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2022 (11) TMI 31 - AT - Income TaxIncome deemed to accrue or arise in India - Permanent establishment in India - existence of the dependent agency permanent establishment - HELD THAT - DRP has referred to the existence of business connection u/s 9(1) but then that aspect of the matter is wholly irrelevant because in a case in which a double taxation avoidance agreement comes into play, as admittedly, in this case, the provisions of the Income Tax Act 1961 cannot be pressed into service unless these provisions are more beneficial to the assessee. DRP has simply observed that since the core business activities are conducted by RGA India, RGA India constitutes the fixed place PE. As we we have seen above, unless a particular place is at the disposal of the assessee, that place cannot be said to constitute the PE of the assessee. In any case, the core reinsurance activity is the assumption of risk, and that assumption of risk has been done outside India. There is thus no occasion to attribute reinsurance profit attribution to RGA India. Whatever activities are carried out by RGA India have been duly paid for by the asseseee, and the transfer pricing assessment has accepted that position. Once that position is accepted, there cannot be any further profit attribution for services rendered by the RGA. We disapprove the stand of the authorities below, and hold that 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, in the light of the coordinate bench decision in the case of ADIT Vs Asia Today Ltd. 2021 (11) TMI 804 - ITAT MUMBAI is wholly tax-neutral and does not, therefore, need our adjudication. Thus we hold that the assessee did not have a fixed place permanent establishment in India, that the question of assessee having 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. Appeal of assessee allowed.
Issues Involved:
1. Business connection in India under section 9(1)(i) of the Income Tax Act, 1961. 2. Fixed place permanent establishment (PE) in India as per Article 5(1) of the India-Ireland Double Taxation Avoidance Agreement (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 performed by RGA Services. 5. Attribution of income to the alleged PE. 6. Attribution of gross premium to Indian operations. 7. Application of Rule 10 of the Income-tax Rules, 1962. 8. Tax rate applicable to life reinsurance business. 9. Levy of interest under section 234B of the Act. 10. Initiation of penalty proceedings under section 271(1)(c) of the Act. Detailed Analysis: 1. Business Connection in India: The learned AO concluded that the appellant has a business connection in India under section 9(1)(i) of the Income Tax Act, 1961, due to the regular and continuous income earned from India. The Dispute Resolution Panel (DRP) supported this view, noting that the appellant's reinsurance contracts with Indian cedents indicate a clear business connection, making the income taxable in India. 2. Fixed Place Permanent Establishment (PE): The AO determined that the appellant has a fixed place PE in India under Article 5(1) of the India-Ireland tax treaty, primarily through the operations of RGA Services India Private Limited (RGA Services). The AO argued that RGA Services performs core reinsurance business activities, such as actuarial, underwriting, and risk assessment services, which are crucial for the appellant's business. The DRP upheld this view, stating that the core business activities of the appellant are conducted through RGA Services, constituting a fixed place PE. 3. Dependent Agent PE: The AO also concluded that RGA Services acts as a Dependent Agent PE of the appellant under Article 5(6) of the India-Ireland tax treaty. The AO noted that RGA Services habitually secures orders for the appellant and that the relationship between RGA Services and the appellant is that of principal and agent. The AO further held that the employees of RGA Services perform functions like de facto employees of the appellant, significantly influencing decisions leading to contract signing. 4. Nature of Services by RGA Services: The AO and DRP concluded that the support services performed by RGA Services are not preparatory or auxiliary but are core and crucial business activities related to reinsurance. The appellant argued that RGA Services only provides preparatory and auxiliary services, and the core reinsurance activity, which is the assumption of risk, is done outside India. 5. Attribution of Income to PE: The AO attributed 50% of the gross premium received to Indian operations and applied a tax rate of 10% on the gross reinsurance revenue. The appellant contended that no further income should be attributed to the alleged PE since the remuneration paid to RGA Services is at arm's length price, a position accepted in the transfer pricing assessment. 6. Attribution of Gross Premium: The AO's decision to attribute 50% of the gross premium to Indian operations was challenged by the appellant. The appellant argued that the core reinsurance activity, the assumption of risk, is performed outside India, and thus, no significant income should be attributed to Indian operations. 7. Application of Rule 10: The AO used Rule 10 of the Income-tax Rules, 1962, to attribute profits to the alleged PE. The appellant contested this application, arguing that the remuneration paid to RGA Services is at arm's length, and thus, no further profit attribution is warranted. 8. Tax Rate: The AO applied a tax rate of 40% instead of 12.5% (plus applicable surcharge and education cess) as per section 115B of the Act for life reinsurance business. The appellant argued for the lower tax rate applicable to life reinsurance business. 9. Levy of Interest: The AO levied interest under section 234B of the Act, which was contested by the appellant. 10. Penalty Proceedings: The AO initiated penalty proceedings under section 271(1)(c) of the Act, which was also challenged by the appellant. Judgment: The Tribunal held that the appellant did not have a fixed place PE in India, as no premises were at the disposal of the appellant. The Tribunal also found that the core reinsurance activity, the assumption of risk, was performed outside India, and the services rendered by RGA Services were remunerated at arm's length price. Consequently, no further profit attribution was warranted. Regarding the Dependent Agent PE, the Tribunal noted that the existence of a DAPE is tax-neutral if the agent is paid an arm's length remuneration. Since the remuneration paid to RGA Services was at arm's length, the question of DAPE was deemed academic and without tax implications. In light of these findings, the Tribunal concluded that the business profits earned by the appellant from reinsurance activities had no tax implications in India. Consequently, all other issues raised in the appeal were considered academic and did not require adjudication. The appeal was allowed in favor of the appellant, and the judgment was pronounced on 31st October 2022.
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