Section 194D does not cover reinsurance commission or profit commission paid on a principal-to-principal basis.

Section 194D applies only to remuneration or reward paid for soliciting or procuring insurance business. Reinsurance ceding commission and profit commission paid to another insurer on a principal-to-principal basis did not fall within that statutory description because the recipient insurer did not render solicitation services; the ceding commission was treated as a reduction from premium or reimbursement of acquisition and administrative costs, and profit commission as a share in profits. As no obligation to deduct tax at source arose on these payments, no default under sections 201(1) and 201(1A) was attracted.

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Issues: Whether section 194D applied to reinsurance commission and profit commission paid or allowed by the assessee to insurance companies, and whether the assessee could be treated as an assessee in default under sections 201(1) and 201(1A).

Analysis: Section 194D applies only to income by way of remuneration or reward, whether by way of commission or otherwise, paid for soliciting or procuring insurance business. Reinsurance is a contract between insurers on a principal-to-principal basis, and the insurance companies receiving the ceding commission or profit commission did not render any service of soliciting or procuring insurance business for the assessee. The deduction described as commission was held to be a reduction from gross premium or reimbursement towards the ceding company's acquisition and administrative costs, while profit commission was treated as a share in profit and not as reward for procuring business. Since the payments did not answer the statutory description in section 194D, no default in deduction at source arose.

Conclusion: Section 194D was not attracted to the reinsurance commission or profit commission, and the assessee was not liable to be treated as an assessee in default under sections 201(1) and 201(1A).

Final Conclusion: The demand and interest levied for alleged failure to deduct tax at source on reinsurance-related payments were set aside, and the assessee's appeals succeeded.

Ratio Decidendi: TDS under section 194D is attracted only when the payment is remuneration or reward to the recipient for soliciting or procuring insurance business; a reinsurance ceding discount or profit commission paid on a principal-to-principal basis to another insurer does not fall within that statutory scope.

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