TaxTMI 
TaxTMI 
2024 (5) TMI 580
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....39;ble DRP, erred in proposing to assess the total income of the Appellant at Rs 700,472,416, as against NIL reported by the Appellant in its return of income. 2. Ground 2 The learned AO has, on the facts and circumstances of the case and in law, erred in holding that in relation to the reinsurance premium amounting to INR 2,366,486,719 earned by the Appellant from its Indian cedents, the Appellant has a business connection in India as per the provisions of section 9(1)(i) of the Act and a Permanent Establishment (PE) in India as per Article 5 of the India-Singapore tax treaty (IS treaty) In this regard, the learned AO has additionally inter alia erred on the following grounds: 2.1 The learned AO has made erroneous inferences in relation to the facts of the Appellant and consequently erred in holding that Swiss Reinsurance Company Ltd, India Branch (SRIB) and Swiss Reinsurance Global Business Solutions India Private Limited (SRGBS) constitute Fixed Place PE, Service PE and Agency PE of the Appellant in India under the IS treaty. 2.2 The learned AO has erred in holding that the third party Indian cedents to be the agents of the Appellant ....
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....t Swiss Re Asia Pte Ltd. (hereinafter referred to as 'SRAL' or 'the Appellant') is a tax resident of Singapore. The Appellant is wholly owned subsidiary of Swiss Re Asia Holding Pte Ltd. which in turn is a group entity of Swiss Re Group engaged in reinsurance business on a global basis. 3.1. Swiss Reinsurance Company Limited (for short 'SRCL') is a global reinsurer incorporated in Switzerland forming part of Swiss Re Group. 3.2. The applicable India laws permitted the cession of a portion of insurance risk by a primary insurer to a reinsurer as well as retrocession of the reinsurance risk to another reinsurer in terms of reinsurance contract/treaty. 3.3. SRCL, acting through its Singapore Branch (hereinafter referred to as 'SRCL-SB'), had entered into re-insurance contracts outside India with several Indian insurance companies (i.e. Indian cedents), wherein, the Indian cedents paid a premium to SRCL to reinsure a part of the risk assumed by them. 3.4. As a consequence of the amendments made in the IRDAI Regulations, SRCL had to setup its branch in India (hereinafter referred to as 'SRCL-IB') which commenced business w.e.f 01/02/2017 and thereafter; all new reinsurance c....
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....Nil' income claiming exempt income of INR 10,77,82,885/- and seeking refund of INR 6,19,00,110/-. The case of the Appellant was selected for scrutiny. 3.8. During the assessment proceedings, in response to a queries by the Assessing Officer, it was contended by the Appellant that (a) reinsurance premium income and retrocession premium income earned by the Appellant is in the nature of business income and in absence of Permanent Establishment (for short 'PE') of the Appellant in India in terms of Article 5 of the Double Taxation Avoidance Agreement between India and Singapore (for short 'DTAA'), the same is not liable to tax in India as per Article 7 of the DTAA, and (b) Income received by the Appellant from SRCL-IB and SGB for support services (such as communication services, IT support services, legal services, executive management services, human resource support services etc.) are not taxable in India in terms of Article of the DTAA as Fee for Technical Services since the aforesaid services do not 'make available' to SRCL-IB & SGB technical knowledge, experience, skill, know-how or processes, which enables SRCL-IB & SGB to apply the technology contained therein in terms of Ar....
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....g to more than 90 days in India within the 12 month period forming part of the relevant previous year. (iii) The SRCL-IB and SGB act as agent of the Appellant in India while performing various services which form part of core- business services of the re-insurance business of the Appellant in India. SRCL-IB and SGB were dependent upon the Appellant, both, economically and legally/contractually and therefore, could not be regarded as agents of independent status. Further, SRCL-IB and SGB through their management of entire customer relations were habitually securing orders for the Appellant. 3.10. Having held that the Appellant had a PE in India, the Assessing Officer proceeded to compute income attributable to the PE of the Appellant in India. By invoking provision contained in Rule 10(i) of the Income Tax Rules, 1962 (for short 'the Rules') the Assessing Officer computed profits of the Appellant at the rate of 10% of the Gross Receipts and thereafter, attributed 50% to the PE of the Appellant in India. 3.11. The Assessing Officer also rejected the contention of the Appellant that the fee received from SRCL-IB and SGB was not liable to tax in India and held that payme....
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....any business/operations in India. The Assessing Officer has, while arriving at conclusion that the Appellant carries on business in India, merely placed reliance on the retrocession agreements pertaining to the Run-Off Portfolio. With effect from January 2018, no fresh reinsurance contracts were executed by the Appellant directly with Indian cedents. Only the existing contracts were transferred by SRCL-SB to the Appellant. Accordingly, there was no underwriting or risk taking activity by the Appellant in relation to the Run-Off Portfolio as alleged by the Assessing Officer. Further, the business origination processes/activities in relation to the Run-Off Portfolio were already performed by SRCL-SB in the preceding years prior to the retrocession to the Appellant of the reinsurance contracts executed by the SRCL-SB with Indian cedents. Therefore, in respect of the Run-Off Portfolio, the question of SRCL-IB/SGB securing or concluding any contracts on behalf of the Appellant did not arise. Further, without prejudice to the aforesaid, the capital and major risk taking function which is reinsurance takes place outside India. SRCL-IB and SGB are separate legal entities and are governed b....
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....peal stand decided in favour of the Appellant by the decisions of the Mumbai Bench of the Tribunal in the case of Swiss Reinsurance Company Limited on which reliance was placed by the Appellant. Learned Departmental Representative submitted that in the aforesaid decisions the Tribunal was examining the existence of PE in terms of Article 5 of the Double Taxation Avoidance Agreement between India and Switzerland (for short 'Indo-Swiss Tax Treaty'). Article 5(4) of the Indo-Swiss Tax Treaty contained special provision related to reinsurance business which was absent in Article 5 of the Double Taxation Avoidance Agreement between India and Singapore. 5.1. Supporting the addition made by the Assessing Officer, the Learned Departmental Representative reiterated the stand taken by the Assessing Officer and made following oral submissions which were supported by written submission: (i) The Appellant has a Fixed Place PE in India as premises of SRCL-IB and SGB were at the disposal of the Appellant and the Assessing Officer has, in paragraph 9.10.5 of the final assessment order, has clearly brought out that business of the Appellant, both, for reinsurance and retrocession premiu....
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.... Further, SRCL-IB was also not economically independent. SRCL-IB was providing services only to the Assessee and their group companies. Therefore, SRCL-IB cannot be regarded as an Agent of Independent status within the meaning of Article 5(9) of the DTAA. From perusal of both the intra-group service agreements, it was clear that SRCL-IB and SGB were habitually securing orders for the Appellant as SRCL-IB/SGB were managing entire customer relations starting from liaisoning with the clients, conducting discussion with them to understand reinsurance needs, pain points in existing products, marketing support, to obtaining their request for proposal, working on it to obtain other information from clients to prepare a draft of underwriting proposal. SRCL-IB/SGB performed all core activities on behalf of the Appellant in India and the final entry into contracts though undertaken de facto by the Appellant were based on the vital inputs and functions performed by SRCL-IB and SGB in India. There hardly remained any further critical function to be performed outside India except for signing the contract. Hence, it can be held that SRCL-IB and SGB exercise the authority to significantly influen....
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.... under consideration, the Appellant did not provide any such written confirmation under the aforesaid clause to SRCL-IB and SGB to act on its behalf. Accordingly, it cannot be said that SRCL- IB/SGB had authority to act as agent of the Appellant during the relevant previous year. (iv) Neither SRCL-IB nor SGB assist/ support the Appellant in performing its responsibilities in the retrocession business nor do they render to the Appellant any support services in relation to the retrocession business undertaken by the Appellant. 7 We have heard the rival submission and perused the material on record. We have also taken into consideration the judicial precedents cited during the course of hearing and have taken into consideration the submission filed by the Learned Departmental Representative and the Synopsis filed on behalf of the Assessee. 7.1. We would first deal with the primary contention advanced on behalf of the Appellant that the objection raised by the Appellant were rejected by the DRP only to keep the issue alive while admitting that issue stood decided in favour of the Appellant in the case of Swiss Reinsurance Company Limited (SRCL) a sister concern of the Ap....
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....hment (DAPE) comes into play. The AO further noted that as per the domestic Income Tax Act, 1961, since the income of the assessee is being earned from India on a regular and continuous basis, the income of the assessee is taxable in India in terms of section 9(1)(i) of the Act. The assessee has regular flow of income emanating from India, hence, the assessee has clear cut business connection in India. 2.2 The AO gave the assessee an opportunity to substantiate its claim that the reinsurance premium receipts of the company are not taxable in India. The assessee filed a detailed reply explaining the nature of activities of the assessee. It was explained and strongly contended that services provided by SRSIPL do not create existence of a PE in India. It was explained that SRSIPL is a separate legal entity and its entire control and management is in India. The decisions regarding its business are taken and executed in India. It is both legally and functionally independent company. It was explained that the employees of SRSIPL render services to SRSIPL and not to the assessee, either as assessee's employees or on behalf of SRSIPL. It was pointed out to the AO that the pricing ....
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....lawed. 2.5 The AO further proceeded by treating SRSIPL as a PE of the assessee in India. The AO treated SRSIPL not only as a service PE of the assessee but also as agency PE/ DAPE. Having held all that the AO went on to attribute the taxable profit and calculated the attribution at 50% of income and completed the assessment. 2.6 Strong objections were raised before the DRP but without any success. Aggrieved by this the assessee is before us. 5. Having heard the rival submissions, we have carefully perused the orders of the authorities below and the relevant documentary evidences brought to our notice in the light of judicial decisions relied upon by both sides. To begin with, let us first consider the relevant clauses of the service agreement between Singapore Branch of the assessee and Swiss Re-services India Pvt. Ltd. i.e. SRSIPL. "1.1.3 Forwarding routine communication from the Branch of SRZ to the Clients (other than contracts of re-insurance and confirmation of liability) after translating in local language, where required. 1.6 The Company hereby acknowledges and confirms that it is not the agent, broker or legal representative of t....
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.... or (c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident: Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business : Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to as the principal non-resident) or on behalf of such non-resident and other nonresidents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non- resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status." 5.2 A perusal of the facts of the case in hand go to show that none o....
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....t on any of the above raised objections. If that be the case, the AO is directed to keep the issue alive in the interest of revenue and make suitable adjustments / additions on the issues raised above. 29. The Assessing Officer shall give effect to the above directions as per provisions of section 144C(13) of the Income-tax Act, 1961." 6. This aspect has been duly acknowledged by the Assessing Officer in his order as under:- "10. The assessee had contested the above contention before the Hon'ble Disputes Resolution Panel-2, Mumbai. Hon'ble DRP vide its order u/s 144C(5) of the I.T. Act, 1961 dated 28.09.2016 has given its findings relying on the decision of the Hon'ble ITAT in the assessee's own case for A.Y. 2010-11 and the decision of the Hon'ble DRP in Assessee's own case for A.Y. 2011-12 and 2012-13. Hon'ble Mumbai ITAT in paragraphs 5.2 to 5.06 of its order held that the assessee does not have service PE in India and respectfully following the said order the DRP has held that the SRSIPL is not an agent of the assessee in India and it neither concludes any contracts on behalf of the assessee nor solicit any orders for the assessee. Further, the servic....
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....only with the object of keeping the issue alive, and therefore, the Tribunal decided the appeal in favour of the assessee in that case taking note of the fact that the DRP has rejected objection only to keep the issue alive. 7.7. We note that in identical manner the DPR has disposed off the objections raised by the Appellant in the case before us holding as under: "8.2.4 Now, it is seen that the arguments and the ratio given by the AO in his present draft order for making the impugned addition already stand adjudicated by the ITAT in the case of a sister concern in identical facts and circumstances. However, it is to be hastily added here that all the same, the department has not accepted the decision of the Hon'ble ITAT in SRCL and further appeal against the same is pending before the Hon'ble Bombay HC. This is an accepted fact. Further, the Hon'ble Bombay HC in the Vodafone decision has already held that the DRP proceedings are nothing but an extension of the assessment proceedings only. Therefore, in order to keep the issue alive, the additions made by the AO have to be confirmed only and consequently, the objections of the assessee have to be rejec....
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....logy to SRCL-IB and SGB for further exploitation and use as income- generating inputs. The DRP also observed that services provided were of enduring nature and were being provided continuously on a year-on-year basis. Hence, the same were liable to be treated as Fee for Technical Services. 8.1. We note that while examining the applicability of provisions contained in Section 9(1)(vii) of the Act read with Explanation 2, the Assessing Officer had, in paragraph 9.11.5, noted that even the rendering of any services by a technical or other personnel without any technology being transferred would also fall within the ambit of fee for technical services. At the same time, in paragraph 9.11.6 of the Final Assessment Order while examining the applicability of provisions contained in Section 12(4) of the DTAA, the Assessing Officer has noted that in order to satisfy the requirement of 'make available' contained therein the recipient of service should be in a position to utilize the knowledge or know how in future on his own. However, on perusal of the Assessment Order, we find that the Assessing Officer has brought nothing on record to show that the services rendered made available any t....