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TMI Blog2023 (1) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved at any end. 4. Under the facts and circumstances of the case, the Id. Assessing Officer on directions of DRP u/s 144C(5) of the Act, has grossly erred in making disallowance of Rs. 12,13,74,372/- u/s 40(a)(ia) of the Act without considering the fact that the ceding commission did not fall within the ambit of section 194D of the Act. 5. Under the facts and circumstances of the case, the Id. Assessing Officer on directions of DRP, has grossly erred in making disallowance of Rs. 12,13,74.372/- u/s 40(a)(ia) of the Act failing to appreciate that ceding commission was not in lieu of any service, much less marketing service, provided by insurance companies, but was reimbursement of manpower cost, third party administration cost, administration cost incurred by insurance companies and therefore was outside the ambit of provisions of section 194D of the Act. 6. Under the facts and circumstances of the case, the Hon ble DRP has grossly erred in passing directions to make disallowance u/s 40(a)(ia) amounting to Rs. 12,13,74,372/- on account of non-deduction of TDS u/s 194D of the Act by relying on the decision of Hon ble ITAT, Chennai Bench in the case of DC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss account as under- Name of Party Amount in INR United India Insurance Company Limited 1,52,51,2261- National Insurance Company Limited 15,34,20,689/- New India Assurance Company Limited 23,59,09,327/- Total 40,45,81,243/- 5. Referring to the above facts, the AO noted that the assessee company has claimed a payment of Rs.40,45,81,243/- under the head commission and claimed as deduction in its Profit Loss Account. The AO was of the opinion that the assessee company should have deducted TDS on the aforesaid payment; he rejected the assessee-company s submission in this regard that the commission was in fact only reimbursement of expenses. He observed that on perusal of agreement made between assessee-company and insurance company. He further noted that the assessee company received 70%/20%/60% of 100% of insurance premium as reinsurance share and balance 30%/80%/40% of shares are kept by insurance company that the assessee is paying a commission to the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ITAT, Chennai Bench dated 28.8.2018 in the case of DCIT vs. United India Insurance Co. Ltd. the DRP confirmed the draft order of the AO by rejecting the assessess s submissions, which reads as under:- 4.1.4.4 The Panel takes a note that an insurance broker is an intermediary who sells, solicits, or negotiates insurance on behalf of a client for compensation. Commission on re-insurance ceded /accepted Insurance companies get business through their agents who receive commission based on the amount of business they generate for the company. When a company gets re-insurance business it must pay commission to the Ceding company also.l) The commission paid by are-insurance company to the ceding company to cover administrative costs and acquisition expenses is caller 'commission on reinsurance accepted 'and is shown as an expense in the Income statement of there-insurance company hence for tax purposes its treated as an Allowable expenditure in the books of there-insurance company. 4.1.4.5 Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself (at least in part) from the risk of a major claims event. With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -70-SC-2017) supports the assessee plea that no TDS was required. The ld. Counsel for the assessee referred certain other Tribunal s decisions in this regard. The ld. Counsel for the assessee further submitted that the decision referred by the DRP from ITAT Chennai is not applicable to the facts of the case. The ld. Counsel for the assessee further submitted that apart from the above submission, proviso to section 201(1) also supports the case of the assessee. It provides that the assessee shall not be deemed to be assessee in default if the payee has paid the tax due on income declared in the return of income and the assessee has furnished a certificate in this regard. The ld. counsel for the assessee submitted that the Chartered Accountant s certificate from two of the issuance companies are available and placed on record in support of the propositions that the payees have paid the tax due on the income declared. Except for payment of Rs.23,59,09,327/-to New India Assurance Company Limited others are accompanied by certificate as above. 10. Per contra, the Ld. DR relied upon the order of the Assessing Officer and the direction of DRP. She submitted that the decisions which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esident] 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 of assessee in the nature of manpower cost, third party administration cost, administration cost, etc. which are termed as cedant commission. The Assessing Officer 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. But as per the facts of the present case, the cedant commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 of commission or otherwise; but it applies to remuneration or reward paid for soliciting or procuring insurance business. The language of section 194D makes it abundantly clear that if the commission or other payments are made by any assessee not for soliciting or procuring insurance business by way of remuneration or reward, section 194D would not apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 their hands, but the reimbursement of expenses by the assessee-company to the insurance companies would not fall within the same category. [Para 33] Therefore, in the facts and circumstances of the instant case it was to be held that the commission paid or allowed as deduction from gross rate to the insurance companies did not fall within th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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