TaxTMI 
TaxTMI 
2022 (8) TMI 1549
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....tions made by the Assessing Officer towards reinsurance premium ceded to non-resident reinsurance companies u/s 40(a)(i) of the Act. Since, only common issue in all appeals filed by the revenue is on disallowance of reinsurance premium u/s 40(a)(i) of the Act, we deem it appropriate not to reproduce grounds of appeal filed by the Revenue. 3. The brief facts of the case are that the assessee is public sector general insurance company (fully owned by Government of India) carrying on general insurance business in India. The assessee is governed by the Insurance Act, 1938 and the Insurance Regulatory and Development Authority (IRDA) Act, 1999. The business of general insurance is to cover various properties against various covered perils. The policies are issued by various branches/divisional offices for which they collect premium from the insuring public. The reinsurance is not given by one insurer to the other insurer on the basis of specific solicited action or otherwise, rather it is on the basis of framework of insurance business. As per the Insurance Regulatory and Development Authority of India (IRDAI) regulations, an Indian insurance company is required to take as much as ri....
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....ofit assessable as business income in the hands of nonresident reinsurers. Further, in certain DTAA between Indian and contracting states there is a specific exclusion of reinsurance premium from the definition of business profits. In some cases, though there is no specific exclusion income of non-resident cannot be taxed in India, unless there is a permanent establishment in India and further the business of the non-residents are carried out from the place where the permanent establishment is there. In absence of any permanent establishment, the business profits cannot be taxed in India in terms of DTAA between India and respective countries. 6. The CIT(A), after considering relevant submissions of the assessee held that the business in relation to reinsurance premium and property is situated in India. Further, there is real and intimate relation between the business activities of the NRRIs situated outside India and activities in India. The NRRI will have no income if the assets situated in India are not insured. The NRRI have regular source of income from India and there is a continuity of relationship. Therefore, the CIT(A) was of the opinion that the nonresident reinsurer h....
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....tted that the income of non-resident reinsurer is not liable to tax in India u/s. 9(1)(i) of the Act, because in absence of any business connection in India income of the nonresident cannot be taxed u/s. 9 of the Act. The NRRI could not be hit by the deeming provisions of section 9(1)(i) of the Act, as clause (a) of sub-section (1) of section 9 provides that in the case of business of which all operations are not carried out in India, the income of the business deemed under the clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. If no operations of business are carried out in India, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India. In the present case, as per IRDAI regulations, none of the NRRIs should have a business presence in India either directly or indirectly. This is amply evidenced by the IRDAI letter to the CBDT dated 07.05.2008. Therefore in absence of any business connection, question of income deemed to accrue or arise in India in terms of section 9(1)(i) of the Act does not arise. ....
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....g public. The premium received on such insurance policy belongs to the insurance company. Insurance is the business of covering risks. 8. Reinsurance business is not given by one insurer to the other insurer on the basis of any specific solicited Action or otherwise, rather it is on the basis of the frame work of Insurance business. 9. As per the Insurance Regulatory and Development Authority (IRDA) regulations an Indian insurance company is required to take as much risk on its own account as is possible having regard to its financial strength and volume of business. To the extent an insurance company is unable to retain the risk, that portion is reinsured with a reinsurance company (situated in India or overseas). In respect of risks accepted by it where the liability is likely to be higher than its capacity to pay, reinsurance arrangement is made in India with other companies and/or with companies abroad carrying on reinsurance business. Thus, the principle of reinsurance is to distribute the risks in such a manner that there is a global spread of risks thereby ensuring that in the event of a large loss, one individual company is not drained and continuity of op....
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....ion of a wider spread of exposure. Insurance of insured risk is called Reinsurance. 11. The transfer of risk and consequent remittance of premium to foreign insurers is not a commercial operation in a true sense but, a risk management operation with the sole purpose of ensuring entity's survival and continuity and also to avoid extreme swing in the operational results. In fact, by resorting to reinsurance operations, the insurer brings about stability in its bottom line. 12. Types of policies issued by the assessee is enclosed in Annexure 1 (page 1). 13. As per the Insurance Regulatory and Development Authority (IRDA) regulations an Indian insurance company is required to take as much risk on its own account as is possible having regard to its financial strength and volume of business. To the extent an insurance company does not want to retain the risk/unable to retain the risk, that portion is reinsured with a reinsurance company (situated in India or overseas). 14. In respect of risks accepted by an insurance company where the liability (on the happening of an event) is likely to be higher than its capacity to pay, reinsurance arrangement i....
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....on the basis of the framework of Insurance business. 21. The main factors that are taken into consideration are Probable Maximum Loss for a particular risk, the sums insured for different types of risks, the capacity of the relevant insurer to bear the loss that may arise from any risk, etc. 22. Reinsurance contracts does not affect the relationship between the insured and the direct insurer for it is in his own capacity that the insurer picks up the risk which in turn is placed with the reinsurer. The cedant while accepting an insurance policy is not acting on behalf of the reinsurer. Similarly, the agreement entered between the insured and the insurer/cedant does not involve the reinsurer for it is a contract only between the cedant and the insured and cannot be mixed up with the contract which the cedant subsequently/simultaneously enters with the reinsurer. As the contracts are different which are distinct from each other, in the event of any reinsurer failing to honor the reinsurance contract, the insurer cannot escape from his liability to the direct insured. Conversely, the insured has no recourse against any reinsurer in the event of default of the insurer....
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....r. d. the contract between the cedant and the insured cannot be linked with the contract which the cedant enters with the reinsurer. e. As the contracts are different which are distinct from each other, in the event of any reinsurer failing to honor the reinsurance contract, the insurer cannot escape from his liability to the direct insured i.e. the liability of the insurer to indemnify the insured is absolute and is not based on reimbursement by the reinsurer for the insurer (the cedant) while accepting an insurance policy is not acting on behalf of the reinsurer but in his own capacity. f. Conversely, the insured has no recourse against any reinsurer in the event of the default of the insurer. In fact, the insured may not be aware of the existence of reinsurance as the contract of reinsurance is between the insurer and the reinsurer and the insured is not privy to the contract and vice versa. g. Location of the assets to which the primary insurance policy relates to or where the insured perils takes place is not relevant in the contract of reinsurance as the contract of reinsurance is independent to the primary contract of insurance (which is b....
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.... to the assessee on behalf of NRR. Thus the business of the brokers and the NRRs are totally different. A chart explaining the role of the brokers is given in Annexure 9 (page 13). 32. The assessee submits the following facts are very relevant to the issue: a. As per section 2C of the Insurance Act, a foreign reinsurer cannot carry on the reinsurance activities in India directly unless they have obtained a license from the IRDA. Admittedly none of the foreign reinsurance companies, neither have any presence or place of business in India (ither through representative offices/Branch Offices/subsidiaries) nor have license from IRDA to operate in India. b. Reinsurance is a contract of risk and neither of goods nor of services and hence does not require rendering of any service or delivery of goods. The NRR can take risks only based on his credit worthiness. The credit worthiness of the NRR depends upon his material worth/financial standing- neither of which is in India. Therefore, the income of the business accrues at the reinsurer's office outside India and he can have no liability to pay Indian income tax on the remittance of reinsurance premium. ....
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.... picture at the time of entering the original contract between the Insured and Insurer (assessee). 36. As reinsurance contracts is neither a contract of goods nor of services, but a contract of risk and the risk is taken by the NRRs where the capacity to take risk is situated- which is outside India. 37. As the reinsurance premium is paid for undertaking the risk, and since the NRR assumes the risk outside India the premium income accrues to the NRRs outside India and receivable outside India, as they have assumed the 'risk' from outside India. 38. The business of reinsurance is a business of accepting risk and hence cannot be brought to tax as Fees for Technical Service, but, only as business income. Hence, unless the underwriter/reinsurers carry any business operations in India, nothing can be brought to tax in India by virtue of Explanation 1 to Section 9(1)(i) of the Act. 39. The IRDA regulations also provide that a NRR cannot any insurance business in India. 40. As no activity of the NRR is done in India, he does not have any operations in India, the income of NRR does not accrue or arise or deemed to accrue or arise in Indi....
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....a. conclude contracts; b. has a stock of goods/merchandise and sells the same in India; c. some of the activities of the NRR is done in India i.e. extension of the income generating activity. 46. Further if a resident and a non-resident are controlled by or subject to the same common control it could lead to a business connection. In the present case none of the above exists. 47. The NRR could not be hit by the deeming provisions contained in section 9(1)(i) of the Act, as clause {a) of (i) of subsection (1) of section 9 provides that in the case of a business of which all operations are not carried out in India, the income of the business deemed under the clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. If no operations of business are carried out in India, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India. In the present case: a. As per IRDAI regulations none of the NRRs should have a business presence in India either directly or indirectly. This ....
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.... universally accepted for purposes of relief under Double Tax Avoidance Agreements. Where there is no business connection, there may not be any liability under the Indian law. Where there is no liability under the Indian law, there is no need for considering the further question, whether the same set of facts could justify the inference of permanent establishment. Since in assessee's case there could be no liability in domestic law, it is submitted that the question of application of the concept of permanent establishment does not arise. Issue of applicability of provisions relating to Tax Deducted at Source (TDS): 55. The AO has made the disallowance u/s 40(a)(i) of the Act because tax has not been deducted on the payments made to the NRRs as per section 195 of the Act. 56. The Courts have held in many cases that where question of failure to deduct tax at source u/s 195 is to be decided, the basic question to be considered is whether the recipient situated overseas has rendered any service in India and in case, foreign company did not render any service in India, no income accrued or arose in India, and hence the question of deduction of tax at sourc....
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....supposes an element of continuity between the business of the non-resident and the activity in the taxable territory. Business connection may take several forms; it may include carrying on a part of the main business or activity incidental to the non-resident through an agent or it may merely be a relation between the business of the non-resident and the activity in the taxable territory which facilitates or assists the carrying on of that business. A relation to be a "business connection" must be real and intimate and through or from which income must accrue or arise whether directly or indirectly to the non-resident. 59. In the case of Commissioner of Income tax vs. Toshoku Ltd. 125 !TR 525 (SC) the Honorable Supreme Court held that where the nonresident assessee did not carry on any business operation in the taxable territories, his relationship does not amount to be an operation carried out by the assessee in India as contemplated by clause "a" of the explanation to sec. 9(1)(i) of the Income tax Act, 1961 and hence the income earned by the nonresident assessee could not be deemed to be incomes which had either accrued or arisen in India. 60. The Bombay High C....
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.... in the kingdom and might have accrued in the kingdom. I think, therefore, that the words ' arising or accruing ' are general words descriptive of a right to receive profits". 62. The Supreme Court of India in the case of Anglo-French Textile Company Ltd. v. Commissioner of Income-Tax (25 ITR 27) has held on a question whether a particular part of the income, profits or gains arose or accrued within the taxable territories or outside the taxable territories would have to be decided having regard to the general principles as to where the income, profits or gains could be said to arise or accrue; 63. The Supreme Court of India in the case of Shoorji Vallabhdas & Co. v. Commissioner of Income-Tax (39 ITR 775) while dealing with the question as to whether a part of the managing agency commission earned by the assessee accrue or arise in the Cochin State inasmuch as the managing agency commission is computed on the basis of the freight earned by the managed company in the Cochin State have held that (a) the test is to find out where the business is actually done, i.e., where the services are performed, and (b) the right to managing agency commission arose and t....
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....ate in India. Foreign insurers cannot set up an insurance/reinsurance venture in the country. Thus, no foreign insurer has/can be said to have a PE or a branch as stipulated under the Act. Hence taxability of the reinsurance premium in India in the hands of the NRRs does not arise. 65. The applicability of TDS provisions is only in respect of income chargeable to tax has been explained in the judgments of the Supreme Court of India in the cases of Commissioner of Income-Tax v. Eli Lilly & Co. (India) P Ltd (312 ITR 225); GE India Technology Centre Private Ltd Vs CIT (2010-TII-07-SC-INTL) and Vijay Ship Breaking Corporation v. CIT (314 ITR 309). In the aforesaid cases, the Supreme Court has held that taxes would need to be withheld only if the sum payable is chargeable to tax under the provisions of the Act. As in this case it is the contention of the assessee that no portion of payment is liable to tax, the question of application of section 195(2) does not arise because, as the section itself categorically provides that it comes in to play "where the person responsible for paying any sum chargeable under this Act (other than salary to a non-resident) considers that whole ....
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....iness connection or permanent establishment in India, the payments made by an assessee to a foreign insurer is not chargeable to tax in India in the hands of the foreign reinsurer in terms of Section 195(1) of the Income Tax Act and therefore there is no obligation on the part of the assessee payer to deduct tax at source thereon. It further held that in view of the above, the provisions of Section 40(a)(i) of the Act would not come into operation at all. International examples as to taxation of Non-Resident Insurance companies: 68. The UN Model of the Double Tax Avoidance Agreement ("DTAA'') also includes an additional Article viz., Article 5(6) that deems an insurance enterprise to have a PE in a state (except with respect to reinsurance) if "it collects premiums in the territory of that other State or insures risks situated therein". Thus, it was the intention of the UN Model DTAA formulators to include direct insurance and exclude reinsurance from the taxation of the state in which the premiums are collected. Article 5 (6) of the UN Model of the DTAA is as under: "Notwithstanding the preceding provisions of this article, an insurance enterprise of a Co....
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....surance company or underwriter which deals only with other insurance companies as its policyholders. Other Submissions: 74. Even assuming but not admitting that the NRR's are liable to be taxed in India on their income u/s 5(2) of the Income Tax Act, 1961 as business income in India, then only net income after deducting expenses incurred for earning such reinsurance premium income can be taxed in India, i.e. after deducting commission payable to the Indian Insurance Company out of premiums, brokerage payable to Brokers through whom the business is placed (wherever applicable) and claims on account of the said reinsurance business which is retained by them while paying the premium. The books of the assessee clearly reflects underwriting loss year-onyear and hence by the same logic the reinsurer does not make any profits with respect to reinsurance contracts. The details of loss from the insurance operations of the assessee for the assessment years 2003-04 to 2013-14 are given in Annexure 12 (page 20) 75. The assessee further submits that there exists reciprocity between the Indian insurer acting as a reinsurer to the foreign reinsurer in many of the co....
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....ce Company Limited) having accepted a risk, transfers either fully or partially to another Company called Reinsurer, in order to reduce its own liability in the event of a loss or damage to the risk. Reinsurer has the same economic objective as insurance generally, i.e. the transfer and consequent elimination or reduction of risk by creation of a wider spread of exposure. Insurance of insured risk is called Reinsurance. The Insurer issues policies covering the risks of its clients (insured) in their own name and not in the name of the re-insurance companies. Re-insurance does not affect the relationship between the insured and the direct insurer, in particular the liability of the insurer (United India Insurance Company Limited ) to indemnify the insured (Client of United India Insurance Company Limited). In the event of any insurer failing to honour the reinsurance contract, the insurer cannot escape from his liability to the direct insured. Conversely, the insured (Client of insurer) normally has no recourse against any reinsurer in the event of the default of the insurer. In fact, most of the time, the insured may not be aware of the existence of reinsurance as....
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..... It is notable that, the Hon'ble Supreme Court in the case of Commissioner of Income Tax Punjab Vs R.D. Agarwal & Company & Another (56 ITR 20) has held that if there is an element of continuity between the business of non-resident and the activity in the taxable territories can be considered as a business connection which is otherwise the permanent establishment in India. In the instant case, the re-insurance transactions are regular and recurring. Hence it is clear that there is business connection between the Non-resident reinsurer and the assessee company. 5. It is essential to note that, the CBDT Circular No. 7 dated October 22, 2009 has withdrawn the earlier circulars issued with regard to the Nonresident taxation, viz. Circular 1No.23 dated July 23, 1969, Circular No. 163 dated May 29, 1975 & Circular No. 786 dated February 7, 2000. 6. Further, section 9 of the Income Tax Act, applies to all assessee irrespective of their residential status and place of business. However, where income is actually received or accrued in India resort to the deeming provisions u/s 9 is not warranted, in such case, the provisions contained in Section 5(2) is sufficient to ....
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....h the non-resident reinsurer and the NR had control over it. Therefore, the nonresident reinsurer effectively received the relevant percentage of the reinsurance premium in India. This being the first receipt in the eye of law and hence taxable in India. 4 The NR having received the charter fee in the form of 85% of the catch m India, its subsequent sale and realization outside India does not change the conclusion of its first receipt being in India. The non-resident reinsurer having received the reinsurance premium on a specific percentage as per the terms of the agreement made m India, its subsequent accounting does not change the conclusion of its first receipt being in India. 5 In the facts of the present case, the NR received the charter fee m India m the form of 85% of the catch after its valuation, over which it alone had control and, therefore was taxable in India. The non-resident received reinsurance premium in India at specific percentage as per the terms and conditions of the agreement over which it alone had control and therefore was taxable in India. 6 Since the transaction was taxable and the Tax payer was liable to withhold taxes under the pr....
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.... the Indian Insurance Broker, the non-resident insurer will settle the claim to the Indian Insurer, which means that the Indian Insurance broker is being acting as an agent of the Non-resident insurer. 11. Further, the reinsurance broker is the person who has signed the cover note of the insurance business cannot be simply brush aside with the reason that the same is for the purpose of receipt of commission because, the Insurance broker is being mainly involved in collection of the premium from the Indian Insurer and also have a major role in the settlement of the claim. Also, it can be considered that, the non-resident reinsurers are using the Indian Insurance brokers as a colorable device to circumvent / avoid their presence in India. 12. It is also essential to note that the reinsurance brokers (agents) in India have been receiving commission for the above purpose from the Nonresident re-insurer, which again proves that there is existence of the Principal & Agent relationship between the reinsurance agents & the Nonresident re-insurer. Based on the above facts, it is clear that, the assessee has failed to deduct TDS on the above payments as per the Sec....
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....einsurance arrangement with foreign reinsurer in terms of para 3.7 of said regulations. In this case, there is no dispute with regard to fact that the assessee has complied with provisions of Insurance Act, 1938 and regulations made there under by the IRDAI. In fact, the Assessing Officer has accepted fact that the assessee has complied with reinsurance regulations by taking required percentage of reinsurance contract with General Insurance Corporation of India. But disputed reinsurance premium ceded to non-resident reinsurer companies. In the earlier round of litigation, the Tribunal had discussed the issue of payments made to nonresident reinsurer, in light of provisions of section Insurance Act, 1938 and IRDAI Regulations on reinsurance and concluded that the assessee has violated provisions of Insurance Act, 1938 and consequently, reinsurance premium ceded to NRRI is not deductible u/s. 37 (1) Of the Income Tax Act, 1961. The matter travelled to the Hon'ble High Court of Madras and the Hon'ble High Court has remanded the issue back to the Tribunal and directed the Tribunal to decide the issue on three points:- i) Whether the Assessing Officer was right in disallowing r....
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....agency PE of NRRI in India, because of availing services of insurance brokers by the nonresident insurer companies in India. Therefore, the Assessing Officer opined that there is service PE and income of NRRI is liable to be taxed in India and consequently, the assessee is liable to deduct TDS u/s. 195 of the Income Tax Act, 1961. The Assessing Officer had also taken support from the decision of the Hon'ble Supreme Court in the case of Transmission Corporation of Andhra Pradesh Vs CIT (1999) 239 ITR 587 and observed that a person making payment to non-resident is duty bound under section 195(2) of the Income Tax Act, 1961 to file an application to the income-tax authority, if payment is not chargeable to tax or smaller amount is chargeable to tax. If no such application is filed, then tax has to be withheld on whole of such sum. The sum and substance of observations of the Assessing Officer is that income of NRRI is taxable in India and thus, the assessee is liable to deduct tax at source u/s. 195 of the Act. Since, the assessee has failed to deduct TDS u/s. 195 of the Income Tax Act, 1961, the Assessing Officer has disallowed reinsurance premium ceded to NRRI u/s. 40(a)(i) of ....
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....terest, where the money is lent etc. In this case, foreign reinsurers do not carry out their business functions in India, in fact, during the relevant assessment years they were statutorily prohibited from doing so. The reinsurance premium they receive is recompensated for risk there may be exposed in which event insurer makes a claim on them, in which event assets of the reinsurer that are situated outside India that were utilized to make good the claim and thus premium accrues where their funds and assets are situated, which is outside India. The source of income of NRRI is also outside India. Therefore, in our considered view observations of the Assessing Officer regarding taxability of reinsurance premium ceded to NRRI in India is absolutely contrary to facts and also well settled law. Further, only activity in reinsurance contract is bearing of risk and activity of indemnifying an Indian insurance company by foreign reinsurer takes place overseas and hence, foreign reinsurers bears risk abroad. Therefore, reinsurance premium paid to NRRI cannot be said to accrue or arise in India. Insofar as observations of the Assessing Officer with regard to reinsurance contracts were signed....
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....urance Brokers) Regulations, 2002, makes it clear that reinsurance agent / broker merely acts as facilitator and do not have authority to conclude contracts on behalf of the NRRI. This apart, amount collected by reinsurance broker in India is only as trustee of insurance money and same is to be held in separate bank account. Therefore, in our considered view, in absence of any authority to conclude contracts on behalf of foreign reinsurer, brokers cannot constitute business connection of foreign reinsurer in India in terms of Explanation 2 to section 9(1)(i) of the Income Tax Act, 1961. 14. At this point, we would like to take support from decision of the co-ordinate Bench of Mumbai Tribunal in the case of ADIT Vs.AON Global Insurance Service Ltd. in ITA Nos.5184 to 5186/Mum/2009 dated 30.11.2015, where it has been held that insurance broker is an independent broker and not an agent. Therefore, in our considered view reinsurance premium paid to NRRI, where India is having DTAA with other countries without specific exclusion and reinsurance premium paid to NRRI where there is no DTAA with other countries through resident brokers, no income is chargeable to tax in India in the han....
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....earned CIT(A) for all assessment years. In our considered view, the view taken by the CIT(A) is perfectly in order, because, in those DTAAs there is specific exclusion of reinsurance premium from the ambit of business profits and thus, reinsurance premium ceded to NRRs where there is specific exclusion, same cannot be taxed in India and thus, provisions of section 195 is not applicable while making payments and consequently, the assessee is not required to deduct TDS. In other cases, where there is no specific exclusion of reinsurance premium, said amount can be taxed in India only if foreign reinsurance companies have PE in India. It is the allegation of the Assessing Officer that reinsurer had fixed place of PE or an agency PE or service PE in India. Most of the DTAAs define PE to mean fixed place of business, through which business of the enterprises is wholly and partly carried on and includes branch, office, factory, workshop etc. In the case of foreign reinsurers to whom the assessee has remitted reinsurance premium during the subject assessment years do not have any fixed place of PE in India and thus, question of fixed place of PE in India within the meaning of Article 5 of....
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....n'ble Supreme Court has held that expression 'chargeable' under the provisions u/s. 195(1) of the Act says that remittance has got to be treated as receipt, whole or part of which is liable to tax in India, if tax is not assessable there is no question of tax at source being deducted. In our considered view, the basis for the Assessing Officer to take support from section 195(2) on the issue of non filing of application to income tax authority to allege that the assessee is liable to deduct TDS on impugned payment is incorrect. 17. Coming back to various case laws relied upon by the assessee. The assessee has relied upon various decisions of co-ordinate Bench of the Tribunal in the case of Insurance companies in support of their arguments. The relevant cases laws relied upon by the assessee are reproduced as under:- Swiss Re-Insurance Company Ltd vs DDIT - ITA No. 1667/Mum/2014 dt .13.02.2015. Summary: In the case of NRRI (Swiss Reinsurance Co. Ltd., Switzerland) the AO sought to tax the NRRI on the ground that it had business connection in India as it received income from providing reinsurance to various insurers in India. The Mumbai Bench of the Tribunal ....
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....o a reinsurance arrangement for a specific reason and the same is an independent contract (b) Following the decision in Swiss Reinsurance and ICICI Lombard General Insurance Co. Ltd., it was held that the NRRI does not have a PE in India (c) The Tribunal also took into consideration that the NRRI who is JV partner of the assessee, therein, the assessee was not held to be a FE of the NRRI. ADIT vs AON Global Insurance Service Ltd. - ITA No. 5184- 5186 Mum 2009 dt. 30/11/2015 Summnary: In the case of resident broker (AON Global Insurance Service Ltd) , the Mumbai Bench of the Tribunal held that insurance broker is an independent broker and not an agent. It also held that insurance broker does not carry out any activity on behalf of anyone in India and has no authority to enter into any contract in India . The Tribunal examined the scope of section 9(l)(i) and the DTAA and held that the insurance agent has no business activity on behalf of the NRRI. (vi) General Reinsurance AG v DCIT - ITA No. 7433/Mum/2018 Summary: In the case of NRRI (General Reinsurance AG, Germany) the AO sought to tax the NRRI on the ground that it had a busin....
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....ssed by following the decision in Swiss Reinsurance Co. Ltd. 14.2. The above decisions of various benches of the Tribunal unequivocally hold that the reinsurance premium paid by Indian insurers to NRRI is not taxable under the Act as well as the DTAA. Therefore, in respect of all categories of reinsurance premium paid to NRRI, income is not chargeable to tax under the Act. (i) M/s. Tata AIG General Insurance Company Ltd. Vs. DCIT in ITA No. 1718/Mum/2020 dated 25.04.2022: 3.17. Let us now examine the applicability of provisions of Section 40(a)(i) of the Act in respect of reinsurance premium paid to foreign reinsurers. We find that the ld. CIT(A) had placed reliance on the decision of Chennai Tribunal in the case of Cholamandalam MS General Insurance Co. Ltd to drive home the point that the said payment shall be liable for deduction of tax at source in terms of Section 40(a)(i) of the Act. We find that though the Hon"ble Madras High Court in para 26 had held that Chennai Tribunal decision in confirming the action of the ld. AO in invoking provisions of Section 40(a)(i) of the Income Tax Act was not supported with any reasons, finally in para 28, the Hon"b....
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.... 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 underwriting the risks of various Indian insurance companies. It is not in dispute that the appellant before us is an entity incorporated in Germany and is a tax resident of Germany. The manner in which the reinsurance premium is earned by the assessee is also not in dispute. But to recapitulate, we may note that the appellant is a global re-insurance company which has entered into re-insurance contracts with various Indian insurance companies. For underwriting the risks of the Indian insurance companies, assessee earns reinsurance premiums, which is the subject-matter of dispute before us. So far as the nature of receipts in question is concerned, there is a convergence between the assessee and the Revenue that the same are in the nature of business receipts. It is quite well understood that in such like cases where the foreign company earns business income, the same can be taxed in India only if it has a PE in India or 'business connection' so as to fall within the scope of ....
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....ed 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 authorities in treating the receipt of reinsurance premium as taxable in India. Hence, the question that was raised before Mumbai Tribunal in that said case was from the perspective of foreign reinsurance company. The decision rendered thereon could be made applicable to the assessee's case before us also by drawing the same analogy. The relevant operative portion of the judgement is reproduced hereinbelow:....
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....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 activities were preparatory or auxiliary in nature and the same cannot lead to determination of a PE in India, considering the provisions of Article 5(4)(e) of the India-Germany Tax Treaty. As per the statement made by the learned representative at the Bar, the LO has complied with the conditions imposed by IRDA and there is no adverse view determined by IRDA. Thus, on facts we do not find any force....
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....he 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 entities of the group for entering the data in respect of the reinsurance transactions of the assessee. The software is owned by the assessee and not the Indian subsidiary, and the software is used by the Indian subsidiary to enter the data of the Indian insurance companies, but no further recommendations are made by the Indian subsidiary. It is only the assessee through its own personnel who e....
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....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 show that the Indian subsidiary could enter into contracts or was authorised to enter into any business in India on behalf of the assessee. Considering that it was imperative for the Revenue to bring out instances where the Indian subsidiary had concluded contract or secured orders on behalf of the assessee, we find that such burden has not been discharged by the Revenue. In....
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....f 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-Insurance Co. Ltd. (supra). Similar was the situation in the case of Bajaj Allianz General Insurance Co. Ltd., ITA No. 2560/PN/2012 dated 03.02.2016 wherein also, payments by Indian concerns to the foreign reinsurance company was disallowed on the ground of failure to deduct the requisite tax at source. Our co-ordinate Bench held that the foreign reinsurance....
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....perative portion of the said order is reproduced hereunder:- "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 of the relevant clause of Article 5(4) of the treaty reproduced supra, it could be concluded that the said Article is not at all applicable for reinsurer. This is relevant in view of the observations made by the ld. CIT(A) in 4.2.6 as under:- "As per the appellant there are certain treaties which ....