No TDS on Interest Paid to NBFC which is also Engaged in Business of Insurance: ITAT [Read Order]

The Income Tax Appellate Tribunal recently proclaimed that the provisions relating to TDS would not be applicable in case of interest paid to a Non-Banking Finance Companies (NBFC) which is also engaged in business of insurance.

The bench including Judicial Member N.V.Vasudevan and Accountant Member Dr. Arjun Lal Saini were held so while allowing the revenues appeal for statistical purpose. The Assessee is a company engaged in the business of sub-letting of various properties and deriving rental income and service charges there from. Originally, an order of assessment u/s 143(3) of the Income Tax Act, 1961 (Act) was passed.

In the said assessment, an addition of interest paid was disallowed by u/s 40(a) (ia) of the Act for the assessee’s failure to deduct tax at source while making the payment of interest.

The ITAT Kolkata on further appeal set aside the addition made by the AO for a de-novo consideration by the AO. On perusal of document the AO a framed an order of assessment u/s 254/143(3) of the Act and as far as the interest paid by the assessee to Reliance Capital Ltd is concerned the plea of the assessee was that there was no obligation to deduct tax at source on the interest paid to Reliance Capital Ltd because under section 194A(3) (iii)(e) of the Act the provision mandating of tax at source laid down section 194(1) shall not apply where the interest income in question is paid to any company or cooperative society carrying on the business of insurance.

It is not in dispute that Reliance Capital Ltd is a non-banking finance company. It also had one of the lines of business of life insurance and General Insurance. Since the assessee failed to deduct tax at source the disallowance u/s 40(a)(ia) of the Act has to be made, this direction of AO was aggrieved the assessee and went appeal before the CIT (A) and the CIT (A) accepted the submissions of the assessee deleted the addition made by the AO.

Aggrieved by the order of CIT (A) the revenue is in appeal before the Tribunal. The counsel for the revenue contended before the bench that the purpose of allowing exemption from TDS u/s 194A(3)(iii)(e) of the income Tax Act is only to cover cases where there is default in payment of insurance premium and consequently interest is levied by the insurer from the insured on such delayed payment. Only in such case, no TDS need to be made on interest paid.

On contrary the assessee prayed for a remand of the issue to the AO with a direction to the AO to verify if the payees have declared the receipt from the Assessee in their return of income and if they have so declared then the addition u/s.40(a)(ia) of the Act should be deleted by the AO.

While giving a careful consideration to the rival submission the tribunal bench concluded that 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.

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.