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TMI Blog2023 (8) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... sent of both the parties, the appeal was taken up for hearing. The only issue in dispute in the present appeal is with regard to disallowance made of Rs. 11,04,48,260/- under section 40(a)(ia) of the Act towards alleged non-deduction of tax at source under section 194D of the Act on payment of ceding commission. 3. Briefly the facts are, the assessee is a non-resident corporate entity, incorporated under the laws of France and is engaged in the business of providing insurance and reinsurance. In the year under consideration, the assessee paid an amount of Rs. 36,81,60,867/- towards ceding commission in respect of reinsurance business and debited it as expenditure in its profit and loss account. While examining assessee's claim in course of assessment proceeding, the Assessing Officer was of the view that the ceding commission paid to insurance companies is liable for deduction of tax under section 194D of the Act at the rate of 30%. Alleging that the assessee has violated the condition of section 194D by not deducting tax at source, the Assessing Officer disallowed the disputed amount under section 40(a)(ia) of the Act. Though, the assessee contested the aforesaid disallowance by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , considered these three substantial questions of law by judgment dated 18.01.2019 and the substantial questions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce business from the insurance companies but the payment was not made to the solicitor or procurer of insurance 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 thei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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