TaxTMI 
TaxTMI 
2023 (6) TMI 1430
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...., are re-produced as under: 1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case. 2.1 The Ld.CIT(A) erred in directing the assessing officer to restrict the disallowance u/s.40(a)(i) in respect of re-insurance premium ceded to non-resident re-insurer, to 15% of such payments. 2.2 The Ld. CIT(A) erred in arbitrarily estimating the profit element in the sums received by the non-resident re-insurer at 15% and therefore directing the A.O to restrict the disallowance u/s. sec40(a)(i) to 15%. 2.3 The Ld.CIT(A) failed to appreciate that such arbitrary estimation of profit element, is a clear violation of the principles laid down by Hon'ble Supreme Court in the case of G.E India Technology Centre Pvt. Ltd., (327!TR 456). 2.4 The Ld. CIT(A) ought to have appreciated that in the above cited case, the Supreme Court has clearly laid down that in cases where the payment made is a composite payment in which certain proportion of payment has an element of 'incomer chargeable to tax in India and if the assessee is not sure as to what is the taxable portion of the sum paid, he is required to make an applic....
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....yal & Sons Alliance PLC Rs.18,49,458/- 6.2. The CIT(A) failed to appreciate that as per Board's circular No.715 of 1995 reimbursement of expenditure should also be considered for the purpose of TDS and in the instant case since the reimbursement has been made to persons to whom technical fees has been paid and ought to Have upheld the disallowance. 6.3. The CIT(A) failed to appreciate that the survey fees has been paid for survey activities of various surveyors which amounts to payment towards technical and managerial support to the assassee for the purpose of its business, which would clearly fall under Explanation 2 section 9(1)(vii) 6.4. The CIT(A) ought to have followed the decision of Authority on Advance Rulings in the case of Steffen, Robertson and Kirsten Consulting Engineers and Scientists Vs. C!T. 230 ITR 206 where it was held that an expenditure shall be considered for TDS u/s.195 if the benefits arrived out of the above expenditure is utilized in India. 7.1. The CIT(A) erred in deleting the disallowance u/s.40(a)(ia) in respect of commission payments for the receipt of reinsurance premium. 7.2. The CIT(A) failed to apprec....
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....scertained. 10. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored. 3. The brief facts of the case are that appeals filed by the Department against the order of Ld.CIT(A) dated 29.07.2011 & 26.03.2013 were earlier disposed off by the Tribunal vide order dated 26.08.2018. The Order of the Tribunal dated 26.08.2018 was challenged by the assessee before the Hon'ble Madras High Court on the following issues: i) Disallowance of reinsurance premium paid to Non-resident reinsurers. ii) Addition of profit on sale of investment. iii) Disallowance u/s.14A. The Hon'ble Madras High Court allowed the appeals filed by the assessee vide order dated 18.11.2021 in TCA Nos.839, 842, 848, 852, 853 & 854 of 2018, and remanded the issue of disallowance of reinsurance premium paid to non-resident reinsurers to the file of the Tribunal to decide the issue in line with the decision made by the Hon'ble Madras High Court in the case of Cholamandalam MS General Insurance Co. Ltd. v. CIT reported in [2019] 411 ITR 386 (Madras). The Hon'ble....
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....rial available on record and gone through orders of the authorities below. The assessee is an insurance company engaged in the business in General insurance in terms of IRDAI regulations and Insurance Act, 1938. The business of the assessee is regulated by IRDAI through various regulations. All the insurance companies which are carrying on insurance business in India have to necessarily comply with provisions of the Insurance Act, 1938 as amended and rules there under. The contract of insurance and contract of reinsurance are two separate and distinct contracts. The reinsurance contract is completely independent of contract of insurance between insured and insurer. The term 'reinsurance' was not defined under the Insurance Act, 1938 until 2015. However, by Insurance Laws (Amendment) Act, 2015, definition of term 'reinsurance' was inserted in the Insurance Act, 1938. As per which, the term 'reinsurance' means insurance of part of one insurer's risk by another insurer, who accepts risk for mutually acceptable premium. Therefore, the assessee being in general insurance business as part of their strategy has taken reinsurance policy with reinsurance companies. Further, every insurance ....
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....evenue are not entitled to place any fresh materials before the Tribunal so as to enable the Tribunal to take decision. Therefore, from the above, it is very clear that controversy with regard non-compliance with provisions of Insurance Act, 1938 and regulations made there under by the IRDAi is put to rest by the Hon'ble High Court and the Tribunal does not have power to examine legality or otherwise of payment made by the assessee to non-resident reinsurance companies. Therefore, issue on hand should be decided only in the context of payment made by the assessee to NRRI in light of provisions of Income Tax Act, 1961, and relevant DTAA between India and other contracting States. 9. The Assessing Officer has disallowed reinsurance premium ceded to non-residents on the sole premise of non-deduction of tax at source u/s.195 of the Income Tax Act, 1961. According to the Assessing Officer, income of NRRI are accrued or arose in India and or deemed to have accrued or arose in India, because they have business connection in India in respect of reinsurance business. Therefore, the Assessing Officer held that wherever there is no DTAA between India and other contracting States,....
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....geable u/s.5 r.w.s. 9(1) of the Act, only if income is received or deemed to have been received or income accrues or is deemed to accrue in India. Further, wherever DTAA applies, income chargeable to tax has to be additionally considered under terms of relevant DTAA. In the present case, reinsurance premium ceded to non-resident reinsurers is not chargeable to tax in India under the Income Tax Act, 1961, because income is not received in India, which is evident from fact that except for payment to Indian brokers in few cases, all other payments of reinsurance premium to NRRI have been paid outside India to non-resident brokers or NRRI bank account. Further, payment to brokers in India would not tantamount to receipt in India, having regard to ratio of the judgment of the Hon'ble Supreme Court in the case of Toshoku Ltd. Vs. CIT (1980) 125 ITR 525 (SC), where it was held that amounts credited in favour of non-resident were not at the disposal or control of statutory agent and therefore, cannot be charged to tax on the basis of receipt of income, actual or constructive in the taxable countries. Further, even assuming for a moment, payment to resident brokers is treated as receive....
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.... 11. We, further, noted that income of NRRI are not deemed to accrue or arise in India, because reinsurance premium ceded to non-resident foreign insurers are raising in India only where the same arises out of business connection in India and even if, exists business connection, the business operations are carried out in India. In the present case, nor do foreign insurers have any fixed place of business in India, neither do they carry on any business operations in India. The term 'business connection' is defined in Explanation 2 below section 9(1)(i) of the Act. None of the conditions that are required to be fulfilled before existence of business connection can be established or complied with. Although, the Assessing Officer has heavily based his finding in light of reinsurance brokers insofar as with NRRI, but fact remains that brokers are merely acting as facilitator or communication channel and do not engage themselves in negotiation of terms or finalize percentage of reinsurance contract. The brokers act in their independent capacity as service provider and are neither agents of the assessee nor agents of the NRRI. The Revenue has not brought any material on record to s....
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....ndia. Although, the Assessing Officer observed that place of signing of agreement is material to decide business connection, but it was categorically held by the Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd. Vs. DIT, 288 ITR 408 (SC) that contract signed in India is of no material consequence. In the present case, signing of reinsurance treaty is either in India or outside India cannot be a ground that income has deemed to accrue or arise in India. 13. Let us now come to chargeability of reinsurance premium ceded to NRRI under DTAA. It is an admitted fact that provisions of Act or provisions of DTAA, whichever is more favorable to the assessee, can be invoked to determine taxability of premium paid to reinsurance companies. It is an undisputed position that reinsurance premium is business profits for reinsurer and therefore, taxability thereof will have to be tested in terms of Article 7 of the respective DTAAs. As per Article 7, business profits are taxable in India only if, foreign reinsurers have PE in India. The assessee has paid reinsurance premium to various NRR. In some cases, NRR are resident of countries where India is ha....
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....the NRRI. In the present case, reinsurance brokers act in their independent capacity and they are not dependent agency of the assessee as well as non-resident insurers. They do not conclude any contract for NRRI and thus, we are of the considered view that there cannot be said to constitute business connection for agency PE for foreign reinsurers in India. The Revenue has also not placed any material on record to demonstrate that reinsurance brokers constitute agency PE for NRRI under DTAA. Therefore, in our considered view, foreign reinsurers do not have PE or business connection in India under relevant DTAA or the I.T. Act, 1961. Therefore, payments are not chargeable to tax in India and are not liable to deduct tax at source u/s.195 of the Act. Consequently, disallowance u/s.40(a)(i) of the Act is wholly unwarranted. Further, the IRDAI which is regulatory authority of Insurance companies has also written letter dated 07.05.2008 to CBDT stating that NRR having reinsurance arrangements with Indian insurers do not have PE or branch in India. In respect of reinsurance arrangements with brokers, IRDAI has stated that brokers are not agents of NRR and carry out transaction on principa....
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....urance premium received by the NRRI from Indian reinsurer is not taxable in India both under the Act and the DTAA. (ii) DCIT ICICI Lombard General Insurance Co. Ltd. - ITA No. 2769 Mum, 2011 dt. 30/08/2013 Summary: :In the case of the Indian insurer (ICICI Lombard General Insurance Co. Ltd) the AO disallowed a sum of Rs. 5.84 crores paid to the NRRI in respect of reinsurance premium as no tax was deducted under section 195 and the same could not be considered as business expenditure. The CIT(A) held that the payment made to the NRRI was not taxable in India. On appeal by the Revenue, the Mumbai Tribunal, confirmed the order of the CIT(A) and held that the NRRI did not have any PE in India and, therefore, the reinsurance premium was not taxable in India. (iii) ICICI Lombard General Insurance Co. Ltd. v ACIT- ITA No. 5777/Mum/2011 dt. 14/11/201414 Summary: In the case of Indian insurer (ICICI Lombard General Insurance Co. Ltd) the CIT invoked provisions of section 263 to disallow a sum of Rs. 16.85 crores under section 40(a)(i) in respect of reinsurance premium paid to NRRI. The Mumbai Bench of the Tribunal following the order of the co-ordinate be....
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....e the existence of business connection in India within the meaning of section 9(1)(i) or PE under the DTAA. (d) The Tribunal rejected the argument of the AO that there is business connection on account of regular and continuous activity. (e) Activities of subsidiary which are merely in nature of support services do not constitute PE of the NRRI. It also found that the subsidiary had no authority to conclude contract or settle claims on its own or on behalf of the NRRI. (f) The Tribunal also found that in reinsurance arrangements the privity of contract is between the Indian Insurer and the NRRI (g) The Tribunal also held that the manner and mode of carrying on of the transaction is not the proper test to determine whether there exists a fixed place of business or not. (h) The Tribunal concurred with views expressed by co-ordinate benches in the case of Swiss Reinsurance Co. Ltd., Bajaj Allianz General Insurance Co. Ltd. and Bharati AXA Life Insurance Co. Ltd. Therefore, on all counts the foreign reinsurance company earning reinsurance premium from Indian Insurance companies was not liable for tax in India. (vii) ITO v B....
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.... Corporation, Singapore for providing reinsurance business, without deduction of tax at source and applicability of provisions of Section 40(a)(i) of the Act. We find that the Tribunal in the aforesaid case placed reliance in assessee‟s own case for A.Y.2004-05 reported in 152 ITD 855 and also in yet another case rendered in the context of revision proceedings u/s.263 of the Act in ITA No.5777/Mum/2011, had quashed the revision proceedings u/s.263 of the Act by observing as under:- ―2.3. Thus, the Tribunal by the aforesaid order held that invocation of revisional jurisdiction was not valid. In view of this uncontroverted factual matrix, the appeal of the Revenue is dismissed as infructuous.‖ 3.18. We further find that the Co-ordinate Bench of this Tribunal in the case of General Reinsurance AG, General Reinsurance AG India Branch vs. DCIT in ITA No.7433/Mum/2018 for A.Y.2015- 16 dated 14/06/2019 had an occasion to address the same issue from the perspective of the recipient foreign company. In the said Tribunal order dated 14/06/2019, in para 5, this Tribunal had categorically stated that assessee company in that case had challenged the decision of the income tax ....
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.... when the assessee has filed a return of income as it had some taxable income, while in the past years there was no taxable income. In the past, there was no income other than premium on reinsurance business, yet the existence of LO since 2007 is in the knowledge of the assessing authority and no steps have been taken in any of the earlier years to construe the activities of the LO as constituting a 'business connection' or a PE of assessee in India. The learned representative asserted that it is only in this year that the function of the LO (for part of the year) has been understood by the Assessing Officer to be giving rise to a 'business connection' or existence of PE in India so as to hold that the income from the premium on reinsurance earned by the assessee is taxable in India. In our considered opinion, factually as well as on point of law, we do not find any merit in the stand of the Revenue that the activities of the LO of assessee generate any scope for treating it as a PE of assessee in India or a 'business connection' in India. We say so for the reason that the conditions under which the LO has been allowed to operate clearly bring out that the a....
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....he nature and scope of the services rendered by the Indian subsidiary in the earlier paras 12 and 13 above. In fact, the Assessing Officer is grossly wrong in holding in para 9.7.8 of his order that all the functions with respect to the claim settlement are carried out by the Indian subsidiary itself; rather, it is a case where the Indian subsidiary provides support functions and assists the assessee in such matters. The privity of contract is between the assessee and the Indian insurance companies and, it is abundantly clear from the terms of engagement between the assessee and the Indian subsidiary that the Indian subsidiary is not authorised to execute any contract or settle claims on its own or on behalf of the assessee. In fact, there is no factual support for the stand of the Assessing Officer, as there is nothing either as per the Service agreement or any material to say that the Indian subsidiary has provided actuarial and risk underwriting services, which are core and crucial activities of the reinsurance business. Even the use of 'Electronic Underwriting Software' by the Indian subsidiary is a misnomer. The software is a standard tool which is used by global entit....
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....e case of E funds IT Solution Inc (supra), in the present case too, the arguments of the Revenue do not deserve any indulgence. Accordingly, the same are rejected. 20. So far as the case of the Revenue that there is a dependent PE in India is concerned, herein also, the Revenue has merely brushed aside the claim of the assessee that the Indian subsidiary does not have any authority to secure contracts or solicit business on its behalf in India independent of the assessee. According to the Revenue, the Indian subsidiary uses brand name of the assessee while carrying out its activities in India. In our view, the same cannot be a ground to say that there existed a dependent PE in India. In fact, a point which has been emphasised before us is that the assertions of the Revenue that the Indian subsidiary has a decision making authority is a mere bald assertion and is devoid of any factual support. We have perused the order of the Assessing Officer as well as of the DRP and find that the assertions of the assessee in this regard have been completely brushed aside. The income- tax authorities have not referred to any particular arrangement or agreement or any other piece of evidence to sh....
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....y invoking 'business connection' in terms of Sec. 9(1)(i) of the Act as well as treating the Indian subsidiary as a PE in India. In nutshell, the facts as well as the dispute before our co-ordinate Bench in the case of Swiss re-Insurance Co. Ltd. (supra) stood on a similar footing as is the case before us. Our co- ordinate Bench considered the provisions of Explanation-2 to Sec. 9(1) of the Act as well as the provisions of India Switzerland DTAA, which was the subject matter before it, and concluded that the foreign company therein did not have any 'business connection' in India or a PE in India. The aforesaid precedent fully supports the inference which has been drawn by us in the earlier paras. Similarly, in the context of Sections 201/201(1A) of the Act proceedings in the ITA Nos. 4805 to 4808/Mum/2015 dated 05.07.2017 in the case of M/s. Bharti-AXA Life Insurance Co. Ltd., the foreign company in India was held not to be liable for tax in India on its reinsurance premium earned from the Indian insurance companies. In fact, our co-ordinate Bench in the case of M/s. Bharti-AXA Life Insurance Co. Ltd. (supra) followed the earlier decision in the case of Swiss re-Ins....
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....nored by the ld. CIT(A) while adjudicating the issue. 3.21. We further find that the Co- ordinate Bench decision of this Tribunal in Swiss Reinsurance Co. Ltd., vs. DDIT International Taxation, Mumbai reported in 55 taxmann.com 520 (Mumbai Trib.) dated 13/02/2015 for A.Y.2010-11 had also addressed the very same issue. The relevant operative portion of the said order is reproduced here under:- "5.3 Assuming that conditions of (i) & (ii) mentioned herein above are fulfilled, we do not find that the employees of SRSIPL are providing services to the assessee as if they were the employees of the assessee. Therefore, condition laid down under Article-5 of the Treaty are also not fulfilled to treat SRSIPL as PE of the assessee. Article 5(4) of the Treaty reads as under:- "Notwithstanding the preceding provisions of this Article, an insurance enterprise of Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of an independent status to whom paragraph 6 applies." 3.22. From the perusal....
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....sessment year 2007-08 has no legs to stand. Further, the learned CIT(A) for the assessment year 2007-08 did not follow order of his predecessor for the assessment year 2005-06 on the ground that judgment of the Hon'ble Bombay High Court in Vodafone International Holdings (supra) and of the Hon'ble Supreme Court in the case of Kanchan ganga were not considered. We find that the Hon'ble Supreme Court has reversed decision of the Hon'ble Bombay High Court in the case of Vodafone International Holdings and thus, basis of the CIT(A) to rest his decision on basis of said judgment is no longer justifiable. As regards decision of the Hon'ble Supreme Court in the case of Kanjan ganga, we find that facts of the said case is completely distinguishable and only issue which was decided therein was whether there was receipt of income in India which gave rise to a charge. In this case, it was clearly held that sum paid by the assessee to NRR is not taxable in India under the Act as well as DTAA between India and respective countries and thus, case laws relied upon by the Assessing Officer on the issue is incorrect. 17. In this view of the matter and considering facts and circ....
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....uthorities below. We find that an identical issue has been considered by the Tribunal in the case of Cholamandalam MS General Insurance Co. v. DCIT (supra) where the Tribunal by considering relevant facts and also by following the decision of the Hon'ble Madras High Court in the case of CIT v. United India Insurance Co. (supra), held that profit on sale of investment is not taxable in the hands of insurance company. The relevant findings of the Tribunal are as under: 54. We have heard both the parties, perused material available on record and gone through orders of the authorities below. We find that the Hon'ble High Court of Madras had considered an identical issue in the case of United India Insurance Co. Vs.CIT (2019) 111 taxmann.com 217(Mad) and held that profit on sale of investments is not taxable in the hands of insurance companies. We further noted that the ITAT, Chennai has upheld decision of the learned CIT(A) in the case of Royal Sundaram Alliance General Insurance Co.Ltd. (supra) and held that profit on sale of investments is not taxable in the hands of insurance companies. The ITAT., Pune Bench in the case of M/s.Bajaj Allianz General Insurance Co. Ltd. Vs....