2015 (11) TMI 1876 - AT - Income Tax

ITAT upholds CIT(A)'s decision rejecting Revenue's appeals for assessment years 2006-07 to 2008-09

The Income Tax Appellate Tribunal (ITAT) upheld the Commissioner of Income Tax (Appeals) (CIT(A))'s decision, rejecting the Revenue's appeals for the ... TDS u/s 192 to 195 - re-insurer remittance made in three financial year to non-resident reinsurer (NRRs) @ 41.82% - AO charged interest u/s.201(1)/201(1A) on these remittance - whether non-resident insurers from the non treaty countries have no business connection in India without appreciating that the source of income is in India and the property in the form of reinsured assets are in India? - as pleaded that the assessee is not liable to make any deduction on the reinsurance remittance to NRRs - HELD THAT:- As carefully gone through the orders of the authorities below and found that detailed finding has been recorded by the CIT(A) to the effect that assessee is an independent broker and not an agent. The assessee does not carry out any activity on behalf of anyone in India and has no authority to enter into any contract in India. In these circumstances, the provisions of Section 192 to 195 relating to tax deduction at source are not applicable to the assessee. The provisions of Section 9(1)(i) specifically excludes an independent broker, neither the non-resident reinsurer nor any independent insurance company have any control over the assessee. AO has also accepted in order u/s.201/201(1)(A) of the Act that the countries with which India do not have a DTAA, the income of NRRs could be taxed in India only if the NRRs has permanent establishment in India. Since the assessee has no business activity on behalf of the NRRs, the provision of Section 192 to 195 are not applicable, hence, the question of tax deduction at source does not arise at all. It is pertinent to mention that none of the earlier/subsequent years, the assessee was found to be liable for deduction of tax u/s.192 to 195 of the IT Act. - Decided against revenue. Issues Involved:1. Business connection of non-resident insurers in India.2. Assessee functioning as an independent broker versus a collecting agent.3. Requirement of tax deduction at source on reinsurance premium paid to non-resident reinsurance companies.4. Assessee's default status under Section 201 and 201(1A) of the Income Tax Act.Issue-wise Detailed Analysis:1. Business Connection of Non-Resident Insurers in India:The CIT(A) held that the non-resident insurers from non-treaty countries have no business connection in India. The Revenue argued that the source of income is in India and the property in the form of reinsured assets is in India. However, the CIT(A) concluded that the reinsurance contracts are on a principal-to-principal basis, and the assessee, acting as an independent broker, does not establish a business connection in India. The proviso to Section 9(1)(i) of the I.T. Act excludes business activities carried out through an independent broker.2. Assessee Functioning as an Independent Broker Versus a Collecting Agent:The CIT(A) found that the assessee, M/s. Aon Global Insurance Services Pvt. Ltd., functions as an independent broker and not as a collecting agent for non-resident reinsurers. The assessee's role is to identify and place risks with selected non-resident reinsurers without acting under the control of any insurance company. The CIT(A) emphasized that brokers operate independently and are not restricted to soliciting business for a single insurance company, unlike agents.3. Requirement of Tax Deduction at Source on Reinsurance Premium Paid to Non-Resident Reinsurance Companies:The CIT(A) held that the assessee was not required to deduct tax at source on the reinsurance premium paid to non-resident reinsurance companies in non-treaty countries. The Revenue contended that the payments made to the agent amount to payments made to the non-resident reinsurers, thus requiring tax deduction at source. However, the CIT(A) concluded that since the assessee is an independent broker and not an agent, the provisions of Sections 192 to 195 relating to tax deduction at source do not apply. The CIT(A) also noted that the reinsurance money received is trust money, and remittance is carried out as per IRDA regulations without any deduction other than charges, fees, or commission earned.4. Assessee's Default Status Under Section 201 and 201(1A) of the Income Tax Act:The CIT(A) determined that the assessee was not in default under Sections 201 and 201(1A) of the Income Tax Act. The CIT(A) found that the assessee's role as an independent broker meant that there was no obligation to deduct tax at source, and thus, the assessee could not be treated as an assessee in default. The CIT(A) directed the deletion of the tax and interest charged under Sections 201 and 201(1A).Conclusion:The ITAT upheld the CIT(A)'s order, dismissing the Revenue's appeals for the assessment years 2006-07 to 2008-09. The ITAT agreed with the CIT(A)'s findings that the assessee is an independent broker and not an agent, and thus, the provisions of Sections 192 to 195 relating to tax deduction at source are not applicable. The ITAT found no reason to interfere with the CIT(A)'s order, as the Revenue failed to provide any positive material to counter the detailed findings recorded by the CIT(A).