2023 (1) TMI 62 - AT - Income Tax

TDS u/s 194D - disallowance being 30% of ceding commission u/s 40(a)(ia) alleging failure to deduct tax at source on such commission under section 194D - AO was of the opinion that a reading of provisions of section 194D provides that TDS has to be deducted where any sum is paid for soliciting or procuring insurance business - HELD THAT:- 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 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. which are termed as cedant commission.

As per the facts of the present case, the cedant commission paid by the assessee to the insurance company is actually the share of assessee in the nature of manpower cost, third party administration cost, administration cost, etc. which are actually reimbursement of expenses in relation to the gross premium which the assessee company has received in this regard, so ceading commission cannot be considered to be paid for soliciting or procuring insurance business.

As decided in the case of M/s Royal Sundaram Alliance Insurance Company Limited [2019 (2) TMI 923 - MADRAS HIGH COURT] CIT(A) noted that as a matter of industrial practice it was termed as "commission on reinsurance premium received", however, in substance it is discount on re-insurance premium received by an Insurance Company from an other Insurance Company. We find that the Tribunal rightly decided the issue in favour of the assessee and the revenue has not brought out any ground to interfere with the said finding. Accordingly, the appeals filed by the revenue on this ground are dismissed and consequently, the substantial question of law is answered against the revenue.

Thus no TDS is required to be deducted.

The other limb of ld. counsel for the assessee’s submission is that no TDS is required in as much as it is reimbursement of expenses and on the touch stone to the decision of the Hon’ble Supreme Court in the case of of DIT(IT)-1 vs Moller Maersk [2017 (2) TMI 993 - SUPREME COURT] no TDS was required to be deducted. Another plea was that on the basis of proviso to section 201(1) of the Act, since the payees have offered the income to pay tax, no TDS was required to be deducted. Appeal of the assessee stands allowed.