insurance 2

INSURANCESUSHIL VERMA

ADVOCATE

TDS is not Tax Quantified.

The lower authorities have proceeded on the fallacy that taxability in the hands of the foreign company and TDS liability of the tax deductor are not one and same thing. It is, however, well settled that tax deduction at source is only one mode of recovery of the taxes due on recipient of that income, but it cannot be equated with final determination of tax liability in the hands of the recipient of such income.

GE India Technology Cen.P.Ltd. vs Commr.Of I.T.& Anr. on 9 September, 2010 (SC) ( Remanded)

Facts in the leading case of Sonata Information Technology Ltd. 3. Appellant(s) are the distributors of imported pre- packaged shrink wrapped standardized software from Microsoft and other Suppliers outside India. During the relevant assessment year(s) appellant(s) made payments to the said software Suppliers which according to the appellant(s) represented the purchase price of the abovementioned software. The ITO(TDS) held that since the sale of software included a license to use the same, payments made by the appellant(s) to the foreign Suppliers constituted royalty, which was deemed to accrue or arise in India. Therefore, TAS was liable to be deducted under Section 195 of the I.T. Act. The said finding of the ITO(TDS) was upheld by the Commissioner (A). In second appeal, the ITAT, however, held that the amount paid by appellant(s) to the foreign software Suppliers was not “royalty”; and the same did not give rise to any income taxable

GE India Technology Cen.P.Ltd. vs Commr.Of I.T.& Anr. on 9 September, 2010 (SC)

• Section 195 imposes a statutory obligation on any person responsible for paying to a non- resident, any interest (not being interest on securities) or any other sum (not being dividend) chargeable under the provisions of the I.T. Act, to deduct izncome tax at the rates in force unless he is liable to pay income tax thereon as an agent. Payment to non-residents by way of royalty and payment for technical services rendered in India are common examples of sums chargeable under the provisions of the I.T. Act to which the aforestated requirement of tax deduction at source applies. The tax so collected and deducted is required to be paid to the credit of Central Government in terms of Section 200 of the I.T. Act read with Rule 30 of the I.T. Rules 1962. Failure to deduct tax or failure to pay tax would also render a person liable to penalty under Section 201 read with Section 221 of the I.T. Act. In addition, he would also be liable under Section 201(1A) to pay simple interest at 12 per cent per annum.


Transmission Corporation of A.P. Ltd. Vs. C.I.T. [239 ITR 587(SC)].

• In Transmission Corporation case (supra) a non- resident had entered into a

composite contract with the resident party making the payments. The said composite contract not only comprised supply of plant, machinery and equipment in India, but also comprised the installation and commissioning of the same in India. It was admitted that the erection and commissioning of plant and machinery in India gave rise to income taxable in India. It was, therefore, clear even to the payer that payments required to be made by him to the non-resident included an element of income which was exigilble to tax in India. The only issue raised in that case was whether TDS was applicable only to pure income payments and not to composite payments which had an element of income embedded or incorporated in them


It was held that TAS was liable to be deducted by the payer on the gross amount if such payment included in it an amount which was exigible to tax in India. It was held that if the payer wanted to deduct TAS not on the gross amount but on the lesser amount, on the footing that only a portion of the payment made represented “income chargeable to tax in India”;, then it was necessary for him to make an application under Section 195(2) of the Act to the ITO(TDS) and obtain his permission for deducting TAS at lesser amount. Thus, it was held by this Court that if the payer had a doubt as to the amount to be deducted as TAS he could approach the ITO(TDS) to compute the amount which was liable to be deducted at source


In our view, Section 195(2) is based on the “principle of proportionality”;. The said sub-Section gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an element of “income”; chargeable to tax in India. It is in this context that the Supreme Court stated, “If no such application is filed, income-tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such `sum' to deduct tax thereon before making payment. He has to discharge the obligation to TDS”

Bombay High CourtOriental Fire & General Insurance ... vs American President Lines Ltd. And ... on 12 February, 1968

The principle insisted upon throughout is that it is entirely foreign to the spirit of contracts of indemnity that a person indemnified should recover his loss more than once; it is, therefore, clear that if he has already recovered from a third party, there can be no liability under the contract of indemnity. On the other hand, if he has not previously recovered from such third party, but has the right to do so, there is no reason why such third party should be allowed to allege that his liability has been satisfied or reduced by a payment made by a stranger to him, under a contract with which he has nothing to do.


The third party remains liable to the person indemnified just as if there had been no contract of indemnity. But the person indemnified can only take the sum recovered from the third party as trustee for the indemnifier and similarly if he has not himself received any sum to which he is entitled, he is bound to afford the latter, i.e., indemnified all facilities for doing so. In practice, the commonest way in which the principle of subrogation is applied to insurance, is for the insurer to pay the claim of the assured, and then to institute proceedings in the name of the latter, but for his own benefit, against the party ultimately liable.

If the insurer recovers more by the exercise of his right of subrogation than what he has paid to the assured, it seems just that the surplus ought to be payable by him to the latter.


• Halsbury in The Laws of England, volume 22, 3rd edition (1958), paragraph 5 & 6, at page 263, states as follows :

"In the absence of a formal assignment of the right of action, the insurers cannot sue the third party in their own names; they must bring the action in the name of the assured. It is his duty, on receiving a proper indemnity against costs, to permit his name to be used in such action."

Supreme Court of IndiaUnited India Insurance Co. Ltd vs M/S. Great Eastern Shipping Co. ... on 16 July, 2007

• Brief facts which are necessary for disposal of this appeal are that the claimant-respondent is engaged in import of sugar and other items and in connection with import of 12,000 metric tons of sugar from China to Calcutta the respondent had taken an insurance policy for which cover note dated 9.6.1994 and policy was valid from 23.9.1994 i.e. from the date of issue. The policy was further extended by endorsement dated 28.9.1994 for up-country destinations in India. It was alleged that after taking delivery of sugar, the bags could not be transported from the dock area because of Durga Puja celebrations and as a result of which all activities including transportation facilities virtually came to a stand still from 10.10.1994. Therefore, in all 82,237 bags of sugar were temporarily stored in T-sheds at Calcutta Port area en route up-country destinations.


• On 21.10.1994 fire broke out in the godown and destroyed the entire stock of sugar bags. Hence, a First Information Report was lodged and the appellant- Insurance Company was also informed by the respondent. The appellant appointed M/s. Apex Surveyors Pvt. Ltd. on 22.10.1994. On 24.10.1994 the Surveyors wrote to the respondent asking for the books of accounts and stock register and also took the spot inspection. The appellant appointed one N.V.P. Sharma Associates Pvt. Ltd. as another additional surveyor. Since the claim was not settled by the appellant- Insurance Company, the respondent filed the present complaint before the Commission


The letter dated 6.5.1996 reads as under :

• " The unsold remaining bags of sugar were taken to three different private godown outside the port premises. The fire broke out on the 26th day after the cargo was stored. This storage was general storage other than the "in the ordinary course of transit". The case falls under Clause 108, 102 & 2.1 of the Institute Cargo Clause (a) of the policy issued, as a consequence of which transit terminated upon storage, in the T-shed and before sale and disposal of the cargo. It was destroyed by the fire after the cover under the policy ceased. The risk would have been covered, if you had obtained a "Storage Risk Policy". Such a policy would have covered a loss due to fire when the goods were stored. In the absence of such a policy, the loss which occurred due to fire to the stored goods, well after the voyage and transit terminated, cannot be claimed under the above. The claim, therefore, is not maintainable. "


• The plea of the appellant-Insurance company for repudiating the present claim was that the goods were destroyed in general storage other than in the ordinary course of transit and it was also observed that what was covered was transit risk and not storage risk. Therefore, it was held that the claim was not maintainable. The Commission examined the relevant provisions and took the view that as per the Institute Cargo clause and extended coverage to the policy on payment of additional amount, the insurance cover of the goods would be till the delivery to the consignees at the destination named therein i.e. the insurance coverage was valid till the goods were delivered to the consignees' warehouse or other final warehouse or the place of storage at the destination. Ultimately, the Commission decreed the claim of the respondent. Hence the present appeal.


M/s. Peacock Plywood Pvt.

Ltd. V. The Oriental Insurance Co. Ltd. [ JT 2007 (1) SC

191] wherein at paragraph 71 of the judgment while

interpreting the expression, " peril insured against", it has

been held as follows:• " Marine Insurance Act is subject to the terms of insurance policy.

Where the insurer takes additional premium and insure a higher risk,

no restrictive meaning thereto need be given. A term of the policy

must be given its effect. While construing a contract of insurance, the

reason for entering there into and the risks sough to be covered must

be considered on its own terms. "

http://www.indiankanoon.org/doc/95274/




In General Assurance Society Ltd. v. Chandumull Jain & Anr. { [1966] 3 S.C.R. 500}. In that case it was observed as follows :

• " In other respects there is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a requirement of uberrima fides i.e., good faith on the part of the assured and the contract is likely to be construed contra proferentem that is against the company in case of ambiguity or doubt. A contract is formed when there is an unqualified acceptance of the proposal. Acceptance may be expressed in writing or it may even be implied if the insurer accepts the premium and retains it. In the case of the assured, a positive act on his part by which he recognizes or seeks to enforce the policy amounts to an affirmation of it.







• This position was clearly recognized by the assured himself, because he wrote, close upon the expiry of the time of the cover notes, that either a policy should be issued to him before that period had expired or the cover note extended in time. In interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in which the contract is expressed by the parties, because it is not for the court to make a new contract, however reasonable, if the parties have not made it themselves. Looking at the proposal, the letter of acceptance and the cover notes, it is clear that a contract of insurance under the standard policy for fire and extended to cover flood, cyclone etc. had come into being."


• After considering the ratio with regard to the construction of the terms of the policy it transpires that while interpreting the policy the courts should keep in view the intention of the parties as well as the words used in the policy. If the intention of the parties subserves the expression used therein then the expression used in that context should be given its full and extended meaning. In the present case, as is apparent on reading of the Institute Cargo clause and the coverage, terms of the policy and the extended coverage, the intention that appears from these terms and conditions that the goods were first covered from port in China, destination in Calcutta port and thereafter extended coverage was sought and in that it was extended to any part of the Republic of India. If these two terms of the policy are read in conjunction then it clearly transpires that the goods are covered till they reach the destination in any part of India.


• If this extended coverage is not interpreted to mean that goods should reach the destination in any part of India, then the extended coverage on payment of higher premium would be meaningless. The coverage was sought because the final destination of the goods was not at Calcutta port. When the coverage was extended on same terms and conditions that would mean that the goods were covered till the same reached in any part of the country in India. In the present case, the goods reached the Calcutta Port and they were taken to different sheds.


• In the present case, the goods reached the Calcutta Port and they were taken to different sheds. But unfortunately, the goods were destroyed by fire at Calcutta port itself. Therefore, we are of the view that since the goods were covered from Calcutta port till the same reach its destination and they were lying on storage, that would cover the goods by the extended policy and the insurer cannot defeat the claim of the claimant that the goods once reached the destination at Calcutta the policy stood discharged


• The damage on the rail or road would also include that in transit the goods are to be kept in transit shed, the policy would cover that also. If this interpretation is not given then the extended coverage would be of no use. Looking to the expression used in the background of the intention of the parties, it clearly transpires that once the goods were insured, then till they reach any part of the country shall be covered by the extended coverage. Therefore, the contention of Mr. Mehra cannot be accepted.

Transfer Vehicles….• Owner on record liable for motor accident even after sale:

Supreme Court• Holding that despite the transfer of ownership of vehicle,

unless the name of the owner was changed in the registration certification of the vehicle, the former owner continues to be liable to third parties in respect of claims for insurance in motor vehicle accident,

http://legalperspectives.blogspot.in/2011/02/owner-on-record-liable-to-motor.html

http://legalperspectives.blogspot.in/2011/02/owner-on-record-liable-to-motor.html

Liability of Insurance Co. Limited.• Liability of insurer limited to policy: High Court• As a part of social welfare legislation, the Motor Vehicle Act obliges the insuror to pay the

amount of compensation to the victim of a motor vehicle accident. However the question as to the extent of this liability of the insurer is always a vexed question. In a recently reported decision [The New India Assurance Co. Ltd. v. Smt. Chameli Devi, AIR 2010 PH 156] the Full Bench of the Punjab and Haryana High Court declared the law to this effect inter alia as under;

• The Reference was made to the Larger Bench primarily for the reason that the comprehensive policy makes the Insurance Company liable for the unlimited liability as it is liable to satisfy the entire awarded amount. However, the question whether the comprehensive policy leads to unlimited liability of the Insurance Company to satisfy an award, stands decided by the Constitution Bench in C.M. Jaya’s case (supra), wherein it has been held to the following effect:-“8. Thus, a careful reading of these decisions clearly shows that the liability of the insurer is limited, as indicated in Section 95 of the Act, but it is open to the insured to make payment of additional higher premium and get higher risk covered in respect of third party also. But in the absence of any such clause in the insurance policy the liability of the insurer cannot be unlimited in respect of third party and it is limited only to the statutory liability. This view has been consistently taken in the other decisions of this Court

http://legalperspectives.blogspot.in/2010/11/liability-of-insurer-limited-to-policy.html

No change in T & C of Policy

Insurance coverage not changeable mid-way: High Court

Providing a major relief to the insured and holding against the

insurance companies, the Andhra Pradesh High Court in a recently

reported decision [T. Suresh v. Oriental Insurance Co. Ltd., AIR 2010

AP 86] has declared that once a policy has been taken by a person

and continuously renewed without lapse, then the terms and coverage

of the policy cannot be changed mid-way to the prejudice of the policy

holder. The High Court was dealing with a challenge to the denial of

insurance claim by the policy holder wherein the insurance company

denied the liability on the ground that the coverage of the policy has

been changed

http://legalperspectives.blogspot.in/2010/07/insurance-coverage-not-changeable-mid.html

http://legalperspectives.blogspot.in/2010/07/insurance-coverage-not-changeable-mid.html

Police Role.• Recovered stolen vehicles to be returned to the insurer: S

upreme Court• Noting that stolen vehicles were not being handed over to

the insurance companies after being recovered by the Police, the Supreme Court in a recent decision has issued directions to all the police authorities in the country directing them to inform the insurance company of the recovery of the stolen vehicle. The Court apparently was moved by the fact that recovered vehicles languished within the premises of the police-stations, degrading and even being stolen in the appalling conditions, thus leading to a waste of national wealth

http://legalperspectives.blogspot.in/2010/07/recovered-stolen-vehicles-to-be.html

http://legalperspectives.blogspot.in/2010/07/recovered-stolen-vehicles-to-be.html

Liability of insurance co. absolute

Insurance company cannot deny liability on fault of insured: Supreme Court

Holding that even if the insured had committed a breach of the policy it is not open to the insurance company to deny the liability all together, the Supreme Court in a recently pronounced decision held the insurance company liable for 75% of the claim even when the vehicle (which was insured for personal use) met with an accident when being used for hire and not for personal use.

http://legalperspectives.blogspot.in/2010/04/insurance-company-cannot-deny-liability.html

http://legalperspectives.blogspot.in/2010/04/insurance-company-cannot-deny-liability.html

Subrogation…Principle understoodThe principles relating to subrogation can therefore be summarized thus :

(i) Equitable right of subrogation arises when the insurer settles the claim of the assured, for the entire loss. When there is an equitable subrogation in favour of the insurer, the insurer is allowed to stand in the shoes of the assured and enforce the rights of the assured against the wrongdoer.

(ii) Subrogation does not terminate nor puts an end to the right of the assured to sue the wrong-doer and recover the damages for the loss. Subrogation only entitles the insurer to receive back the amount paid to the assured, in terms of the principles of subrogation.

(iii) Where the assured executes a Letter of Subrogation, reducing the terms of subrogation, the rights of the insurer vis-à-vis the assured will be governed by the terms of the Letter of Subrogation.

(iv) A subrogation enables the insurer to exercise the rights of the assured against third parties in the name of the assured. Consequently, any plaint, complaint or petition for recovery of compensation can be filed in the name of the assured, or by the assured represented by the insurer as subrogee-cum-attorney, or by the assured and the insurer as co-plaintiffs or co-complainants.

Subrogation Principle. (v) Where the assured executed a subrogation-cum-assignment in favour of the insurer (as contrasted from a subrogation), the assured is left with no right or interest. Consequently, the assured will no longer be entitled to sue the wrongdoer on its own account and for its own benefit. But as the instrument is a subrogation-cum-assignment, and not a mere assignment, the insurer has the choice of suing in its own name, or in the name of the assured, if the instrument so provides. The insured becomes entitled to the entire amount recovered from the wrongdoer, that is, not only the amount that the insured had paid to the assured, but also any amount received in excess of what was paid by it to the assured, if the instrument so provides.

Subrogation PrincipleSubrogation: The concept understood

In a recent decision, inter alia examining the nature of insurance contracts and the inter se relationships in a contract of insurance, in a recently pronounced decision a Constitutional Bench of the Supreme Court has almost exhaustively explained the concept of subrogation as pivotal in a contract of insurance. The Bench noted the principles of subrogation as under;

11. A contract of insurance is a contract of indemnity. The loss/damage to the goods covered by a policy of insurance, may be caused either due to an act for which the owner (assured) may not have a remedy against any third party (as for example when the loss is on account of an act of God) or due to a wrongful act of a third party, for which he may have a remedy against such third party (as for example where the loss is on account of negligence of the third party).

http://legalperspectives.blogspot.in/2010/03/subrogation-concept-understood.html

Subrogation Principle• In both cases, the assured can obtain reimbursement of the loss, from the insurer. In

the first case, neither the assured, nor the insurer can make any claim against any third party. But where the damage is on account of negligence of a third party, the assured will have the right to sue the wrongdoer for damages; and where the assured has obtained the value of the goods lost from the insurer in pursuance of the contract of insurance, the law of insurance recognizes as an equitable corollary of the principle of indemnity that the rights and remedies of the assured against the wrong-doer stand transferred to and vested in the insurer.

Subrogation Principle• The equitable assignment of the rights and remedies of

the assured in favour of the insurer, implied in a contract of indemnity, known as ‘subrogation’, is based on two basic principles of equity :(a) No tort-feasor should escape liability for his wrong; (b) No unjust enrichment for the injured, by recovery of compensation for the same loss, from more than one source. The doctrine of subrogation will thus enable the insurer, to step into the shoes of the assured, and enforce the rights and remedies available to the assured.

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