BAJAJ ALLIANZ GENERAL INSURANCE COMPANY LTD.,,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,,

The CIT(A) upheld the order of Assessing Officer holding that the amount was covered under „cess‟ and there was no provisions in the Act to exclude such case from the ambit of the provisions of section 43B of the Act. He further held that the assessee could claim the same in the year of payment.

The assessee is in appeal against the order of CIT(A).

The Ld.AR for the assessee pointed that the assessee was a collecting agency on behalf of the Government of India and the amount was to be handed over to the Government of India. Our attention was drawn to the PLI Act, 1999 and it was pointed out that as per section 23 of the said Act, Government was to formulate the rules for the manner in which and the period within which the amount received was to be remitted by the insurer to the Government of India. These rules were prescribed in December 2008 and the assessee made the payment on 02.01.2009. Our attention was drawn to section 4(1) and 4(2C) of the said Act. He also made a reference to the provisions of section 7 and pointed out that from assessment year 2002-03 onwards the assessee had

The Ld. AR also invited our attention to the definition of „cess‟ as held by the Hon‟ble Supreme Court in the case of M/s Guruswamy & Co. Etc. Vs. State of Mysore & Ors. AIR 67 SC 1512. The Ld. AR also placed reliance on the following decisions:-

The Ld.DR for the Revenue pointed out that the assessee had collected the fund and he was taking advantage of the said fund and was even earning interest on the fund. The Ld.DR for the Revenue also pointed out that in the financial years 2001-2002 and 2003-2004 the assessee suo motu had made the aforesaid disallowance. Addressing the contention of ld. AR of the assessee that it was collecting agency; hence, where it was statutory liability, it had to be deposited before filing the income tax return and since the assessee had failed to do so, the provisions of section 43B of the Act are to be applied. The Ld. DR for the Revenue further pointed out that where the fund was established later, then the assessee can claim the deduction under section 43B of the Act on the date of payment. He stressed that the cases relied upon by the assessee are not relevant to the issue. He also pointed out that in case no rules were prescribed, then the assessee could not take advantage of the same. He placed reliance on the following decisions:- i) Om Prakash Agarwal Vs. Giri Raj Kishori & Ors., (1987) 164 ITR 376(SC); ii) CIT Vs. Associated Pigments Ltd. [1993] 71 TAXMAN 244 (Cal.)

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,

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;

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

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

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 Hon‟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

In the result, the appeal of assessee is allowed.