TaxTMI 
TaxTMI 
2025 (11) TMI 1991
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.... of the Act and permanent establishment in India As per Article 5 of India Singapore DTAA and also treating the retrocession premium amounting to Rs. 8,5116,158,941/- earned by the assessee from SRCL Indian Branch a business income after alleging that it has a business connection and PE in India. Since the facts, the rival contentions and the core issues in both years are substantially identical, and since the very issues already stand adjudicated in favour of the assessee in its own earlier years by co ordinate benches for A.Y. 2018-19 and 2019-20, we find it convenient to dispose of both appeals by this consolidated order. 2. The brief facts and background qua the issue involved are that the assessee is part of the Swiss Re Group, a globally recognised reinsurance conglomerate. Within this group structure, three entities are relevant for the present controversy, as elaborated in the factual and legal submissions placed before us. First, Swiss Reinsurance Global Business Solutions India Private Limited, referred to as SRGBS, is an Indian company engaged in providing standardised information technology enabled back office and support services to various Swiss Re group entit....
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.... a part of the risk that it has assumed from Indian cedents to the assessee under a retrocession agreement. This arrangement is on a principal to principal basis and complies with the applicable IRDAI regulations. In substance, SRIB remains solely and directly liable to the Indian cedents from whom it originally assumes risk under reinsurance treaties entered in India, whereas the assessee contracts with SRIB to assume a part of that risk and earns retrocession premium from SRIB. The capital required in relation to both the run off portfolio and the retrocession business is maintained by the assessee in Singapore. 6. For the financial year ending 31 March 2020 relevant to assessment year 2020 21, the assessee earned reinsurance premium of INR 4,228,722,703 from the run off portfolio and retrocession premium of INR 8,516,158,941 from SRIB. For the financial year ending 31 March 2021 relevant to assessment year 2021 22, the assessee earned reinsurance premium of INR 3,699,288,184 from the run off portfolio and retrocession premium of INR 17,328,179,294 from SRIB. In addition, the assessee derived income from support services rendered to SRIB and to SRGBS as per intra group service....
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....m SRIB and SRGBS constituted Fees for Technical Services under Article 12 of the treaty. On this basis he attributed profits to the alleged permanent establishment and taxed the service income as FTS at a rate of 10.92 percent, thereby assessing total income at INR 1,211,357,091 as against the returned income of INR 437,500. The assessee raised objections before the Dispute Resolution Panel, which were rejected by following its earlier directions for preceding years. In sum and substance, the reasonings of the AO are as under:- "The re-insurance is an agreement between the insurer (cedent) and the reinsurer, whereby a part of the risk gets transferred from one party to another. The party accepting the risk is termed as the reinsurer and the party transferring the risk is termed as the reinsured/reassured or cedent. In the case of the retrocession agreement the retrocedent transfers a part of its risk to the retrocessionaire (assessee). ii. The income of the assesses is being earned from India on a regular and continuous basis. In view of this, there is clear cut business connection and the income of the assessee is taxable in India in terms of Sec 9(1)(1) of the I....
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....ian risks. 10.1. The Assessing Officer then turns to the activities performed in India by Swiss Reinsurance Company India Branch and Swiss Re Global Business Solutions India Private Limited. He examines the intragroup service arrangements and notes that these entities undertake substantial functions that are central to the reinsurance business of the assessee. These include risk assessment, underwriting support, collection of business and client information, actuarial evaluation, liaisoning with cedents, coordination of reinsurance proposals, financial and analytical support, information technology and human resource support, legal assistance, business facilitation, and processing of claims submitted by cedents. According to him, these activities are not in the nature of preparatory or auxiliary functions but constitute the very core of a reinsurance enterprise. He stresses that the risk assessment function in particular, which forms the heart of any reinsurance activity, is carried out substantially in India, and once this process is completed, very little of commercial importance remains to be performed outside India except for the formal act of signing the contract. 10.2. ....
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....t the processing and evaluation of claims submitted by cedents takes place in India and this, in his view, is a critical component of any reinsurance business and further anchors the business operations of the assessee within India. 10.4. The Assessing Officer additionally observes that the Indian cedents themselves exercise significant control over the business of the assessee through gross acceptance limits, net premium restrictions, and other commercial parameters that determine the exposure levels of the assessee. According to him, this degree of influence amounts to a form of agency since the cedents collectively and indirectly possess authority that impacts the contractual decisions of the assessee. He therefore concludes that the cedents too can be regarded as agents of the assessee in India. After analysing the functions performed by Swiss Reinsurance Company India Branch and Swiss Re Global Business Solutions India Private Limited in light of the Fixed Place Permanent Establishment, the Service Permanent Establishment, and the Agency Permanent Establishment tests, he reaches the overarching conclusion that all the elements required for establishing a Permanent Establish....
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....challenges attribution of INR 4,925,995,997 as profits to the alleged permanent establishment. Ground 6, again without prejudice, challenges the method of attribution in which the Assessing Officer has considered only claim payments as allowable expenditure while determining profits attributable to the alleged permanent establishment. Ground 7 challenges the characterisation of support service income as FTS under Article 12 and Ground 8, without prejudice, challenges the tax rate of 10.92 percent applied on such income instead of 10 percent provided in the treaty. Ground 9 alleges short credit of tax deducted at source. Grounds 10 and 11 challenge interest charged under sections 234A and 234B as consequential. Ground 12 again assails initiation of penalty under section 270A as premature and consequential. 14. The learned Authorised Representative for the assessee drew our attention at the very threshold to the detailed written submissions in the paper book and submitted that the controversy is entirely covered in favour of the assessee by decisions of the co ordinate benches in the assessee's own case for assessment years 2018 19 and 2019 20. In those years, on identical facts a....
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....ts for the present years and that judicial discipline demands that we follow those orders in the absence of any distinguishing feature. 17. Apart from the Swiss Re line of cases, the learned Authorised Representative placed reliance on a series of decisions in the case of RGA International Reinsurance Company Designated Activity Company, where the Mumbai benches of this Tribunal examined a substantially similar reinsurance and retrocession model involving Indian support entities. For multiple assessment years from 2018-19 to 2021-22 the co ordinate benches in those cases have held that no permanent establishment arises merely because associated enterprises in India render support functions and that the reinsurance and retrocession premium is not taxable in India in the absence of a permanent establishment. These decisions were commended to us as further persuasive authority that the revenue's approach to taxing reinsurance premium in such circumstances has repeatedly been disapproved. 18. On the question of FTS, the learned Authorised Representative placed detailed reliance on the earlier orders in the assessee's own case and on the jurisprudence surrounding the make availabl....
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....ties below, the material placed on record and the case law cited at the bar. We have also minutely examined the earlier orders of the co ordinate benches in the assessee's own case for assessment years 2018-19 and 2019-20 and the series of decisions in the case of Swiss Reinsurance Company Limited and RGA International Reinsurance Company Designated Activity Company. For the sake of ready reference the relevant observation and finding of the Tribunal in the case of the assessee as well as in the case of the sister concern of the assessee for A.Y. 2018-19 in ITA No. No. 1492/Mum/2022 are as under:- Relevant extract of ITAT order for the AY 2018-19: "7.8 Thus, it is clear that the DRP was of the view that the issues raised were covered in favour of the Appellant by the decision of the Tribunal in the case of Swiss Reinsurance Company Limited (SRCL)... Therefore, taking a view consistent with the view taken by the tribunal in the case of SRCL in order dated 04/07/2017, passed in appeal for the Assessment Year 2013-14 (ITA No. 2759/Mum/2017), we delete the additions made by the Assessing officer in view of the finding returned by the DRP that t....
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....r observed that in the course of such business Swiss Re-Services India Pvt. Ltd. (SRSIPL), which is an Indian Company and wholly owned subsidiary of the assessee is a PE of the assessee in India. The AO further noticed that the assessee through its Singapore Branch has entered into service agreement since 01/04/2009 with SRSIPL for obtaining risk assessment services, market insurance and administrative support in India and in tum remunerate/compensate SRSIPL on a cost+ 12% margin. The AO was of the opinion that since the assessee has remunerated SRSIPL and all its employees on a cost + basis, it is clear that the personnel and staff have rendered services to the assessee as de-facto employees. The AO was of the firm belief that the Indian subsidiary SRSIPL provides technical and core reinsurance services, therefore, Dependent Agency Permanent Establishment (DAPE) comes into play. The AO further noted that as per the domestic Income Tax Act, 1961, since the income of the assessee is being earned from India on a regular and continuous basis, the income of the assessee is taxable in India in terms of section 9(1)(i) of the Act. The assessee has regular flow of income emanating from In....
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.... The decision in the case of Jebon Corporation of Indi(supra) is not at all relevant on the facts of the case in hand 5.6 To sum up, the assessee does not have any business connection in India in the light of Explanation-2 to section 9(1) of the Act. The assessee does not have any PE in India. The facts on record show that there is neither Service PE nor Agency PE in the form of SRSIPL Considering the facts in totality in the light of the relevant provisions of the law and the DTAA and the judicial decisions referred to herein above, we have no hesitation in setting aside the assessment order and accordingly we direct the AO not to treat the income of the assessee as taxable under the Act With this Ground No 1, 2 and all its sub-grounds are allowed... 25. Further, the Hon'ble Mumbai ITAT has followed the above mentioned decision of AY 2010-11 for subsequent years as well i.e., from AY 2011-12 to AY 2017-18 in case of SRCL. 26. We find that the factual matrix, the contractual arrangements and the nature of activities in India as well as in Singapore remain materially the same in the years under appeal as in the earlier years. No change in law or facts has been poi....
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....ance treaties written in India. 30. Parallel to this, SRIB and SRGBS in India render support services to the assessee under intra group service agreements. These services cover administrative, operational, information technology and similar support functions. They are remunerated at arm's length on a cost plus basis. The decisions regarding their own operations are taken by their respective managements. Their employees are employed by them, are on their payrolls and are subject to Indian regulatory and tax laws. There is no material on record to show that any employee of the assessee has been seconded to India or that the assessee has any right to occupy or use the premises of SRIB or SRGBS as its own place of business. 31. On these facts, we find ourselves in complete agreement with the reasoning of the co ordinate benches in earlier years that no fixed place permanent establishment of the assessee exists in India. A fixed place PE requires that the foreign enterprise has a place of business at its disposal in the source country through which its business is carried on. The offices of SRIB and SRGBS in India belong to them and are used by them to carry on their own business ....
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....e business. There is nothing to show that SRIB or SRGBS act as brokers, agents or legal representatives of the assessee in relation to Indian cedents. To the contrary, the material on record confirms that SRIB and SRGBS are independent service providers which do not have authority to secure or conclude contracts on behalf of the assessee. In these circumstances, the essential ingredients of a dependent agent permanent establishment are not satisfied. 35. We also note that the Assessing Officer has not set out any separate reasoning for treating the assessee as having a business connection in India under section 9(1)(i) in relation to retrocession business. The reasoning proceeds on the assumption that presence of associated enterprises in India by itself suffices to create a business connection and permanent establishment. This approach has already been rejected in the decisions of the co ordinate benches in Swiss Reinsurance Company Limited and in RGA International Reinsurance Company. Those decisions emphasise that where the core business of assuming risk and deploying capital is carried on outside India, and where Indian affiliates are remunerated at arm's length for their su....
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....nature, it can be brought within the fold of FTS under the treaty only if it makes available technical knowledge, experience, skill, know how or processes, or consists of development and transfer of a technical plan or design, to the recipient. The make available requirement mandates that the recipient should be enabled to apply the technology independently in future, without the continued involvement of the service provider. The mere rendering of technical, specialised or managerial services, no matter how valuable or continuous, is not sufficient if there is no transfer of the underlying technology or know how. 40. The co-ordinate bench, in the assessee's own case for assessment years 2018-19 and 2019-20, has already applied this principle to the very same agreements and to the very same categories of services rendered by the assessee to SRIB and SRGBS. It has held, after detailed analysis, that while the services may assist SRIB and SRGBS in their operations, they do not equip the Indian entities to perform such functions by themselves without the assessee's ongoing involvement. The Assessing Officer had not identified any specific technology, process or know how that was tra....
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....s own case and the settled jurisprudence on the make available test and hold that the consideration received by the assessee from SRIB and SRGBS for support services does not fall within the ambit of Fees for Technical Services under Article 12 of the India Singapore tax treaty. In the absence of any permanent establishment of the assessee in India, such income also cannot be taxed as business profits under Article 7. The additions made by the Assessing Officer and sustained by the Dispute Resolution Panel on this count for both assessment years under appeal are accordingly deleted. 45. Once we have held that there is no taxability of such service income in India, the alternative grievance regarding the rate of tax applied by the Assessing Officer, namely 10.92 percent instead of 10 percent mandated by the treaty, becomes entirely academic. Grounds 8 in both years are, therefore, rendered infructuous and do not call for any separate adjudication. 46. We now advert to the grounds relating to short credit of tax deducted at source, short grant of interest under section 244A and the treatment of a certain amount as refund already issued. For assessment year 2020-21, Ground 9 all....
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....ordance with law. 50. The grounds challenging initiation of penalty under section 270A for both assessment years are clearly premature at this stage. Initiation of penalty is a tentative satisfaction recorded by the Assessing Officer in the course of assessment and does not, by itself, result in any civil consequences. In any event, since we have deleted the substantive additions forming the foundation of such satisfaction, the Assessing Officer will necessarily have to take a fresh call on the question of penalty, if he still so chooses, in the light of the final assessed income. We therefore hold that these grounds do not require any separate adjudication and are dismissed as infructuous, without prejudice to the assessee's liberty to challenge any penalty order that may be passed in future. 51. For the sake of completeness, we also record that Ground 3 for assessment year 2020-21 and Ground 2 for assessment year 2021-22 are general in nature and do not survive for separate consideration in view of our detailed findings on the substantive issues. 52. To recapitulate, we have first taken note of the fact that the issues in these appeals are fully covered in favour of the ....