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2017 (8) TMI 840 - AT - Income TaxTDS u/s 195 - assessee treated as an A-I-D for not deducting tax with regard to payments made to RIRCL - P.E. in India - Held that - The Ireland Co. did not have PE in India, that the assessee was under bonafide belief that it had not to deduct tax for the payment made to RIRCL. Therefore we hold that the assessee cannot be treated as A-I-D and that interest charged by the TDS officer u/s. 201(1A) has to be deleted. Confirming the order of the FAA, we decide effective Ground of appeal against the AO.
Issues Involved:
1. Holding the assessee as an assessee in default (A-I-D) for not deducting tax at source. 2. Charging of interest under section 201(1A) of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Holding the Assessee as an Assessee in Default (A-I-D): The assessee, a joint-venture company engaged in life insurance, entered into a Risk Premium Reinsurance Agreement (RPRA) with RG International Reinsurance Company Ltd. (RIRCL), Ireland, without deducting tax on the reinsurance premium payments. The TDS Officer challenged this, asserting that the assessee failed to deduct tax as required under section 195 of the Income Tax Act. The assessee argued that it relied on RIRCL's declaration and believed that the payments were not taxable in India due to the absence of RIRCL's Permanent Establishment (PE) in India. Upon appeal, the First Appellate Authority (FAA) sided with the assessee, noting that the documents did not indicate a PE of RIRCL in India. The FAA emphasized that TDS provisions are primarily tax recovery mechanisms and not charging provisions. The FAA concluded that the assessee had a bona fide belief, supported by a CA's opinion in Form No.15CB, that no tax deduction was necessary. The FAA also referenced a similar Tribunal decision in the case of Swiss Reinsurance Co. Ltd., which ruled in favor of the assessee. The Tribunal, upon reviewing the submissions and materials, reaffirmed the FAA's decision. It cited the Swiss Reinsurance Co. Ltd. case, which held that the absence of a PE in India meant the reinsurance premium was not taxable. The Tribunal concluded that the assessee could not be treated as an A-I-D for failing to deduct tax on payments to RIRCL. 2. Charging of Interest under Section 201(1A): The TDS Officer had levied interest under section 201(1A) for the alleged default in tax deduction. However, given the Tribunal's finding that the assessee was not in default for non-deduction of tax, the interest charged under section 201(1A) was also deemed unwarranted and was ordered to be deleted. Conclusion: The appeals filed by the Assessing Officer (AO) for the Assessment Years 2011-12 to 2014-15 were dismissed. The Tribunal upheld the FAA's decision, confirming that the assessee was not in default for not deducting tax on reinsurance premium payments to RIRCL and that the interest charged under section 201(1A) was to be deleted. The Tribunal's order was pronounced in the open court on 5th July 2017.
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