Tca/323/2019 Of Commissioner Of Income Tax v. M/S.united India Insurance Co Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 14.06.2019CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case Appeal Nos.323, 324, 328, 330, 333, 336, 329, 332, 335,337, 331, 326, 334, 338, 340, 343, 341, 344 and 345 of 2019andC.M.P.Nos.12062, 12064, 12081, 12084, 12086,12080, 12083, 12087, 12088, 12073, 12082, 12089,12092, 12095, 12101, 12103, 12104 and 12106 of 2019 Commissioner of Income Tax,Chennai. .. Appellant in all T.C. Appeals-vs- M/s.United India Insurance Company,24, Whites Road, Chennai-600 014.PAN: .. Respondent in all T.C. Appeals Tax Case Appeals filed under Section 260A of the Income-taxAct, 1961, against the order dated 28.08.2018 made inI.T.A.No.30/Chny/2014 and I.T.A.No.36/Chny/2014 on the file ofthe Income Tax Appellate Tribunal 'A' Bench, Chennai, for theassessment year 2009-10 and against the order dated 28.10.2013made in CIT(A) No. 86/11-12/LTU(A) passed by the Commissioner ofIncome Tax, LUT(Appeals) Large Tax Payer Unit, Chennai andagainst the order dated 31.12.2011 passed by the DeputyCommissioner of Income Tax, Large Tax Payer Unit, Chennai. Tax Case appeals filed under Section 260A of the Income TaxAct 1961, against the order dated 28.08.2018 made inI.T.A.Nos.2107/Chny/2008,I.T.A.No.1605/Chny/2018,I.T.A.No.906/Chny/2011 and I.T.A.No.217/Chny/2009 on the file ofthe Income Tax Appellate Tribunal 'A' Bench, Chennai for theassessment year 2004-2005 and against the order dated 20.07.2011made in I.T.A.No.60/09-10/LTU(A) passed by the Commissioner ofIncome Tax (Appeals)Large Tax Payer Unit, Chennai and againstthe order dated 17.12.2009 passed by the Additional Commissionerof Income Tax, LTU, Chennai and against the order dated28.08.2008 made in I.T.A.No.851/2006-2007-AIII/AY 2004-2005 and https://hcservices.ecourts.gov.in/hcservices/ I.T.A.No.1/2008-2009/LTU/AY/2004-2005 passed by the Commissionerof Income Tax(appeals) Large Tax Payer Unit, Chennai and againstthe order dated 29.12.2006 passed by the Joint Commissioner ofIncome Tax, Company Range III, Chennai 34. T.C.A.Nos.329, 332, 335, 337/2019: Tax Case Appeals filed under Section 260 A of the Income TaxAct 1961, against the order dated 28.08.2018 made inI.T.A.No.1608/Chny/2011,I.T.A.No.34/Chny/2014,I.T.A.No.29/Chny/2014 and I.T.A.No.1688/Chny/2011 passed by theIncome Tax Appellate Tribunal 'A' Bench, Chennai for theAssessment year 2004-2005, 2007-2008, 2007-2008 and 2007-2008respectively and against the order dated 28.10.2013 made inI.T.A.No.15/2012-2013/LTU(A) passed by the Deputy Commissionerof Income Tax, Large Tax Payer Unit, Chennai and against theorder dated 03.12.2012 passed by the Deputy Commissioner ofIncome Tax, Large Tax Payer Unit, Chennai and against the orderdated 20.07.2011 made in I.T.A.No.61/09-2010/LTU(A) passed bythe Commissioner of Income Tax Appeal, Large Tax Payer Unit,Chennai and against the order dated 18.12.2019 passed by theAdditional Commissioner of Income Tax, LTU, Chennai. Tax Case Appeal filed under Section 260 A of the Income TaxAct 1961, against the order dated 28.08.2018 made inI.T.A.No.1606/Chny/2011 and I.T.A.No.1673/Chny/2011 passed bythe Income Tax appellate Tribunal 'A' Bench Chennai for theAssessment year 2005-2006 and against the order dated 22.07.2011and 20.07.2011 made in I.T.A.No.456/2007-2008/LTU(A) andI.T.A.No.49/10-11/LTU(A) passed by the Commissioner of IncomeTax (APPEals) LTU, Chennai and Deputy Commissioner of IncomeTax, LTU, Chennai and against the order dated 20.12.2010 passedby the Deputy Commissioner of Income Tax LTU, Chennai andagainst the order dated 31.12.2007 passed by the AssistantCommissioner of Income Tax Company Circle III(3) Chennai. Tax Case Appeal filed under Section 260 A of the Income TaxAct 1961, against the order dated 28.08.2018 made inI.T.A.No.1606/Chny/2011 and I.T.A.No.1673/Chny/2011 passed bythe Income Tax appellate Tribunal 'A' Bench Chennai for theAssessment year 2005-2006 and against the order dated 22.07.2011and 20.07.2011 made in I.T.A.No.456/2007-2008/LTU(A) andI.T.A.No.49/10-11/LTU(A) passed by the Commissioner of IncomeTax (APPEals) LTU, Chennai and Deputy Commissioner of IncomeTax, LTU, Chennai and against the order dated 20.12.2010 passedby the Deputy Commissioner of Income Tax LTU, Chennai andagainst the order dated 31.12.2007 passed by the AssistantCommissioner of Income Tax Company Circle III(3) Chennai. Tax Case Appeals filed under Section 260A of the Income TaxAct 1961, against the order dated 28.08.2018 inI.T.A.No.764/Chny/2014,I.T.A.No.696/Chny/2014,I.T.A.No.1689/Chny/2014 and I.T.A.No.1610/Chny/2011 passed bythe Income Tax Appellate Tribunal 'A' Bench Chennai for theassessment year 2010-2011, 2010-2011, 2008-2009, 2008-2009 andagainst the order dated 23.01.2014, 23.01.2014, 20.07.2011 and20.07.2011madeinI.T.A.No.12/2013-2014/LTU(A),I.T.A.No.12/2013-2014/LTU(A), I.T.A.No.51/2010-2011/LTU(A) andI.T.A.No.51/2010-2011/LTU(A) passed by the Commissioner of https://hcservices.ecourts.gov.in/hcservices/ Income Tax (Appeals) LTU, Chennai and Deputy Commissioner ofIncome Tax, LTU, Chennai and against the order dated 27.03.2013,27.03.2013, 28.12.2010 and 28.12.2010 respectively passed by theDeputy commissioner of Income Tax, LTU, Chennai. Tax Case Appeals filed under Section 260A of the Income TaxAct 1961, against the order dated 28.08.2018 inI.T.A.No.892/Chny/2007,I.T.A.No.905/Chny/2011,I.T.A.No.1753/Chny/2011 passed by the Income Tax AppellateTribunal 'A' Bench, Chennai for the Assessment year 2003-2004,2003-2004, 2003-2004 and against the order dated 21.02.2011,20.07.2011 and 15.09.2011 made in I.T.A.No.61/2008-2009/LTU(A),I.T.A.No.60/2008-2009/LTU(A) and I.T.A.No.50/2010-2011/LTU(A)respectively passed by the Commissioner of Income Tax (Appeals)LTU, Chennai and against the order dated 26.12.2008, 26.12.2008and 20.12.2010 passed by the Additional Commissioner of IncomeTax LTU, Chennai, Additional Commissioner of Income Tax (LTU)Chennai and Deputy Commissioner of Income Tax, LTU, Chennai andagainst the order dated 22.01.2007 made in I.T.A.No.583/2005-2006/A.VIII Passed by the Commissioner of Income Tax (Appeals)VIII, Chennai 34 and against the order dated 18.01.2006 passedby the Assistant Commissioner of Income Tax, Company Circle III(2) Chennai-34 for the Assessment year 2003-2004. COMMON JUDGMENT These appeals are filed by the Revenue under Section 260A ofthe Income-tax Act, 1961 (hereinafter referred to as “the Act”),challenging the common order dated 28.08.2018, passed by theIncome-tax Appellate Tribunal 'A' Bench, Chennai (for brevity,“the Tribunal”) in I.T.A.No.30/Chny/2014, for the assessment year 2009-10;I.T.A.No.36/Chny/2014, for the assessment year 2009-10;I.T.A.No.2107/Chny/2008, for the assessment year 2004-05;I.T.A.No.1605/Chny/2011, for the assessment year 2004-05;I.T.A.No.906/Chny/2011, for the assessment year 2004-05;I.T.A.No.217/Chny/2009, for the assessment year 2004-05;I.T.A.No.1608/Chny/2011, for the assessment year 2004-05; https://hcservices.ecourts.gov.in/hcservices/ COMMON JUDGMENT These appeals are filed by the Revenue under Section 260A ofthe Income-tax Act, 1961 (hereinafter referred to as “the Act”),challenging the common order dated 28.08.2018, passed by theIncome-tax Appellate Tribunal 'A' Bench, Chennai (for brevity,“the Tribunal”) in I.T.A.No.30/Chny/2014, for the assessment year 2009-10;I.T.A.No.36/Chny/2014, for the assessment year 2009-10;I.T.A.No.2107/Chny/2008, for the assessment year 2004-05;I.T.A.No.1605/Chny/2011, for the assessment year 2004-05;I.T.A.No.906/Chny/2011, for the assessment year 2004-05;I.T.A.No.217/Chny/2009, for the assessment year 2004-05;I.T.A.No.1608/Chny/2011, for the assessment year 2004-05; https://hcservices.ecourts.gov.in/hcservices/ I.T.A.No.34/Chny/2014, for the assessment year 2007-08;I.T.A.No.29/Chny/2014, for the assessment year 2007-08;I.T.A.No.1688/Chny/2011, for the assessment year 2007-08;I.T.A.No.1606/Chny/2011, for the assessment year 2005-06;I.T.A.No.1673/Chny/2011, for the assessment year 2005-06;I.T.A.No.764/Chny/2014, for the assessment year 2010-11;I.T.A.No.696/Chny/2014, for the assessment year 2010-11;I.T.A.No.1689/Chny2011, for the assessment year 2010-11;I.T.A.No.1610/Chny/2011, for the assessment year 2008-09;I.T.A.No.892/Chny/2007, for the assessment year 2003-04;I.T.A.No.905/Chny/2011, for the assessment year 2003-04; andI.T.A.No.1753/Chny/2011, for the assessment year 2003-04respectively. 3.Common issues arise in all these tax case appeals.However, in all the tax case appeals, all the issues are not raised. 4.Four substantial questions of law to be considered are asfollows:-“(i) Whether the Tribunal was justified inholding that profit on sale of investments isexempt thereby ignoring that profits realized frominvestments are real and hypothetical? (ii) Whether on the facts and circumstances ofthe case and in law, the Tribunal was justified inholding that the assessee is not liable to deductthe tax at source made to surveyors outside thecountry was not taxable in India?(iii) Whether on the facts and circumstancesof the case and in law, the Tribunal was justifiedand correct in holding that the provisions ofSection 115JB of the Act which enables thecompanies to compute book profit may not beapplicable to insurance companies? and(iv) Whether on the facts and circumstances ofthe case and in law, the Tribunal was justifiedand correct in holding that the assessee is notliable to deduct the tax at source towards thecommission paid for receipt of re-insurancepremium?” 6.So far as the first substantial question of law isconcerned, viz., profit on sale of investments whether it isexempt or not, the issue came up for consideration before the High Court of Delhi in the case of Oriental Insurance Co. Ltd.,vs. Deputy Commissioner of Income-tax reported in [2017] 84taxmann.com 312 (Delhi). The Court analysed Rule 5(b) of theFirst Schedule to the Act, which stood omitted by Finance Act,1988 and was re-introduced by Finance Act, 2009 with effect from1[st] April, 2011. It was pointed out that the rationale foromitting Rule 5(b) was to exempt profits and gains ininvestments by the General Insurance Corporation of India andthe four companies formed under Section 16 of the GeneralInsurance Business (Nationalisation) Act, 1972. After referringto the relevant provisions, the explanation offered in thememorandum to the Finance Bill, 1988, and the circular of theCBDT in Circular No.528, dated 16.12.1988, the Court held asfollows:- “38.Thus, the major change, therefore, soughtto be brought about by the 2009 amendment was toalign it with the IRDA Regulations regardingpreparation of accounts of general insurancecompanies. The changed norms, in terms of saidRegulations, required a non-life insurance companyto include in its Profit and Loss ('P & L')Account or Revenue Account “profit or loss onrealisation/sale of investment”. This was said tobe consistent with the international standards. 39.With the Assessee carrying on a generalinsurance business, it was bound by the provisionsof the IA as well as the IRDA Regulations referredto hereinbefore. Even the CBDT, in its CircularNo.5/2010 dated 3[rd] June, 2010, acknowledged that,after the introduction of the IRDA Regulations in2002, non-life insurance companies are required tocredit income from the sale of investmentsdirectly to the P&L Account. This requirement,which would make the income so earned amenable totax, was made applicable only from AY 2011-12.Prior to 1[st] April, 2011, there was no provisionwhich required the Revenue to disallow thededuction of loss on sale of investments.” 7.In terms of the above decision, prior to 1[st] April, 2011,there was no provision which required the Revenue to disallowthe deduction of loss on sale of investments. 8.In the respondent/assessee's case, identical view wastaken by the Commissioner of Income-tax (Appeals), LargeTaxpayer Unit, Chennai (for brevity, “the CIT(A)”), and theorder was confirmed by the Tribunal. The finding in favour ofthe assessee was on the ground that prior to 1[st] April, 2011,there was no provision which required the Revenue to disallow the deduction of loss on sale of investments. 9.We respectfully agree with the view taken by the HighCourt of Delhi in Oriental Insurance Co. Ltd. (supra).Accordingly, the first substantial question of law is answeredagainst the Revenue. 10.So far as the second, third and fourth substantialquestions of law are concerned, a Division Bench of this Courtin the case of Commissioner of Income Tax vs. M/s.Royal SundaramAlliance Insurance Company Limited in T.C.(A) Nos.41 of 2019 andetc., batch, considered these three substantial questions of lawby judgment dated 18.01.2019 and the substantial questions oflaw were decided against the Revenue. 11.Furthermore, with regard to the third substantialquestion of law, with regard to whether the Tribunal is correctin holding that the provisions of Section 115JB of the Act whichenables the companies to compute book profit may not beapplicable to insurance companies, this Court had an occasion toconsider the same question in the case of The Commissioner ofIncome Tax vs. M/s.Cholamandalam MS General Insurance CompanyLimited T.C.A.Nos.93 to 100 of 2019 dated 28.01.2019 and thesame was rejected and held against the Revenue. 12.Thus, following the above decisions, substantialquestions of law 2, 3 and 4 are decided against the Revenue. 13.In the result, the appeals are dismissed and thesubstantial questions of law are answered against the Revenue.No costs. Consequently, connected miscellaneous petitions areclosed. -s/d- Assistant Registrar(CCC) True Copy Sub-Assistant Registrar abrTo1.The Deputy Commissioner of Income-tax, Large Taxpayer Unit, Chennai. 2.The Commissioner of Income Tax (Appeals), Large Taxpayer Unit, II Floor, 1775, Jawaharlal Nehru Inner Ring Road, Anna Nagar Western Extension, Chennai-600 101. https://hcservices.ecourts.gov.in/hcservices/ 3.The Income Tax Appellate Tribunal 'A' Bench, Chennai. 4.The Additional Commissioner of Income TaxLTU, ChennaiLTU, Chennai 5.The Joint Commissioner of Income TaxCompany Range III, Chennai 34.Company Range III, Chennai 34. 6.The Assistant Commissioner of Income TaxCompany Circle III(3) ChennaiCompany Circle III(3) Chennai 7.The Commissioner of Income TaxChennaiChennai +9 Ccs to Mr. M. Swaminathan, Advocate sr 48438. -s/d- Assistant Registrar(CCC) True Copy Sub-Assistant Registrar abrTo1.The Deputy Commissioner of Income-tax, Large Taxpayer Unit, Chennai. 2.The Commissioner of Income Tax (Appeals), Large Taxpayer Unit, II Floor, 1775, Jawaharlal Nehru Inner Ring Road, Anna Nagar Western Extension, Chennai-600 101. https://hcservices.ecourts.gov.in/hcservices/ 3.The Income Tax Appellate Tribunal 'A' Bench, Chennai. 4.The Additional Commissioner of Income TaxLTU, ChennaiLTU, Chennai 5.The Joint Commissioner of Income TaxCompany Range III, Chennai 34.Company Range III, Chennai 34. 6.The Assistant Commissioner of Income TaxCompany Circle III(3) ChennaiCompany Circle III(3) Chennai 7.The Commissioner of Income TaxChennaiChennai +9 Ccs to Mr. M. Swaminathan, Advocate sr 48438. Tax Case Appeal Nos.323, 324, 328, 330,333, 336, 329, 332, 335, 337, 331, 326,334, 338, 340, 343, 341, 344 and 345 of 2019 SAI(CO)SP(15/10/2019)