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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI ANIL CHATURVEDI, AM & SHRI S.S. VISWANETHRA RAVI, JM
आदेश / ORDER PER ANIL CHATURVEDI, AM :
This appeal filed by the assessee is emanating out of the order of Commissioner of Income Tax (A), Pune – 1 dated 14.03.2017 for the assessment year 2008-09.
The relevant facts as culled out from the material on record are as under :-
Assessee is a company engaged in the business of General Insurance. Assessee electronically filed its return of income for A.Y. 2008-09 on 29.09.008 declaring total income at Rs.98,41,65,289/-.
Subsequently, assessee revised the return of income wherein the income was declared at Rs.98,74,32,790/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order dated 29.10.2012 and the total income was determined at Rs.1,75,00,85,820/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A) who vide order dated 14.03.2017 (in appeal No.CIT(A), Pune – 1/10725/2016-17) dismissed the appeal of the assessee. Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us and has raised the following effective ground :
“Ground No.1 : Disallowance of Contribution to Environment Relief Fund Liability of Rs.74,03,321/-
The learned CIT(A) erred in upholding the action of the Assessing Officer (‘AO’) in disallowing the contribution towards Environment Relief Fund of Rs.74,03,321/- under provisions of Section 43B of the Act.”
2. During the course of assessment proceedings, it was noticed that assessee had collected amount on account of Environment Relief Fund which was added back u/s 43B of the Act in the original return of income. But during the course of assessment proceedings, assessee filed revised computation and the amount was claimed as deduction on the ground that the amount was collected as per the Public Liability Insurance Interest Act, 1991 and it could not be disallowed u/s 43B of the Act. The submissions of the assessee were not found acceptable to the AO and he accordingly upheld the amount disallowed u/s 43B of the Act. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who upheld the order of AO by observing as under :
“6. I have carefully considered the facts of the case as well as reply of the appellant. In this case, the appellant had collected Rs.74,03,321/- being liability towards Environmental Relief Fund. The amount was is allowed u/s 438 of the IT Act. 1961 by the appellant itself in the original Return of income. However, in the revised computation of income, the amount was claimed on the ground that there was no mechanism to pay the amount. The main plank of the argument of the appellant is that the above amount was collected under Public Liability Insurance Act 1991. As per sec. 23 of the PLI Act, Central Govt. was required to formulate Rules for the manner in which and the period within which the amount received was required to be remitted by the insurer u/s 4(2D) of the PLI Act. The manner in which the contribution so collected is required to be remitted was prescribed in December, 2008 and the appellant made the payment of accumulated balance on 2/01/2009. Till then the amount in question was shown as current liability. Considering the above provision it can well be seen that there was impossibility of paying the amount as no mechanism for the same was put in place. The appellant claims that the amount in question will not come under sec. 438 of the IT Act, 1961. However, in my view the amount is covered under "cess” for the purpose enumerated in the relevant Act. However, there is no provision in the Act to exclude such cases from ambit of the provisions sec. 43B of the IT Act, 1961. The appellant can claim the same in the year of payment. The appellant also admitted that such claim was rejected by DRP in the A.Y. 2008-09. Accordingly, I do not find any merit in the ground and the same is dismissed.
As a part of the ground, the appellant also craves leave to alter, amend, delete or add to any of the above grounds of appeal. Since, no such action has been taken up in this regard, the same is dismissed.
Aggrieved by the order of Ld.CIT(A), assessee is now before us
Before us, at the outset, Ld.A.R. submitted that identical issue arose before the Tribunal in assessee’s own case for A.Y. 2006-07 in order dated 21.01.2019 and submitted that the Co-ordinate Bench of the Tribunal while deciding the issue in favour of the assessee has held that the amount cannot be added u/s 43B of the Act and there is no question of applicability. He pointed to the relevant findings and observations of the Tribunal and thereafter submitted that since the facts in the year under consideration are similar to the facts of assessee’s own case in A.Y. 2006-07 in ITA No.1653/PUN/2015 (supra) and following the order of Co-ordinate Bench of the Tribunal in A.Y. 2006-07(supra), the issue of disallowance u/s 43B of the Act should be decided in assessee’s favour. Ld. D.R. on the other hand, supported the order of AO.
We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to disallowance u/s 43B of the Act. We find that identical issue arose in assessee’s own case for A.Y. 2006-07 before the Tribunal. The Tribunal vide order dated 21.01.2019 in (supra) held that no disallowance of amount can be made u/s 43B of the Act. The relevant findings of the Tribunal read as under :
“10. We have heard the rival contentions and perused the record. The assessee was a joint venture between Bajaj Allianz General Insurance Company Limited, India and Allianz SE, Germany, incorporated on 31.03.2007. The assessee received the registration certificate and approval on 02.05.2001 from Insurance Regulatory and Development Authority (IRDA) to carry on general insurance business in India. The assessee was engaged in Fire Marine, Motor and Miscellaneous (Workmen Compensation Employers Liability, Public Product Liability, Engineering, Aviation, Health, Personal Accident, etc. insurance business. For the year under consideration, the assessee had in the return of income suo motu made a disallowance of ₹ 70,31,561/- relating to contribution to the Environment Fund Liability under section 43B of the Act. However, during the course of assessment proceedings, the assessee filed revised computation of income and claimed the said amount as deductible. The plea of the assessee was that the Environment Relief Fund Liability is a contribution collected under Public Liability Fund Act, 1999 equivalent to the amount of premium on public liability policies issued and disclosed under the head „Current Liabilities‟. The amount collected towards contribution to Environment Relief Fund was to be remitted in a manner as prescribed by the Central Government. However, the Government had not notified the manner of remitting the funds so collected till December, 2008. Accordingly, the entire liability towards the contribution received towards Environment Fund Liability remained unpaid as on 31st March, 2006. The issue which arises before us is that the contribution so collected by the assessee which had to be remitted to the fund created under Public Liability Fund Act, in the absence of any such fund being created till the due date of filing of the return of income and, hence, not being contributed, whether can be added as income of the assessee under section 43B of the Act?
The relevant provisions of the Public Liability Fund Act, 1991 are as under:-
“4(1) Every owner shall take out, before he starts handling any hazardous substance, one or more insurance policies providing for contracts of insurance thereby he is insured against liability to give relief under sub-section (1) of section 3;. xxxxxx
4(2C) Every owner shall also, together with the amount of premium, pay to the insurer, for being credited to the Relief Fund established under section 7A, such further amount, not exceeding the amount of premium, as may be prescribed.;”
The case of the assessee before us is that the amounts collected towards ERF were specifically identified in the policy schedule issued by it. The assessee collects the said amount from the owner (insured) of the insurance policy but it was acting only as a channel between proposed insured and the Government. The liability to contribute to the said fund arises when the owner (insured) pays the additional remuneration to the insurer. As per clause 4(2D) of PLI Act, the liability of insurer was to remit the amount received from the owner under sub- section (2C) to the Relief Fund, in such manner and within such period as may be prescribed; and where the insurer fails to so remit the amount, such amount shall be recoverable from insurer as arrears of land revenue or of public demand. In other words, the liability of assessee (insurer) is to deposit the said sum collected from the owner (insured), to the relief fund. However, the manner to deposit and the period within which the same is to be deposited, is to be prescribed by the Government of India. The assessee though collects the amount from the owner (insured) but it is not the income of the assessee. The assessee at best is a conduit for depositing the amount to the relief fund on behalf of the owner (insured). In such circumstances, the collection of the contribution to ERF account cannot be regarded as income of the assessee. At best it is governed by the principle of diversion of Income by overriding title. In this regard, we find support from the ratio laid down by the Hon‟ble Supreme Court in the case of Siddheshwar Sahakari Sakhar Karkhana Limited, 270 ITR 1(SC), wherein it has been laid down that in case the assessee acted as an agent in collecting the amounts and remitting the same to the Government and trustees, then the money collected by the assessee was not reaching the assessee as part of its income, but the collection was made “for and on behalf of the person to whom it is payable”. We further find support from the decision of Hon‟ble Supreme Court in the case of New Horizon Sugar Mills (P) Ltd. [2004] 141 Taxman 254 (SC) and the decision of Hon‟ble Bombay High Court in the case of Somaiya Orgeno-Chemicals Ltd. [1994] 74 Taxman 206 (Bombay) for the aforesaid proposition. In such circumstances, where the assessee has collected the contribution to the ERF from the owner (insured) then he is only acting as a custodian of the said fund and the said amount cannot be regarded as income of the assessee. In case the amount is not the receipt of the assessee, not routed through Profit and Loss Account, then there is no question of applicability of provisions of section 43B of the Act.
Another aspect which needs to be kept in mind is the absence of a mechanism of making contribution to ERF; though under the Act, the assessee has collected the amount from the owner (insured), but in the absence of the fund being created, the assessee was handicapped in transferring the amount so collected to the fund. The manner of remittance was prescribed in December 2008 and the assessee has paid the accumulated balance on 2.9.2009. In the absence of the creation of fund, the assessee had no means of depositing the said amount and the assessee in such circumstances cannot be held responsible for non- depositing the contribution to ERF. In any case, we have already held in the above paras that the assessee was only the collector of funds of the amount which was to be deposited on behalf of the owner (insured), when the mechanism was provided for such deposit.
Before parting, we may also point out that there is no merit in the order of CIT(A) in holding the said payment to be in the nature of cess. The Ho’ble Supreme Court in the case of M/s Guruswamy & Co. Etc. (supra) has decided the said issue at para 21 of its judgment and has held that the word “cess‟ means tax and generally used when the levy is for such specifically administrative expenses which the name indicates i.e. health cess, education cess, road cess, etc. The said levy (i.e. cess) is an additional levy with tax and is within the powers of State Legislature to levy the same. Applying the said principle to the facts of the case, where the levy is prescribed under the PLI Act, cannot be said to be a State levy of “cess”. Thus, we find no merit in the order of the CIT(A) in this regard. Allowing the claim of the assessee, we hold
that the fund collected by the assessee was neither fee, tax or cess and, hence, do not come within the ambit of section 43B of the Act.
The last point for the adjudication is the special manner of determination of income of the insurance companies as prescribed under rule 5 of Schedule 1 of the Act. The Profit and Loss Account disclosed by the assessee i.e. its annual accounts are sacrosanct. The said rule provides that the income to be determined is subject to clause 8 i.e. if any expenditure is debited to the Profit and Loss Account, then the same can be added back. As pointed out in the paras above, the assessee had not debited the aforesaid amount to the Profit and Loss Account, but shown as Current Liabilities and consequently, the same cannot be added back to the profits of the business for the year of Insurance 10 Bajaj Allianz General Insurance Co. Ltd. Business. Accordingly, the disallowance made by the Assessing Officer of ₹ 70,31,561/- is hereby deleted. The ground of appeal raised by assessee is thus, allowed.
In the result, the appeal of assessee is allowed.”
Before us, no material has been placed by Revenue to demonstrate that the order of Tribunal in assessee’s own case for A.Y. 2006-07 (supra) has been set aside / stayed by higher Judicial Forum. Revenue has also not pointed out any distinguishing feature in the facts of the present case and in the case of assessee’s own case in A.Y. 2006-07. We therefore, relying on the decision of the Tribunal in assessee’s own case in A.Y. 2006-07 (supra) and for similar reasons hold that the disallowance made by the AO of Rs.74,03,321/- u/s 43B of the Act is uncalled for and therefore direct its deletion. Thus, the ground of the assessee is allowed.
In the result, the appeal of assessee is allowed.
Order pronounced on 21st day of January, 2020.