TDS not deductible on Interest paid to a company carrying on Insurance business

I.T.O. M/s. Batram Properties Pvt. Ltd. (ITAT Kolkata)

Interest income paid to a company carrying on a business of insurance need not deduct tax at source

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.

Once it is held that the Assessee is entitled to the benefit of 2nd proviso to Sec.40(a)(ia) of the Act, it would be appropriate to direct 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.

Hon’ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (I) Pvt.Ltd., in ITA No. 160/2015 judgment dated 26.8.2015 has taken the view that the insertion of the second proviso to Sec.40(a)(ia) of the Act is retrospective and will apply from 1.4.2005. Once it is held that the Assessee is entitled to the benefit of 2nd proviso to Sec.40(a)(ia) of the Act, it would be appropriate to direct 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 dis allowance u/s. 40(a)(ia) of the Act ought to have been sustained by the CIT(A). We therefore hold and direct that in case the recipient parties are not cooperating in providing details, the AO should call for the information u/s. 133(6) or 131 of the Act, for verification of the same. In this regard we also direct the assessee to furnish all the details of assessment particulars of the recipients of payment from the Assessee. The AO therefore should not have any difficulty in making the required verification. We therefore set aside the order of the CIT(A) to the extent to which he had sustained the order of the AO on the dis allowance 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 dis allowance 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.

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