TDS — Commission to insurance agent — Scope of S. 194D — Arrangement for foreign travel of agents — Expenses paid directly to service providers — Tax not deductible at source on payments to service providers

TDS — Commission to insurance agent — Scope of S. 194D — Arrangement for foreign travel of agents — Expenses paid directly to service providers — Tax not deductible at source on payments to service providers

The assessee respondent is engaged in the business of underwriting life insurance policies. The assessee’s business comprises of individual life and group business. The Assessing Officer noticed that the assessee had incurred foreign travel expenses for its agents who were working for soliciting or procuring insurance business for the assessee and opined that foreign travel expenses incurred by the assessee on its agents were covered under the words “income by way of remuneration or reward whether by way of commission or otherwise” used in section 194D of the Income-tax Act, 1961. Since the assessee had not deducted tax at source, the Assessing Officer treated the assessee as an assessee in default.

The order was set aside by the Commissioner (Appeals) and this was affirmed by the Tribunal.

The Bombay High Court dismissed the appeal filed by the Revenue and held as under:

“i) U/s 194D the obligation to deduct is on the person who is paying and the deduction to be made at the time of making such payment.

ii) Factually and admittedly no amount had been paid to the agents by the assessee as a reimbursement of expenses incurred by the agent on foreign travel. The assessee had made arrangement for foreign travel for all the agents and paid expenses directly to those service providers. Therefore, as no amount was paid to the agents by the respondent, the obligation to deduct Income-tax thereon at source also would not arise.”