TaxTMI 
TaxTMI 
2024 (5) TMI 1591
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....pany and a tax resident of the Ireland. The assessee is in the business of providing reinsurance services to insurers/ cedants. It is primarily involved in providing reinsurance services for life insurance. The assessee has entered into various reinsurance treaties with Indian insurance companies for underwriting the risk. The assessee receives reinsurance premium, under the reinsurance treaties entered by it with Indian insurance companies. The assessee has also signed a reinsurance support services agreement dated 01.04.2006 with its associated enterprise in India RGA Services India Pvt. Ltd. (RGA Services) by which the Indian entity provides business support underwriting and actuarial support, risk profiling, data synopsis and suggestions for underwriting proposals along with marketing support- marketing research, customer relationship management and administrative assistance to the assessee. 3. The assessee filed a return of income for AY 2021-22 on 13.03.2022 declaring a total income of Rs. Nil. The case is selected for scrutiny and statutory notices were duly served on the assessee. During the course of assessment proceedings the assessee was requested to submit the detail....
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....ices. The AO also held that RGA Services is DAPE of the assessee for the reason that the operations of RGA services cannot be said to have an independent status. Further the AO held that the as per the modified definition of PE as per multilateral convention to implement tax treaty related measure to prevent base erosion and profit shifting (MLI) between India and Ireland RGA Services would become the PE of the assessee since the services rendered by RGA Services constitute complementary functions that are part of a cohesive business operation. The relevant findings of the AO in draft assessment order are extracted below: "22.1 As per Multilateral Convention to implement tax treaty related measures to prevent Base Erosion and Profit Shifting(MLI), the DTAA between India and Ireland has been modified. The MLI provisions take effect with respect to all taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 01.04.2020 in India. Hence, the current assessment proceedings have to take in to consideration the changes in definition to PE in Article 5 as under: The following paragraph 4 of the Art....
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.... undoubtedly be a commercial connection but all commercial connections will not necessarily constitute business connection within the meaning of the concept unless the commercial connection is really and intimately connected with the business activity of the non-resident in the taxable territories and is contributory to the earning of profits in the said trading activity." From the above facts, it is clear that provisions of MLI, the factual and legal matrix makes it amply clear that the assessees PE is established in India. In light of the above discussion, it is hereby held that due to the presence of P.E. of the assessee in India, as well as income arising through business connections from India, the re-insurance premia are liable to tax in India in the hands of the assessee on a net income basis under the India-Ireland DTAA as well as the Indian Income Tax Act, 1961." 5. Accordingly, the AO treated 50% of theincome attributable to India amounting to Rs. 205,59,85,324/- and applying 10% profitability on the same amounting to Rs. 20,56,98,532/- as taxable business income in the hands of the assessee. Aggrieved the assessee raised objections before the DRP. The DRP rej....
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....thorities and the same is taken on record. 8. We have heard the parties and perused the material available on record. We noticed that for the year under consideration the revenue has held the income earned by the assessee as taxable in India on three count viz., (i) that the assessee is having a fixed PE in India (ii) that RGA Services is the DAPE of the assessee (iii) as per the modified definition of PE under the MLI between India and Ireland RGA Services should be considered as the PE of the assessee. The first two contentions of the Revenue have already been considered by the co-ordinate bench of the Tribunal in assessee's own case for the immediately preceding assessment year i.e. AY 2020-21 (ITA No. 3254/Mum/2023 dated 31.01.2024) where it has been held that "9. We have heard both the parties and also perused the observation and finding of the ld. AO and ld. DRP as well as Tribunal orders for earlier years. First of all the reason as to why there is no business connection in terms of Section 9(1)(1) of the Act is that- * RGA Services performs its activities in an independent manner RGA Services render services not only to the assessee but also to othe....
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....ications requested by the Indian Cedents from time to time Third party Indian Cedents may approach RGA Ireland for claims settlement (with respect to their existing arrangements) RGA Ireland in turn approaches RGA Services for its assistance with respect to evaluation of the claim settlement request of its clients. RGA Services evaluates the proposal from a medical and a financial perspective. The personnel of RGA Services reviews the documents regarding the medical history of the life reinsured, death records and other claim documents. If required, they could also request for additional documents. b. Data Synopsis and ancillary support services The data collected by RGA Services are synopsized for claims request and for facultative underwriting request. Such synopsis is shared with RGA Ireland who in turn takes the final decision to settle claims. Further, the function also includes monitoring of premiums received with respect to various re-insurance policies, amount of premium received during a particular period etc. ►Additionally, it may be noted that the core business activities of RGA Ireland are not undertaken in India through any fixed place.....
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....nd ►RGA Services acts only as a communication channel between the Indian Cedents and RGA Ireland RGA Services only inputs the data into the system and final decisions of acceptance/ rejections is taken by the assessee. RGA Services does not procure any orders on behalf of RGA Ireland in India. The assessee does not give any detailed instructions or exercise any control on RGA Services with respect to RGA Service's business, and all the contracts are signed by the assessee outside India and by its employees In no circumstances are the contracts signed in India, and RGA Services does not have any authority to conclude any contracts on behalf of the assessee nor does it secure any orders for the assessee. 12. This contention of the assessee has been accepted by the Tribunal and adjudicated in assessee's own case in the following manner:- ►AY 2018-19 and 2019-20 in ITA No. 803 and 2330/Mum./2022 dated 6 September 2023 (enclosed at page nos. 56 to 109) wherein it has been held as under 25. This is not the first time revenue has raised this issue. However, in the previous Assessment Years also the similar issues were raised and the Coor....
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.... wholly tax neutral in India. Accordingly, the business profits eamed by the assessee on account of the reinsurance business have no tax implications in India. In view of these findings, all other issues raised in the appeal are academic and call for no adjudication as of now" 26. In the above decision, the Coordinate Bench have considered the issue of existence of business connection u/s. 9(1) of the Act and addressed the issue of Fixed Place Permanent Establishment and held that unless a particular place is at the disposal of the assessee that place cannot be said to constitute Permanent Establishment of the assessee. Further, they observed that the core reinsurance activity is assumption of risk and that assumption of risk has been done outside India hence there is no occasion to attribute reinsurance profit attribution to RGA Services. Whatever activities are carried out by RGA Services have been duly paid for by the assessee, and the transfer pricing assessment has accepted that position. Once that position is accepted, there cannot be any further profit attribution for services rendered by the RGA Services and they held that there was no fixed place permanent establi....
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....nce activities which has standalone services offered by the RGA Services which was already compensated. However, as per the OECD commentary on Article 7(2) which requires a total factual analysis on the basis of functions performed, assets used and risk assumed. He submitted that OECD emphasis that profit attributable to the DAPE are separate from the profits attributable to the dependent agent itself 29. Further, he relied on the decision of DIT (International Taxation) v Morgan Stanley & Co. Inc. (supra) to submit that associated enterprise (also constitutes a PE) is remunerated on arm's length basis taking into account all the risk-taking functions of the multinational enterprise. In the risks assumed by the enterprise, in such a case, there would be need to attribute profits to the PE for those functions/hisks that have not been considered. 30. From the above submissions, we observe that Ld DR harping on the functions performed by the RGA Servers which may be integral part of the reinsurance business wherein the reinsurer may analyse various functions before or after taking reinsurance business which may include claim support, actuarial services, administr....
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....ements were signed outside India. The provisions of DAPE does not apply to the present case. The various arguments made by the Ld. DR fails in this case, considering the fact that nowhere it is brought on record to show that RGA Services has invested any assets or assumed any risk. Therefore, we are inclined to reject the various submissions made by Ld. DR and allow the grounds raised by the assessee. 36. In the result, appeal filed by the assessee is allowed." 13. In so far as ground No.10 is concerned, non-application of MIL, it has been upheld by the ld. AO, we find that said provisions are applicable from 1st April 2020 i.e. F.Y.2020-21 and not for the year under consideration which has been clearly stated in the MIL notification in the following manner:- Unless it is stated otherwise elsewhere in this document, the provisions of the MLI have effect with respect to the Convention. * In India: With respect to taxes withheld at source on amounts paid or credited to nonresidents, where the event giving rise to such taxes occurs on or after 1 April 2020; and With respect to all other taxes levied by India, for taxes levied with respect t....
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....rprise, any other activity of a preparatory or auxiliary character; (f) the maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character. The following paragraph 4 of Article 13 of the MLI applies to paragraph 5 of Article 5 of this Convention: ARTICLE 13 OF THE MLI - ARTIFICIAL AVOIDANCE OF PERMANENT ESTABLISHMENT STATUS THROUGH THE SPECIFIC ACTIVITY EXEMPTIONS Paragraph 5 of Article 5 of this Convention shall not apply to a fixed place of business that is used or maintained by an enterprise if the same enterprise or a closely related enterprise carries on business activities at the same place or at another place in the same Contracting State and: a) that place or other place constitutes a permanent establishment for the enterprise or the closely related enterprise under the provisions of Article 5 of this Convention; or b) the overall activity resulting from the combination of the activities carried on by the two enterprises at the same ....
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.... loan applications are made) constitutes a permanent establishment of RCO in State S and the business activities carried on by RCO at the office and at the relevant branch constitute complementary functions that are part of a cohesive business operation (i.e. providing loans to clients in State S). Example B: RCO, a company resident of State R, manufactures- and sells appliances. SCO, a resident of State S that is a wholly owned subsidiary of RCO, owns a store where it sells appliances that it acquires from RCO. RCO also owns a small warehouse in State S where it stores a few large items that are identical to some of those displayed in the store owned by SCO. When a customer buys such a large item from SCO, SCO employees go to the warehouse where they take possession of the item before delivering it to the customer; the ownership of the item is only acquired by SCO from RCO when the item leaves the warehouse. In this case, paragraph 4.1 prevents the application of the exceptions of paragraph 4 to the warehouse and it will not be necessary, therefore, to determine whether paragraph 4, and in particular subparagraph 4 a), applies to the warehouse. The conditions for the appl....