ITAT : Pre-2014 'direct' re-insurance payments to foreign re-insurer violates Insurance Act, disallows deduction

ITAT disallows deduction to Indian Insurance company (assessee) for reinsurance premium paid to non-resident citing non-deduction of TDS, also holds that pre-2014, any re-insurance arrangement involving a direct payment of reinsurance premium to a foreign insurer, is in violation of and contrary to Insurance Act, thus hit by Expl 1 to Sec 37(1); Tribunal gives primacy to opening words of Sec. 101A which read " Every insurer shall re-insure with Indian re-insurers such percentage of the sum assured on each policy...." ; As regards sub-section 7 of Sec 101A that allows an insurer to insure with an Indian insurer or "other insurer" , an amount over and above the percentage prescribed by Insurance regulator IRDA, ITAT firmly rejects the argument that the words "other insurer" could be interpreted to mean a foreign re-insurer; ITAT carefully peruses Sec. 2(9) of Insurance Act, that according to the Tribunal, emphasised two conditions, namely "i) The insurer or reinsurer shall be in India ii) such person shall have standing contract with underwriters who are members of the Society of Lloyd’s...."; ITAT rejects assessee's contention that provision of Sec 2(9) prior to amendment in 2014 was not applicable to assessee, highlights amendment in 2014, that changed the definition of an "Indian insurer" to include a " foreign company engaged in reinsurance business through a branch established in India" post which assessee started deducting TDS on reinsurance premium; ITAT, therefore, holds that "the profit of non-resident reinsurance company or the person in India who has standing contract with underwriters, who are members of the Lloyds, is taxable in India. Hence, the assessee has to necessarily deduct tax on the premium paid to non-resident re-insurance company for reinsurance."; Tribunal further goes on to hold that 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 directly to non-resident re-insurance company, then the transaction of the assessee violates the Insurance Act regulations; Overturns CIT(A) ruling restricting the disallowance to 15% of reinsurance premium, upholds AO's order disallowing the entire amount; Rejects reliance on Apex Court ruling in Vodafone International Holdings, refuses reliance on favourable rulings of Mumbai & Pune benches of the Tribunal since the provisions of Sec. 2(9) of Insurance Act were not brought to the notice of the respective benches; Separately, reverses CIT(A) order deleting disallowance u/s 14A, granting exemption to profit on sale of investment, but accepts assessee’s claim that provision of Sec 115JB are inapplicable to insurance companies:ITAT