TaxTMI 
TaxTMI 
2023 (5) TMI 1275
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....facts and circumstances of the case in law, and based on the directions of the Hon'ble DRP, erred in concluding that the Appellant has a fixed place permanent establishment (PE) in India as per Article 5(1) of the Double Taxation Avoidance Agreement entered between India and Ireland (India-Ireland tax treaty). While concluding a fixed place PE, the learned AO erred in holding that 2.1 RGA Global Shared Services India Private Limited (RGA Services) provides technical and core reinsurance business services in the form of actuarial underwriting and risk assessment services which are crucial in performance of the Appellant's reinsurance business in India. 2.2 In alleging that the Appellant has developed a standardised software called Automated Underwriting and Risk Analysis (AURA), and once the draft underwriting proposal is generated with the help of AURA software, there is very little decision making left to be done in Ireland 3. Ground 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 RGA Services acts as a Dependent Agent PE of the Appellant in India as per Art....
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....234B of the Act. 9. Ground 9 The learned AO has, on the facts and circumstances of the case and in law, erred in short grant of TDS credit of Rs 2,81,984 10. Ground 10 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 initiating penalty proceedings under section 270A of the Act 3. At the time of hearing, it is brought to our notice that issue under consideration is exactly similar to the issue decided by the ITAT Mumbai Bench in ITA. No. 6935/Mum/2018 dated 31.10.2022 for the A.Y. 2015-16. The Grounds and issues are exactly similar except Ground No. 9 raised by the assessee in the current Assessment Year which is relating to short grant of TDS credit of Rs..2,81,984/-. Ld. AR prayed that this grounds of appeal is raised due to non-grant of TDS credit and prayed that suitable direction may be given to the Assessing Officer. 4. On the other hand, Ld. DR relied on the orders of the Ld. DRP and Assessing Officer. 5. Considered the rival submissions and material placed on record, we observe that the issues raised by the assessee in the present assessment year are exactly similar to the ....
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....n out to be incorrect and the total value of insurance claims may be much more than the premium collected, and if the losses are of a very large magnitude, even the net worth of the company would be wiped out. That is the risk that reinsurance contracts cover, but there can also be situations in which the insurance companies take the support of reinsurers when they do not have the capacity, or the inclination, to provide an insurance cover entirely on their own. The persons taking such reinsurance are called cedants. The reinsurance of the former category, broadly speaking, is treaty reinsurance, and the reinsurance of the latter category is generally referred to as facultative reinsurance. To protect the interests of the end consumers taking insurance covers from the insurance companies, the regulatory bodies, such as the Insurance Regulatory and Development Authority of India (IDRA), put certain conditions with respect to taking, in a timely and organized manner, such reinsurance coverage, and that is what offers a market to the reinsurance companies in a jurisdiction like India. 5. The short case of the assessee is that since it does not have any permanent establishment in In....
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....be generating a reinsurance proposal, it was explained by the assessee that the assessee does not own that software, nor is its server even located in India. The assessee also placed its reliance on a number of judicial precedents, including E Funds IT Solutions Inc Vs ADIT [(2017) 86 Taxman 240 (SC)], Formulae One World Championship Ltd Vs CIT [(2017) 394 ITR 80 (SC)] Abode Systems Inc Vs ADIT [(2016) 69 taxmann.com 228 (Del)] and DIT Vs. Galileo International Inc [(2009) 336 ITR 264 (Del)]. None of these submissions, however, impressed the Dispute Resolution Panel which confirmed the stand of the Assessing Officer by observing as follows: "6.1 We have considered the facts of the case, the written submissions and arguments of the assessee. The assessee submitted that it does not have a PE in India and the assessee is eligible for beneficial treatment under the IR Treaty. However, on perusal of the facts and circumstances of the case, it emerges that the arguments of the assessee are not tenable on account of the following reasons: * The reinsurance contract is an agreement between the insurer (i.e. Indian cedent) and the re-insurer, whereby a part of the risk gets transferre....
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....rance revenue so generated as attributable to the operations in India, and treated its taxability @ 10% of the gross reinsurance revenue. The action so taken by the Assessing Officer has also been confirmed by the DRP, and, accordingly, the Assessing Officer has proceeded to bring the reinsurance revenues to tax in India as business income. The assessee is aggrieved and is in appeal before us. 7. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 8. So far as the fixed place PE is concerned, the case of the Assessing Officer hinges on whether the operations carried out by the RGA India can constitute the assessee's permanent establishment in India. It is not even the case of the Assessing Officer, however, that any premises in India, whether of the RGA or otherwise, was at the disposal of the assessee. It is in this backdrop that we may take note of the following observations made by Hon'ble Supreme Court in the case of E-Funds IT Solutions Inc (supra): 11. Since the Revenue originally relied on fixed place of business PE, this will be tackled first. Under Article 5(1), a ....
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.... soil or on the soil. This understanding of place as a three dimensional zone rather than a single point on the earth can be derived from the French Version ('installation fixe') as well as the term 'establishment'. As a rule, this zone is based on a certain area in, on, or above the surface of the earth. Rooms or technical equipment above the soil may qualify as a PE only if they are fixed on the soil. This requirement, however, stems from the term 'fixed' rather than the term 'place', given that a place (or space) does not necessarily consist of a piece of land. On the contrary, the term 'establishment' makes clear that it is not the soil as such which is the PE but that the PE is constituted by a tangible facility as distinct from the soil. This is particularly evident from the French version of Article 5(1) OECD MC which uses the term 'installation' instead of 'place'. The term 'place' is used to define the term 'establishment'. Therefore, 'place' includes all tangible assets used for carrying on the business, but one such tangible asset can be sufficient. The characterization of such assets unde....
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.... mere space needed for the physical presence of these individuals is not sufficient (if it were sufficient, Article 5(5) OECD MC and Article 5(5)(a) UN MC and the notion of agent PEs were superfluous). This can be illustrated by the example of a salesman who regularly visits a major customer to take orders, and conducts meetings in the purchasing director's office. The OECD MC Comm. has convincingly denied the existence of a PE, based on the implicit understanding that the relevant geographical unit is not just the chair where the salesman sits, but the entire office of the customer, and the office is not at the disposal of the enterprise for which the salesman is working." 37. Taking cue from the word 'through' in the Article, Vogel has also emphasised that the place of business qualifies only if the place is 'at the disposal' of the enterprise. According to him, the enterprise will not be able to use the place of business as an instrument for carrying on its business unless it controls the place of business to a considerable extent. He hastens to add that there are no absolute standards for the modalities and intensity of control. Rather, the standards depe....
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....ities of a subsidiary would rarely been unusable outside the office hours of one of its customers (i.e. a third person), the view of the two courts is still more convincing. Along these lines, a POB will usually exist only where the taxpayer is free to use the POB: * at any time of his own choice; * for work relating to more than one customer; and * for his internal administrative and bureaucratic work. In all, the taxpayer will usually be regarded as controlling the POB only where he can employ it at his discretion. This does not imply that the standards of the control test should not be flexible and adaptive. Generally, the less invasive the activities are, and the more they allow a parallel use of the same POB by other persons, the lower are the requirements under the control test. There are, however, a number of traditional PEs which by their nature require an exclusive use of the POB by only one taxpayer and/or his personnel. A small workshop (cf. Article 5(2)(e) OECD and UN MC) of 10 or 12 square meters can hardly be used by more than one person. The same holds true for a room where the taxpayer runs a noisy machine." 38. OECD commentary on Model Tax Conventi....
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....epted, there cannot be any further profit attribution for services rendered by the RGA. In view of these discussions, and bearing in mind the entirety of the case, we disapprove the stand of the authorities below, and hold that there was no fixed place permanent establishment on the facts of this case. As regards the existence of the dependent agency permanent establishment, that aspect of the matter, in the light of the coordinate bench decision in the case of ADIT Vs Asia Today Ltd [(2021) 129 taxmann.com 35 (Mum)], is wholly tax-neutral and does not, therefore, need our adjudication. In the said case, we have, inter alia, observed as follows: 13. In the light of Hon'ble jurisdictional High Court's judgment in the case of Set Satellite (supra), so far as profit attribution of a DAPE is concerned, the legal position is that as long as an agent is paid an arm's length remuneration for the services rendered, nothing survives for taxation in the hands of the dependent agency permanent establishment. Viewed thus, the existence of a dependent agency permanent establishment is wholly tax neutral. 14. An interesting offshoot of this legal position is that, as on now, ex....
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...., on account of existence of DAPE, may not indeed be wholly unqualified- at least on a conceptual note". However, in the present case, successive coordinate benches in assessee's own case for different assessment years have upheld the contentions of the assessee and held that once an arm's length remuneration is paid to the agent, nothing further survives for taxation in the hands of the DAPE which, at best, can be brought to tax in the hands of the assessee. In any event, whatever be the academic justification for an alternative approach to the issue, the law laid down by Hon'ble Courts above is to be deeply respected and loyally followed. Respectfully following the law laid down by Hon'ble Courts above and consistent with the stand of the coordinate bench decisions, we uphold the plea of the assessee for the present years as well. We, therefore, hold that even if there is held to be a dependent agency permanent establishment on the facts of this case, as at best the case of the Assessing Officer is, it is wholly tax neutral inasmuch as the Indian agents have been paid arm's length remuneration, and nothing further can, therefore, be taxed in the hands of the a....