TaxTMI 
TaxTMI 
2019 (6) TMI 1668
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....ase in law, and based on the directions of the Hon'ble DRP, erred in concluding that the Appellant's wholly owned subsidiary in India i.e. Gen Re Support Services Mumbai Private Limited (GSSMPL) or General Reinsurance AG Mumbai Liaison Office (GRAG LO) constitute a permanent establishment (PE) in India as per the provisions of Article 5(1) of the India-Germany Double Taxation Avoidance Agreement (India-Germany tax treaty). 3. The learned AO has, on the facts and circumstances of the case in law, and based on the directions of the Hon'ble DRP, erred in concluding that GSSMPL/ GRAG LO is a Dependent Agent PE of the Appellant in India as per Article 5(6) of the India-Germany tax treaty. 4. The learned AO has, on the facts and circumstances of the case in law, and based on the directions of the Hon'ble DRP, erred in concluding that the support services performed by GSSMPL/ GRAG LO are not in the nature of preparatory or auxiliary services. 5. The learned AO has, on the facts and circumstances of the case and in law, and based on the directions of the Hon'ble DRP, erred in not considering the Appellant's claim that no further income can be attributed to the....
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....sessee claimed that such receipts were in the nature of business receipts and, therefore, in the absence of any Permanent Establishment (PE) in India, the income therefrom is not liable to be taxed in India. 4. The orders of the authorities below reveal that the aforesaid stand of the assessee has not been accepted. As per the income-tax authorities, the aforesaid receipts are liable to be taxed in India primarily on three counts. Firstly, according to the Revenue, said receipts are liable to be taxed in India because they are earned as a result of a 'business connection' in India as understood in terms of Section 9(1)(i) of the Act. Secondly, as per the Revenue, assessee has a PE in India in terms of Article 5(1) of the India-Germany Tax Treaty; and, thirdly, assessee can be said to have a dependent agent PE in India in terms of Article 5(5) of the India-Germany Tax Treaty. After having held such receipts to be taxable in India, the Assessing Officer proceeded to estimate the income attributable to such receipts, which could be brought to tax in India. For this purpose, the Assessing Officer observed that the assessee did not furnish any India specific Profit & Loss Account; and,....
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....elopment Authority (IRDA) dated 23.11.2007, a copy of which has been placed at pages 1 to 2 of the Paper Book. Hitherto, the LO was acting as a communication channel between assessee's Head Office in Germany and the insurance companies in India, and during the year under consideration, the said LO was shut down in November, 2014, when the Indian subsidiary started functioning. The Indian subsidiary has rendered administrative and business marketing support services to the assessee. At this stage, it would also be pertinent to observe that the Indian subsidiary has rendered such services in terms of a Master Service Agreement dated 01.08.2014, which is placed in the Paper Book at pages 3 to 25. This agreement has been entered amongst the assessee and group's other affiliated corporations and entities globally. The recital of the agreement states that it is designed to reduce to a single instrument all the service agreements amongst the companies of the group worldwide. This agreement is primarily between the group entities worldwide - on one hand are the entities engaged in re-insurance business and on the other hand are the entities who are providing support services, like the Indi....
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....per the Revenue, the manner in which the business is carried out between the Indian subsidiary and the assessee-company, the relationship is that of a Principal and Agent, rather than that of Principal to Principal and, therefore, a portion of the impugned receipts by way of re-insurance premium are attributable to the activities of Indian PE i.e. the Indian subsidiary. Apart therefrom, it has also been pointed out that the Indian subsidiary is using the brand name of the assessee while representing the assessee in India to third parties, which shows a Principal and Agent relationship. All these points have been emphasised to submit that the impugned receipts are liable to be taxed in India either on the basis that there is a 'business connection' under Section 9(1)(i) of the Act or because of existence of a PE or a Dependent Agent PE as per Article 5(1) and 5(6) of the India-Germany Tax Treaty respectively in India on account of the existence of the functions performed by the Indian subsidiary. 9. On the other hand, the learned Representative for the assessee pointed out that the activities of the Indian subsidiary do not involve any actuarial or underwriting services, but it is ....
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....ion made by the DRP in para 4.3 of its order whereby the expression "in India" has been used with reference to the Master Service Agreement signed by the assessee with the Indian subsidiary. It has been pointed out that the agreement was not executed in India and, for that matter, reference was made to page 23 of the Paper Book. It has also been explained that the Indian subsidiary does not have any obligation or authority to execute or finalise terms of re-insurance on behalf of the assessee and, therefore, it is not a case of a Principal and Agent relationship. As per the appellant, the Indian subsidiary is engaged in an independent business of providing support services in the field of reinsurance business for which it has its own independent infrastructure and employees, and it does not even have the requisite statutory approvals to carry out re-insurance business. 11. We have carefully considered the rival submissions and perused the relevant material and record. As our discussion in the earlier paras show, the substantive dispute in this appeal relates to the taxability or otherwise in India of the reinsurance premium earned by the non-resident foreign assessee by underwriti....
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....sessee. In order to appreciate the nature of services, it would be appropriate to refer to the Addendum to the Master Service agreement between assessee and the Indian subsidiary which is placed at pages 26-27 of the Paper Book. The significant activities being performed by the Indian subsidiary have been broadly put in four categories, namely, (i) Actuarial support, (ii) Medical/Financial Underwriting support, (iii) Representation and Development, and, (iv) Training & Presentations, and the same are reproduced hereinafter :- "Actuarial Support * Collect and verify data for pricing. * Input data into pro-approved pricing models. * Support GRAG in carrying out experience investigations of its business and its clients' business. * Update GRAG on actuarial developments in India and other designated markets. * Support GRAG in its audits of clients. Medical/Financial Underwriting Support * Collect and verify data for individual and group underwriting. * Input data into pre-approved underwriting models. * Support GRAG in investigating claims and provide information for assessing claims. * Support GRAG in its conduct of underwriting and claims audits of clients ....
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....d nor does it have the authority to do so. In the course of hearing, the Ld. Representative for the assessee had referred to a reinsurance Contract between assessee and SBI Life Insurance Company Limited, a copy of which is placed in the Paper Book at pages 28 to 102. It has been referred as an illustration to show that the reinsurance contracts are agreed and concluded between the assessee and the Indian insurance companies directly, and such contracts are executed outside India. Thus, factually speaking, the Indian subsidiary is only providing support services, which cannot be equated to the carrying on of a reinsurance business. Notably, assessee had asserted before the lower authorities that the Indian subsidiary does not have the requisite regulatory approvals from IRDA to carry out reinsurance functions, an aspect which has not been negated at any stage. 15. Before proceeding further, it would also be appropriate to refer to another aspect of the matter which has been dealt with by the Hon'ble Supreme Court in the case of E funds IT Solution Inc (supra) in the context of existence of a subsidiary in India of a foreign company. As per the Hon'ble Supreme Court, the pr....
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....rned representative at the time of hearing, without controversion from the other side, that the LO has been adhering to the conditions imposed by the IRDA. It has been pointed out that the activities of the LO cannot be construed as giving rise to a 'business connection' or PE of the assessee in India qua the income by way of reinsurance premiums earned by the assessee. It is pointed out that the activities of the LO, as permissible under the relevant statute, only are in the nature of preparatory or auxiliary in character, which satisfies the requirement of Article 5(4)(e) of the India-Germany Tax Treaty and, therefore, the same could not be taken as a PE of the assessee in India. Apart therefrom, reliance was placed on the judgment of the Hon'ble Delhi High Court in the case of DIT vs Mitsui & Co. Ltd., [2017] 84 taxmann.com 3 (Delhi), wherein the Hon'ble Court noted its earlier decision in the case of National Petroleum Construction Co. vs DIT (IT), 383 ITR 648 (Del) in the context of the nature of activities of the LO being preparatory or auxiliary in character. The Hon'ble High Court therein noted that the LO of the assessee was found adhering to the conditions imposed....
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....g that the activities are compliant with the approval granted by IRDA. 18. We may now address the point as to whether the operations of the Indian subsidiary, which have indeed been carried out from India, can be construed as enabling invoking of 'business connection' of the assessee as envisaged under Section 9(1)(i) of the Act or whether the Indian subsidiary constitutes a PE of assessee in India. Article 5(1) of the India-Germany Tax Treaty provides that PE means a fixed place of business through which the business or enterprise is wholly or partially carried on. On this aspect, the case set-up by the Revenue is that the key functions of reinsurance business, namely, actuarial services and underwriting services are provided by the Indian subsidiary. Such discussion is contained in paras 9.7.2 to 9.8 of the final order of the Assessing Officer. On this aspect, we have carefully examined the contentions put forth by the Revenue as well as the material on record, namely, the Master Service Agreement and the Addendum to the Master Service agreement between assessee and the Indian subsidiary and find that the approach of the Assessing Officer is quite misdirected. In fact, the servi....
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....sts an assessee's fixed place of business in India or not. Factually or legally speaking, the place of business of Indian subsidiary per-se can in no way be equated to mean the fixed place of business of the assessee in India. In fact, in this connection, the observations of the Hon'ble Supreme Court in the case of E funds IT Solution Inc (supra) are very apt. In para 12 of its order, the Hon'ble Supreme Court has dealt with in detail, by making reference to the findings of the Hon'ble High Court, and concluded that there was no fixed place PE of the assessee before it on the facts of the case before it. One of the points noted by the Hon'ble High Court was that the foreign company was dependent on the Indian subsidiary for earning its income. This aspect was specifically negated and held not to be a relevant criteria to determine whether there existed a fixed place PE or not. Similarly, the manner and mode of carrying on of transaction was also not found to be a proper test to determine as to whether there existed a fixed place of business or not. Taking a cue from the reasoning approved by the Hon'ble'ble Supreme Court, in the present case too, the mere render....
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.... us in order to establish that in somewhat similar situations, foreign companies engaged in reinsurance business have not been found to be having a fixed PE or an agency PE in India in the form of an Indian subsidiary. In this context, reference has been invited to the decision of the Mumbai Bench of the Tribunal in the case of Swiss re-Insurance Co. Ltd. vs DDIT(IT), [2015] 55 taxmann.com 520 (Mumbai - Trib.), which according to the learned representative, is directly on the point. We have perused the said decision and find that the factual matrix which prevails in the instant case before us is similar to what has been considered in the case of Swiss re-Insurance Co. Ltd. (supra). In para 2.1 of the order, the relevant facts have been noted and the discussion reveals that the facts before us are quite similar to the case before our co-ordinate Bench. It was the case of a reinsurance company based in Switzerland which was receiving income for providing reinsurance to various insurance companies in India. Swiss re-Insurance company had a wholly owned subsidiary in India which was rendering administrative, market intelligence and other risk assessment services, which is quite similar....