The Delhi High Court ruling that the foreign exchange should be received from abroad and the amount retained within this country will not be eligible for the tax deduction was overruled.
The Supreme Court judgment was delivered by a division bench consisting of Justice B P Jeevan Reddy and Justice K S Paripoornan. The court asserted that a two-way traffic was unnecessary. To insist on a formal remittance to the foreign reinsurers first and thereafter to receive the commission from the foreign reinsurer, will be a meaningless ritual, the judgment said.
The court rejected the stand of the Central Board of Direct Taxes (CBDT) that the income under the agreement is generated in this country and that the amount is one not received in convertible foreign exchange.
We are of the view that the income is received in India in convertible foreign exchange, in a lawful and permissible manner through the premier institution concerned with the subject matter the Reserve Bank of India, the judgment stated. Therefore, the rejection of the claim of the assessee was wrong.
The assessee in this case was J B Boda & Co, a private company engaged in brokerage business as reinsurance brokers. It arranges for reinsurance of a portion of risk with various reinsurance companies either directly or through foreign brokers. In return for the services, it receives a percentage of the premium received by the foreign companies as its share of the brokerage.
In the litigation, the Oil & Natural Gas Commission insured all its offshore oil and gas exploration and production operation with the United India Insurance Co. In respect of this insurance risk, J B Boda contacted Sedgwick Offshore Resources, London, the broker for placement of reinsurance business.
When the insurance amount was handed over to J B Boda for transmissions to the foreign reinsurance company, the company approached the RBI and after approval deducted the brokerage and remitted the rest to London.
