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Assessee was engaged in underwriting life insurance policies, and its business comprises individual life & group business. During the survey, it was noticed by the Assessing Officer (AO) that the assessee had incurred foreign travel expenses for its agents who were working for soliciting or procuring insurance business for the assessee.
AO held that foreign travel expenses incurred on agents should be covered under the words "income by way of remuneration or reward whether by way of commission or otherwise" used in Section 194D. Since the assessee did not deduct TDS, AO treated the assessee as an assessee-in-default within section 201(1) provisions and worked out the TDS default.
On appeal, the CIT(A) upheld the order of AO. However, the Tribunal reversed the order of AO. Aggrieved-AO filed the instant appeal before the Bombay High Court.
The Bombay High Court held as per section 194D, TDS is required to be deducted if a person is 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).
Further, the deduction shall be made at the time of credit of such income to the payee's account or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier. Thus, the obligation to deduct TDS is on the person who is paying and the deduction to be made at the time of making such payment.
Factually and admittedly, the assessee paid no amount to reimburse expenses incurred by the agent in the foreign travel. The assessee had made arrangements for foreign travel for all the agents and paid expenses directly to service providers. Therefore, as no amount was paid to the agents, the obligation to deduct income tax at source would not arise.
Provisions relating to, taxation of charitable trusts or exemption provided to charitable trusts, in whatever way one looks at it, have been fine tuned in the recent times by plugging many unaddressed issues. The recent legal amendments providing applicability of sections 43A and 40(a)(ia) by inserting Explanation 3 to section 11(1) have made the intentions of the legislature loud and clear. The insertion of section 12AB prescribing the procedure for fresh registration w.e.f. 1-4-2021 have reaffirmed our belief that the lawmakers are vigilant and want only those who are really charitable to take shelter from taxation of their income and any other dubious design would be dealt with fairly and squarely.
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Just to highlight the fact, one can take note of a recent decision of the Madras High Court in the case of S.R. Trust v. Pr. CIT [2021] 208 DTR 329 where the assessee-trust was subjected to a search in the year 2014 and again a second search was conducted under section 132 in September, 2016. Thus non-profit organisations are not out of the radar of the tax department.
This refresher takes note of section 10(23C) which is applicable independent of sections 11 to 13 (section 12AB included). The objective is to suggest amending section 10(23C) to limit its scope and merge rest of the provisions contained therein with sections 11 to 13.
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