Page 7 - Insurance Times December 2018

SBI to sell 4% stake in Premium paid to foreign re-insurers before 2014 'in not

general insurance arm business expenditure'- Income Tax Appellate Tribunal
State Bank of India approved the The re-insurance premium paid to for- lowed re-insurance premium paid by
sale of 4 per eign re-insurers before amendments the assessee to non-resident re-insur-
cent stake in to the Insurance Act in ance companies.
SBI General In- 2014 by an Indian in- The Tribunal said the
surance for surer cannot be consid- Assessing Officer had
Rs.482 crore to ered as business expen- rightly disallowed the
two alternative investment funds diture, the Chennai re-insurance premium
(AIFs). Bench of the Income under Section 40(a)(i)
Tax Appellate Tribunal
The executive committee of SBI ap- of the Act, and had
proved the sale of 86.2 lakh shares has ruled. said the Commissioner of Income Tax
of Rs.10 each, equalling to 4 per cent The recent ruling could have a signifi- (Appeals) is not justified in restricting
stake in its subsidiary SBI General In- cant impact on insurers' tax liability. the claim of the assessee to 15 per
surance Company Ltd (SBI GI), for "Section 2C read with Section 2(9)(c) cent without any reason.
Rs.482 crore (around $66 million), of Insurance Act, 1938, prohibits any Tax experts said the ruling could have
SBI said. person from doing insurance or re-in- a significant impact on the tax liability

Axis New Opportunities AIF-I and PI surance business in India otherwise of insurers before the amendments to
Opportunities Fund-I, an AIF of permitted under Insurance Act, 1938," the Insurance Act in 2014.
Premji Invest, will purchase 1.65 per the ITAT noted. "This judgment is far-reaching inas-
cent and 2.35 per cent stake, respec- "Therefore, there is a clear prohibition much as it de-recognises the reinsur-
tively, from SBI. for payment of re-insurance premium ance premium paid to foreign insurers
The proposed transaction values SBI to non-resident re-insurance compa- before the amendment to the Insur-
GI at over Rs.12,000 crore. The deal nies," it said. Accordingly, such pay- ance Act in 2014 which is in violation
is subject to regulatory approvals, ments cannot be considered as busi- of the Insurance Act and not admis-
said SBI. ness expenditure under Section 37 of sible as business expenditure under
the Income Tax Act, 1961, it said. Section of 37 of IT Act," said an expert,
After completion of the transaction,
The section, which provides for all who did not wish to be identified.
SBI will hold 70 per cent stake in SBI
kinds of business expenditure not in-
GI, while its joint venture partner "It has held that if the provisions un-
IAG International Pty Ltd will con- cluded in Sections 30 to 36, states that der the Insurance Act do not cover a
tinue to hold 26 per cent. a deduction or allowance will not be non-resident insurance company as an
given for any expenditure prohibited insurer, the entire deduction of pre-
"Insurance segment is still young by law.
and nascent in India, it is an under- mium will not be available as a busi-
penetrated market, we foresee a sig- The tribunal further held that ness expenditure being in violation of
assessees have to deduct tax on the law," they added.
nificant scope of growth for SBI GI to
premium paid to non-resident re-in-
achieve size, scale and profitability," Withholding tax provision
surance company for re-insurance.
said SBI Chairman Rajnish Kumar. "It has also held that where the non-
The ruling came in the case of
SBI General Managing Director & resident insurer is considered having
Chief Executive Officer Pushan Cholamandalam MS General Insurance business operations with India, appro-
Company against the Income Tax de-
Mahapatra said the company is the priate withholding tax should conse-
partment for Assessment Years 2003-
fastest-growing general insurer in quently apply, in the absence of which
04 to 2009-10.
the private sector. "The company is the deduction is to be disallowed,"
in just 7th year into operations and The Revenue Department had disal- they noted.
has already achieved sizeable scale,
making it the seventh-largest private
general insurance player as at the
end of June 2018," Mahapatra said.

The Insurance Times, December 2018 7