2024 (5) TMI 580 - AT - Income Tax

Income deemed to accrue or arise in India - reinsurance premium earned by the Appellant from its Indian cedents - Permanent Establishment (PE) in India or not - scope of India-Singapore tax treaty - AO rejected the contention of the Appellant that the fee received was not liable to tax in India and held that payments as received by the Appellant for providing specialized, technical inputs and services and the same were taxable in India as Fees for Technical Services u/s 9(1)(vii) of the Act and also under Article 12(4)(b) of the DTAA. HELD THAT - On perusal of order 2015 (4) TMI 905 - ITAT MUMBAI passed in the case of SRCL in appeal pertaining to Assessment Year 2010-11 we find that in similar facts and circumstances and the Tribunal had, overturning the findings of the AO, held that (a) SRCL did not have a business connection in India, and (b) SRIPL, as wholly owned subsidiary of SRCL, did not constitute 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 challenge the findings returned by the DRP in appeal before the Tribunal, the Revenue cannot be permitted to set up a case against the directions passed by the DRP. Decided in favour of assessee. Taxability fee received by the Appellant from SRCL- IB/SGB - As 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. Conclusion drawn by the AO 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 Jefferies LLC v. DCIT 2023 (3) TMI 1485 - ITAT MUMBAI wherein it was held by the Tribunal that services provided by the group entities or holding companies to its subsidiaries as day to day management and support services to run their business would not be regarded as fees for technical services in case, such services do not make available technical knowledge, skill or experience. Thus addition held by the AO to be business income and addition held to be Fee for Technical Services are deleted. Assessee appeal allowed.

Issues Involved:

1. Assessment of total income.
2. Existence of business connection and Permanent Establishment (PE) in India.
3. Retrocession premium and its tax implications.
4. Attribution of profits to Indian operations.
5. Taxability of support services as Fee for Technical Services.
6. Levy of interest under Section 234B.
7. Initiation of penalty proceedings under Section 270(A).

Summary:

1. Assessment of Total Income:
The learned AO, based on the directions of the DRP, assessed the total income of the Appellant at Rs 700,472,416, as against NIL reported by the Appellant.

2. Existence of Business Connection and Permanent Establishment (PE) in India:
The AO held that the Appellant had a business connection in India under section 9(1)(i) of the Act and a PE in India under Article 5 of the India-Singapore tax treaty. The AO made erroneous inferences, holding that Swiss Reinsurance Company Ltd, India Branch (SRIB) and Swiss Reinsurance Global Business Solutions India Private Limited (SRGBS) constituted Fixed Place PE, Service PE, and Agency PE of the Appellant in India. The third-party Indian cedents were also incorrectly held to be agents of the Appellant.

3. Retrocession Premium and Its Tax Implications:
The AO erred in holding that the Appellant had a business connection and PE in India concerning the retrocession premium amounting to INR 9,487,303,929 earned from SRIB. The AO failed to provide separate reasoning for this conclusion.

4. Attribution of Profits to Indian Operations:
The AO erred in estimating 10% of the gross reinsurance and retrocession premium receipts attributable to Indian operations as the profit generally made by a reinsurance company in India and attributing 50% of this profit to the Appellant in India.

5. Taxability of Support Services as Fee for Technical Services:
The AO erred in holding that the income earned by the Appellant from rendering various support services to SRIB and SRGBS was taxable in India under Article 12 of the IS treaty. The services provided did not 'make available' technical knowledge, skill, or experience to SRIB and SRGBS.

6. Levy of Interest under Section 234B:
The AO erred in levying interest under section 234B of the Act.

7. Initiation of Penalty Proceedings under Section 270(A):
The AO erred in initiating penalty proceedings under section 270(A) of the Act for underreporting and misreporting of income.

Judgment:
The Tribunal found that the issues raised were covered in favor of the Appellant by previous decisions in similar cases involving Swiss Reinsurance Company Limited (SRCL). The Tribunal deleted the additions made by the AO, holding that the DRP's findings were binding and that the Revenue could not challenge these findings. The Tribunal concluded that the Appellant did not have a business connection or PE in India and that the support services provided did not qualify as fee for technical services. Consequently, the appeal was allowed, and the additions made by the AO were deleted. The initiation of penalty proceedings was dismissed as premature.

← Previous Next →