TMI Blog2023 (11) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... s but also shares the assets and risk which were not being considering in the TP analyses. We are finding it difficult on this line of argument that the main functions of a reinsurance business is assuming the risk which the main insurer transfers. The whole object of assuming risk is the main business of the reinsurer. From the record we observe that RGA Services offers all sorts of functions and services relating to execution of the reinsurances processes without assuming any risk. Even the tax authorities including Ld. DR has not brought on record any material to show that RGA Services has assumed any risk or invested any assets in executing the reinsurance functions. RGA Services does not have any license from IRDAI to undertake reinsurance business or even to act as a reinsurance broker. It shows that RGA Services can never be allowed to function as a reinsurer or broker in India. It could only offer various functions in the line of reinsurance business. What is relevant to be an agent is the agent should be in a position to replace the principle in executing any contract and should be having the similar level playing role or rights in execution of such contracts, the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. We are taking Appeal ITA.No. 803/MUM/2022 for Assessment Year 2018-19 as a lead appeal. ITA.NO. 803/MUM/2022 (A.Y. 2018-19) 3. Brief facts of the case are, assessee filed its return of income declaring total income at ₹. NIL on 26.10.2018. The case was selected for scrutiny assessment under CASS and notices u/s. 143(2) and 142(1) of Income-tax Act, 1961 (in short Act ) were issued and served on the assessee electronically. In response to the above notices, Authorised Representative of the assessee attended and submitted the relevant information as called for. 4. Assessee is a foreign company and a tax resident of the Ireland. Assessee is in the business of providing reinsurance services to insurers/ cedants. It is primarily involved in providing reinsurance services for life insurance. The assessee has entered into various reinsurance treaties with Indian Insurance Companies. For underwriting the risk, the assessee receives reinsurance premium, under the reinsurance treaties entered by it with Indian insurance companies. The Assessing Officer observed that assessee has received total premium amount of ₹. 435,14,07,217/- during the year and assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iting services, claim settlement, and other administrative services performed based on the Reinsurance Support Services agreement between RGA Services and the assessee. Further, in Para No.7.6 of the Assessment Order, the Assessing Officer observed that the business of the assessee is to provide reinsurance services to clients / cedants in India. In the course of such business, RGA Services an Indian company, a wholly-owned subsidiary of the assessee, acts as a Permanent Establishment of the assessee in India. In the present situation, RGA Services can be considered as Fixed Place Permanent Establishment of the assessee in India. The assessee has entered into a Reinsurance Support Services Agreement (RSSA) dated 01.04.2006 with RGA Services for obtaining risk assessment services, market intelligence and administrative support in India and in turn, remunerates/compensates RGA Services on a cost plus 12 percent margin basis. This agreement is updated by another Agreement dated 31.08.2010 between the assessee and its group entity RGA Americas Reinsurance Company Ltd., and RGA India. He observed that the type of services provided by RGA Services to its group entities are the same as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices is dependent on the assessee and it is required to maintain records and produce the same to assessee's auditors, and also transfer the records to the assessee upon the termination of the agreement. 13. Further, he observed that assessee has remunerated RGA Services on cost-plus basis, accordingly, assessee as per agreement, reimburses cost plus a margin of 12%, by observing the above, the Assessing Officer opined that RGA Services is representative and related enterprise performing risk assessment, actuarial and underwriting services, collection of information in the reinsurance field and co-ordination with the cedants for reinsurance business gets substantially performed in India itself and thereafter not much critical functions remain to be performed outside India except for just signing the contract and observed that the final entry into contracts though undertaken de facto by the assessee on paper, in reality, is based on the vital inputs and functions performed by RGA Services in India. 14. Further, he rejected the claim of the assessee that Article 5(7) of DTAA makes the insurance company liable to tax if it collects insurance premiums in India and insures ris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant has a business connection in India as per the provisions of section 9(1)(1) of the Act on the basis that the Appellant is earning income from India on a regular and continuous basis 2. Ground 2 The learned AO has, on the facts and circumstances of the case in law, and based on the directions of the Hon'ble DRP, erred in concluding that the Appellant has a fixed place permanent establishment (PE) in India as per Article 5(1) of the Double Taxation Avoidance Agreement entered between India and Ireland (India-Ireland Tax Treaty). 3. Ground 3 The learned AO has, on the facts and circumstances of the case in law, and based on the directions of the Hon'ble DRP, erred in concluding that RGA Services acts as a Dependent Agent PE of the Appellant in India as per Article 5(6) of the India-Ireland Tax Treaty. 4. Ground 4 The learned AO has, on the facts and circumstances of the case in law, and based on the directions of the Hon'ble DRP, erred in concluding that the support services performed by RGA Services are not in the nature of preparatory or auxiliary services but are core and crucial business activities in relation to reinsurance b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case and in law, and based on the directions of the Hon'ble DRP, erred in levying interest under section 234A of the Act. 11. Ground 11 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 initiating penalty proceedings under section 270A of the Act. 19. At the time of hearing, Ld. AR of the assessee brought to our notice relevant facts of the case and filed its written submissions, for the sake of clarity it is reproduced below: - A) Background of RGA International Reinsurance Company Designated Activity Company ('RIRC' or 'the Assessee') and operations undertaken from India perspective For the period from Financial Year 2003 to 31 March 2017 1. RIRC is a company incorporated in Ireland on 23 June 2003 and is a tax resident of Ireland. RIRC is a part of Reinsurance Group of America (RGA) and undertakes reinsurance business with insurers in Europe, United Kingdom and Asia (which includes India). In terms of its India business, RIRC undertakes reinsurance business with Indian life insurance companies (Indian Cedents) from the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions) for setting-up its branch in India. IRDAI granted approval on 21 December 2016 for setting-up its branch in India, i.e., RGA Canada India Branch. RGA Canada - India Branch received approval from IRDAI to commence its business with effect from 21 December 2016. This entity in Canada is different from the Assessee. 4. Pursuant to set up of RGA Canada - India Branch, the new reinsurance treaties with Indian Cedents were entered into by RGA Canada's India Branch. RIRC did not enter into any new treaties with Indian Cedents post set up of RGA Canada - India Branch with effect from 1 April 2017 (the India Branch, I.e., RGA Canada India Branch actually commenced business from this date). However, all the older reinsurance treaties (ie., treaties entered into by RIRC prior to commencement of business by RGA Canada - India Branch) between RIRC and the Indian Cedents remained with RIRC under which RIRC earns premiums from the Indian Cedents. 5. Further, 45 percent of the premiums earned by RGA Canada India Branch is retroceded to RIRC. B) Background of RGA Services India Private Limited (RGA Services) 6. RGA Services, subsidiary of Reinsurance Group of Ameri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to settle the claims or not. The personnel of RGA Services do the data entry into the software tool provided by RIRC. Additionally, this team provides support in respect of certain underwriting tools used by the aforementioned third party Indian Cedents, c) Administration support and other ancillary services This function includes keeping track of premiums received with respect to various re-insurance policies, amount of premium received during a particular period etc. Further, these services also include other ancillary services like human resource support services, data entry accounting services to RIRC. 12. Thus, RGA Services is a back office entity which has only provided support services to RIRC and other group companies. RGA Services has provided services in the form of claims support, claim data synopsis and administration and other ancillary services in connection with RIRC's India business. Further, RGA Services has also not provided any marketing services in respect of RIRC's India Business during the year. RGA Services does not act as an agent and it does not take any independent decision on behalf of RIRC with regard to any clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities and hence, is unable to provide any core re-insurance services. RGA Services does not have the requisite regulatory approval from IRDAI to undertake reinsurance business or even act as a broker; RGA Services acts only as a communication channel between the Indian Cedents and RIRC. RGA Services only inputs the data into the system and final decisions of acceptance/rejections are always taken by RIRC from Ireland; and Employees of RGA Services only provide services to RGA Services in the ordinary course of their employment with RGA Services. RIRC does not have any control or dominion over the functioning of such employees of RGA Services (i.e., the employees of RGA Services do not take direction from RIRC). 16. Thus, as can be evident from the said agreement referred above, RGA Services is not an agent of RIRC nor does it represent itself as the agent of RIRC to any cedent. It is also provided in the agreement that RGA services shall not act on behalf of the RIRC, not conclude contracts on behalf of RIRC, not bind RIRC by any contract or bind RIRC to conclude contracts, not alter or modify any contracts entered in to by RIRC, not make any commitment on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d name of the foreign enterprise while carrying out its activities in India cannot be a ground to say that there exists a dependent PE of the foreign enterprise in India. The ITAT also held that mere observations of the Department without any instances to show that the Indian subsidiary had concluded contract or secured orders on behalf of the foreign enterprise cannot be accepted to hold that a DAPE of foreign enterprise exists in India in the form of the Indian subsidiary. The burden of proof is to be discharged by the Department. We have reproduced the relevant extract of the judgment hereunder for ready reference: 20. So far as the case of the Revenue that there is a dependent PE in India is concerned, herein also, the Revenue has merely brushed aside the claim of the assessee that the Indian subsidiary does not have any authority to secure contracts or solicit business on its behalf in India independent of the assessee. According to the Revenue, the Indian subsidiary uses brand name of the assessee while carrying out its activities in India. In our view, the same cannot be a ground to say that there existed a dependent PE in India. In fact, a point which has been emphas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at when a foreign company i.e. RGA Ireland operates in India through a Dependent Agent (DA) and if arms' length remuneration is paid to the DA which is separately assessed to tax in India, on account of its residential status , whether any tax becomes payable by foreign company on income attributable to its activities in India carried out through permanent establishment in the form of Dependent Agent Permanent Establishment on source basis . 2. It is respectfully submitted that the earlier decisions have been given on the basis of the 'single taxpayer approach', holding that once an arm's length payment is made to a dependent agent PE, no further profits can be taxed in the hands of foreign enterprise. This 'single taxpayer entity approach' has been rejected in unequivocal terms by the OECD and India's DTAAS. 3. Furthermore, the Hon'ble Supreme Court in the case of DIT (International Taxation) Vis Morgan Stanley Co. Inc. [2007 292 ITR 416] dt. 09.07.2007, at para 16, has affirmed the principles of 'separate entity approach two point taxation', that is, both the P.E. on its own income earned in India as per I.T. Act and MNE L.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailing in the country of source of income. The assertion that 'once the Indian Dependent Agent is taxed on its own income nothing further would be taxable in the hands of the non resident foreign company' may not be the correct interpretation of law. If the espousal of this view is sustained, then it would lead to a situation where profits of a non- resident assessee from business carried out through a dependent agent in India (DAPE) can never be taxed in India. This will render the concept of agency permanent establishment (Agency PE) redundant. This will also have wider ramifications on similar cases of insurance companies, service industries, etc., with significant revenue effect and will seriously erode the 'source based' principle of taxation advanced by developing countries. 5. Firstly, the 'Dependent Agent', i.e., RGA India, and the 'Dependent Agent Permanent Establishment' i.e. the assessee are two separate entities with regard to their activities in India. The former is taxable in India in accordance with the provisions of Income Tax Act being resident assessee while the later would be taxable in India under Article 7 of DTAA in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gent undertakes for that enterprise) together with sufficient capital to support those assets and risks. Profits will then be attributed to the deemed permanent establishment on the basis of those assets, risks and capital; these profits will be separate from, and will not include, the income or profits that are properly attributable to the dependent agent itself (see section D-5 of Part I of the Report Attribution of Profits to Permanent Establishments ). The OECD emphasizes that profits attributable to the deemed PE are separate from the profits attributable to the dependent agent itself. 7. Secondly, the Hon'ble Supreme Court in DIT (International Taxation) V/s Morgan Stanley Co. Inc. [2007 292 ITR 416] dt. 09.07.2007 has in fact, affirmed the principle of 'two point taxation' and has held that the host country has taxation rights over the dependent agent in respect of its income earned in India and over the foreign entity in respect of theprofits attributable to its permanent establishment in India. This is evident from paragraph no. 16 and concluding paragraph no. 33 of the judgment. These paragraphs, in brief, are as under: 16. ........... Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as is evident from last lines of para 33 of the judgment (conclusion). 8.2 The Hon'ble Court in the concluding para 33 has clearly held as under: 33. As regards income attributable to the PE (MSAS) we hold that the Transactional Net Margin Method was the appropriate method for determination ofthe arm's length price in respect of transaction between MSCo and MSAS. We accept as correct the computation of the remuneration based on cost plus mark-up worked out at 29% on the operating costs of MSAS. As regards attribution of further profits to the PE of MSCo where the transaction between the two are held to be at arm's length, we hold that the ruling is correct in principle provided that an associated enterprise (that also constitutes a PE} is remunerated on arm's length basis taking into account all the risk- taking functions of the multinational enterprise. In such a case nothing further would be left to attribute to the PE. The situation would be different if the transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a case, there would be need to attribute profits to the PE fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 1962, and estimated profit of RGA Ireland attributable to its Indian operation at 10% of the receipts and 50% of the same has been attributed to the DAPE. 13. The Hon'ble Supreme Court, earlier in the case of Ishikawajma Harima Heavy Industries Ltd. v. DIT 4 (Appeal Civil No. 9 of 2007) dt. 04.01.2007 had held that - the concept of territorial nexus was fundamental in determining the taxability of any income in India, and that income from the offshore supply of equipment and services by a foreign company out-side India would not be taxable in India merely because the equipment was supplied in relation to a turnkey project in India . In essence, the Hon'ble Court in this case also upheld the principal of double point taxation, if the territorial connection with India could be established. 14. Thus, the Hon'ble Supreme Court in no uncertain terms has approved the principle that the income of a foreign company will be taxable in India and further profits can be attributed to it with regards to functions performed, assets used and risks assumed that have not been considered by the transfer pricing analysis. Now, how much profits will be attributable will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control over his business, bears therisk of his business and receives reward through the use of his skills andknowledge Independence has to be comprehensive i.e. both legal as well as economicindependence. 17.3 OECD Commentary: Relevant paras are reproduced here: 104. Whether a person acting as an agent is independent of the enterprise represented depends on the extent of the obligations which this person has vis- -vis the enterprise. Where the person's commercial activities for the enterprise are subject to detailed instructions or to comprehensive control by it, such person cannot be regarded as independent of the enterprise. Another important criterion will be whether the entrepreneurial risk has to be borne by the person or by the enterprise the person represents...... 106. An independent agent will typically be responsible to his principal for the results of his work but not subject to significant control with respect to the manner in which that work is carried out. He will not be subject to detailed instructions from the principal as to the conduct of the work. The fact that the principal is relying on the special skill and knowledge of the agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accrues in the jurisdiction in which the reinsurer accepts the said risk. In this case assessee is a resident outside India and underwrites such risk based on its capital and assets both of which are outside of India. Further, it is brought to our notice that w.e.f. 01.04.2017 another group entity RGA Life reinsurance company of Canada (in short RGA Canada ] which got approval from IRDAI on 20.12.2016 for setting up its branch in India. Even though RGA Canada is group entity, however, it is a different entity having branch in India. It is also brought to our notice that assessee did not enter into any new treaty with Indian cedants after setting up of RGAC India branch w.e.f. 01.04.2017. However, all the older reinsurance treaties between assessee and Indian cedants remain with the assessee under which assessee earns premiums from the Indian cedants. 23. The current issue raised by the revenue authorities are that RGA Services (an Indian Entity) which is subsidiary of RGA USA, which was incorporated on 14.06.2006. The RGA Services provides support services to assessee for its transactions with Indian cedants as well as assessee s operations outside India and other entities of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has earned the reinsurance commission of Rs. 504,37,83,613 from India. What is in dispute before us is the tax implications of the income embedded in these receipts, in India. As we proceed to deal with the tax implications, in India, of the assessee s business of reinsurance, it will be useful to begin by taking a quick look at the nature of the reinsurance business. 4. Reinsurance is an insurance cover for insurance companies, and it constitutes insurance of the risk liability that an insurer has undertaken under a contract of insurance. Under a reinsurance arrangement, the reinsurer assumes, of course, for consideration (i.e. reinsurance premium), the risk, as a whole or in part, covered under a policy issued by an insurance company. The fundamental presumption under which the insurance business functions is that only a fraction of the policies issued would result in claims and the premiums collected on all the insurance policies by an insurance company will be far in excess of such claims, and it is this fundamental presumption because of which the total sum insured by an insurance company is often several times the capacity of the insurance company to pay, and even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and other administrative services, and as such RGA India constitutes the fixed place permanent establishment of the assessee company. While the Assessing Officer also held that the RGA India constitutes a dependent agent permanent establishment of the assessee, we need not, for the reasons we will set out in a short while, go into that aspect of the matter in detail. Coming back to the fixed place permanent establishment case of the Assessing Officer, as put to the assessee in the draft assessment order, the assessee raised objection before the Dispute Resolution Panel. It was submitted by the assessee that the assessee does not have any place of business operations in India and that the assessee does not have any premises at its disposal. It was also pointed out that RGA India is a separate legal entity having its own personnel, and the services rendered by RGA India are preparatory and auxiliary in nature, rather than core reinsurance services. It was also pointed out that whatever services are rendered by RGA India to the assessee have been remunerated at an arm s length price as such, and that position has been accepted in the transfer pricing assessment. It was also explaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.2 Further, based on the facts of the case, it is seen that RGA Services performs a spectrum of crucial business activities such as marketing support services, customer relationship management, claims support services, data synopsis services and other administrative support and ancillary services. These services are core business activities in the reinsurance business which gets substantially performed in India itself and thereafter, not much critical functions/ activities remain to be performed outside India except for just signing of the contract. Accordingly, given that core business activities of reinsurance business of the assessee in connection to Indian region are performed through the premises of RGA Services, RGA Services constitute a Fixed Place PE of the Assessee as per Article 5(1) of the IR Treaty. In view of the above, the objection of assessee is rejected. 6. It is thus the view of the Assessing Officer, which has been approved by the Dispute Resolution Panel, that this subsidiary constitutes a dependent agency permanent establishment (DA-PE) as also fixed place permanent establishment (FP-PE) of the assessee in India. Consequently, in the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trol thereupon. ** ** ** 34. According to Philip Baker, the aforesaid illustrations confirm that the fixed place of business need not be owned or leased by the foreign enterprise, provided that is at the disposal of the enterprise in the sense of having some right to use the premises for the purposes of its business and not solely for the purposes of the project undertaken on behalf of the owner of the premises. 35. Interpreting the OECD Article 5 pertaining to PE, Klaus Vogel has remarked that insofar as the term 'business' is concerned, it is broad, vague and of little relevance for the PE definition. According to him, the crucial element is the term 'place'. Importance of the term 'place' is explained by him in the following manner: In conjunction with the attribute 'fixed', the requirement of a place reflects the strong link between the land and the taxing powers of the State. This territorial link serves as the basis not only for the distributive rules which are tied to the existence of PE but also for a considerable number of other distributive rules and, above all, for the assignment of a person to either Contracting S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intangible property cannot qualify in any case. In particular, rights such as participations in a corporation, claims, bundles of claims (like bank accounts), any other type of intangible property (patents, software, trademarks etc.) or intangible economic assets (a regular clientele or the goodwill of an enterprise) do not in themselves constitute a PE. They can only form part of PE constituted otherwise. Likewise, an internet website (being a combination of software and other electronic data) does not constitute tangible property and, therefore, does not constitute a PE. Neither does the mere incorporation of a company in a Contracting State in itself constitute a PE of the company in that State. Where a company has its seat, according to its by-laws and/or registration, in State A while the POEM is situated in State B, this company will usually be liable to tax on the basis of its worldwide income in both Contracting States under their respective domestic tax law. Under the A-B treaty, however, the company will be regarded as a resident of State B only (Article 4(3) OECD and UN MC). In the absence of both actual facilities and a dependent agent in State A, income of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's premises to perform the services required by his contract, the Canadian Federal Court of Appeal ruled that the engineer had no control because he had access only during the customer's regular office hours and was not entitled to carry on businesses of his own on the premises. Similarly, a Special Bench of Delhi's Income Tax Appellate Tribunal denied the existence of a PE in the case of Ericsson. The Tribunal held that it was not sufficient that Ericsson's employees had access to the premises of Indian mobile phone providers to deliver the hardware, software and know-how required for operating a network. By contrast, in the case of a competing enterprise, the Bench did assume an Indian PE because the employees of that enterprise (unlike Ericsson's) had exercised other businesses of their employer. The OECD view can hardly be reconciled with the two court cases. All three examples do indeed shed some light onto the method how the relative standards for the control threshold should be designed. While the OECD MC Comm. suggests that it is sufficient to require not more than the type and extent of control necessary for the specific business activity wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India, whichis at the disposal of the US companies, through which they carry on their ownbusiness. There is, in fact, no specific finding in the assessment order or the appellate orders that applying the aforesaid tests, any fixed place of business has been put at the disposal of these companies 9. In the present case also, it has not even been the case of any of the authorities below that any particular premises were at the disposal of the assessee. The 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 reinsur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DAPE profit attribution may seem incompatible with the underlying scheme of taxation of cross border business profits under the tax treaties, but that cannot come in the way of the binding force of judicial precedents from Hon'ble Courts above. The SLP against this decision is said to pending before Hon'ble Supreme Court but that does not, in any way, dilute binding nature of this binding judicial precedent. In all fairness to the learned Departmental Representative, however, we may take refer to observations in another coordinate bench decision in the case of Delmas France v. ADIT [(2012) 17 taxmann.com 91 (Mum)], to the effect, Similarly, before accepting DAPE profit neutrality theory, we will still have to deal with learned Departmental Representative's plea that as per the law laid down by Hon'ble Supreme Court in the case of DIT v. Morgan Stanley Co Inc. [2007] 162 Taxman 165 (SC), the arm's length remuneration paid to the PE must take into account 'all the risks of the foreign enterprise as assumed by the PE', but then in an agency PE situation, unlike a service PE situation which was the case before the Hon'ble Supreme Court, a DAPE assum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stence of a DAPE on the facts of this case is wholly academic. 16. Once we hold, as we have held above, that in the light of the present legal position, existence of dependent agency permanent establishment in wholly tax neutral, unless it is shown that the agent has not been paid an arm's length remuneration, and when it is not the case of the Assessing Officer, as we have noted earlier, that the agents have not been paid an arm's length remuneration, the question regarding existence of dependent agency permanent establishment, i.e. under article 5(4), is a wholly academic question. We humbly bow to the law laid down by Hon'ble Courts above. The limited argument before us is that here is a case of dependent agency permanent establishment, and existence of a DAPE, in the light of these discussions, is wholly tax neutral- particularly in the light of the legal position regarding profit attribution to the DAPE. We need not, therefore, deal with the question about existence of a DAPE, as it is an academic exercise with no tax effect involved. The related grounds of appeal are thus infructuous. 10. In view of these discussions, we hold that the assessee did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;, holding that once an arm's length payment is made to a dependent agent PE, no further profits can be taxed in the hands of foreign enterprise. By relying on the decision of the DIT (International Taxation) v. Morgan Stanley Co. Inc. (supra) he submitted that there are two taxpayers in the source country which are Dependent agent enterprise and Dependent agent permanent establishment (DAPE). He raised certain issues that the dependent agent performs certain functions on behalf of the foreign principal that cause attribution of risks or assets of foreign principal to host country, i.e., country of source country besides performing its own functions for which it is otherwise taxable in India. The Dependent agent is performing additional functions for and on behalf of the foreign company which are not part of its profile and for which it is not being remunerated by the foreign company. He also raised issue of profits / losses may be attributed to the DAPE by host country based on those assets used, risks assumed and functions performed and the DAPE is entitled to deduction in host country for arm's length compensation / remuneration paid to dependent agent enterprise. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isk. Even the tax authorities including Ld. DR has not brought on record any material to show that RGA Services has assumed any risk or invested any assets in executing the reinsurance functions. 32. Further, we observe that the RGA Services does not have any license from IRDAI to undertake reinsurance business or even to act as a reinsurance broker. It shows that RGA Services can never be allowed to function as a reinsurer or broker in India. It could only offer various functions in the line of reinsurance business. What is relevant to be an agent is the agent should be in a position to replace the principle in executing any contract and should be having the similar level playing role or rights in execution of such contracts, the issue of dependent or independent is different aspect of analysis. First, the other person is eligible to function as an agent or not as a broker, in the given case RGA Services does not have any recognition in India to conclude any contract in line of reinsurance. Therefore, it can never be allowed to act as an agent in India, not even assume or conclude contract on behalf of the principal i.e., the assessee. 33. Further, we observe that even Ld. D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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