2017 (12) TMI 1401 - AT - Income Tax

TDS u/s 194A - interest income paid to a company carrying on a business of insurance - Held that - As rightly contended on behalf of the assessee a plain reading of the provision of section 194A(3)(iii)(e) of the Act suggests that interest income paid to a company carrying on a business of insurance need not deduct tax at source. There is no other qualification mentioned in the relevant statutory provisions. Nevertheless it is not possible to conclude from a mere look at the profile of the company in a website that it is carrying on business of insurance. Therefore it would be in the interest of justice to set aside the order of CIT(A) on this issue and remand the issue for fresh consideration by the AO on the question as to whether Reliance Capital Ltd can said to be carrying on the business of insurance. Whether the recipients have included the receipts paid by the assessee in their respective returns of income? - Set aside the order of the CIT(A) to the extent to which he had sustained the order of the AO on the disallowance u/s.40(a)(ia) of the Act and remand the issue to the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same no disallowance u/s.40(a)(ia) of the Act should be made by the AO. In case the recipient parties are not cooperating in providing details the AO should be directed to call for the information u/s. 133(6) or 131 of the Act for verification of the same.

Summary

Issues:
1. Disallowance of interest paid to Reliance Capital Ltd. under section 40(a)(ia) of the Income Tax Act, 1961.
2. Interpretation of section 194A(3)(iii)(e) regarding exemption from tax deduction at source for interest paid to companies engaged in the business of insurance.
3. Applicability of the second proviso to section 40(a)(ia) of the Act regarding deduction of tax at source.

Analysis:
1. The appeal by the Revenue was against an order relating to the disallowance of interest paid to Reliance Capital Ltd. due to failure to deduct tax at source. The ITAT directed a denovo consideration by the AO.
2. The Assessee argued that as per section 194A(3)(iii)(e), no tax deduction is required for interest paid to companies engaged in insurance business. The AO disallowed the deduction, but the CIT(A) accepted the Assessee's submission and deleted the addition.
3. The Revenue contended that the exemption under section 194A(3)(iii)(e) applies only if the sole business of the assessee is insurance. The ITAT remanded the issue to determine if Reliance Capital Ltd. was indeed engaged in the insurance business.
4. The second issue involved the applicability of the second proviso to section 40(a)(ia) which allows for non-deduction of tax if payees have declared the receipts in their income tax returns. The ITAT directed the AO to verify if recipients included the sum in their returns and paid taxes, setting aside the CIT(A)'s decision.

In conclusion, the ITAT upheld the appeal for statistical purposes, remanding the issues for further consideration by the AO based on the statutory provisions and factual verification.