2024 (5) TMI 439 - AT - Income Tax

Income accrued in India or not - Dependent Agent - PE in India or not? - assessee is a global re-insurance company, is a tax resident of Ireland - key function in re-insurance is the acceptance of the risk that an insurance company transfers (cedes) to a re-insurer - entitlement to benefit of India-Ireland Treaty - assessee has contended that its operation neither constitute business connection in India nor does it has fixed place PE in India nor does it have a dependent agent PE in India - why there is no business connection in terms of Secion 9(1)(1) ? - HELD THAT - There is no business connection in terms of Secion 9(1)(1) of the Act as RGA Services performs its activities in an independent manner RGA Services render services not only to the assessee but also to other Companies within the RGA Group and hence, it is not economically dependent on the assessee. Assessee remunerates RGA Services on an arm's length basis and RGA Services only acts as interface between Indian Cedents and assessee. Even otherwise this aspect is wholly irrelevant since in a case in which a double taxation avoidance agreement comes into play, such as the present case, the provisions of the Act cannot be pressed into service unless these provisions are more beneficial. RGA Ireland does not conduct any insurance business in India. RGA Ireland does not have any premises or office space for undertaking reinsurance business activity in India. RGA Services does have an office in India, but the Appellant has no control over the said office. No employee of RGA Ireland visited India in the year under appeal. The reinsurance treaties are signed by the Appellant outside India. RGA Services does not negotiate the fee and terms and conditions of the reinsurance treaties. The terms and conditions for the treaties are agreed and concluded between the Appellant and the Indian Cedents. RGA Services does not decide the price to be quoted to the Indian Cedents. Thus RGA services does not constitute a fixed place PE in India as per Clause 5 of the treaty Lastly, RGA services do not constitute DAPE of RGA IRELAND as agreement between RGA services and RGA Ireland is on a principal-to-principal basis where the role performed by RGA Services is different from RGA Ireland RGA Services renders services to other associated enterprises within RGA Group and hence, it is not economically dependent on the Appellant. RGA Services does not conclude the terms of the reinsurance treaties or enter into any contracts with any insurance companies RGA Services does not secure contracts for and on behalf of the assessee. The assessee does not give any detailed instructions or exercise any control on RGA Services with respect to RGA Service's business, and all the contracts are signed by the assessee outside India and by its employees In no circumstances are the contracts signed in India, and RGA Services does not have any authority to conclude any contracts on behalf of the assessee nor does it secure any orders for the assessee. As decided in own case 2023 (11) TMI 1045 - ITAT MUMBAI DRP has referred to the existence of business connection under section 9(1) of the Indian Income Tax Act 1961, 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 The 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. Thus 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 eamed by the assessee on account of the reinsurance business have no tax implications in India. - Decided in favour of assessee. Non-application of MLI Member Lending Institutions (MLIs) - It has been upheld by the ld. AO, we find that said provisions are applicable from 1st April 2020 i.e. F.Y.2020-21 and not for the year under consideration which has been clearly stated in the MIL notification in the following manner - Unless it is stated otherwise elsewhere in this document, the provisions of the MIL have effect with respect to the Convention. In India - With respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 1 April 2020; and With respect to all other taxes levied by India, for taxes levied with respect to taxable periods beginning on or after 1 April 2020. Short grant of TDS - We direct the ld. AO to allow TDS credit as claimed in the return of income in the norms stated above.

Summary

Issues Involved:
1. Business Connection in India
2. Fixed Place Permanent Establishment (PE) in India
3. Dependent Agent Permanent Establishment (DAPE) in India
4. Application of Multilateral Instrument (MLI)
5. Short Grant of Tax Deducted at Source (TDS)
6. Penalty Proceedings and Levy of Interest

Summary:

1. Business Connection in India:
The Tribunal examined whether the assessee, a reinsurance company based in Ireland, had a business connection in India under Section 9 of the Income-tax Act, 1961. It was determined that RGA Services operates independently, rendering services to multiple companies within the RGA Group and is remunerated on an arm's length basis. The Tribunal reiterated that in cases involving a Double Taxation Avoidance Agreement (DTAA), the provisions of the Act cannot be invoked unless they are more beneficial to the assessee.

2. Fixed Place Permanent Establishment (PE) in India:
The Tribunal assessed whether the assessee had a fixed place PE in India under Article 5 of the India-Ireland Treaty. It was concluded that RGA Ireland does not conduct insurance business in India, lacks premises or office space in India, and the reinsurance treaties are signed outside India. The activities of RGA Services were found to be preparatory or auxiliary in nature, and thus, it was determined that RGA Ireland does not have a fixed place PE in India.

3. Dependent Agent Permanent Establishment (DAPE) in India:
The Tribunal evaluated if RGA Services constituted a DAPE of RGA Ireland in India. It was noted that RGA Services operates on a principal-to-principal basis, does not conclude contracts, or secure orders on behalf of RGA Ireland, and is remunerated on an arm's length basis. The Tribunal referenced previous decisions, including the case of ADIT Vs Asia Today Ltd, to conclude that the existence of DAPE is tax-neutral in India. Therefore, it was held that RGA Services does not constitute a DAPE of RGA Ireland.

4. Application of Multilateral Instrument (MLI):
The Tribunal addressed the applicability of the MLI provisions, which are effective from 1st April 2020. It was clarified that these provisions are not applicable for the assessment year under consideration (A.Y. 2020-21), as specified in the MLI notification.

5. Short Grant of Tax Deducted at Source (TDS):
The Tribunal directed the Assessing Officer (AO) to allow the TDS credit as claimed by the assessee, amounting to Rs. 8,76,335/-, in accordance with the norms stated in the return of income.

6. Penalty Proceedings and Levy of Interest:
The initiation of penalty proceedings under Section 270A of the Act and the levy of interest were deemed consequential and were thus dismissed.

Conclusion:
The appeal of the assessee was partly allowed, with the Tribunal ruling in favor of the assessee on the issues of business connection, fixed place PE, and DAPE, while also addressing the applicability of MLI and the short grant of TDS. The order was pronounced on 31st January 2024.