The Income Tax Appellate Tribunal (ITAT), Mumbai bench, in a major relief to M/s TATA AIG General Insurance Company Ltd, held that any payment made by the assessee company to such foreign insurers would not be chargeable to tax in the hands of the foreign reinsurers in India in terms of Section 195(1) of the Income Tax Act, 1961.
The assessee, Tata AIG Insurance, contended that the payments made by them to the foreign insurer is not chargeable to tax in India in the hands of the foreign reinsurer in terms of Section 195(1) of the Income Tax Act. Hence, there is no obligation on the part of the assessee payer to deduct tax at source thereon. Relying on the decision of the Supreme Court in the case of GE India Technology Centre Pvt. Ltd., vs CIT, it was contended that the provisions of Section 40(a)(i) of the Act would not come into operation at all.
The Tribunal bench comprising Shri M.Balaganesh, Accountant Member & Shri Amarjit Singh, Judicial Member relied on the Mumbai Tribunal decision wherein it was observed that Article 5(4) of the treaty does not apply to reinsurer.
Accepting the above contention, the Tribunal held that there is absolutely no dispute that the foreign reinsurers does not have any place of business in India / permanent establishment in India / branch established in India / Liaison office in India.
“Hence, any payment made by the assessee company to such foreign insurers would not be chargeable to tax in the hands of the foreign reinsurers in India in terms of Section 195(1) of the Act. Accordingly, as stated earlier, there would be no obligation on the part of the assessee, being a payer, to deduct tax at source and consequently there cannot be any disallowance u/s.40(a)(i) of the Act,” the Tribunal said.
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