By TIOL News Service

MUMBAI, JUNE 07, 2016: THE issue is - Whether TDS is liable to be deducted on the net amount of insurance commission arrived at after excluding the service tax component included therein. YES is the answer.

Facts of the case

The assessee is engaged in the business of 'Life Insurance'. It was also noticed by the AO that assessee marketed its insurance policies through various licensed agents and TDS u/s 194D was deducted on the net amount of insurance commission which was arrived at after excluding the service tax component included therein. In this regard assessee was asked to show cause as to why the assessee has not deducted the TDS on the gross amount of insurance commission, which is the requirement of section 194D. AO passed order u/s 201(1) of the Act holding that there was a short deduction of TDS on commission to agents(service tax component reduced from the gross commission). CIT(A) granted relief to assessee.

Having heard the parties, the ITAT held that,

++ TDS is required to be deducted and paid to the Govt Treasury on the income payable only which means that certainly the service tax component on the commission is not liable to TDS as the same is not an income of the assessee. The provisions of section 194D and 194I have to be seen in the light of the two circulars no 4/2008 dated 28.04.2008 and circular no 1/2014 [F.No. 275/59/2012-IT(B)] dated 13.1.2014. In circulars no. 4/2008 dated 28.04.2008 CBDT has clarified that TDS is not required to be deducted on service tax on rent u/s 194I. The High Court of Rajasthan in the case of CIT (TDS) V Rajasthan Urban Infrastructure 2013-TIOL-663-HC-RAJ-IT has held that service tax is not subject to deduction of tax at source and the circular no 1/2014 [F.No. 275/59/2012-IT(B)] dated 13.1.2014 has been brought by the CBDT after the above decision of the high court and also referred to in para no 2 of the circular. The order of CIT(A) is correct and does not suffer from any infirmities.

(See 2016-TIOL-901-ITAT-MUM)