TaxTMI 
TaxTMI 
2023 (1) TMI 62
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....ng disallowance of Rs. 12,13,74,372/-, being 30% of ceding commission of Rs. 40,45,81,243/-, under section 40(a)(ia) of the Act alleging failure to deduct tax at source on such commission under section 194D of the Act. 3. Under the facts and circumstances of the case, the Id. Assessing Officer on directions of DRP u/s 144C(5) of the Act, has grossly erred in holding that the ceding commission was in lieu of marketing and acquisition of the policy without appreciating the fact that the said commission was actually reimbursement of manpower cost, third party administration cost, administration cost incurred by insurance companies in administering the policy and there was no marketing involved at any end. 4. Under the facts and circumstances of the case, the Id. Assessing Officer on directions of DRP u/s 144C(5) of the Act, has grossly erred in making disallowance of Rs. 12,13,74,372/- u/s 40(a)(ia) of the Act without considering the fact that the ceding commission did not fall within the ambit of section 194D of the Act. 5. Under the facts and circumstances of the case, the Id. Assessing Officer on directions of DRP, has grossly erred in making disallowance of Rs. 12,13,74.3....
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....Form R3 issued on 28 July 2017, and has established a branch office under the Insurance Regulatory Development Authority of India (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd's) Regulations, 2015 ('IRDA branch office regulations'), in order to undertake reinsurance business in India. Axa France Vie - India Reinsurance Branch office ('Axa BO') commenced reinsurance business with effect from 14 September 2017. 4. During the year under consideration assessee company made payment of Rs. 40,45,81,243/- under the head Commission and claimed as deduction in its Profit and Loss account as under- Name of Party Amount in INR United India Insurance Company Limited 1,52,51,2261- National Insurance Company Limited 15,34,20,689/- New India Assurance Company Limited 23,59,09,327/- Total 40,45,81,243/- 5. Referring to the above facts, the AO noted that the assessee company has claimed a payment of Rs.40,45,81,243/- under the head commission and claimed as deduction in its Profit & Loss Account. The AO was of the opinion that the assessee company should have deducted TDS on the aforesaid payment; he rejected the assessee-....
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....[2012] 20 taxmann.com 681 (Delhi) x. Smt. Prabhavati S. Shah v. CIT [1998] 100 Taxmann 404 (Bom.) xi. ONS Creations Private Limited Vs ITO ITA No. 6250/Del/2013 (ITAT Delhi) 7. The DRP referred to the agreement in this regard. It failed to consider any of the case laws from Hon'ble High Courts and the ITAT as referred above and relying upon the decision of ITAT, Chennai Bench dated 28.8.2018 in the case of DCIT vs. United India Insurance Co. Ltd. the DRP confirmed the draft order of the AO by rejecting the assessess's submissions, which reads as under:- "4.1.4.4 The Panel takes a note that an insurance broker is an intermediary who sells, solicits, or negotiates insurance on behalf of a client for compensation. Commission on re-insurance ceded /accepted Insurance companies get business through their agents who receive commission based on the amount of business they generate for the company. When a company gets re-insurance business it must pay commission to the Ceding company also.l) The commission paid by are-insurance company to the ceding company to cover administrative costs and acquisition expenses is caller 'commission on reinsurance accepted 'and is shown ....
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....y High Court in the same assessee's case Principal commissioner of Income-tax Vs Tata AIG General Insurance Co. Ltd. [2019] 111 taxmann.com 92 (Bombay). Furthermore, the ld. Counsel for the assessee pleaded that since it is reimbursement of expenses, the decision of the Hon'ble Supreme Court in the case of DIT(IT)-1 vs Moller Maersk (TS-70-SC-2017) supports the assessee plea that no TDS was required. The ld. Counsel for the assessee referred certain other Tribunal's decisions in this regard. The ld. Counsel for the assessee further submitted that the decision referred by the DRP from ITAT Chennai is not applicable to the facts of the case. The ld. Counsel for the assessee further submitted that apart from the above submission, proviso to section 201(1) also supports the case of the assessee. It provides that the assessee shall not be deemed to be assessee in default if the payee has paid the tax due on income declared in the return of income and the assessee has furnished a certificate in this regard. The ld. counsel for the assessee submitted that the Chartered Accountant's certificate from two of the issuance companies are available and placed on record in support of the proposit....
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....h sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 2 01, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the 38[resident] payee referred to in the said proviso." 12. As emanating from the facts of the case, the assessee company is in the business of reinsurance ceded from the insurance companies in India. The term reinsurance ceded means the portion of one or more risk that the cedant transfers to the reinsurer with the object of reducing the cedant's liability by sharing with reinsurer the insurance liability, premiums, and losses from the reinsured business in that proportion. The reinsurance company also bears a proportionate cost of cedant in this connection which is termed as cednat commission. During the year under consideration, from the gross premium payable by the insurance company to the assessee, a sum of Rs.40,45,81,243/- was deducted on account of reimbursement of expenses for the share of assessee in the nature of manpower cost, third party administration cost, administration cost, etc. whic....
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....estions of law were decided against the Revenue." 14. Similarly, the ITAT, Mumbai Bench in the case of General Insurance Corp. Of India [2009] 28 SOT 453 on identical subject has held under:- (head note only) "HELD Section 194D provides for an obligation upon any person responsible for paying to a resident any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) to deduct income-tax at the rates in force. The section became applicable from 1-6-1973 and did not apply to payments not exceeding Rs. 5,000 per annum. [Para 13] As is evident from the language of section 194D, it applies to all persons, whether individual, HUF company, etc. The deduction is to be made from the income, which is in the nature of remuneration or reward (whether it is called commission or otherwise) for soliciting or procuring insurance business. So, section 194D does not apply to each and every payment made by any person by way of commission or otherwise; but it applies to remuneration or reward paid for soliciting or procuring ....
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....surance business but to those from whom business had been solicited or procured. In the instant case payer would be a solicitor or procurer of insurance business but not the payee-companies. For attracting section 194D, the payment has to be made by way of remuneration or reward not for giving business to the assessee but for soliciting or procuring the insurance business. [Para 32] Considering the nature of the payment or deduction made by the assessee-company to the insurance companies by way of commission it could be said that the same did not fall within the category of the payments by way of remuneration or reward for soliciting or procuring insurance business from the insurance companies. Therefore, it was a deduction allowed by the assessee-company to the insurance companies from the original gross rate in order to compensate the insurance companies for the brokerage and other costs incurred in procuring the business by the ceding company. However, the cost incurred by the insurance companies by way of brokerage to them would fall within the ambit of section 194D in their hands, but the reimbursement of expenses by the assessee-company to the insurance companies would not....