9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (8) TMI 1533 - AT - Income TaxTDS u/s 195 - Addition of reinsurance premium paid to non-resident reinsurance companies u/s. 40(a)(i) of the Act on the ground that income of NRRIs is liable to tax in India in terms of section 5 r.w.s. 9 - Place of Accrual or income - Permanent Establishment Status or not? - Receipt of Income in India or abroad - HELD THAT - In the present case, reinsurance brokers act in their independent capacity and they are not dependent agency of the assessee as well as non-resident insurers. They do not conclude any contract for NRRI and thus, we are of the considered view that there cannot be said to constitute business connection for agency PE for foreign reinsurers in India. Revenue has also not placed any material on record to demonstrate that reinsurance brokers constitute agency PE for NRRI under DTAA. Therefore, in our considered view, foreign reinsurers do not have PE or business connection in India under relevant DTAA or the I.T. Act, 1961. Therefore, payments are not chargeable to tax in India and are not liable to deduct tax at source u/s. 195 - Consequently, disallowance u/s. 40(a)(i) is wholly unwarranted. IRDAI which is regulatory authority of Insurance companies has also written letter dated 07.05.2008 to CBDT stating that NRR having reinsurance arrangements with Indian insurers do not have PE or branch in India. In respect of reinsurance arrangements with brokers, IRDAI has stated that brokers are not agents of NRR and carry out transaction on principal to principal basis. Therefore, even as per understanding of the regulator, reinsurance arrangements with NRR are not chargeable to tax in India. Since, payments made to NRR are not chargeable to tax in India, question of application u/s. 195(2) of the Income Tax Act, 1961, does not arise and this principle is explained in the case of M/s. G.E. India Technology Centre Pvt. Ltd. 2010 (9) TMI 7 - SUPREME COURT where it was held that application to deduct TDS arises only if income of non-resident is chargeable to tax in India. The expression chargeable under the provisions u/s. 195(1) of the Act says that remittance has got to be treated as receipt, whole or part of which is liable to tax in India, if tax is not assessable there is no question of tax at source being deducted. In our considered view, the basis for the AO to take support from section 195(2) on the issue of non filing of application to income tax authority to allege that the assessee is liable to deduct TDS on impugned payment is incorrect. Thus, we are of the considered view that reinsurance premium ceded to non-resident reinsurer is not taxable in India under the Income Tax Act, 1961 or under DTAA between India and respective countries where NRRs are tax residents and thus, on impugned payments the assessee is not liable to deduct TDS u/s. 195 of the Income Tax Act, 1961. Consequently, payments made to NRR cannot be disallowed u/s. 40(a)(i). Hence, we direct the AO to delete additions made towards disallowance of reinsurance premium ceded to NRRs. Decided in favour of assessee.
Issues Involved:
1. Disallowance of reinsurance premium ceded to non-resident reinsurance companies under Section 40(a)(i) of the Income Tax Act, 1961. 2. Obligation to deduct tax at source under Section 195 of the Income Tax Act, 1961. 3. Existence of Permanent Establishment (PE) for non-resident reinsurance companies in India. 4. Applicability of Double Taxation Avoidance Agreements (DTAA) between India and other countries. Issue-wise Detailed Analysis: 1. Disallowance of Reinsurance Premium Ceded to Non-Resident Reinsurance Companies under Section 40(a)(i) of the Income Tax Act, 1961: The Assessing Officer (AO) disallowed the reinsurance premium ceded to non-resident reinsurance companies (NRRI) under Section 40(a)(i) of the Income Tax Act, 1961, due to the assessee's failure to deduct tax at source as required under Section 195. The AO contended that the income of NRRI is liable to tax in India under Section 5 read with Section 9 of the Act. The AO also discussed the issue in light of the DTAA between India and other contracting states, observing that NRRI has a Permanent Establishment (PE) in India due to payments made through reinsurance brokers, which constitutes an agency PE. 2. Obligation to Deduct Tax at Source under Section 195 of the Income Tax Act, 1961: The AO argued that the assessee is obligated to deduct tax at source under Section 195 of the Income Tax Act, 1961, on payments made to NRRI. The AO emphasized that Section 195 applies to any sum chargeable under the Act and that the assessee should have sought permission from the department under Section 195(2) for non-deduction or lesser deduction of tax. The AO cited various judicial precedents to support this view, including the decision of the Hon'ble Supreme Court in Transmission Corporation of Andhra Pradesh Vs CIT (239 ITR 587). 3. Existence of Permanent Establishment (PE) for Non-Resident Reinsurance Companies in India: The AO claimed that NRRI has a PE in India due to the involvement of reinsurance brokers. The AO argued that brokers act as agents of NRRI, facilitating reinsurance transactions and settling claims, thereby constituting a business connection and PE in India. The AO also referenced the IRDA Regulations and Circular No. 23 of 1969 to support this claim. 4. Applicability of Double Taxation Avoidance Agreements (DTAA) between India and Other Countries: The AO contended that the provisions of the DTAA should be considered while determining the taxability of reinsurance premium. The AO argued that in cases where there is no DTAA between India and the contracting state, the reinsurance premium is taxable in India under Section 5 read with Section 9 of the Income Tax Act, 1961. In cases where there is a DTAA, the AO claimed that NRRI has an agency PE in India due to the involvement of brokers, making the reinsurance premium taxable in India. Tribunal's Decision: The Tribunal disagreed with the AO's reasoning, stating that the provisions of Section 195 apply only when the income is chargeable to tax in India. The Tribunal emphasized that the Revenue must establish that the income was chargeable to tax in India under both the Act and the relevant DTAA. The Tribunal noted that the reinsurance premium ceded to NRRI is not chargeable to tax in India as the income is not received in India and the foreign reinsurers do not carry out their business functions in India. The Tribunal also highlighted that brokers act as facilitators and do not have the authority to conclude contracts on behalf of NRRI, thus not constituting a business connection or PE in India. The Tribunal cited various judicial precedents, including the decisions of co-ordinate Benches in similar cases, to support its conclusion. The Tribunal held that the reinsurance premium paid to NRRI is not taxable in India under the Income Tax Act, 1961, or the DTAA between India and the respective countries. Consequently, the assessee is not liable to deduct tax at source under Section 195, and the disallowance under Section 40(a)(i) is unwarranted. Conclusion: The Tribunal directed the AO to delete the additions made towards the disallowance of reinsurance premium ceded to NRRI. The appeal filed by the Revenue for the assessment year 2005-06 was dismissed, and the appeals filed by the assessee for the assessment years 2005-06 to 2010-11 were allowed.
|
