Tca/41/2019 Of Commissioner Of Income Tax v. M/S.royal Sundaram Alliance Insurance Co Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MR.JUSTICE N.SATHISH KUMAR C.M.P.Nos.642, 644, 646, 647, 652, 656, 658, 661, 663, 665, 675 and 684 of 2019 Commissioner of Income Tax,Larger Taxpayer Unit,Chennai.... Appellantin all the Appeals-vs- M/s.Royal Sundaram AllianceInsurance Company Limited,"Sundaram Towers",45 & 46 Whites Road, Chennai - 600 002.PAN: AABCR 7106G... Respondentin all the Appeals COMMON PRAYER: Tax Case (Appeals) filed under Section 260-A ofthe Income Tax Act, 1961 against the order of the Income-taxAppellate Tribunal, “A” Bench, Chennai, dated 06.08.2018, passedinI.T.A.No.1666/Chny/2011,I.T.A.No.2310/Chny/2014,I.T.A.No.1668/Chny/2011,I.T.A.No.1669/Chny/2011,I.T.A.No.1629/Chny/2011,I.T.A.No.1626/Chny/2011,I.T.A.No.1628/Chny/2011,I.T.A.No.1630/Chny/2011,I.T.A.No.1670/Chny/2011,I.T.A.No.1356/Chny/2013I.T.A.No.1367/Chny/2013 and I.T.A.No.2371/Chny/2014 for theassessment years 2005-2006 to 2010-2011. against the Order of the Commissioner of Income Tax(Appeals), Large Tax payer (Unit) II nd Floor, 1775, JawaharlarNehru, Inner Ring Road, Anna Nagar western estm, Chennai-101PAN.No. AABCR 7106G Dated 29/07/2011, 26/03/2013, 26/06/2014 ITA.No. 46/09/-10, (LTU) (A), ITA.No. 47/9-10 (LTU) (A), ITA.No. 57/10-11 (LTU) (A),ITA.No. 57/08-09 (LTU) (A),ITA.No. 105/11-12/LTU(A), ITA.No. 19/12-13 /LTU (A), for the Assessment Years 2005-06, 2006-07, 2007-08, 2008-09,2009-10, 2010-11, and against the Deputy Commissioner of IncomeTax, Large Taxpayer unit , Chennai dated 10/12/2009, 14/12/2009,24/12/2010, 27/12/2011, 31/12/2012, circle ward DCIT (LTU)Chennai, PAN.No. AABCR T106G, for the Assessment Year 2006-07,2007-08, 2008-09, 2009-10, and against Additional Commissionerof Income Tax, Large Tax payer Unit, Chennai PAN.No. AABCR7106GAdditional LIT(LTU) Chennai, for the Assessment Year 2010-11 andagainst the Assistant commissioner of Income Tax Large Tax payerunit Chennai dated 26/02/2018, G.I.P.A.No. AABCRT106G Circleward ACIT/LTU (Chennai ) for the Assessment Year 2005-06. For Appellantin all the appeals:Ms.V.PushpaSenior Standing Counselfor Mr.M.SwaminathanSenior Standing CounselFor Respondentin all the appeals:Mr.Sandeep BagmarCOMMON JUDGMENT(Common Judgment was delivered by T.S.Sivagnanam, J.) These appeals filed by the revenue under Section 260A ofthe Income Tax Act, 1961 (hereinafter referred to as "the Act"),are directed against the orders of the Income-tax AppellateTribunal, “A” Bench, Chennai, dated 06.08.2018, passed inI.T.A.No.1666/Chny/2011,I.T.A.No.2310/Chny/2014,I.T.A.No.1668/Chny/2011,I.T.A.No.1669/Chny/2011,I.T.A.No.1629/Chny/2011,I.T.A.No.1626/Chny/2011,I.T.A.No.1628/Chny/2011,I.T.A.No.1630/Chny/2011,I.T.A.No.1670/Chny/2011,I.T.A.No.1356/Chny/2013I.T.A.No.1367/Chny/2013andI.T.A.No.2371/Chny/2014 for the assessment years 2005-2006 to2010-2011. 2.We have heard Ms.V.Pushpa, learned Senior StandingCounsel appearing for Mr.M.Swaminathan, learned Senior StandingCounsel for the petitioner/revenue and Mr.Sandeep Bagmar,learned counsel for the respondent/assessee. 3.We propose to dispose of these appeals by a commonjudgment because most of the substantial questions of law arisefor all the assessment years. For the sake of convenience,Ms.V.Pushpa, learned Standing Counsel for the appellant/revenue https://hcservices.ecourts.gov.in/hcservices/ 2.We have heard Ms.V.Pushpa, learned Senior StandingCounsel appearing for Mr.M.Swaminathan, learned Senior StandingCounsel for the petitioner/revenue and Mr.Sandeep Bagmar,learned counsel for the respondent/assessee. 3.We propose to dispose of these appeals by a commonjudgment because most of the substantial questions of law arisefor all the assessment years. For the sake of convenience,Ms.V.Pushpa, learned Standing Counsel for the appellant/revenue https://hcservices.ecourts.gov.in/hcservices/ has provided us a tabulated statement, wherein the issues havebeen specified in brief and the assessment years, case numberallotted by the Tribunal and the tax case appeal numbers havealso been listed. The tabulated statement consists of tickmarks against each of the issues to indicate as to in which ofthe assessment year, the issues arise. For easy reference, wequote the tabulated statement hereinbelow: S.IssuesAY 2005-AY 2006-AY 2007-AY 2008-AY 2009-AY 2010-No060708091011.TCA No.51/141/152/144/149/46/154/158/159/162/143/163/19999199999999ITA No. INITAITAITAITAITAITAITAITAITAITAITAITAITATNo.No.No.No.No.No.No.No.No.No.No.No.162616661628166816291669163016701356136723102371/11/11/11/11/11/11/11/11/13/13/14/14Depreciation ????1on UPSMAT/115JB on????????????Insurance2Companies3Solatium Fund??????????4Commission????????????for receiptofreinsurance5TDS on Survey????????????Fees 4.The revenue filed these appeals by raising the followingsubstantial questions of law:- "1.Whether the Tribunal was justified andcorrect in holding that UPS is the part of computerand entitled for depreciation @ 60%? 2.Whether the Tribunal was justified andcorrect in holding that the provisions of 115JB ofthe Act which enables the companies to compute bookprofit may not be applicable to insurance companies? 3.Whether the Tribunal was right in holdingthat provision made towards contribution to Solatiumfund is not liable to taxation? 4.Whether the Tribunal was right in holdingthat the assessee is not liable to deduct tax atsource towards the commission paid for receipt ofre-insurance premium? 5.Whether the Tribunal was right in holdingthat the assessee is not liable to deduct the tax atsource towards survey fees paid?" 5.For easy reference and convenience, we indicate thesubstantial questions of law in a brief manner as indicated inthe above tabulated statement. 1.Depreciation on UPS: 6.This issue has been decided by us against the revenue inT.C(A).No.23 of 2019 dated 18.01.2019. Following the same, theappeals filed by the revenue on this ground are dismissed andthe above substantial question of law is answered in favour ofthe assessee. 2.MAT/115JB On Insurance Companies: 7.We have perused the order passed by the Commissioner ofIncome Tax (Appeals) (CIT(A)) as well as the Tribunal. Asrightly pointed out by the Tribunal, the Insurance Companiesprepare profit and loss account as per the guidelines issued bythe Insurance Regulatory and Development Authority of India andnot as per Part II and III of Schedule VI of Companies Act.Furthermore, the applicability of Schedule VI of the CompaniesAct was specifically excluded in respect of Insurance Companies.The revenue has not been able to dislodge this finding before usin these appeals. We find that the conclusion arrived at by theTribunal in this regard is proper and valid. Accordingly, theappeals filed by the revenue on this ground are dismissed andconsequently, the above substantial question of law is answeredin favour of the assessee. 3.Solatium Fund: 3.Solatium Fund: 8.The revenue is on appeal before us contending that thesolatium fund has been estimated in a routine manner and thisamount is an unascertained liability and therefore, liable to bedisallowed while computing book profit under Section 115JB ofthe Act. We have perused the finding recorded by the Tribunalin this regard and we find that the contribution of 0.1% ofgross premium from motor vehicle insurance is done as per thedirections given by the Government of India and this amount hasbeen paid by the assessee as per the decision taken by theGeneral Insurance Council in the meeting held on 04.02.2005. Therefore, we find that the Tribunal was fully right inrejecting the case of the revenue stating that the estimationwas done in a routine manner and it is an unascertainedliability. The decision of the High Court of Bombay in the caseof Commissioner of Income Tax-I, Pune vs. Bajaj Allianz GeneralInsurance Co. Ltd. reported in [2016] 76 taxmann.com 308(Bombay) also supports the case of the assessee. 9.At this juncture, we may refer to the operative portion ofthe said judgment, which reads as follows:"6.The only grievance urged on behalf of theRevenue before us is that the payment was made tothe Solatium fund only in September 2005 at 0.1%.Therefore, during the subject Assessment Year, theprovision could not be allowed as an expenditure asit was a contingent liability. 7.We note that the impugned order of theTribunal has after elaborate discussion come to theconclusion that in facts of this case, the orderpassed by the Assessing Officer dated 24thDecember 2008, cannot be said to be erroneous inlaw. The provision made for contribution to theSolatium fund during the subject Assessment Yearwere as per the scheme introduced by the CentralGovernment and as directed by IRDA. This provisionwas to be made at the rate of 1% of the premiumreceived during the subject Assessment Year as donein the earlier Assessment Year also. This was toprovide for contribution to a fund to be formed tomake payment to victims of hit and run accident.The Apex Court in Bharat Earth Movers Ltd. vs. CIT[2000] 245 ITR 428/112 Taxman 61 has observed asunder:- "The law is settled: if a business liabilityhas definitely arises in the accounting year, thededuction should be allowed although the liabilitymay have to be quantified and discharged at afurther date. What should be certain is theincurring of the liability. It should also becapable of being estimated with reasonable certaintythough the actual quantification may not bepossible. If these requirements are satisfied, theliability is not a contingent one." In this case, the liability of making acontribution to the Solatium fund at 1% of premiumreceived, is a certain liability in view of IRDAletter dated 13th May, 2004. Therefore, it is not acontingent liability during the subject AssessmentYear. In fact, this Court in Shrikant Textiles v.CIT [1971] 81 ITR 222 (Bom.) has held that whether a liability is ascertained or contingent for a subjectAssessment Year, cannot be decided/determined on thebasis of the amounts paid in the subsequent/nextAssessment Year.8.Therefore, in the above view, the question asframed does not give rise to any substantialquestion of law. Thus not entertained." 10.We are in agreement with the decision in the case ofBajaj Allianz General Insurance Co. Ltd.(supra). For the abovereasons, no grounds have been made out by the revenue tointerfere with the finding recorded by the Tribunal in thisregard. Accordingly, the appeals filed by the revenue on thisground are dismissed and consequently, the above substantialquestion of law is answered against the revenue. 4.Commission for receipt of reinsurance: liability is ascertained or contingent for a subjectAssessment Year, cannot be decided/determined on thebasis of the amounts paid in the subsequent/nextAssessment Year.8.Therefore, in the above view, the question asframed does not give rise to any substantialquestion of law. Thus not entertained." 10.We are in agreement with the decision in the case ofBajaj Allianz General Insurance Co. Ltd.(supra). For the abovereasons, no grounds have been made out by the revenue tointerfere with the finding recorded by the Tribunal in thisregard. Accordingly, the appeals filed by the revenue on thisground are dismissed and consequently, the above substantialquestion of law is answered against the revenue. 4.Commission for receipt of reinsurance: 11.The assessee had succeeded on this issue before the CIT(A) and the finding has been affirmed by the Tribunal. The CIT(A) took note of the decision taken in the assessee's own casefor the assessment year 2009-2010 in which the assessment forthe year 2008-2009 was followed and the assessee succeededbefore the CIT(A) for the assessment year 2008-2009, wherein theCIT(A) noted that as a matter of industrial practice it wastermed as "commission on reinsurance premium received", however,in substance it is discount on re-insurance premium received byan Insurance Company from an other Insurance Company. We findthat the Tribunal rightly decided the issue in favour of theassessee and the revenue has not brought out any ground tointerfere with the said finding. Accordingly, the appeals filedby the revenue on this ground are dismissed and consequently,the substantial question of law is answered against the revenue. 5.TDS on Survey Fees:12.Ms.V.Pushpa, learned Senior Standing Counsel wouldvehemently contend that the fee has been paid for utilizing theexpertise of the surveyor and therefore, tax has to be deductedat source. 13.We have heard Mr.Sandeep Bagmar, learned counsel for theassessee on the said issue. 14.As rightly held by the Tribunal, the surveyor who hasbeen engaged to assess the damage to the goods in transit doesnot have a permanent establishment in India. Furthermore, thesurveyor does not share his knowledge for assessing the damageof goods and this aspect is never made known to the assessee.In fact, the assessee succeeded before the CIT(A) on this issuepertaining to the assessment year 2010-2011. The assessee's https://hcservices.ecourts.gov.in/hcservices/ contention in the said appeal was that M/s.Royal & Sun Alliance,U.K. does not have a permanent establishment in India, thesurvey fee paid for the service rendered in U.K. is not taxablein India as per DTAA. Further, it was contended thatreimbursements do not partake the character of income which ischargeable to tax and therefore do not warrant withholding oftax on the same. The assessee relied on the following decisionsin support of this proposition: 1.CIT v. Siemens Aktiongesellschaft 220 CTR 425 (Bombay) 2.CIT v. Industrial Engineering 202 ITR 1014 (Delhi) https://hcservices.ecourts.gov.in/hcservices/ contention in the said appeal was that M/s.Royal & Sun Alliance,U.K. does not have a permanent establishment in India, thesurvey fee paid for the service rendered in U.K. is not taxablein India as per DTAA. Further, it was contended thatreimbursements do not partake the character of income which ischargeable to tax and therefore do not warrant withholding oftax on the same. The assessee relied on the following decisionsin support of this proposition: 1.CIT v. Siemens Aktiongesellschaft 220 CTR 425 (Bombay) 2.CIT v. Industrial Engineering 202 ITR 1014 (Delhi) 15.The CIT(A) on going through the contentions raised by theassessee pointed out that disallowance under Section 40(a)(i)can be made only if taxes are not withheld on income chargeableto tax in India. On facts, it held that the payment was made toRoyal and Sun Alliance, U.K. to settle the amounts of varioussurveyors on cost to cost basis and the surveyor does not makeavailable any technical knowledge which can independently beapplied by the assessee and consequently, held that the paymentby the assessee would not be taxable as fees for technicalservices in the hands of the recipient. Furthermore, it isnoted that in the absence of permanent establishment, the incomein the hands of the recipient is also not taxable in India. Theabove view taken by the CIT(A) was rightly affirmed by theTribunal and we find that the revenue has not made out anygrounds to interfere with the said finding. Accordingly, theappeals filed by the revenue on this ground are dismissed andconsequently, the above substantial question of law is answeredagainst the revenue. 16.Thus, all the tax case (appeals) are dismissed. Nocosts. Consequently, connected miscellaneous petitions areclosed. Sd/- Assistant Registrar(CS IV)//True Copy// Sub Assistant Registrar cse To 1.The Income-tax Appellate Tribunal, “A” Bench, Chennai. 2.The Commissioner ofIncome Tax (Appeals), Large Tax Payer (Unit) II nd Floor, 1775 Jawharlal Nehru, Inner Ring Road, Anna Nagar, Western Extn, Chennai-101. Large Tax Payer (Unit) II nd Floor, 1775 Jawharlal Nehru, Inner Ring Road, Anna Nagar, Western Extn, Chennai-101. 3.The Deputy Commissioner of Income Tax, Large Payer Unit, Chennai. Large Payer Unit, Chennai. 4.The Additional Commissioner ofIncome Tax, Large Tax Payer Unit, Chennai. Large Tax Payer Unit, Chennai. 5.The Assistant Commissioner of Income Tax Payer Unit, Chennai. Chennai. +6cc to Mr.Sandeep Bagmar,, Advocate, S.R.No.4382, 4383, 4384,4385, 4386, 4388+1cc to Mr.Swaminathan, Advocate, S.R.No.4666T.C(A) Nos.41, 43, 44, 46, 49, 51, 52, 54, 58, 59, 62 and 63 of 2019andC.M.P.Nos.642, 644, 646, 647, 652, 656, 658, 661, 663, 665, 675 and 684 of 2019AD(CO)GN(08/03/2019)