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2026 (2) TMI 864
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....d 2021-22, respectively. 2. Grounds taken by assessee are reproduced as under: ITA NO. 2447/Mum/2022 AY 2018-19 "1. The learned AO has on the facts and circumstances of the case, and in law, and based on the directions of the learned DRP, erred in concluding that the Appellant's wholly owned subsidiary in India i.e. Gen Re Support Services Mumbai Private Limited ('GSSMPL') constitutes a business connection in India as per the provisions of section 9(1)(i) of the Act. 2. The learned AO has on the facts and circumstances of the case, and in law, and based on the directions of the learned DRP, erred in concluding that Indian Branch of the Appellant is a Dependent Agent permanent establishment ('PE') of the Appellant in India as per Article 5(5) of the India-Germany tax treaty. 3. The learned AO has on the facts and in the circumstances of the case, and in law, and based on the directions of the learned DRP, erred in concluding that the reinsurance premium earned by overseas offices of Appellant is taxable in India under Article 7 of the India-Germany tax treaty being income attributable to the operations of the Appellant carried thr....
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....nt's India Branch to its Head Office are covered within the scope of fees for technical services and accordingly taxable in the hands of the Appellant. 10. Without prejudice to ground 9 above, the learned AO has on the facts and circumstances of the case and in law, and based on the directions of the learned DRP, erred in levying surcharge and cess on the tax payable on income from fees for technical services received by the Appellant which has been held to be taxable under Article 12(2) of the India-Germany tax treaty. 11. The learned AO has on the facts and circumstances of the case and in law, erred in not granting refund amounting to Rs. 5,58,32,053 as claimed by the Appellant while filing its return of income. 12. The learned AO has on the facts and circumstances of the case and in law, erred in calculating the interest under section 244A of the Act. 13. The learned AO has on the facts and circumstances of the case and in law, erred in initiating penalty proceedings under section 270A of the Act." ITA NO. 2448/Mum/2022 AY 2019-20 "1. On the facts and circumstances of the case, and in law, the assessment order passed by the le....
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....come tax Rules, 1962 ('the Rules"), while attributing profits to the alleged PE of the Appellant in India 8 Without prejudice to Ground No. 1 to 5 above, the learned AO has on the facts and circumstances of the case, and in law, and based on the directions of the learned DRP, erred in not using any scientific method in determining 50 per cent of the taxable profits (as arrived by applying Rule 10 of the Rules) as being attributable to the Indian operations. 9 Without prejudice to Ground No. 1 to 5 above, the learned AO has on the facts and circumstances of the case, erred in applying a tax rate of 40 per cent instead of 12.5 per cent (plus applicable surcharge and health and education cess) as applicable in case of reinsurance premium with respect to life reinsurance contracts as per section 1158 of the Act while computing the tax liability of the Appellant in the income-tax computation form. 10 Without prejudice to Ground No. 1 above, the learned AO has on the facts and in the circumstances of the case, and in law, and based on the directions of the learned DRP, erred in holding that the amount of Information Technology ('TT') costs and other....
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....the facts and circumstances of the case, and in law, erred in not setting off losses incurred under the head "Profits and gains of business or profession' while calculating the total income and tax liability of the Appellant. 18. Without prejudice to Ground No. 1, the learned AO has on the facts and circumstances of the case, and in law, erred in computing the total income of the Appellant and the taxes thereon, in accordance with the provisions of the Act. 19. Without prejudice to Ground No. 1 above, the learned AO has on the facts and circumstances of the case, and in law, erred in granting credit for taxes deducted at source amounting to only Rs. 17.04,89,657 instead of Rs. 17,74,20,046 thereby resulting in short credit of taxes deducted at source amounting to Rs. 69.30,389. 20: Without prejudice to Ground No. 1 above, the learned AO has on the facts and circumstances of the case and in law, erred in calculating interest under section 244A of the Act. 21. Without prejudice to Ground No. 1 above, the learned AO has on the facts and circumstances of the case, and in and in law, erred in levying interest under section 234D of the Act. ....
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....offices of the 7. Without prejudice to Ground No. 1 to 6 above, the learned AO has on the facts and circumstances of the case and in law, and based on the directions of the learned DRP, erred in not allowing a deduction for claims and other incidental expenses while computing the taxable profit of the Appellant. 8. Without prejudice to Ground No. 1 to 7 above, the learned AO has on the facts and circumstances of the case, and in law, and based on the directions of the learned DRP, erred in disregarding the overall profitability of the Appellant for the year ended 2019 and 2020 of 16.2% as taxable profits by applying Rule 10 of the Income-tax Rules, 1962 ('the Rules), while and cable respectively (based on combined ratio) and estimating to per cent of the gross receipts attributing profits to the alleged PE of the Appellant in India. 9. Without prejudice to Ground No. 1 to 6 above, the learned AO has on the facts and circumstances of the case, and in law, and based on the directions of the learned DRP, erred in not using any scientific method in determining 50 per cent of the taxable profits (as arrived by applying Rule 10 of the Rules) as being attrib....
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.... the tax payable by the Appellant in the income-tax computation sheet. 17. Without prejudice to Ground No. 1 above, the learned AO has on the facts and circumstances of the case, and i and in law, erred in initiating penalty proceedings under section 270A of the Act." ITA NO. 4691/Mum/2023 AY 2021-22 1. On the facts and in the circumstances of the case, and in law, the notice issued under section 143(2) of the Act, dated 27 June 2022, by the Assistant/Deputy Commissioner of Income-tax, 1(1)(1), Delhi, to initiate assessment proceedings for AY 2021-22, is without jurisdiction in terms of the Central Board of Direct Taxes order (No. F. No. 187/3/2020-ITA-I) dated 31 March 2021, and the assessment order passed by the learned AO is bad in law, since the same is without jurisdiction. 2. Without prejudice to ground no. 1 above, on the facts and in the circumstances of the case, and in law, the final assessment order dated 23 October 2023, passed by the learned AO under section 143(3) read with section 1440(13) of the Act, having been passed beyond the period of limitation provided in terms of section 153 of the Act, is illegal, being barred by limitation and....
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.... and in the circumstances of the case, and in law, and based on the directions of the learned DRP, erred in estimating to per cent of the gross reinsurance receipts of the overseas offices of the Appellant as taxable profits by applying Rule 10 of the Income-tax Rules, 1962 ('the Rules'), while attributing profits to the alleged PR of the Appellant in India. 9. Without prejudice to ground nos. 1 to 7 above, the learned AO has on the facts and in the circumstances of the case, and in law, and based on the directions of the learned DRP, erred in not using any scientific method in determining 50 per cent of the taxable profits (as arrived by applying Rule 10 of the Rules) as being attributable to the Indian operations. 10. Without prejudice to ground nos. 1 to 3 above, the learned AO has on the facts and in the circumstances of the ease, and in law, and based on the directions of the learned DRP, erred in holding that the amount of Information Technology (IT") costs and other Management Expenses allocated to and paid by the Appellant's India Branch to its Head Office are covered within the scope of fees for technical services and accordingly taxable in th....
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....ed two sets of additional grounds, one vide application dated 20.04.2023 which are reproduced as under: "14. On the facts and in the circumstances of the case, and in law, the directions issued by the Hon'ble Dispute Resolution Panel(DRP') under section 144C(5) of the Income-tax Act, 1961 ('the Act'), are not in accordance with the provisions of the Act and, hence, invalid and bad in law. 15. The learned AO has on the facts and in the circumstances of the case, and in law, erred in granting credit for taxes deducted at source amounting to only Rs. 5.35.32.370 instead of Rs. 6,71,87,055 claimed by the Appellant, thereby resulting in short credit of taxes deducted at source amounting to Rs. 1,36,54,685. 2.2. In the second set of additional grounds vide application dated 10.10.2023, it is contested that final assessment order passed by the ld. Assessing Officer is beyond the limitation provided u/s. 153 and hence liable to be quashed. The relevant additional ground is reproduced as under: 16. On the facts and in the circumstances of the case and in law, the final assessment order dated 30 July 2022, passed by the Assessing Officer('AO&....
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.... deduction for claims and other incidental expenses while computing the taxable profits of the Appellant. 5 6 7 X These grounds are consequential to the main grounds mentioned at serial numbers 1 to 4 above. In event the Appellant succeeds on the main grounds, these grounds will become academic. 6 The learned AO has erred in disregarding the overall profitability of the Appellant for the year (based on. combined ratio) and estimating 10 per cent of the gross receipts as taxable profits by applying Rule 10 of the Income-tax Rules, 1962, ('the Rules") while attributing profits to the alleged PE of the Appellant in India. 6 7 8 8 7 The learned AO has erred in not using any scientific method in determining 50 per cent of taxable profits (as arrived by applying Rule 10) as attributable to the Indian operations. 7 8 9 9 8 The learned AO has erred in applying a tax rate of 40 per cent instead of 12.5 per cent (plus applicable surcharge and cess) in case of reinsurance premium with respect to life reinsurance contracts as per section 1156 of the Act while computing the tax liability of the Appellant in the inc....
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....ssed by the learned AO under section 143(3) read with section 1440(13) of the Act, having been passed beyond the limitation provided in terms of section 153 of the Act, is illegal, being barred by limitation and is therefore, void ab initio and liable to be quashed. 16 24 20 2 This ground should be kept open. 17 The learned AO has erred in applying the provisions of section 115 JB of the Act to the Appellant being a foreign company. X 12 X X All these grounds (serial numbers 17 to 20) are with respect to incorrect computation of the business income by the learned AO. While computing the business income under the normal 18 The learned AO has erred in making additions on account of attribution of income from reinsurance premium with respect to the Appellant's Direct Business to the Appellant's India operations, and IT costs and other Management Expenses allocated to and paid by the Appellant's India Branch to its Head Office as fees for technical services, to the deemed total income of the Appellant determined in accordance with the provisions of section 115 JB of the Act. X 13 X X provisions of the Act, the learned....
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....gn branches to tax at the rate prescribed under Article n of the India-Germany tax treaty. However, AO has levied surcharge and education cess on the said income taxable at the treaty rates. 27 The learned AO has erred in assessing the total income of the Appellant at INR 27,95,65,710. X X 14 X This ground is general in nature. 28 The learned AO has erred in not mentioning the interest under section 244A of the Act granted to the Appellant while computing the tax payable by the Appellant in the income-tax computation sheet. X X 16 X We request that directions may be given to the learned AO to consider the interest as per the provisions of the Act. 29 The learned AO has erred in considering the reinsurance premium earned by the overseas offices of the Appellant (i.e. Direct Business) at Rs. 82,11,66,722 instead of Rs. 78,20,41,873. X X 6 X This ground is consequential to the main grounds at serial numbers i to 4 above. In event the Appellant succeeds on those grounds, this ground will become academic. 30 The directions issued by the learned DRP under section 144C(s) of the Act dated 27 September 2023 are not in con....
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....re Hathaway Group. Assessee is thus, a tax resident of Germany under the India-Germany Double Tax Avoidance Agreement (India-Germany DTAA) and also qualifies as a non-resident of India u/s. 6 of the Act. It is engaged in providing reinsurance services globally to various life and non-life insurance and reinsurance companies. Assessee had a wholly owned subsidiary in India with the name Gen Re Support Services Mumbai Private Limited (GSSMPL) which was involved in the business of providing market intelligence and administrative support services to the assessee. It is explained that the activities carried out by GSSMPL are limited to rendering of support functions, i.e., obtaining market intelligence and administrative support services to the assessee in respect of reinsurance business with Indian insurance companies. GSSMPL discontinued its business from August 2017 and has been in liquidation since 29.09.2017. Assessee does not have any other subsidiary in India during the year under consideration other than GSSMPL. In the meanwhile, assessee obtained an approval dated 09.05.2017 from Insurance Regulatory Development Authority of India (IRDAI) under the IRDAI (Registration and Opera....
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..... It was also noted that GSSMPL did not have requisite regulatory approval from IRDAI to carry out reinsurance function, an aspect crucial to hold that GSSMPL existed as PE of the assessee for the conduct of its reinsurance business. On the first aspect raised by the Revenue as to assessee having a 'business connection' within the meaning of section 9(1)(i) of the Act and on the second aspect of GSSMPL constituting a PE of assessee in India under Article 5(1) under the India-Germany DTAA, the Coordinate Bench noted that GSSMPL is not authorised to execute any contract or settle any claim on behalf of the assessee. In fact, it noted that there is no factual support to the ld. Assessing Officer as there was nothing either under the service agreement or any material to establish that this Indian subsidiary had provided actuarial or underwriting services which are core activities for the conduct of reinsurance business. For the purpose of provisions contained in Article 5(1) of India-Germany DTAA, Coordinate Bench observed that factually or legally, the place of business of Indian subsidiary per se can in no way be equated to mean the fixed place of business of the assessee in India, b....
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.... take up appeal for Assessment Year 2018-19 having a broken period for the conduct of reinsurance business by the assessee, part of which was executed when its wholly owned subsidiary existed, i.e., GSSMPL and part of it when the India Branch came into existence. As already stated, for the remaining three years, it was only India Branch which existed in respect of the reinsurance business of the assessee with Indian Cedants. 6. We first deal with the income earned by the assessee which is referred to as its 'direct business'. In respect of direct business of the assessee, it is stated that assessee had negotiated and finalised reinsurance contracts with Indian Cedants outside India, prior to the commencement of India Branch on 01.08.2017. Assessee earned/received reinsurance premium on all these contracts which were entered into during the period year 2001 to July 2017, referred to as 'direct business'. Under the IRDAI Regulation, assessee for its direct business is permitted to continue servicing the risk assumed under the existing reinsurance contracts directly, where such risk commenced prior to the operation of India Branch. This servicing of the risk can continue even after....
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....e is a real and intimate connection between the direct business of the assessee and the activity done in India by GSSMPL. Ld. DRP while giving its directions on this has held GSSMPL to be DAPE of assessee in India. Further, on the fact of GSSMPL ceasing to exist from Assessment Year 2018-19, ld. DRP observed that what matters is that the income is attributable to a PE that existed when the source was created and thus, held that reinsurance premium received by the assessee was taxable even though GSSMPL was not in existence in the year under consideration. For the direct business of the assessee, authorities below alleged that India Branch is the PE of the assessee, exercising indirect authority to negotiate and enter into contract on behalf of the assessee, involved in both, inspection of books of accounts of the Cedants and in arbitration proceedings and is also habitually securing orders for or on behalf of the assessee qua direct business. Ld. Assessing Officer concluded that India Branch is a DAPE of the assessee and therefore, reinsurance premium earned by the assessee is taxable in India being attributable to its PE in India. Ld. DRP has observed and directed that what matter....
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....x Treaty. In view of the aforesaid discussion, we hereby set-aside the order of Assessing Officer and uphold the stand of the assessee. As a consequence, so far as Ground of appeal nos. 1 to 4 are concerned, the same are treated as allowed." 7.3. In view of the above, it is held that no portion of income, if any, comprised in the reinsurance premium earned by the assessee is taxable in India on the basis of view taken by ld. Assessing Officer and ld. DRP that GSSMPL constituted a business connection/PE of the assessee in India for its direct business. 8. We now take up the segment relating to the period when India Branch came into existence and assessee earned reinsurance premium on its direct business. The business conducted by India Branch with the Indian Cedants is not in dispute and has already been offered to tax by the assessee as India income attributable to its India Branch. The modus operandi of conduct of direct business by the assessee even after the set-up of India Branch is already discussed in the above paragraphs whereby India Branch has no role to play therein. To summarily reiterate for the purpose of clarity, Indian Cedants are serviced directly from outside....
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....dia within the meaning of Article 5(1) and 5(5) of India-Germany DTAA to bring to charge, income attributable to India Branch in respect of direct business of the assessee. Further, in respect of income attributable to the period during which GSSMPL was in existence in the year under consideration, we have already held in favor of the assessee by having recourse to the decision of the Coordinate Bench in assessee's own case for Assessment Year 2015-16 (supra). As a consequence, ground nos.1 to 4 raised by the assessee are allowed. 9. We now take up second issue relating to IT cost and other management expenses held by the Revenue falling within the scope of FTS for bringing it to tax in India. In this regard, it is noted during the year under consideration the India Branch made payments to its Head Office (assessee) towards allocation of IT cost and other management expenses. According to the ld. Assessing Officer, such sums received by the head office (assessee) were not offered to tax by it. He held that these are taxable in India in the hands of the assessee as FTS. While doing so, ld. Assessing Officer treated the India Branch of assessee as a resident in India in order to h....
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....vices 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services being a resident of a Contracting State, carries or business in the other Contracting State in which the royalties on fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or ford base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply." 9.3. From above, for Article 7(1), profits of a German enterprise can be taxable in India only to the extent they are attributable to its PE in India. Also, as per Article 7(2) where a German enterprise carries on business in India through a PE, there shall be attribution to that PE, of the profits which it might be expected to make, if it were a distinct and separate enterprise engaged in the same or similar activities under same or similar conditions and dealing wholly i....
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....payment of IT cost and other management expenses by the India Branch to its head office (assessee) towards allocation of the same, is neither taxable within the provisions of the Act nor under the provisions of India-Germany DTAA. Accordingly, ground no.9 is allowed. 10. Having adjudicated upon the two core issues vide ground no.1 to 4 and ground no.9 for AY 2018-19 in above paragraphs, all other grounds in all the four appeals are dealt with as enumerated in the table in paragraph-3 owing to their commonality. Thus, by making specific reference to grounds for Assessment Year 2018-19, we observe as under: a) Ground nos. 5,6,7,8,10,11 and 13 are consequential to the two core issues and are therefore rendered academic and needs no separate adjudication. b) For ground nos. 12 and 15, ld. Assessing Officer is directed to verify the records and details and re-compute/grant the credit as claimed by the assessee. c) For ground nos.14 and 16, since the issues have already been dealt on merits of the case holding in favor of the assessee, the same are left open and not adjudicated upon. 11. Specific to Assessment Year 2019-20, relevant grounds will have simi....
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....IT IT Kolkata [2012] 22 taxmann.com 310 (Kol) c. DDIT V. BOC Group Ltd [2015] 64 taxmann.com 386 (Kol) d. DCIT IT' V. Marubeni Corporation [2022] 139 taxmann.com 458 (Mum) 12.4.1. Fact of the matter is that in the year under consideration, a refund pertaining to Assessment Year 2016-17 was granted by the Income-tax Department to the assessee which included interest component of Rs. 15,67,835/- u/s. 244A. Since this interest pertained to Financial Year 2015-16, relevant to Assessment Year 2017-18 when India Branch was not in existence, assessee offered this interest component as per Article 11 of India-Germany DTAA at the rate of 10%. However, ld. Assessing Officer while computing the tax liability against the final assessment order, applied surcharge and cess on the tax liability computed by applying rate of 10% under Article 11. 12.4.2. In this regard, assessee contended that section 90(2) of the Act entitles the assessee to apply more beneficial provisions between the Act and the relevant DTAA. Accordingly, assessee submitted that in respect of this interest income, Article 11(2) of India-Germany DTAA provides that interest arriving in India which is r....