TaxTMI 
TaxTMI 
2021 (10) TMI 1489
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....ection in India as per the provisions of section 9(1)(i) of the Act. 3. The learned AO has, on facts and circumstances of the case in law, and based oil 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 permanent establishment of the Appellant in India as per the provisions of Article (i) of the India-Germany Double Taxation Avoidance Agreement (India- Germany tax treaty). 4. The learned AO has, on the facts and circumstances of the case in law, and based oil directions of the learned l)RP, erred in concluding that GSSMPL is a Dependent Agent PE of the Appellant in India as per Article () of the India-Germany tax treaty. 5. The learned AO has, on the facts and circumstances of the case in law, and based oil directions of the learned DRP, erred in concluding that the support services performed by CSSMPL are not just lie nature of preparatory or auxiliary services. 6. 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 considering the....
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....e case and in law, and based on the directions of the learned DRP, erred in levying consequential interest under section 234B of the Act. 14. The learned AO has, on the facts and circumstances of the case and in law, erred in initiating penalty proceedings under section 271A of the Act." 3. The brief facts of the case are that the assessee i.e. General Reinsurance AG ('the assessee' or 'GRAG') is a foreign company and tax resident of the Germany. The assessee is in the business of Reinsurance Services to insurers/cedants for both life and non-life insurance. GRAG has entered into various reinsurance treaties with Indian Insurance Company for underwriting the risk, GRAG receives reinsurance premium, under the reinsurance treaties entered by it with Indian Insurance Companies. During the F.Y. 2016-17, GRAG has reinsurance premium of life/health reinsurance contracts of Rs.107,08,35,695/- and with respect to non-life (property/casualty) reinsurance contracts of Rs. 4,73,96,532/- from insurance companies in India. The assessee claimed that the above receipts are business income of the assessee and the assessee did not have a Permanent Establishment (PE) in I....
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....be negotiated, finalised and executed outside India. Assessee earns reinsurance premium in terms of the aforestated arrangements entered into with various Indian insurance companies; and, such receipts during the year amounted to Rs. 103,82,31,281/-. The Indian insurance companies pay a re-insurance premium to the assessee company to reinsure their part of the risk, which is accepted by the assessee from outside India. Further, if an insurance claim devolves, assessee settles the claim with the Indian insurance company with respect to the portion of the risk re-insured by it. In the return of income, assessee claimed that such receipts were in the nature of business receipts and, therefore, in the absence of any Permanent Establishment (PE) in India, the income therefrom is not liable to be taxed in India. 4. The orders of the authorities below reveal that the aforesaid stand of the assessee has not been accepted. As per the income-tax authorities, the aforesaid receipts are liable to be taxed in India primarily on three counts. Firstly, according to the Revenue, said receipts are liable to be taxed in India because they are earned as a result of a 'business c....
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.... Indian insurance companies. Pertinently, the assessee-company has a 100% owned subsidiary in India, i.e. Gen Re Support Services Mumbai Pvt. Ltd. (hereinafter referred to as 'Indian subsidiary'). It has been explained that the activities carried out by the Indian subsidiary are limited to rendering of support functions, i.e. obtaining market intelligence as well as administrative support services to the assessee with respect to the reinsurance business with the Indian insurance companies. It has been explained that initially assessee had a Liaison Office (LO) in India in terms of permission granted by the Insurance Regulatory and Development Authority (IRDA) dated 23.11.2007, a copy of which has been placed at pages 1 to 2 of the Paper Book. Hitherto, the LO was acting as a communication channel between assessee's Head Office in Germany and the insurance companies in India, and during the year under consideration, the said LO was shut down in November, 2014, when the Indian subsidiary started functioning. The Indian subsidiary has rendered administrative and business marketing support services to the assessee. At this stage, it would also be pertinent to observe that t....
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....cessed, goes to the Head Office in Germany only for final approval. The conclusion by the DRP in para 4.3 of its order has also been sought to be pointed out. The DRP in para 4.3, inter-alia, notes that the reinsurance income is earned by the assessee in terms of a Master Service Agreement signed with the Indian subsidiary "in India", in terms of which the Indian subsidiary provides marketing intelligence and administrative support services to the assessee. It is also the say of the Revenue that the Indian subsidiary is being compensated at cost plus specified mark-up, which also goes to show that the Indian subsidiary is a captive service provider, and thus assessee has a PE in India. As per the Revenue, the manner in which the business is carried out between the Indian subsidiary and the assessee-company, the relationship is that of a Principal and Agent, rather than that of Principal to Principal and, therefore, a portion of the impugned receipts by way of re-insurance premium are attributable to the activities of Indian PE i.e. the Indian subsidiary. Apart therefrom, it has also been pointed out that the Indian subsidiary is using the brand name of the assessee while representi....
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....ities of actuarial and underwriting and risk assessment of reinsurance business are being undertaken by the Indian subsidiary. 10. It has also been explained that the assessee has its own infrastructure, personnel and approvals to carry out reinsurance activities from outside India, and the Indian subsidiary does not serve as a base in India even for the employees of the assessee who carry out such activities from outside India. The learned representative submitted that merely because assessee has a subsidiary in India, that by itself cannot be a ground to say that there exists a 'business connection' or that the subsidiary constitutes a PE in India. At this stage, reference was also made to the observation made by the DRP in para 4.3 of its order whereby the expression "in India" has been used with reference to the Master Service Agreement signed by the assessee with the Indian subsidiary. It has been pointed out that the agreement was not executed in India and, for that matter, reference was made to page 23 of the Paper Book. It has also been explained that the Indian subsidiary does not have any obligation or authority to execute or finalise terms of re-insuranc....
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....he services obtained by the assessee from the Indian subsidiary because this aspect is crucial to decide the controversy. Assessee has obtained services from the Indian subsidiary in terms of a Master Service agreement, a copy of which is placed in the Paper Book. As per this agreement, assessee compensates the Indian subsidiary on a cost plus mutually agreed mark up. The Master Service agreement is entered between various concerns of the assessee group located worldwide, and is very comprehensive, dealing with intra-group dealings, i.e. within the group entities. Out of the activities enumerated in the Master Service agreement, only marketing support and administrative or business support services are being rendered by the Indian subsidiary to the assessee. In order to appreciate the nature of services, it would be appropriate to refer to the Addendum to the Master Service agreement between assessee and the Indian subsidiary which is placed at pages 26-27 of the Paper Book. The significant activities being performed by the Indian subsidiary have been broadly put in four categories, namely, (i) Actuarial support, (ii) Medical/Financial Underwriting support, (iii) Representation and....
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....ubsidiary become amply clear. The clause of 'Prohibited Activities' reads as under : - "Prohibited Activities The following activities shall not be carried out by the SC for either India or any other designated markets : ● Concluding binding reinsurance agreements with clients on behalf of GRAG. ● Negotiating on behalf of GRAG on any insurance/reinsurance related issue. ● Preparing final treaty documents for reinsurance business concluded. ● Passing on quotations or decisions to clients on reinsurance matters which have not been correctly authorized by GRAG staff. ● Providing recommendations to GRAG regarding underwriting matters." 14. The aforesaid agreements were very much before the lower authorities and there is no allegation, much less a finding by the incometax authorities that the Indian subsidiary has rendered any services outside the terms of the Service agreements. It is quite clear that the Indian subsidiary is only providing support services, and it does not execute contracts on behalf of the assessee and nor does it have the authorit....
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..... Other notable condition was that the LO shall not carry out any activity other than activity for which the approval has been granted. The LO has been prohibited from carrying out by itself or in partnership or by otherwise any activity of a trading, commercial or industrial nature. The LO was prohibited from charging any commission or fee or any other remuneration for liaising activities or any such other activities rendered by it in India other than those approved by the IRDA. We are only emphasising the aforesaid features of the working of LO to bring out that the existence of the LO cannot be construed to be the existence of any 'business connection' in India within the meaning of Sec. 9(1)(i) of the Act or even PE under the India-Germany Tax Treaty since the carrying out of any activity of trading, commercial or industrial is specifically prohibited by IRDA. Pertinently, the LO has also been mandated to furnish to the IRDA, an annualised certificate from the Auditor that it has complied with all the terms and conditions stipulated in the letter of approval issued by IRDA and that all the expenses are met by way of approved means. It has been brought out by the learned....
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....e 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 in the plea of the Revenue; and, even on the point of law, as has been brought out by the Hon'ble Delhi High Court in the case of National Petroleum Construction Co. (supra), the LO merely acts as a channel of communication between the Head office and the parties in India and cannot undertake any commercial, trading or industrial activity, and thus, the activities of the LO cannot give rise to a 'business connection' within the meaning of Sec. 9(1)(i) of the ....
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....r 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 examines the proposal and negotiates the terms and conditions of the reinsurance contracts. There is nothing to dispute the assertions of the assessee that the infrastructure, personnel and approvals to carry out reinsurance activities are from outside India. Thus, there is nothing to suggest that the core activities of the reinsurance business of the assessee are carried out in or from India by the Indian subsidiary. 19. Moreover, in the context of Article 5(1) of....
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....e 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 incometax 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 fact, at the time of hearing, the learned representative for the assessee referred to an illustrative agreement placed at pages 28 to 102 of the Paper Book, which is a reinsurance arrangement with SBI Group Life, which has been entered into by assessee and the Indian insurance company, i.e. SBI Group Life directly. Therefore, factually also, we find no support for the case of the Revenue that the Indian subsidiary constitutes a dependent PE of assessee in India. 2....