2022 (4) TMI 1011 - AT - Income Tax

Stay on realization of outstanding demand - demand in dispute as a result of disallowance made under section 40(a)(ia) due to alleged non-compliance with the provisions of section 194D - HELD THAT - As the issue in dispute appears to be covered in favour of the assessee by a number of judicial precedents. Therefore, we are inclined to grant expeditious hearing of the corresponding appeal of the assessee. Accordingly, with the consent of both the parties, Registry is directed to fix the appeal for hearing on 28.04.2022. Paper-books, if any, shall be filed by the parties sufficiently ahead of the date of hearing of the appeal, in accordance with the extant rules. Since, the date of hearing of the appeal is announced in the open court in presence of both the parties, issuance of separate notice for hearing to the parties is dispensed with. As regards the impugned demand, the Assessing Officer may pursue the assessee for paying a part of the demand. However, no coercive action shall be taken by the Assessing Officer for recovery of the demand till the date of hearing of the appeal, i.e., 28.04.2022. It is made clear, in case of any unnecessary adjournment being sought by the assessee, the interim protection granted to the assessee will be vacated and the assessee will also lose the benefit of early hearing of appeal.

Summary

Issues:
Stay on realization of outstanding demand under section 40(a)(ia) of the Income-tax Act, 1961 for alleged failure to deduct tax at source under section 194D.

Analysis:
The applicant, a non-resident company incorporated in France, filed an application seeking stay on the demand of ?6,29,73,067 for the assessment year 2018-19. The demand arose due to disallowance under section 40(a)(ia) for failure to deduct tax at source under section 194D. The applicant, engaged in reinsurance services, argued that section 194D is not applicable to reinsurance commission as they do not solicit or procure insurance business. They explained their activities involve reinsurance ceded from insurance companies, emphasizing they do not have direct contact with policyholders. The applicant received payments from insurance companies net of administrative costs, which they argued were not commission but compensation for procurement costs incurred by the insurance company.

The applicant cited Circular No. 120(a)/2/2010-ST, emphasizing that payments made to reinsurers by insurance companies are shared expenses, not strictly commission. They referred to judicial precedents, including the General Insurance Corporation India case and the PCIT Vs. Tata AIG General Insurance Co. Ltd. case, to support their argument that the reinsurance commission does not fall under section 194D. They also highlighted a decision by the Madras High Court that reversed a Tribunal decision relied upon by the Departmental Representative. The applicant requested an absolute stay on demand recovery, asserting that the issue was in their favor based on legal precedents.

The Departmental Representative opposed granting an absolute stay and suggested the applicant pay 20% of the outstanding demand. After considering the arguments, the Tribunal noted that the issue of applicability of section 194D to reinsurance commission would be examined during the appeal hearing. The Tribunal acknowledged that the applicant's argument seemed to be supported by various judicial precedents cited. Therefore, the Tribunal granted an expeditious hearing of the appeal, scheduling it for 28.04.2022. The Registry was directed to fix the appeal date, and no coercive action for demand recovery was allowed until the appeal hearing. The Tribunal warned that any unnecessary adjournment sought by the applicant could lead to the vacation of interim protection and loss of the benefit of early appeal hearing.

In conclusion, the stay application was allowed with the specified conditions, and the order was pronounced in the open court on 1st April 2022.