURANCE COMPANY IS TAXABLE IN IND IA. HENCE, THE ASSESSEE-INSURANCE COMPANY HAS TO DEDUCT TAX UNDER SECTION 40(A)(I) OF THE ACT. 31. 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 37 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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 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. 38 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 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- 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 FOR NON- DEDUCTION OF TAX. SECTION 2C READ WITH SECTION 2(9 )(C) OF INSURANCE ACT, 1938 PROHIBITS ANY PERSON FROM DOING INSURANCE OR RE-INSURANCE BUSINESS IN INDIA OTHERWISE PERMITTED UNDER INSURAN CE ACT, 1938. 39 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 THEREFORE, THERE IS A CLEAR PROHIBITION FOR PAYMENT OF RE-INSURANCE PREMIUM TO THE NON-RESIDENT RE-INSURANCE COMPANIES. HENCE, THE DISALLOWANCE HAS TO BE MADE UNDER EXPLANATION 1 TO SECTION 37 OF THE ACT ALSO. 32. 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. 33. 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. 40 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 34. 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 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. 35. IN VIEW OF THE ABOVE, THE ORDER OF THE CIT(APPE ALS) IS SET ASIDE AND THAT OF THE ASSESSING OFFICER IS RESTORED EXCEPT FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05. 41 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 36. THE ASSESSEE HAS TAKEN ONE MORE ISSUE WITH REGA RD TO VALIDITY OF REOPENING OF ASSESSMENT FOR THE ASSESSM ENT YEARS 2003- 04 AND 2004-05. 37. SHRI PERCY J. PARDIWALLA, THE LD. SR. COUNSEL F OR THE ASSESSEE, SUBMITTED THAT THE ASSESSING OFFICER DID NOT HAVE ANY TANGIBLE MATERIAL FOR REOPENING THE ASSESSMENT. AC CORDING TO THE LD. SR. COUNSEL, THE ORIGINAL ASSESSMENT WAS COMPLE TED UNDER SECTION 143(3) OF THE ACT ON 27.02.2006 FOR THE ASS ESSMENT YEAR 2003-04. THE NOTICE UNDER SECTION 148 OF THE ACT W AS ISSUED ON 25.03.2008. IN THE ABSENCE OF ANY TANGIBLE MATERIA L, ACCORDING TO THE LD. SR. COUNSEL, THE ASSESSING OFFICER CANNOT R EOPEN THE ASSESSMENT. THE DETAILS OF RE-INSURANCE PREMIUM TO NON-RESIDENT RE-INSURER WERE AVAILABLE BEFORE THE ASSESSING OFFI CER AND HE ALLOWED THE CLAIM OF THE ASSESSEE. THEREFORE, ACCO RDING TO THE LD. SR. COUNSEL, REOPENING OF ASSESSMENT IS ONLY DUE TO CHANGE OF OPINION. 38. ON THE CONTRARY, SHRI M. SWAMINATHAN, THE LD. S R. STANDING COUNSEL FOR THE REVENUE, SUBMITTED THAT THE RE-INSU RANCE PREMIUM WAS PAID TO NON-RESIDENT COMPANIES CONTRARY TO THE PROVISIONS OF 42 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 INSURANCE ACT. MOREOVER, THE TDS WAS NOT MADE WHIL E MAKING RE- INSURANCE PREMIUM TO THE NON-RESIDENT COMPANIES. T HEREFORE, ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER HA S RIGHTLY REOPENED THE ASSESSMENTS. 39. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT FOR THE ASSESSMENT YEARS 2003-04 AND 2 004-05, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SE CTION 143(3) OF THE ACT ON 27.02.2006. THE NOTICE UNDER SECTION 148 OF THE ACT FOR REOPENING THE ASSESSMENTS WAS ADMITTEDLY ISSUED ON 25.03.2008. IT IS NOT THE CASE OF THE REVENUE THAT ANY NEW MATERIAL WAS FOUND FOR THE PURPOSE OF REOPENING THE ASSESSME NTS. ON THE BASIS OF THE MATERIAL ALREADY AVAILABLE WHILE PROCE SSING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT ON 27.02 .2006, THE ASSESSING OFFICER CAME TO A CONCLUSION THAT THE ASS ESSEE HAS NOT DEDUCTED TAX WHILE MAKING PAYMENT TOWARDS RE-INSURA NCE PREMIUM. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHE N THE ASSESSING OFFICER EXAMINED THE MATERIAL AVAILABLE ON RECORD W HILE PASSING ORDER UNDER SECTION 143(3) OF THE ACT AND THE ASSES SEE ALSO 43 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 DISCLOSED THE PAYMENT OF RE-INSURANCE PREMIUM, IT C ANNOT BE SAID THAT THERE WAS ANY NEGLIGENCE ON THE PART OF THE AS SESSEE IN DISCLOSING THE RELEVANT MATERIAL FOR COMPLETING ASS ESSMENT. THE MADRAS HIGH COURT IN THE CASE OF TANMAC INDIA V. DC IT IN TAX CASE (APPEAL) NO.1426 OF 2007 DATED 19.12.2016 FOUN D THAT PROVISIONS OF SECTIONS 147 & 148 OF THE ACT ARE NOT GIVING EXTENDED TIME FOR COMPLETING ASSESSMENT. UNLESS THERE IS A TANGIBLE MATERIAL FOUND AFTER COMPLETION OF ASSESSMENT, THE HIGH COUR T FOUND THAT THE COMPLETED ASSESSMENT CANNOT BE REOPENED ON THE BASI S OF THE MATERIAL ALREADY AVAILABLE ON RECORD. IN VIEW OF T HE ABOVE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT REOPENIN G OF ASSESSMENT FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 IN THE ABSENCE OF ANY TANGIBLE MATERIAL AFTER ASSESSMENT UNDER SECTIO N 143(3) OF THE ACT IS NOT JUSTIFIED. THEREFORE, THE CONSEQUENTIAL ORDERS PASSED BY THE ASSESSING OFFICER FOR BOTH THE ASSESSMENT YEARS 2003-04 AND 2004-05 ARE SET ASIDE AND THE APPEALS OF THE ASSESS EE FOR THOSE YEARS ARE ALLOWED. 40. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF PROVISION CREATED TOWARDS CLAIM INCURRED BUT NOT RE PORTED. 44 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 41. SHRI PERCY J. PARDIWALLA, THE LD. SR. COUNSEL F OR THE ASSESSEE, SUBMITTED THAT DURING THE RELEVANT YEAR, CLAIMS WERE INCURRED BUT WERE NOT REPORTED. MOREOVER, THE CLAI MS INCURRED WHICH WERE NOT ENOUGH REPORTED. THE LD. SR. COUNSE L EXPLAINED THAT THE ASSESSEE-COMPANY HAS MADE PROVISION OF 12,63,76,000/- ON ACCOUNT OF CLAIM INCURRED BUT NOT REPORTED AND C LAIM INCURRED BUT NOT ENOUGH REPORTED. HENCE, A PROVISION HAS BEEN M ADE FOR ALL THE UNSETTLED CLAIMS ON THE BASIS OF THE CLAIM LODGED B Y THE INSURED PERSONS. ACCORDING TO LD. SR. COUNSEL, THE DATE OF DAMAGE / LOSS WAS CONSIDERED FOR RECOGNISING THE CLAIM IN A PARTI CULAR YEAR. IN CERTAIN CIRCUMSTANCES, THE DAMAGES / LOSSES WERE NO T REPORTED IN THE BALANCE SHEET OF THE INSURANCE COMPANY. SUCH C LAIMS ARE KNOWN AS CLAIMS INCURRED BUT NOT REPORTED. SOMETIM ES, ACCORDING TO THE LD. SR. COUNSEL, THE DAMAGES / LOSSES INCURR ED MAY BE REPORTED. HOWEVER, IT WAS NOT ENOUGH REPORTED. AC CORDING TO THE LD. SR. COUNSEL, THE LIABILITY OF THE ASSESSEE HAS TO BE MET BY MAKING NECESSARY PROVISION AS PER THE INSURANCE REG ULATORY AND DEVELOPMENT AUTHORITY OF INDIA GUIDELINES. THE LIA BILITY OF THE ASSESSEE-COMPANY IS DETERMINED BASED ON THE ACTUAL LOSS / 45 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 DAMAGE. ACCORDING TO THE LD. SR. COUNSEL, THE METH ODOLOGY TO DETERMINE THE LIABILITY IS ALSO CERTIFIED BY THE AC TUARY IN ACCORDANCE WITH GUIDELINES AND NORMS ISSUED BY THE INSTITUTE O F ACTUARIES OF INDIA AND INSURANCE REGULATORY AND DEVELOPMENT AUTH ORITY OF INDIA. THE LD. SR. COUNSEL FURTHER SUBMITTED THAT THE ASSE SSEE CLAIMED BEFORE THE ASSESSING OFFICER UNDER SECTION 37(1) OF THE ACT SINCE ALL THE CONDITIONS WERE FULFILLED. THE LD. SR. COUNSEL FURTHER SUBMITTED THAT THE PROVISIONS WERE MADE ON THE BASIS OF THE D AMAGES / LOSSES OCCURRED DURING THE YEAR UNDER CONSIDERATION, THERE FORE, THE LIABILITY OF THE ASSESSEE-COMPANY IS ASCERTAINED. THE PROVISI ONS MADE WERE IN RESPECT OF THE LIABILITY INCURRED BY THE ASSESSE E AND NOT BASED ON ANY FUTURE LIABILITY. THEREFORE, ACCORDING TO THE LD. SR. COUNSEL, THE CIT(APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE A SSESSEE. 42. ON THE CONTRARY, SHRI M. SWAMINATHAN, SR. STAND ING COUNSEL FOR THE REVENUE, SUBMITTED THAT THE ASSESSEE CREATE D PROVISION IN ANTICIPATION OF SETTLEMENT OF CLAIMS THAT WERE NOT ASCERTAINED. WHAT WAS REPORTED TO THE ASSESSEE IS DAMAGE / LOSSE CAUS ED TO THE INSURED PERSONS. ACCORDING TO THE LD. SR. STANDING COUNSEL, THE ASSESSEE IS YET TO ASSESS THE LOSS AND DETERMINE TH E AMOUNT TO BE 46 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 COMPENSATED, THEREFORE, IT IS UNASCERTAINABLE LIABI LITY. WHAT IS TO BE ALLOWED UNDER THE INCOME-TAX ACT IS ASCERTAINABLE L IABILITY AND NOT THE UNASCERTAINABLE LIABILITY. IN THIS CASE, ACCOR DING TO THE LD. SR. STANDING COUNSEL, AT THE BEST, THE ASSESSEE MAY CLA IM THAT THERE IS A LIABILITY FOR COMPENSATION. BUT, THE AMOUNT OF C OMPENSATION IS NOT QUANTIFIED ON THE LAST DAY OF THE FINANCIAL YEAR. THEREFORE, ACCORDING TO THE LD. SR. STANDING COUNSEL, IT HAS TO BE ALLOW ED IN THE YEAR IN WHICH THE LIABILITY WAS QUANTIFIED. REFERRING TO T HE ORDER OF THE CIT(APPEALS), THE LD. SR. STANDING COUNSEL SUBMITTE D THAT THE ASSESSEE MADE THE PROVISION OF 12,63,76,000/- FOR THE ASSESSMENT YEAR 2009-10. IT IS NOT KNOWN HOW MUCH AMOUNT WAS ACTUALLY PAID BY THE ASSESSEE TOWARDS COMPENSATION. NO DETAILS W ERE AVAILABLE EVEN AFTER LONG TIME. THEREFORE, ACCORDING TO THE LD. SR. STANDING COUNSEL, IT HAS TO BE ASCERTAINED WHEN THE ACTUAL C OMPENSATION OR LOSS WAS QUANTIFIED BY THE INSURANCE COMPANY. THE YEAR IN WHICH THE ACTUAL LOSS OR COMPENSATION WAS QUANTIFIED IS T HE YEAR IN WHICH THE ASSESSEE IS LIABLE TO MAKE THE PAYMENT. THEREF ORE, ACCORDING TO THE LD. SR. STANDING COUNSEL, EVEN THOUGH TECHNI CALLY LOSS OR DAMAGE SUFFERED IS THE POINT FOR DETERMINING THE CO MPENSATION, AS FAR AS THE ASSESSEE IS CONCERNED, THE ACTUAL COMPEN SATION OR 47 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 DAMAGE IS QUANTIFIED ONLY AFTER ASSESSMENT OF ACTUA L DAMAGES. THEREFORE, ACCORDING TO THE LD. SR. STANDING COUNSE L, WHETHER THE CLAIM INCURRED BUT NOT REPORTED OR INCURRED BUT NOT ENOUGH REPORTED, THE YEAR IN WHICH THE ACTUAL DAMAGES OR LOSSES WERE DETERMINED AND CRYSTALIZED IS THE YEAR IN WHICH THE ASSESSEE I S 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 DURI NG THE ASSESSMENT YEAR 2009-10. THEREFORE, AS RIGHTLY SUB MITTED BY THE ACCORDING TO THE LD. SR. STANDING COUNSEL FOR THE R EVENUE, THE LIABILITY TO MAKE THE PAYMENT ACCRUES TO THE ASSESS EE ONLY IN THE 48 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 YEAR IN WHICH THE LOSS OR DAMAGE WAS ASCERTAINED AN D COMPENSATION PAYABLE TO INSURED PERSON IS DETERMINE D. ADMITTEDLY, THE COMPENSATION PAYABLE TO INSURED PERSON WAS NOT DETERMINED DURING THE ASSESSMENT YEAR 2009-10. THEREFORE, THI S TRIBUNAL IS OF THE CONSIDERED OPINION THAT MERELY BECAUSE THE INCI DENT HAPPENED DURING THE YEAR WHICH IS THE BASIS FOR MAKING CLAIM , THAT CANNOT BE A REASON FOR ALLOWING THE COMPENSATION PAYABLE BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-10. IN OTHER WORDS, THE C OMPENSATION PAYABLE BY THE ASSESSEE HAS TO BE ALLOWED IN THE YE AR IN WHICH THE AMOUNT OF COMPENSATION WAS DETERMINED. SINCE THE A MOUNT WAS NOT DETERMINED DURING THE YEAR UNDER CONSIDERATION, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE SAME CANNOT BE A LLOWED FOR ASSESSMENT YEAR 2009-10. HENCE, THE CIT(APPEALS) I S NOT CORRECT IN ALLOWING THE CLAIM OF THE ASSESSEE. ACCORDINGLY , THE ORDER OF THE CIT(APPEALS) IS SET ASIDE AND THAT OF THE ASSESSING OFFICER IS RESTORED. 44. THE REVENUE HAS TAKEN ONE MORE GROUND FOR ASSES SMENT YEARS 2008-09 AND 2009-10 WITH REGARD TO DISALLOWAN CE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT. 49 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 45. SHRI M. SWAMINATHAN, SR. STANDING COUNSEL FOR T HE REVENUE, SUBMITTED THAT THE CIT(APPEALS) HAS DELETE D THE DISALLOWANCE ON THE GROUND THAT PROVISIONS OF SECTI ON 14A OF THE ACT ARE NOT APPLICABLE TO THE INSURANCE COMPANY. ACCOR DING TO THE SR. STANDING COUNSEL, EXPENDITURE RELATING TO EXEMPTED INCOME IS NOT ALLOWABLE UNDER SECTION 37 OF THE ACT. THEREFORE, ACCORDING TO THE SR. STANDING COUNSEL, IT OUGHT TO HAVE BEEN QUANTIF IED UNDER SECTION 14A OF THE ACT. 46. ON THE CONTRARY, SHRI PERCY J. PARDIWALLA, THE LD. SR. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT SECTION 44 OF THE ACT SPECIFICALLY SAYS THAT THE PROVISIONS OF SECTIONS 28 TO 43B ARE NOT APPLICABLE TO THE INSURANCE COMPANIES. ACCORDING TO THE LD. SR. COUNSEL, THE INCOME HAS TO BE COMPUTED AS PER THE PROVISIONS CON TAINED IN THE FIRST SCHEDULE OF THE INCOME-TAX ACT, 1961. THEREF ORE, ACCORDING TO THE LD. SR. COUNSEL, IT IS NOT CORRECT TO CONTEND T HAT UNDER SECTION 37 OF THE ACT THE EXPENDITURE RELATING TO INCOME HAS T O BE DISALLOWED IN RESPECT OF INSURANCE COMPANY. 50 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 47. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IN RESPECT OF INSURANCE COMPANIES, THE PROFIT HAS TO BE COMPUTED AS PER THE PROVISIONS CONTAINED IN THE FIRST SCHEDULE OF THE I NCOME-TAX ACT, 1961. SECTION 44 OF THE ACT READS AS FOLLOWS:- INSURANCE BUSINESS 44. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE PROVISIONS OF THIS ACT RELATING TO THE COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD 'INTEREST ON SECURITIES', 'INCOME FROM HOUSE PROPER TY', 'CAPITAL GAINS' OR 'INCOME FROM OTHER SOURCES', OR IN SECTION 199 OR IN SECTIONS 28 TO 43B, THE PROFITS AND GAINS OF ANY BUSINESS OF INSURANCE, INCLUDING ANY S UCH BUSINESS CARRIED ON BY A MUTUAL INSURANCE COMPANY O R BY A CO-OPERATIVE SOCIETY, SHALL BE COMPUTED IN ACCORD ANCE WITH THE RULES CONTAINED IN THE FIRST SCHEDULE. RULE 5 OF FIRST SCHEDULE TO INCOME-TAX ACT, 1961 RE AD AS FOLLOWS:- COMPUTATION OF PROFITS AND GAINS OF OTHER INSURANCE BUSINESS. 5. THE PROFITS AND GAINS OF ANY BUSINESS INSURANCE O THER THAN LIFE INSURANCE SHALL BE TAKEN TO BE THE PROFIT BEFO RE TAX AND APPROPRIATIONS AS DISCLOSED IN THE PROFIT AND LOSS ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE INSURANCE ACT, 1938 (4 OF 1938) OF THE RULES MADE THEREUNDER OR THE PROVISIONS O F INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY ACT, 1999 (4 OF 1999) OR THE REGULATIONS MADE THEREUNDER,] SUBJECT TO THE FO LLOWING ADJUSTMENTS - 51 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 (A) SUBJECT TO THE OTHER PROVISIONS OF THIS RULE, A NY EXPENDITURE OR ALLOWANCE [INCLUDING ANY AMOUNT DEBIT ED TO THE PROFIT AND LOSS ACCOUNT EITHER BY WAY OF A PROV ISION FOR ANY TAX, DIVIDEND, RESERVE OR ANY OTHER PROVISION AS MAY BE DESCRIBED] WHICH IS NOT ADMISSIBLE UNDER THE PROVIS IONS OF SECTIONS 30 TO [43B] IN COMPUTING THE PROFITS AND GAINS OF A BUSINESS SHALL BE ADDED BACK; (B) (I) ANY GAIN OR LOSS ON REALIZATION OF INVESTM ENTS SHALL BE ADDED OR DEDUCTED, AS THE CASE MAY BE, IF SUCH G AIN OR LOSS IS NOT CREDITED OR DEBITED TO THE PROFIT AND L OSS ACCOUNT; (II) ANY PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT DEBITED TO THE PROFIT AND LOSS ACCOUNT, SHALL BE ADDED BACK; (C) SUCH AMOUNT CARRIED OVER TO A RESERVE FOR UNEXP IRED RISKS AS MAY BE PRESCRIBED IN THIS BEHALF SHALL BE ALLOWED AS A DEDUCTION. IN VIEW OF RULE 5(A), THE EXPENDITURES WHICH ARE NO T FOR INSURANCE BUSINESS CANNOT BE ALLOWED AND IT HAS TO BE ADDED B ACK. 48. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS UNABLE T O UPHOLD THE ORDER OF THE CIT(APPEALS). ACCORDINGLY, THE ORDER OF THE CIT(APPEALS) IS SET ASIDE AND THAT OF THE ASSESSING OFFICER IS RESTORED. 52 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 49. THE NEXT ISSUE ARISES FOR CONSIDERATION IS TAXA BILITY OF PROFIT ON SALE OF INVESTMENTS. THIS ISSUE ARISES FOR CONS IDERATION FOR THE ASSESSMENT YEARS 2008-09 AND 2009-10. 50. SHRI M. SWAMINATHAN, SR. STANDING COUNSEL FOR T HE REVENUE, SUBMITTED THAT AS PER RULE 5 OF THE FIRST SCHEDULE OF THE INCOME-TAX ACT, 1961, THE ASSESSEE HAS TO OFFER TO TAX THE PROFIT AS DISCLOSED IN THE ANNUAL ACCOUNTS PREPARED IN ACCORD ANCE WITH THE PROVISIONS OF INSURANCE ACT AND SUBJECTED TO ADJUST MENTS MADE IN ACCORDANCE WITH RULE 5(A) AND RULE 5(C) OF THE FIRS T SCHEDULE TO THE INCOME-TAX ACT, 1961. ACCORDING TO THE LD. SR. ST ANDING COUNSEL, RULE 5(B) WAS OMITTED BY FINANCE ACT, 1988, THEREFO RE, AS PER THE LAW APPLICABLE DURING THE RELEVANT YEAR, THERE WAS NO PROVISION FOR ANY ADJUSTMENT WITH REGARD TO PROFIT ON SALE OF ADJ USTMENT. HENCE, ACCORDING TO THE LD. SR. STANDING COUNSEL, THE CIT( APPEALS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 51. ON THE CONTRARY, SHRI PERCY J. PARDIWALLA, THE LD. SR. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE CIT(APPEALS) F OLLOWED THE ORDER OF THIS TRIBUNAL IN THE CASE OF DCIT V. ROYAL SUNDARAM 53 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 ALLIANCE INSURANCE COMPANY LTD. IN I.T.A. NOS.847-8 49/MDS/2008 DATED 5 TH MARCH, 2010, THEREFORE, NO INTERFERENCE IS CALLED FOR. 52. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT RULE 5(B) OF THE FIRST SCHEDULE TO THE INCOME-TAX ACT, 1961 WAS DELETED BY FINANCE ACT, 1988 WITH EFFECT F ROM 01.04.1989 AND IT WAS RE-INSERTED BY FINANCE (NO.2) ACT, 2009 WITH EFFECT FROM 01.04.2011. THEREFORE, DURING THE YEARS UNDER CONS IDERATION, I.E. 2008-09 AND 2009-10, THE PROVISIONS OF RULE 5(B) WE RE NOT IN STATUTE BOOK. HENCE, AS RIGHTLY CONTENDED BY THE L D. SR. STANDING COUNSEL FOR THE REVENUE, THE ASSESSING OFFICER HAS RIGHTLY TAKEN THE SALE OF INVESTMENTS AS TAXABLE INCOME OF THE AS SESSEE. IN THE EARLIER ORDER OF THIS TRIBUNAL THE FACT OF DELETION OF PROVISIONS OF RULE 5(B) OF THE FIRST SCHEDULE TO THE ACT BY FINANCE AC T, 1988 WAS NOT BROUGHT TO THE NOTICE OF THE BENCH. THEREFORE, THE EARLIER ORDER OF THIS TRIBUNAL MAY NOT BE APPLICABLE TO THE FACTS OF THE CASE. ACCORDINGLY, THE ORDER OF THE CIT(APPEALS) IS SET A SIDE AND THAT OF THE ASSESSING OFFICER IS RESTORED. 54 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 53. THE NEXT ISSUE ARISES FOR CONSIDERATION IN THE ASSESSEES APPEALS FOR ASSESSMENT YEARS 2003-04, 2004-05 AND 2 006-07 TO 2009-10 IS WITH REGARD TO DEPRECIATION ON UPS. 54. SHRI PERCY J. PARDIWALLA, THE LD. SR. COUNSEL F OR THE ASSESSEE, SUBMITTED THAT THIS TRIBUNAL IN DCIT V. I NTERNATIONAL FLOWERS AND FRAGRANCES (66 SOT 261) FOUND THAT UPS IS A PART OF COMPUTER AND ALLOWED DEPRECIATION AT THE RATE OF 60 %. THIS TRIBUNAL IN SUNDARAM ASSET MANAGEMENT CO. LTD. V. D CIT (145 ITD 17) ALSO FOUND THAT UPS IS A PART OF COMPUTER. 55. WE HEARD SHRI M. SWAMINATHAN, THE LD. SR. STAND ING COUNSEL FOR THE REVENUE ALSO. SINCE THE CO-ORDINAT E BENCH OF THIS TRIBUNAL FOUND THAT UPS IS A PART OF COMPUTER AND A LLOWED DEPRECIATION AT THE RATE OF 60%, WE ARE UNABLE TO U PHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, WE SET ASID E THE ORDERS OF BOTH THE AUTHORITIES BELOW AND DIRECT THE ASSESSING OFFICER TO ALLOW 60% IN RESPECT OF UPS ALSO. 56. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF EXEMPTION UNDER SECTION 10(23G) OF THE ACT. 55 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 57. SHRI PERCY J. PARDIWALLA, THE LD. SR. COUNSEL F OR THE ASSESSEE, SUBMITTED THAT FOR THE ASSESSMENT YEAR 20 06-07, THE ASSESSEE CLAIMED EXEMPTION UNDER SECTION 10(23G) OF THE ACT. THE LD. SR. COUNSEL SUBMITTED THAT THE ASSESSING OF FICER FOUND THAT THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION UNDER SE CTION 10(23G) OF THE ACT. ACCORDING TO THE LD. SR. COUNSEL, INVESTM ENTS WERE MADE BY THE ASSESSEE IN RURAL ELECTRIFICATION CORPORATIO N LTD., POWER GRID CORPORATION OF INDIA LTD. AND BOMBAY SUBURBAN ELECT RICITY SUPPLY AND TRANSPORT LTD. SINCE ALL THE COMPANIES IN WHIC H THE INVESTMENTS WERE MADE WERE ENGAGED IN THE DISTRIBUT ION OF ELECTRICITY, THE CIT(APPEALS) CONFIRMED THE ORDER O F THE ASSESSING OFFICER. ACCORDING TO LD. SR. COUNSEL, SECTION 10( 23G) OF THE ACT ENABLES THE ASSESSEE TO CLAIM DIVIDEND RECEIVED FRO M INFRASTRUCTURE COMPANIES. THE CIT(APPEALS) BY REFERRING TO SECTI ON 80(IA(4) OF THE ACT FOUND THAT THE COMPANIES IN WHICH THE ASSES SEE MADE INVESTMENTS WERE NOT ELIGIBLE FOR BUSINESS. 58. ON THE CONTRARY, SHRI M. SWAMINATHAN, SR. STAND ING COUNSEL FOR THE REVENUE, SUBMITTED THAT SECTION 80(IA)(4) O F THE ACT APPLIES ONLY TO ENTERPRISES CARRYING ON BUSINESS OF DEVELOP ING, OPERATING 56 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 AND MAINTAINING OR DEVELOPING OR MAINTAINING INFRAS TRUCTURE FACILITY. SINCE THE ASSESSEE MADE INVESTMENTS IN THE COMPANIE S WHICH ARE NOT GENERATING OR PRODUCING ELECTRICITY AND WERE ON LY DISTRIBUTING ELECTRICITY, THEREFORE, NOT ELIGIBLE FOR EXEMPTION AS PROVIDED UNDER SECTION 10(23G) OF THE ACT. 59. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT INVESTMENTS WERE MADE BY THE ASSESSEE IN THE COMPANIES WHICH ARE NOT PRODUCING OR GENERATING ELE CTRICITY. ALL THESE COMPANIES ARE ADMITTEDLY DISTRIBUTING THE ELE CTRICITY. THEREFORE, AS RIGHTLY FOUND BY THE CIT(APPEALS), TH EY ARE NOT ELIGIBLE BUSINESS UNDER SECTION 80(IA)(4) OF THE ACT. THERE FORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRM ED. 60. THE NEXT ISSUE ARISES FOR CONSIDERATION FOR ASS ESSMENT YEARS 2003-04, 2004-05 AND 2006-07 TO 2009-10 IS ADDITION MADE WHILE COMPUTING BOOK PROFIT. 57 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 61. SHRI PERCY J. PARDIWALLA, THE LD. SR. COUNSEL F OR 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. 62. 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 IS UNABLE TO U PHOLD THE ORDERS OF BOTH THE AUTHORITIES BELOW. ACCORDINGLY, ORDERS OF BOTH THE 58 I.T.A. NOS.1674 TO 1676 & 1759/CHNY/11 I.T.A. NO.40/CHNY/09 I.T.A. NOS.1366 & 135 0/CHNY/13 I.T.A. NOS.2372 & 22 76/CHNY/14 I.T.A. NOS.1618 TO 1621/CHN Y/11 I.T.A. NO.2146/CHNY/08 AUTHORITIES BELOW ARE SET ASIDE AND THE ASSESSING O FFICER IS DIRECTED TO DELETE THE ADDITIONS. 63. IN THE RESULT, THE APPEALS FILED BY BOTH THE RE VENUE AND THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON 31 ST JULY, 2018 AT CHENNAI. SD/- SD/- ( ! .#$#% ) ( . . . ) (ABRAHAM P. GEORGE) (N.R.S. GANESAN) ' / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 8 /DATED, THE 31 ST JULY, 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.
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