2023 (5) TMI 1275 - AT - Income Tax

Income deemed to accrue or arise in India - PE in India - existence of a DAPE - whether Appellant has a business connection in India as per the provisions of section 9(1)(i) ? - scope of India-Ireland tax treaty - HELD THAT - As issues raised by the assessee in the present assessment year are exactly similar to the issues decided by the Coordinate Bench in A.Y. 2015-16 2022 (11) TMI 31 - ITAT MUMBAI , we are inclined to follow the decision wherein as held 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, is wholly tax-neutral and does not, therefore, need our adjudication. Decided in favour of assessee.

Issues Involved:

1. Business connection in India u/s 9(1)(i) of the Act.
2. Fixed place permanent establishment (PE) in India as per Article 5(1) of the India-Ireland tax treaty.
3. Dependent Agent PE in India as per Article 5(6) of the India-Ireland tax treaty.
4. Nature of services provided by RGA Services.
5. Attribution of income to the alleged PE.
6. Estimation of profit attributable to Indian operations.
7. Application of tax rate.
8. Levy of interest u/s 234B of the Act.
9. Short grant of TDS credit.
10. Initiation of penalty proceedings u/s 270A of the Act.

Summary:

1. Business Connection in India u/s 9(1)(i) of the Act:
The learned AO, based on the directions of the Hon'ble DRP, concluded 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.

2. Fixed Place Permanent Establishment (PE) in India:
The learned AO, based on the directions of the Hon'ble DRP, concluded that the appellant has a fixed place PE in India as per Article 5(1) of the India-Ireland tax treaty. The AO held that RGA Global Shared Services India Private Limited (RGA Services) provides technical and core reinsurance business services crucial for the appellant's reinsurance business in India and alleged that the appellant's software AURA leaves little decision-making to be done in Ireland.

3. Dependent Agent PE in India:
The learned AO, based on the directions of the Hon'ble DRP, concluded that RGA Services acts as a Dependent Agent PE of the appellant in India as per Article 5(6) of the India-Ireland tax treaty. The AO held that RGA Services habitually secures orders for the appellant, and the relationship is that of principal and agent, not principal to principal. The AO also held that employees of RGA Services function as de facto employees of the appellant.

4. Nature of Services Provided by RGA Services:
The learned AO, based on the directions of the Hon'ble DRP, concluded that the support services performed by RGA Services are not preparatory or auxiliary but are core and crucial business activities in relation to the reinsurance business.

5. Attribution of Income to the Alleged PE:
The learned AO, based on the directions of the Hon'ble DRP, erred in not considering the appellant's claim that no further income can be attributed to the appellant's alleged PE because the remuneration paid to RGA Services is at arm's length price.

6. Estimation of Profit Attributable to Indian Operations:
The learned AO, based on the directions of the Hon'ble DRP, erred in estimating 10% of the gross receipts attributable to the Indian operations to be the profit generally made by a reinsurance company in India and in estimating 50% of the profit determined above to be attributable to the appellant in India.

7. Application of Tax Rate:
The learned AO, based on the directions of the Hon'ble DRP, erred in applying a tax rate of 40% instead of 12.5% (plus applicable surcharge and education cess) in the case of life reinsurance business as per section 115B of the Act.

8. Levy of Interest u/s 234B of the Act:
The learned AO, based on the directions of the Hon'ble DRP, erred in levying interest u/s 234B of the Act.

9. Short Grant of TDS Credit:
The assessee raised an issue regarding the short grant of TDS credit of Rs. 2,81,984. The tribunal directed the Assessing Officer to verify the records and allow the TDS credit as per law, giving the assessee a proper opportunity of being heard.

10. Initiation of Penalty Proceedings u/s 270A of the Act:
The learned AO, based on the directions of the Hon'ble DRP, erred in initiating penalty proceedings u/s 270A of the Act.

Conclusion:
The tribunal followed the decision of the Coordinate Bench in the assessee's own case for the A.Y. 2015-16, allowing the grounds raised by the assessee. The issue regarding the short grant of TDS credit was remitted back to the file of the Assessing Officer for verification. The appeal filed by the assessee was partly allowed.

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