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Commissioner of Income-tax Vs. United India Fire and General Insurance Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 467 of 1975
Judge
Reported in[1986]161ITR295(Cal)
ActsIncome Tax Act, 1961 - Section 80M
AppellantCommissioner of Income-tax
RespondentUnited India Fire and General Insurance Co. Ltd.
Appellant AdvocateD. Pal and ;Seal, Advs.
Respondent AdvocateA.C. Moitra and ;Sunil Mukherji, Advs.
Cases ReferredAggarwal Chamber of Commerce Ltd. v. Ganpat Rai Hira Lal
Excerpt:
- .....under the terms of treaty agreement dated june 8, 1965, was an admissible deduction from the assessee's income ? 2. whether, on the facts and in the circumstances of the case, the tribunal was right in holding that the assessee is entitled to relief under section 80m of the income-tax act, 1961, on the gross amount of dividend received by it without any reduction of the proportionate expenses of the business ?' 2. question no. 2 is covered by a series of decisions of this court including that in income-tax reference no. 347 of 1980 intituled calcutta discount & co. ltd. v. cit : [1986]161itr301(cal) . following the said decisions, we answer the question in the affirmative and in favour of the revenue.3. the above answer is given on the basis of the finance (no. 2) act of 1980 by.....
Judgment:

Dipak Kumar Sen, J.

1. On an application of the Revenue under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following questions, as questions of law arising out of its order, for the opinion of this court :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 26,426 paid by the assessee to the South British Group of Companies under the terms of treaty agreement dated June 8, 1965, was an admissible deduction from the assessee's income ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to relief under Section 80M of the Income-tax Act, 1961, on the gross amount of dividend received by it without any reduction of the proportionate expenses of the business ?'

2. Question No. 2 is covered by a series of decisions of this court including that in Income-tax Reference No. 347 of 1980 intituled Calcutta Discount & Co. Ltd. v. CIT : [1986]161ITR301(Cal) . Following the said decisions, we answer the question in the affirmative and in favour of the Revenue.

3. The above answer is given on the basis of the Finance (No. 2) Act of 1980 by which a new Section 80AA was incorporated in the Income-tax Act, 1961, with retrospective effect. We note that the said amendment is under challenge before the Supreme Court in Distributors Baroda (Pvt). Ltd. v. Union of India : [1985]155ITR120(SC) . We direct the Tribunal to consider the decision of the Supreme Court, if any, while disposing of the case under Section 260 of the Income-tax Act, 1961.

4. The facts on record relevant to question No. 1 as found or admitted are, inter alia, that the United India Fire & General Insurance Co. Ltd. (Unit Concord), the assessee, is the successor-in-interest of the Concord of India Insurance Co. Ltd. The assessee and its predecessors-in-interest have been carrying on business in general insurance in India.

5. In the assessment year 1970-71, the relevant accounting year ending on December 31, 1969, the assessee acted as reinsurers for the South British Group of Insurance Companies (hereinafter referred to as 'the Group'), who are non-resident foreign companies, under an agreemententered into by and between the Group and the predecessor-in-interest of the assessee in 1969.

6. The contract called a Treaty agreement provided, inter alia, as follows :

'The reinsurer shall reimburse the South British its proportionate share of any income-tax, stamp duty, licence fee and/or any Government or municipal tax or charge and/or any fire brigade or salvage crops charges or contributions levied on the South British in respect of reinsurance ceded under this agreement which are not recoverable from the insured.

7. In the assessment year involved, the assessee paid Rs. 26,426 by way of reimbursement to the Group on account of United Kingdom and Dominion taxes levied on the fire, accident and miscellaneous insurance revenue of the Group in India. By mistake, the said amount was added to the income of the assessee in the latter's return of income-tax. By a letter dated January 30, 1973, the assessee submitted before the Income-tax Officer that the said amount wrongly added to its income was allowable as a deduction from its total income. The Income-tax Officer, while accepting that the said amount represented Federal income-tax, disallowed the assessee's claim.

8. On an appeal by the assessee, the Appellate Assistant Commissioner accepted the finding of the Income-tax Officer that the amount represented tax on gross premium ceded by the Group. He also held that the said amount represented taxes payable by the Group on behalf of the assessee and was recoverable by the latter from the assessee under the contract and, as such, the assessee was entitled to claim deduction of the same.

9. The Revenue preferred an appeal from the order of the Appellate Assistant Commissioner to the Income-tax Appellate Tribunal. The Tribunal found, inter alia, that :

(a) The Group was liable to pay the foreign tax for the business carried on by them in India ;

(b) The assessee acted as a reinsurer of the Group;

(c) Under the Treaty Agreement, the assessee had agreed and was liable to pay or reimburse the Group its proportionate share of the Federal taxes to be levied on the Group in respect of reinsurances ceded under the agreement.

10. It was not disputed by the Revenue before the Tribunal that there was a contractual obligation on the assessee to pay the proportionate share of taxes to be levied on the Group in respect of reinsurances cededunder the agreement. On the basis of the aforesaid, the Tribunal rejected the appeal.

11. Learned advocate for the Revenue contended before us that the said amount of Rs. 26,462 was required to be treated as income of the Group arising in India and it was the statutory duty of the assessee to deduct the Indian income-tax payable on the said amount. The assessee not having done so, was not entitled to claim deduction of the same. He also argued, though faintly, that the foreign tax having been levied on the taxable profit, no further deduction was allowable.

12. Learned advocate for the Revenue cited in support of his contentions Aggarwal Chamber of Commerce Ltd. v. Ganpat Rai Hira Lal : [1958]33ITR245(SC) , for the proposition laid down by the Supreme Court that persons bound under the Indian Income-tax Act, 1922, to make deduction of income-tax at the time of making payment of any income, profits or gains, are not concerned with the ultimate result of the assessment of the person to whom the payment is made.

13. He next cited CIT v. Abdullabhai Abdulkadar : [1961]41ITR545(SC) . Here, the assessee paid tax levied on its non-resident principal and being unable to recover the amount from the latter, claimed deductions of the amount as a bad debt or as a trading loss. The Supreme Court held that the loss to the assessee did not arise in respect of its business and that the amount paid as tax on behalf of the non-resident principal was also not a trading debt incidental to the business of the assessee. If at all, the loss would be a capital loss.

14. Next cited was Indian Aluminium Co. Ltd. v. CIT : [1971]79ITR514(SC) . Here, the assessee in consideration of receipt of technical know-how and engineering services paid a retainer's fee to a non-resident under an agreement without deducting any income-tax. The agreement did not provide that the fee would be payable without deduction of Indian income-tax. Income-tax levied on such fee was realised from the assessee and the non-resident refused to reimburse the amount. The assessee wrote off the amount during the relevant accounting year and claimed deduction of the same as a bad debt or as business expenditure.

15. On these facts, it was held by the Supreme Court that the amount which the assessee had failed to recover from the non-resident could not be regarded as a bad debt under Section 10(2) of the Indian Income-tax Act, 1922, inasmuch as the assessee was bound to deduct the said amount from the amount payable. It was further held that the payment was made by the assessee under a statutory obligation and the same would not constitute expenditure for the purpose of the assessee's business, as the assessee was in default.

16. In Jaipuria Samla Amalgamated Collieries Ltd. v. CIT : [1971]82ITR580(SC) , the assessee in its business of raising and selling coal paid Road and Public Works Cess and Education Cess under two Cess Acts. The cess was levied on the annual net profits of the assessee which had to be calculated in a particular manner. The question arose whether the cess had been levied on the assessee on profits within the meaning of Section 10(4) of the Indian Income-tax Act, 1922.

17. It was held by the Supreme Court that in the context, the words 'profits and gains of any business' could have reference only to the profits and gains as determined under Section 10 of the Indian Income-tax Act and did not refer to profits and gains arrived at or determined in a manner other than that provided by the said section. It was also held that Section 10(4) of the Indian Income-tax Act, 1922, would exclude only a tax or cess or rate, the assessment of which would follow the determination or assessment of profits or gains of any business in accordance with the provisions of Section 10 of the Act of 1922.

18. The amounts paid as cess were held to be allowable as a deduction.

19. In CIT v. Lakshmi Lines Ltd. : [1976]102ITR196(Ker) , a Division Bench of the Kerala High Court held that interest payable by an assessee in India to a non-resident was income under Section 9(1)(i) of the Income-tax Act, 1961, and was chargeable. As the assessee had not deducted or paid tax on it under Section 195, the interest paid was not deductible under Section 37(1) of the Act.

20. In this reference, the findings of fact by the Tribunal have not been challenged as perverse and without evidence.

21. At every stage in the proceeding below from the Income-tax Officer right up to the Tribunal, it was accepted that the amount in dispute represented tax on premium of business ceded by the Group to the assessee who acted as a reinsurer of the Group. The Appellate Assistant Commissioner also found that the tax was levied on gross premiums. Under the Treaty Agreement, the assessee was liable to reimburse to the Group the share of the federal tax to be levied in respect of such ceded reinsurance. At no stage, it was the case of the Revenue that the amount reimbursed by the assessee was income accruing to the Group in this country and the assessee was never called upon to pay the tax on the said amount.

22. In view of the aforesaid facts, the argument advanced by the learned advocate for the Revenue appears to us to be almost one of desperation and none of the decisions cited on behalf of the Revenue has any application to the facts before us. The points involved in the said decisions were at no time mooted, considered or even referred to earlier in the proceedings below.

23. For the reasons given above, we are unable to accept the contention of the Revenue and we answer question No. 1 in the affirmative and in favour of the assessee. There will be no order as to costs.

G.N. Ray, J.

24. I agree.


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