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TMI Blog2024 (5) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... a PE of the SRCL in India in terms of Article 5 of the Indo-Swiss Tax Treaty. The reasoning given by the Assessing Officer, which is identical to the reasoning given by the Assessing Officer in the present case, did not appeal to the Tribunal and was, therefore, rejected. The Tribunal concluded that the SRCL undertaking reinsurance business did not have any business connection in India in terms of Explanation 2 to Section 9 of the Act, and that Indian subsidiary of SRCL did not constitute Fixed Place, Service or Agency PE of SRCL in India. The finding returned by the DRP is binding upon the Assessment Officer in terms of Section 144C(13) of the Act. The case now set up by the Learned Departmental Representative, even if assumed to be meriting consideration, is contrary to the finding returned by the DRP. The Revenue is not in appeal against the order passed by the DRP as after omission of Section 253(2A) of the Act by the Finance Act, 2016 with effect from 01/06/2016, no appeal can be filed by the Assessing Officer against the order passed by DRP giving directions under Section 144C(5) of the Act. Since for the Assessment Year 2018-19 Assessing Officer is not permitted to challeng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 1 The learned AO has, on the facts and circumstances of the case and in law, and based on the directions of the Hon'ble DRP, erred in proposing to assess the total income of the Appellant at Rs 700,472,416, as against NIL reported by the Appellant in its return of income. 2. Ground 2 The learned AO has, on the facts and circumstances of the case and in law, erred in holding that in relation to the reinsurance premium amounting to INR 2,366,486,719 earned by the Appellant from its Indian cedents, the Appellant has a business connection in India as per the provisions of section 9(1)(i) of the Act and a Permanent Establishment (PE) in India as per Article 5 of the India-Singapore tax treaty (IS treaty) In this regard, the learned AO has additionally inter alia erred on the following grounds: 2.1 The learned AO has made erroneous inferences in relation to the facts of the Appellant and consequently erred in holding that Swiss Reinsurance Company Ltd, India Branch (SRIB) and Swiss Reinsurance Global Business Solutions India Private Limited (SRGBS) constitute Fixed Place PE, Service PE and Agency PE of the Appellant in India under the IS treaty. 2.2 The learned AO has erred in hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant ) is a tax resident of Singapore. The Appellant is wholly owned subsidiary of Swiss Re Asia Holding Pte Ltd. which in turn is a group entity of Swiss Re Group engaged in reinsurance business on a global basis. 3.1. Swiss Reinsurance Company Limited (for short SRCL ) is a global reinsurer incorporated in Switzerland forming part of Swiss Re Group. 3.2. The applicable India laws permitted the cession of a portion of insurance risk by a primary insurer to a reinsurer as well as retrocession of the reinsurance risk to another reinsurer in terms of reinsurance contract/treaty. 3.3. SRCL, acting through its Singapore Branch (hereinafter referred to as SRCL SB ), had entered into re-insurance contracts outside India with several Indian insurance companies (i.e. Indian cedents), wherein, the Indian cedents paid a premium to SRCL to reinsure a part of the risk assumed by them. 3.4. As a consequence of the amendments made in the IRDAI Regulations, SRCL had to setup its branch in India (hereinafter referred to as SRCL-IB ) which commenced business w.e.f 01/02/2017 and thereafter; all new reinsurance contracts/treaties with the Indian Cedents were underwritten by SRCL-IB. However, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r scrutiny. 3.8. During the assessment proceedings, in response to a queries by the Assessing Officer, it was contended by the Appellant that (a) reinsurance premium income and retrocession premium income earned by the Appellant is in the nature of business income and in absence of Permanent Establishment (for short PE ) of the Appellant in India in terms of Article 5 of the Double Taxation Avoidance Agreement between India and Singapore (for short DTAA ), the same is not liable to tax in India as per Article 7 of the DTAA, and (b) Income received by the Appellant from SRCL-IB and SGB for support services (such as communication services, IT support services, legal services, executive management services, human resource support services etc.) are not taxable in India in terms of Article of the DTAA as Fee for Technical Services since the aforesaid services do not make available to SRCL-IB SGB technical knowledge, experience, skill, know-how or processes, which enables SRCL-IB SGB to apply the technology contained therein in terms of Article 12(4) of the DTAA. In support the Appellant filed the submission, dated 16/04/2021. 3.9. However, the Assessing Officer was not convinced. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erforming various services which form part of core- business services of the re-insurance business of the Appellant in India. SRCL-IB and SGB were dependent upon the Appellant, both, economically and legally/contractually and therefore, could not be regarded as agents of independent status. Further, SRCL-IB and SGB through their management of entire customer relations were habitually securing orders for the Appellant. 3.10. Having held that the Appellant had a PE in India, the Assessing Officer proceeded to compute income attributable to the PE of the Appellant in India. By invoking provision contained in Rule 10(i) of the Income Tax Rules, 1962 (for short the Rules ) the Assessing Officer computed profits of the Appellant at the rate of 10% of the Gross Receipts and thereafter, attributed 50% to the PE of the Appellant in India. 3.11. The Assessing Officer also rejected the contention of the Appellant that the fee received from SRCL-IB and SGB was not liable to tax in India and held that payments were received by the Appellant form SRCL-IB and SGB for providing specialized, technical inputs and services and the same were taxable in India as Fees for Technical Services under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Off Portfolio. With effect from January 2018, no fresh reinsurance contracts were executed by the Appellant directly with Indian cedents. Only the existing contracts were transferred by SRCL-SB to the Appellant. Accordingly, there was no underwriting or risk taking activity by the Appellant in relation to the Run-Off Portfolio as alleged by the Assessing Officer. Further, the business origination processes/activities in relation to the Run-Off Portfolio were already performed by SRCL-SB in the preceding years prior to the retrocession to the Appellant of the reinsurance contracts executed by the SRCL-SB with Indian cedents. Therefore, in respect of the Run-Off Portfolio, the question of SRCL-IB/SGB securing or concluding any contracts on behalf of the Appellant did not arise. Further, without prejudice to the aforesaid, the capital and major risk taking function which is reinsurance takes place outside India. SRCL-IB and SGB are separate legal entities and are governed by their own independent board/management. The employees of SRCL-IB/SGB work under the direction, supervision, control and management of SRCL-IB/ SGB. Services rendered by SRCL-IB SGB are merely supportive and non-co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said decisions the Tribunal was examining the existence of PE in terms of Article 5 of the Double Taxation Avoidance Agreement between India and Switzerland (for short Indo-Swiss Tax Treaty ). Article 5(4) of the Indo-Swiss Tax Treaty contained special provision related to reinsurance business which was absent in Article 5 of the Double Taxation Avoidance Agreement between India and Singapore. 5.1. Supporting the addition made by the Assessing Officer, the Learned Departmental Representative reiterated the stand taken by the Assessing Officer and made following oral submissions which were supported by written submission: (i) The Appellant has a Fixed Place PE in India as premises of SRCL-IB and SGB were at the disposal of the Appellant and the Assessing Officer has, in paragraph 9.10.5 of the final assessment order, has clearly brought out that business of the Appellant, both, for reinsurance and retrocession premium has been partly carried on through such premises/fixed place in India. Therefore, some part of profits of the Appellant on account of retrocession premium was also required to be attributed to the Fixed Place PE and has been rightly done so by the Assessing Officer. (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntra-group service agreements, it was clear that SRCL-IB and SGB were habitually securing orders for the Appellant as SRCL-IB/SGB were managing entire customer relations starting from liaisoning with the clients, conducting discussion with them to understand reinsurance needs, pain points in existing products, marketing support, to obtaining their request for proposal, working on it to obtain other information from clients to prepare a draft of underwriting proposal. SRCL-IB/SGB performed all core activities on behalf of the Appellant in India and the final entry into contracts though undertaken de facto by the Appellant were based on the vital inputs and functions performed by SRCL-IB and SGB in India. There hardly remained any further critical function to be performed outside India except for signing the contract. Hence, it can be held that SRCL-IB and SGB exercise the authority to significantly influence the decisions leading to signing of the contract by the Appellant outside India without any further input outside India. SRCL-IB SGB clearly constituted Dependent Agent PE of the Appellant in India. Therefore some part of the profits of the assessee on account of reinsurance pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in performing its responsibilities in the retrocession business nor do they render to the Appellant any support services in relation to the retrocession business undertaken by the Appellant. 7 We have heard the rival submission and perused the material on record. We have also taken into consideration the judicial precedents cited during the course of hearing and have taken into consideration the submission filed by the Learned Departmental Representative and the Synopsis filed on behalf of the Assessee. 7.1. We would first deal with the primary contention advanced on behalf of the Appellant that the objection raised by the Appellant were rejected by the DRP only to keep the issue alive while admitting that issue stood decided in favour of the Appellant in the case of Swiss Reinsurance Company Limited (SRCL) a sister concern of the Appellant. 7.2. Copy of the decisions of the Tribunal in the case of Swiss Reinsurance Company Limited (SRCL) pertaining to Assessment Years 2010-11 to 2015-16 have been placed before us (placed at pages 159 to 209 of the paper-book). 7.3. On perusal of order dated, 13/02/2015, passed in the case of SRCL in appeal pertaining to Assessment Year 2010-11 (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness connection in India. 2.2 The AO gave the assessee an opportunity to substantiate its claim that the reinsurance premium receipts of the company are not taxable in India. The assessee filed a detailed reply explaining the nature of activities of the assessee. It was explained and strongly contended that services provided by SRSIPL do not create existence of a PE in India. It was explained that SRSIPL is a separate legal entity and its entire control and management is in India. The decisions regarding its business are taken and executed in India. It is both legally and functionally independent company. It was explained that the employees of SRSIPL render services to SRSIPL and not to the assessee, either as assessee s employees or on behalf of SRSIPL. It was pointed out to the AO that the pricing between SRSIPL and the assessee is at arms length. The profit earned by SRSIPL belongs to it and cannot be treated as profits of the assessee and such profits are assessed to tax in India in the hands of SRSIPL. 2.3 Referring to the service agreement between the assessee and SRSIPL it was pointed out to the AO that it is specifically mentioned that SRSIPL is neither an agent nor a brok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us. 5. Having heard the rival submissions, we have carefully perused the orders of the authorities below and the relevant documentary evidences brought to our notice in the light of judicial decisions relied upon by both sides. To begin with, let us first consider the relevant clauses of the service agreement between Singapore Branch of the assessee and Swiss Re-services India Pvt. Ltd. i.e. SRSIPL. 1.1.3 Forwarding routine communication from the Branch of SRZ to the Clients (other than contracts of re-insurance and confirmation of liability) after translating in local language, where required. 1.6 The Company hereby acknowledges and confirms that it is not the agent, broker or legal representative of the Branch of SRZ for any purposes whatsoever, and agrees that at no time shall it represent itself to be the agent or broker of the Branch of SRZ in India. The Company agrees to indemnify and hold the Branch of SRZ harmless with respect to any breach of this Section by the Company. 5.6 Company will remain for all purposes an independent contractor under this Agreement. Nothing in this Agreement will be deemed to constitute or will be construed as constituting a partnership, joint ven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to as the principal non-resident) or on behalf of such non-resident and other nonresidents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non- resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status. 5.2 A perusal of the facts of the case in hand go to show that none of the conditions specified in clause (a)(b) (c) above are satisfied. Therefore, it cannot be said that the assessee is having any business connection in India. Now let us see whether the assessee has any PE within the purview of Article-5 of India Swiss Treaty, wherein is provided as under: (l) the furnishing of technical services, other than services as defined in Article 12, within a Contracting State by an enterprise through employees or to her personnel, but only if:- (i) activities of that nature continue within that State for a period or periods aggregating more than 90 day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Hon ble ITAT in the assessee s own case for A.Y. 2010-11 and the decision of the Hon ble DRP in Assessee s own case for A.Y. 2011-12 and 2012-13. Hon ble Mumbai ITAT in paragraphs 5.2 to 5.06 of its order held that the assessee does not have service PE in India and respectfully following the said order the DRP has held that the SRSIPL is not an agent of the assessee in India and it neither concludes any contracts on behalf of the assessee nor solicit any orders for the assessee. Further, the services provided by SRSIPL to the assessee are merely preparatory and auxiliary in nature. Further, the Hon ble ITAT has also relied on Article 5(4) of the DTAA which specifically excludes the reinsurance business from constituting a PE in India. Accordingly, SRSIPL does not constitute a PE of the assessee in India under Article 5(5) of the DTAA and no question of attributing any profits to the PE arises. 7. Subsequently in a Corrigendum, the Assessing Officer added as under:- 10. As discussed above, in para 28.2 of its directions, the DRP has directed the AO to make adjustments / additions if the ground of the additions were contested by the revenue before the Hon ble High Court. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er appeal against the same is pending before the Hon'ble Bombay HC. This is an accepted fact. Further, the Hon'ble Bombay HC in the Vodafone decision has already held that the DRP proceedings are nothing but an extension of the assessment proceedings only. Therefore, in order to keep the issue alive, the additions made by the AO have to be confirmed only and consequently, the objections of the assessee have to be rejected only. Concludingly, all the objections from ground 1 to 4 stand rejected in the final analysis. 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). However, in order to keep the issue alive the DRP rejected the objections raised by the Appellant. The Appellant in now in appeal before us and has contended that the additions made should be deleted as the DRP has returned a finding that that the issue stand covered in favour of the Appellant by the aforesaid decision of the Tribunal. We find merit in the aforesaid contention of the Appellant. The finding returned by the DRP is binding upon the Assessment Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in Section 12(4) of the DTAA, the Assessing Officer has noted that in order to satisfy the requirement of make available contained therein the recipient of service should be in a position to utilize the knowledge or know how in future on his own. However, on perusal of the Assessment Order, we find that the Assessing Officer has brought nothing on record to show that the services rendered made available any technical knowledge, know- how, skill, expertise to SRCL-IB/SGB which enables SRCL-IB/SGB to independently perform their function without support of the Appellant in the future. The findings returned by the Assessing Officer that the services provided by the Appellant enable SRCL-IB/SGB to provide onwards services cannot lead to an automatic conclusion/inference that some technical knowledge, skill or experience was made available by the Appellant to SRCL-IB/SGB. In view of the aforesaid, the conclusion drawn by the Assessing Officer that the services under consideration qualify as fee for technical services in terms of Article 12 of the DTAA cannot be sustained. During the course of hearing, the Appellant had placed reliance on the decision of the Tribunal in the case of J ..... X X X X Extracts X X X X X X X X Extracts X X X X
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