TaxTMI 
TaxTMI 
2009 (2) TMI 234
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....erest under s. 201(1A) has been recalculated and the assessee is required to pay the same for its failure to deduct tax at source and pay the same to the Government in accordance with s. 194D of the IT Act, 1961. The Asstt. CIT (TDS)-1 (2), Mumbai, had passed the order for the respective assessment years on 4th Oct., 2006, against which the appeals had been filed to the CIT(A)-XXX, Mumbai, and the latter disposed of all the three appeals by a consolidated order dt. 22nd March, 2007. 3. The assessee is in appeal before us. The common grounds raised by the assessee are reproduced hereunder: "1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of AO in passing the order under s. 201(1)/201(1A) of the IT Act, 1961, and the reasons assigned for doing so are wrong and contrary to the facts of the case, provisions of the IT Act, 1961 and the Rules made thereunder. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of AO of treating the appellant as an assessee in default under s. 201(1) of the IT Act, 1961 in respect of tax not deducted at source from the....
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....erred in observing that: (a) there is no difference between insurance and reinsurance business, (b) 'Commission or otherwise' as contemplated under provisions of s. 194D are wide enough to cover even the payment of reimbursement of cost, and the same is wrong and contrary to the facts of the case, provisions of the IT Act, 1961 and the rules made thereunder. 7. On the facts and in the circumstances of the case and in law, the learned CIT(A) having given a finding that there is no agent in the case of reinsurance, ought to have not treated the appellant as an assessee deemed to be in default under s. 201(1) r/w s. 194D of the IT Act, 1961 and not doing so is wrong and contrary to the facts of the case, provisions of the IT Act, 1961 and the Rules made thereunder. 8. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of learned AO in levying interest under s. 201(1A) by holding that tax has not been deducted at source and paid in accordance with the provisions of s. 194D on reinsurance commission and the reasons assigned for doing so are wrong and contrary to the facts of the case, provisions of the IT Act, 1961....
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....s. vs. Director of State Lotteries & Ors. (2001) 165 CTR (Ker) 481 : (2001) 249 ITR 186 (Ker); (d) Government Milk Scheme vs. Asstt. CIT (2006) 98 ITD 306 (Pune). 6. The CIT(A), however, has decided the issue in favour of the Revenue and rejected the appeals of the assessee. The CIT(A) has noted that the Asstt. CIT (TDS)-1 (2), vide order dt. 14th Feb., 2007, has passed an order under s. 154 and excluded the components of brokerage paid to foreign brokers and commission paid to foreign insurance companies; brokerage paid to Indian brokers, in which tax has already been deducted at source; and payments made to Government companies. It was further noted that the Asstt. CIT (TDS)-1 (2) has also reduced the liability under s. 201(1) to the extent of taxes directly paid by the insurance companies; except in the case of Tata AIG General Insurance Company Ltd., as the assessee had failed to furnish the acknowledgement of the return in their case. Subsequently, the demand in respect of Tata AIG General Insurance Company Ltd. has also been reduced with reference to tax under s. 201 of the Act. The interest under s. 201 (1A) has been recalculated. The CIT(A) has upheld the view of the ....
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....solicited reinsurance business through brokers, a separate brokerage/commission has been paid to them and tax has been deducted from such payments, in respect of which there is no dispute. It was contended that apart from the discount known as "commission", the assessee is also required to pay profit commission to the insurance companies. The profit commission is paid only after the expiry of the term of insurance, in respect of such cases where there is no claim during the operation of the reinsurance treaty. It was pointed out that the profit commission can by no stretch of imagination be called as remuneration or reward for soliciting or procuring insurance business. That the profit commission is only sharing of the surplus/savings in respect of no claims. It was further pointed out that such sort of commission is not payable in respect of all the policies but only in respect of the policies where no claim is made and as such profit is made. It was further contended that the assessee is receiving the net payment from the insurance companies after deducting the so-called commission at the agreed rates. That the profit commission is also adjusted every quarter in the premiums paya....
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.... Quoting from the same book, the learned counsel for the assessee explained the nature of the profit commission. 9. Our attention has also been drawn to the dictionary meaning of the words "commission", "remuneration", "reward", "procurement" and "solicit" to support the contention that s. 194D is not applicable in this case. Reference has also been made to the dictionary meaning of the word "soliciting" in Black's Law Dictionary. It has, accordingly, been pleaded that the demand created by the Revenue authorities be cancelled and the appeals of the assessee allowed. 10. The learned Departmental Representative, on the other hand, contended that s. 194D is clearly attracted in respect of the insurance business and reinsurance is nothing but insurance business. The learned Departmental Representative also contended that the dictionary meaning is not conclusive for appreciating the meaning of words in s. 194D. It has further been pointed out that s. 194H separately deals with the payments of commission and brokerage in other cases and, therefore, s. 194D is clearly intended to be applicable in respect of the insurance business. It was contended that the Revenue authorities have ....
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....is evident from the language of s. 194D, the section 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 s. 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 insurance business. The language of s. 194D makes it abundantly clear that if the commission or other payments are made by any assessee not for soliciting or procuring insurance business by way of remuneration or reward, s. 194D would not apply. 15. It is not disputed before us that s. 194D applies to any payment made to an agent who is procuring business for insurance companies, to whom certain percentage of the premium is paid by way of commission as a reward or remuneration for procuring or soliciting insurance business. The question before us is as to whether s. 194D applies to the nature of deductions or payments allowed by the assessee company to the other insurance companies from the gross premi....
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....exceeded one thousand rupees. The State Government issued instructions to the Director of State Lotteries for complying with the provisions of s. 194G. On a writ petition, the Hon'ble Kerala High Court held that since there was neither payment in cash or by cheque and the Government never credited any income to the petitioner's account, nor was any payment made to the agent at the time of purchase of the ticket, s. 194G has no application. 20. in the case of a travel agent booking air tickets for the passengers, ful1 value of the ticket is recovered from the passengers. More often than not the travel agents deduct commission from the full fare and remit the balance to the airlines. However, since the commission deducted by the travel agent is for services rendered as an agent of the airlines, the mere fact that the amount has been deducted by the travel agents from the gross bill and the balance only has been remitted may not be sufficient to hold that the amount retained by the travel agents would be a discount and hot a commission for services rendered. 21, On the other hand, in the case of a stamp vendor, the stamp vendor purchases stamp papers from the Government agencies....
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....uctions to be made from the premium for reinsurance; the details of which are as under: "Rates: OGR (original gross rate) Commission: 32.5% (25% in respect of advance loss of profits). Deductions: Tax, as applicable Brokerage : 2.5% Profit commission: 25% (nil in respect of advance loss of profits), reinsurers expenses 5%. Losses carried forward five years. First statement to be produced after 36 &n....
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....reinsurer being the retrocessionaire. (b) The subject-matter of an insurance is some property, person or benefit exposed to loss or damage, or some potential legal liability the insured may incur arising out of activities undertaken either by himself, or herself, or by a servant or agent. Thus an insurer directly insures against events which may give rise to economic loss, such as the destruction of property by fire or other perils, and accidents giving rise to legal liability for injury to, or for damage to the property of, third parties. Reinsurers on the other hand only become interested in such primary losses insofar as they have undertaken to compensate a reinsured for claims settlements the latter has made in respect thereof. Therefore, it would appear logical to regard the subject-matter of a reinsurance contract as all or part of the contractual liabilities that the ceding company has accepted under the insurance policies it has written. British Courts; however, have taken a contrary view, holding that the subject-matter of insurance under a reinsurance contract is the same as the subject-matter of the underlying direct insurance [Attorney General vs. Forsikringsaktiesel....
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....inister, is for the commission payable to be calculated by applying an agreed fixed percentage rate to the original gross premiums ceded. It further explains that the reinsurance commission allowed is known as "ceding commission" because it is the amount of commission agreed by the reinsurer as a deduction from the reinsurance premium accounted to the reinsurer for the treaty cessions. 32. In order to attract s. 194D, the commission or any other payment covered under the section should be a remuneration or reward for soliciting or procuring the insurance business. The insurance companies do not procure business for the assessee company nor does the assessee company pay commission or other payment for soliciting the business from the insurance companies. The language of s. 194D clearly indicates that ordinarily there would be three parties involved in the payment of commission or other payments as remuneration or reward for soliciting or procuring the insurance business. Firstly, there would be an insurance company and the second would be insured. If the insurance company gets business directly from the insured, no payment would be required to be made by the insurance company to ....
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....ld fall within the ambit of s. 194D in their hands, the reimbursement of expenses by the assessee company to the insurance companies would not fall within the same category. 34. Taking the totality of facts and circumstances of this case into consideration, we hold that the commission paid or allowed as a deduction from gross rate to the insurance companies does not fall within the category of remuneration or reward for soliciting or procuring insurance business. 35. There is another part of the payment made by the assessee company to the insurance companies, which is known as "profit commission". The authors of "Reinsurance" describe the "profit commission" as under: "Payment of profit commission in addition to a fiat rate commission is a common method of rewarding a ceding company for better than average experience under surplus and quota share treaties. The idea is to give the ceding company a share of any profit earned by the reinsurer on the reinsurances ceded." It has been clarified before us that the profit commission is not payable in every case. It is payable only in the event of transaction resulting into a profit. It is calculated at the end of the each quart....