TaxTMI 
TaxTMI 
2025 (7) TMI 659
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....the case and in law, and based on the directions of the Hon'ble DRP, erred in not passing the final assessment order within the time limit prescribed under section 153 of the Act, which is the outer time limit for passing the final assessment order and hence, the final assessment order issued under section 143(3) read with section 144C(13) of the Act on 10 December 2024 which is passed after 31 March 2024 (being the time limit prescribed under section 153 of the Act) is time barred and liable to be quashed 3. Ground 3 The learned AO has, on the facts and circumstances of the case and in law, and based on the directions of the Hon'ble DRP, erred in concluding that the Appellant has a business connection in India as per the provisions of section 9(1)(i) of the Act on the basis that the Appellant is earning income from India on a regular and continuous basis. 4. Ground 4 The learned AO has, on the facts and circumstances of the case and in law, and based on the directions of the Hon'ble DRP, erred in concluding that the Appellant's group concern, viz., RGA Global Shared Services India Private Limited (RGA Services) constitutes a fixe....
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....urance company in India and in estimating 50 percent of the profit determined above to be attributable to the Appellant in India. 11. Ground 11 Without prejudice to grounds 3 to 6, the learned AO has, on the facts and circumstances of the case and in law, and based on the directions of the Hon'ble DRP, erred in applying a tax rate of 40 percent instead of 12.5 percent (plus applicable surcharge and education cess) applicable in case of life reinsurance business as per section 115B of the Act. 12. Ground 12 The learned AO has, on the facts and circumstances of the case, erred in not following the decision of Hon'ble Income-tax Appellate Tribunal's decision in the Appellant's own case for Assessment Year 2015-16, Assessment Year 2017-18. Assessment Year 2018-19, Assessment Year 2019-20, Assessment Year 2020-21 and Assessment Year 2021-22 wherein, on similar facts and circumstances, the grounds of appeal have been adjudicated in favour of the Appellant 13. Ground 13 The learned AO has, on the facts and circumstances of the case and in law, erred in levying interest under section 234D of the Act 14. Ground 1....
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....mically dependent on the assesse, 3. RGA Services does not conclude the terms of the reinsurance treaties or enter into any contracts with any insurance companies. 4. RGA Services does not secure contracts for and on behalf of assessee 5. The reinsurance treaties are signed in Ireland 6. RGA Services does not negotiate on the fee and terms and conditions of the reinsurance treaties 7. The terms and conditions are agreed and concluded between the assessee and Indian insurance companies 8. RGA Services does not decide the price to be quoted to the Indian Insurer 9. The activities carried out by RGA Services are preparatory / auxiliary in nature 10. Assessee remunerates RGA Services on arms length basis (cost mark up) 11. Automatic renewal of treaties with Indian insurers does not constitute PE/business connection 12. RGA India has not entered into any new agreements with the Indian Cedents." 4. The AO after considering the submissions of the assessee in the draft assessment order held that the services rendered by RGA services are vital and primary business functions and are not in the nature....
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....iliary character, provided that business activities carried on by two enterprise at the same place or by the same enterprise or a closely related enterprise at the two places, constitute complementary functions that are part of a cohesive business operation 22.2 These provisions specifically deal with scenarios wherein two associated enterprises carry on a combination of activities which constitute complimentary functions that are part of a cohesive business operations. Hence these provisions ensure there is no erosion of taxable base in a country wherein there is artificial segregation of work between two entities to artificially avoids establishment of PE. Hence these changes further supports department's stand that RGA services India Pvt Ltd constituted a PE of RIRC in India, and RIRC's business income was taxable in India. 23. Further, reliance is placed on the Hon'ble Mumbai High Court held in Blue Star Engineering Co. (Bombay) (P.) Ltd. v. Commissioner of Income-Tax, [1968 SCC OnLine Bom 133: (1969) 73 ITR 283] "It would thus be seen that in order to constitute a "business connection" as contemplated by section 42, there must be an activ....
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.... profits could not be attributed to assessee's P.E. over and above the remuneration to RGA Services (The P.E.) at Arm's length. The case of Morgan Stanley Co. Inc. [Supreme Court] envisages that compensation to P.E. has to be based on FAR analysis and adequate transfer pricing documentation. The assessee's case does not comply with the conditions laid down by the Apex court in Morgan Stanley case, as no F.A.R. analysis of the enterprise as a whole has been performed by the assessee to establish that no compensation/profits accrued to assessee for other functions performed by the Agent which have gone unremunerated. 24.4 The arguments that if remuneration is paid to the dependent agent in the 'source state' on arm's length price, then no further profits can be attributed to the 'source country is conceptually wrong. This has been discussed in detail by the Report on the Attribution of profits to the Permanent Establishment dated 17 July 2008, available on the website of OECD. The argument that no further profits can be attributed to the 'source country' has been identified by the Report as 'single taxpayer approach. A number of basic ....
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....pital, these profits will be separate from and will not include, the income or profits that are attributable to the dependent agent itself". 24.6 It is also seen that in business of this nature, demand side factors play a crucial role in determining the profitability of the enterprise. All the cedants are based in India, the support services rendered by RGA Services is being done in India. It is already discussed above that RGA Services is performing the core functions. Hence, demand side factors become very crucial. 25. In view of the above mentioned report of the OECD and as per the above discussion, the contention of the assessee that if the arms' length remuneration has been paid to its agent in India, no further profits can be attributed to the assessee is not acceptable. 26. During the course of assessment proceedings, the AR of the assessee has not submitted India-specific profit and loss account so that its income from operations in India can be determined and proper allocation may be made to profits attributable to Indian operations. In absence of the same, it is necessary to estimate the taxable profits of the assessee as per Rule 10 of the ....
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....AY 2021-22 (ITA No. 4693/Mum/2023 dated 22.05.2024). The ld. AR further submitted that the DRP has upheld the addition made by the AO by relying on its own order for AY 2021-22 which substantiates that the facts pertaining to the year under consideration and AY 2021-22 are identical. The ld. AR also submitted that RGA India has not entered into any new agreement with Indian Cedents which fact has not been disputed by the AO. The ld. AR accordingly submitted that the decision of the Co-ordinate Bench in assessee's own case for AY 2021-22 is applicable for the year under consideration also. 7. We heard the parties and perused the material on record. We notice that the Co-ordinate Bench while considering a similar addition made by the AO for Ay 2021-22 has held that "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....
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....e premises of RGA Services are used for conducting its business operations of rendering marketing and support services from which it derives revenue. RGA Services does not have the regulatory approvals from IRDAI to accept reinsurance, nor does it have the required infrastructure or personnel to undertake reinsurance business. Further RGA Ireland also accepts reinsurance from other jurisdictions as well Further, only activities in the form of administrative and ancillary support services was provided by RGA Services to RGA Ireland which are provided below a. Claims Support RGA Services acts as a communication channel between RGA Ireland and Indian Cedents (w.r.t existing treaties) to obtain and provide clarifications 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 regard....
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....ce treaties or enter into any contracts with any insurance companies RGA Services does not secure contracts for and on behalf of the assessee. The terms and conditions for the treaties are agreed and concluded between the Appellant and the Indian Cedents. RGA Services does not decide the price to be quoted to the Indian Cedents. The activities carried out by RGA Services are preparatory/ auxiliary in nature The Appellant remunerates RGA Services on arms-length basis (ie cost mark up of 18%) RGA Services does not undertake and is not permitted by the IRDAI to undertake reinsurance activities. RGA Services does not undertake core and primary reinsurance services like risk assessment. Further, RGA Services is not a dependent agent of RGA Ireland ►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....
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....bearing in mind the entirety of the case, we disapprove the stand of the authorities below, and hold that there was no fixed place permanent establishment on the facts of this case. As regards the existence of the dependent agency permanent establishment, that aspect of the matter, In the light of the coordinate bench decision in the case of ADIT Vs Asia Today Ltd [(2021) 129 taxmann.com 35 (Mum)], is wholly tax-neutral and does not, therefore, need our adjudication. 10. In view of these discussions, we hold that the assessee did not have a fixed place permanent establishment in India, that the question of assessee having a dependent agency PE is wholly academic in the sense that, as the law stands now, the existence of the DAPE is wholly tax neutral in India. Accordingly, the business profits earned 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 Fixe....
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....ated by the foreign company. He also raised issue of profits/losses may be attributed to the DAPE by host country based on those assets used, risks assumed and functions performed and the DAPE is entitled to deduction in host country for arm's length compensation/remuneration paid to dependent agent enterprise 28. Ld. DR submitted that Profits can be attributed to DAPE even if arm's length price has been paid to a Dependent Agent. He objected to assertion that 'once the Indian Dependent Agent is taxed on its own income nothing further would be taxable in the hands of the non-resident foreign company' He is of the view that the functions performed by the RGA Services are intertwined in the various functions of reinsurance 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 deci....
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....ia to conclude any contract in line of reinsurance. Therefore, it can never be allowed to act as an agent in India, not even assume or conclude contract on behalf of the principal i.e. the assessee. 33. Further, we observe that even Ld. DR has not brought on any material to show that RGA Services has utilized its assets or assumed any risk in this line of reinsurance business. Merely because its whole functions are depend on the services which will be utilized by the Foreign principal does not make it as an dependent agent. 35. As discussed above, RGA Services is not capable to act as an agent considering the fact they do not have the licence to function as a reinsurance or broker from the IRDAI and also the reinsurance agreements 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....
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....ishment" shall be deemed not to include: (a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information for the enterprise; (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, 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 ....
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.... following examples illustrate the application of paragraph 4.1: Example A: RCO, a bank resident of State R, has a number of which constitute permanent establishments. It also has a separate office in State S where a few employees verify information provided by clients that have made loan applications at these different branches. The results of the verifications done by the employees are forwarded to the headquarters of RCO in State R where other employees analyse the information included in the loan applications and provide reports to the branches where the decisions to grant the loans are made. In that case, the exceptions of paragraph 4 will not apply to the office because another place (i.e. any of the other branches where the 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 appliances. SCO, a resident of State S that is a wholly owned subsidiary of RCO, o....
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....d not just complementary functions that are part of a cohesive business operation. In this regard we notice that the first condition for an enterprise to enter into the non-exemption category is to have a fixed place of business used or maintained by an enterprise, in the same place / other place in the same state where the enterprise or its closely related enterprises carries on business activities. In other words for the purpose of a case to fall under the above definition, the assessee and the closely related enterprise need to carry on business activities in the same country i.e. India and that the activities should result in cohesive business operation. This view is further strengthened by the examples given in the Final Report as extracted in the earlier part of this order, where in the non-resident enterprise is having a business activity (owning of warehouse in the example) which otherwise would have been claimed to be exempt as a preparatory activity cannot be held so since its activities are complementary to the activity carried on by a closely related enterprise towards a cohesive business operation. 12. In assessee's case if the same analogy is to be applie....