TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 659
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....e 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 fixed place permanent establishment (PE) in India in terms of Article 5(1) of the Double Taxat....
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....udice 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 14 The learned AO has, consequentially, on the facts and circumstances of the case and in law, erred in granting short interest under section 244A of the Act. 15. Ground 15 The learned AO has, on ....
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.... 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 of auxiliary or preparatory. The AO further held that assessee is taking the necessary decisions on reinsurance based on the support activities carried on by RGA Services and therefore the activities gives rise to creation of Fixed PE to the assessee in the form of RGA services. The AO also held that RG....
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....erprises 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 activity of the non-resident in the taxable territories having an intimate and real relation of a continuous character with the business of the non-resident and contributing to the earning of profits by the non-resident in his business. The business connection must undoubtedly be a commercial connection but all commercial connections will not necessarily constitu....
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....n 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 conceptual problems have been identified with this approach in the OECD Report. The most significant impact of the acceptance of single taxpayer approach' by the global community would be that Article 5(6) would become redundant. Accordingly, even if it is held that an enterprise carries on business in the 'source state through a significant presence of 'dependent agent', no fu....
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....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 Income Tax Rules. 27. The re-insurance companies world over earn their income primarily from treasury operations by investing huge funds at their disposal for a substantial period of time. In these circumstances and in absence of details from the side of the assessee with respect to the profitability from Indian operations, it is reasonable to estimate the taxable profits for purposes of Rule 10(i) of the Income-tax Rules at 10% of....
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....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 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 o....
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.... 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 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 rec....
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..... 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 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 fi....
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....aving 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 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 att....
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....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 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 t....
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....einsurance 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 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 Ind....
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....prise, 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: RTICLE 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 place, or by the same enterpris....
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....blishment 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, 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 application of paragraph 4.1 are met because * SCO and RCO are closely rela....
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....g 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 applied, it is an established fact that the assessee which is into reinsurance business does not have business operations in India for the reason that the acceptance of risk which is the key function of reinsurance business is assumed outside India by the assessee. Further during the course of hearing the ld AR also drew our attention to the drew our attention to the Director's Report on the Financial Statement of the assessee (page 93 of paper book) where the details of countries in which the assessee is having branches to submit that the assessee does not have a branch in India. It was also submitted that the assessee does not have any premises or office space for undertaking reinsurance business activity in India. Therefore in our considered view the assessee and RGS Services, which according to the revenue is a closely related e....