SWISS RE-INSURANCE COMPANY LTD, MUMBAI V. DDIT (IT) 2(1), MUMBAI

ITA 1667/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88258 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 04-02-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 10-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA
• Assessee Lawyers: P J PARDIWAL
• Keywords: Business income; Transfer pricing; Double taxation relief; Permanent establishment
• Section: 143(3); 234B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BE NCH, MUMBAI , ! '# % & ' , '# ( BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I .T.A. NO. 1667 /MUM/2014 ( ) ) ) ) / ASSESSMENT YEAR : 2010-11 SWISS RE-INSURANCE COMPANY LIMITED, MYTHENQUAI 50/60, P.O.BOX NO.8022, ZURICH, SWITZERLAND. / VS. DY. DIRECTOR OF INCOME-TAX INTERNATIONAL TAXATION 2(1), SCINDIA HOUSE, BALLARD ESTATE, NM ROAD, MUMBAI 400 038. #* ! ./ +, ./ PAN/GIR NO. : AACCS 2650M ( *- / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / APPELLANT BY: S/SHRI P.J.PARDIWAL & SHRI MADHUR AGARWAL ./*- 1 0 / RESPONDENT BY: MS. S. PADMAJA 1 %2! / DATE OF HEARING :10.02.2015 34) 1 %2! / DATE OF PRONOUNCEMENT :13.02.2015 '& / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER MADE UNDER SECTION 143(3) OF THE INCOME TAX ACT,1961 (TH E ACT) R.W.S 144C(13) OF THE ACT PERTAINING TO A.Y. 2010-11. THE ORDER IS DATED 21/01/2014. THE ASSESSEE HAS RAISED THREE SUBSTANTI VE GROUNDS OF APPEAL. THE FIRST GRIEVANCE OF THE ASSESSEE IS THAT THE AO ERRED IN LAW IN HOLDING THAT SWISS REINSURANCE CO. LTD. HAD BUSINESS CONNEC TION IN INDIA. ./I .T.A. NOS. 1667 /MUM/2014 ( ) ) ) ) / ASSESSMENT YEAR : 2010-11 2 2. BRIEFLY STATED, THE FACTS ARE AS UNDER: SWISS RE-INSURANCE COMPANY LIMITED I.E. THE ASSESS EE IS A COMPANY INCORPORATED IN SWITZERLAND WHICH RECEIVES INCOME FROM PROVIDING REINSURANCE TO VARIOUS CEDANTS IN INDIA. THE RE-INSURANCE PREMIUM RECEIVED BY THE ASSESSEE IS CLAIMED AS BUSI NESS INCOME AND IT IS FURTHER CLAIMED THAT IN ABSENCE OF ANY PERMANENT E STABLISHMENT (PE) IN INDIA THE ENTIRE BUSINESS INCOME IS NOT TAXABLE IN INDIA. 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE ASSESSEE FILED NECESSARY DETAILS AND INFORMATION IN SUPPORT OF IT S CLAIM. AFTER CAREFULLY GOING THROUGH THE INFORMATION/DETAILS FURNISHED BY THE ASSESSEE THE AO OBSERVED THAT THE BUSINESS OF THE ASSESSEE IS TO P ROVIDE REINSURANCE SERVICES TO THE CLIENTS IN INDIA. THE AO FURTHER O BSERVED THAT IN THE COURSE OF SUCH BUSINESS SWISS RE-SERVICES INDIA PV T. LTD. (SRSIPL), WHICH IS AN INDIAN COMPANY AND WHOLLY OWNED SUBSID IARY OF THE ASSESSEE IS A PE OF THE ASSESSEE IN INDIA. THE AO FURTHER NOTICED THAT THE ASSESSEE THROUGH ITS SINGAPORE BRANCH HAS ENTERED I NTO SERVICE AGREEMENT SINCE 01/04/2009 WITH SRSIPL FOR OBTAINING RISK AS SESSMENT SERVICES, MARKET INSURANCE AND ADMINISTRATIVE SUPPORT IN INDI A AND IN TURN REMUNERATE/COMPENSATE SRSIPL ON A COST + 12% MARGIN . THE AO WAS OF THE OPINION THAT SINCE THE ASSESSEE HAS REMUNER ATED SRSIPL AND ALL ITS EMPLOYEES ON A COST + BASIS, IT IS CLEAR THAT T HE PERSONNEL AND STAFF HAVE RENDERED SERVICES TO THE ASSESSEE AS DE-FACTO EMPLOYEES. THE AO WAS OF THE FIRM BELIEF THAT THE INDIAN SUBSIDIARY S RSIPL PROVIDES TECHNICAL AND CORE REINSURANCE SERVICES, THEREFORE, DEPENDENT AGENCY PERMANENT ESTABLISHMENT (DAPE) COMES INTO PLAY. T HE AO FURTHER NOTED THAT AS PER THE DOMESTIC INCOME TAX ACT, 1961 , SINCE THE INCOME OF ./I .T.A. NOS. 1667 /MUM/2014 ( ) ) ) ) / ASSESSMENT YEAR : 2010-11 3 THE ASSESSEE IS BEING EARNED FROM INDIA ON A REGULA R AND CONTINUOUS BASIS, THE INCOME OF THE ASSESSEE IS TAXABLE IN INDIA IN T ERMS OF SECTION 9(1)(I) OF THE ACT. THE ASSESSEE HAS REGULAR FLOW OF INCOME E MANATING FROM INDIA, HENCE, THE ASSESSEE HAS CLEAR CUT BUSINESS CONNECT ION IN INDIA. 2.2 THE AO GAVE THE ASSESSEE AN OPPORTUNITY TO SUBS TANTIATE ITS CLAIM THAT THE REINSURANCE PREMIUM RECEIPTS OF THE COMPAN Y ARE NOT TAXABLE IN INDIA. THE ASSESSEE FILED A DETAILED REPLY EXPLAIN ING THE NATURE OF ACTIVITIES OF THE ASSESSEE. IT WAS EXPLAINED AND ST RONGLY CONTENDED THAT SERVICES PROVIDED BY SRSIPL DO NOT CREATE EXISTENCE OF A PE IN INDIA. IT WAS EXPLAINED THAT SRSIPL IS A SEPARATE LEGAL ENTIT Y AND ITS ENTIRE CONTROL AND MANAGEMENT IS IN INDIA. THE DECISIONS REGARDIN G ITS BUSINESS ARE TAKEN AND EXECUTED IN INDIA. IT IS BOTH LEGALLY AN D FUNCTIONALLY INDEPENDENT COMPANY. IT WAS EXPLAINED THAT THE EM PLOYEES OF SRSIPL RENDER SERVICES TO SRSIPL AND NOT TO THE ASSESSEE, EITHER AS ASSESSEES 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 I N 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 SPEC IFICALLY MENTIONED THAT SRSIPL IS NEITHER AN AGENT NOR A BROKER OR LEGAL RE PRESENTATIVE OF ASSESSEE AND HENCE, ACTING ON PRINCIPLE TO PRINCIPL E BASIS, THEREFORE, THE QUESTION OF FALLING OF AGENCY PE DOES NOT ARISE. ATTENTION WAS DRAWN TO ARTICLE 5(5) OF THE DTAA BETWEEN INDIA AND SWITZERL AND AND IT WAS EXPLAINED THAT THE RELATIONSHIP BETWEEN THE ASSESSE E AND SRSIPL DO NOT ./I .T.A. NOS. 1667 /MUM/2014 ( ) ) ) ) / ASSESSMENT YEAR : 2010-11 4 SATISFY THE CONDITIONS MENTIONED UNDER THE AFORES AID ARTICLE OF THE DTAA. REFERRING TO ARTICLE 5(4) OF THE TAX TREATY, IT WAS BROUGHT TO THE NOTICE OF THE AO THAT AN INSURANCE COMPANY IS LIABL E TO TAX IF COLLECTS INSURANCE PREMIUM IN INDIA AND ENSURES RISK OF IND IAN RESIDENTS OR THEIR AGENTS EXCEPT IN THE CASE OF REINSURANCE SERVICES. THE ASSESSEE CONCLUDED BY STATING THAT IT NEITHER HAS A SERVICE PE NOR AN AGENCY PE IN INDIA, THEREFORE, NO INCOME CAN BE ATTRIBUTED TO I NDIA ON ACCOUNT OF PE IN INDIA. 2.4 THE AO CONSIDERED THE DETAILED SUBMISSIONS AND THE CONTENTIONS MADE BY THE ASSESSEE. HOWEVER, THE SUBMISSIONS MAD E BY THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO WHO AT PARA 9.3.2 O F HIS ORDER OBSERVED AS UNDER: 9.3.2. FROM PERUSAL OF THE FACTS AND CIRCUMSTANCES OF THE CASE, IT EMERGES THAT THE ARGUMENTS OF THE ASSESSEE ARE NOT TENABLE ON ACCOUNT OF THE FOLLOWING REASONS: I, THE RE-INSURANCE CONTRACT IS AN AGREEMENT BETWEE N THE INSURER AND THE REINSURER, WHEREBY A PART OF THE RI SK GETS TRANSFERRED FROM ONE PARTY TO ANOTHER. THE PARTY AC CEPTING THE RISK IS TERMED AS THE REINSURER AND THE PARTY T RANSFERRING THE RISK IS TERMED AS THE REINSURED/REASSURED OR CE DANT. II. THE INCOME OF THE ASSESSEE IS BEING EARNED FROM INDIA ON A REGULAR AND CONTINUOUS BASIS. IN VIEW OF THIS, TH E INCOME OF THE ASSESSEE IS TAXABLE IN INDIA IN TERMS OF SEC. 9 (1)(I) OF THE INDIAN INCOME TAX ACT, 1961 I.E. THE DOMESTIC INCOM E TAX ACT. III. THE ASSESSEE IS HAVING REGULAR FLOW OF INCOME EMANATING FROM INDIA UNDER THE DOMESTIC ACT; HENCE THE ASSES SEE HAS A CLEAR-CUT BUSINESS CONNECTION IN INDIA. THE ARGUMEN TS OF THE ASSESSEE ON THIS ACCOUNT ARE FLAWED. 2.5 THE AO FURTHER PROCEEDED BY TREATING SRSIPL AS A PE OF THE ASSESSEE IN INDIA. THE AO TREATED SRSIPL NOT ONLY AS A SERVICE PE OF ./I .T.A. NOS. 1667 /MUM/2014 ( ) ) ) ) / ASSESSMENT YEAR : 2010-11 5 THE ASSESSEE BUT ALSO AS AGENCY PE/ DAPE. HAVING H ELD ALL THAT THE AO WENT ON TO ATTRIBUTE THE TAXABLE PROFIT AND CALCULA TED THE ATTRIBUTION AT 50% OF INCOME AND COMPLETED THE ASSESSMENT. 2.6 STRONG OBJECTIONS WERE RAISED BEFORE THE DRP BU T WITHOUT ANY SUCCESS. AGGRIEVED BY THIS THE ASSESSEE IS BEFORE U S. 3. LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUBMITTE D THAT THE REVENUE AUTHORITIES HAVE GROSSLY ERRED IN (I) TREAT ING THE ASSESSEE HAVING A DEPENDENT AGENCY PERMANENT ESTABLISHMENT; (II) THE ASSESSEE HAS A CLEAR CUT BUSINESS CONNECTION IN INDIA; (III) TREATING SR SIPL AS SERVICE PE AND (IV) TREATING AS SRSIPL AS AGENCY PE. LD. COUNSEL STATED THAT THE ASSESSEE DOES NOT FULFILL ANY OF THE MANDATORY COND ITIONS FOR THE AFOREMENTIONED ALLEGATIONS. REFERRING TO ARTICLE 5(4) OF THE INDO-SWISS TREATY, LD. COUNSEL FOR THE ASSESSEE STATED THAT TH E ARTICLE CATEGORICALLY EXCLUDES CASES OF REINSURANCE SERVICES. LD. COUNSE L FURTHER DREW OUR ATTENTION TO THE AGREEMENT BETWEEN THE ASSESSEE AND SRSIPL AND POINTED OUT THAT THE SERVICES PROVIDED BY THE SRSIPL DOES N OT INCLUDE CONTRACTS OF REINSURANCE AND CONFIRMATION OF LIABILITY. IN THE PROCESS, THE LD. COUNSEL RELIED UPON THE DECISION OF THE HONBLE DEL HI HIGH COURT IN THE CASE OF E-FUNDS IT SOLUTIONS, 42 TAXAMANN.COM 50 AN D THE DECISION OF THE MUMBAI TRIBUNAL BENCH IN THE CASE OF VARIAN IN DIA PVT. LTD., 33 TAXAMANN.COM 249. LD. COUNSEL ALSO RELIED UPON THE DECISION OF THE MUMBAI TRIBUNAL BENCH IN THE CASE OF EBAY INTERNATI ONAL AG, 25 TAXAMANN.COM 500. IT IS THE SAY OF THE LD. COUNSEL THAT THE OBSERVATIONS MADE BY THE AO IN RELATION TO SRSIPL VIS--VIS THE ASSESSEE ARE AGAINST THE FACTS OF THE CASE AND NOT SUPPORTED BY THE PRO VISIONS OF LAW. ./I .T.A. NOS. 1667 /MUM/2014 ( ) ) ) ) / ASSESSMENT YEAR : 2010-11 6 4. PER CONTRA, THE LD. DR SUPPORTING THE FINDINGS O F THE AO STATED THAT THE SERVICES RENDERED BY SRSIPL TO THE ASSESSE E MAKE IT AN AGENCY PE. FURTHER, THE WORK WAS TAKEN BY THE ASSESSEE F ROM SRSIPL DEPENDENT AGENCY PE. IN SUPPORT OF THE CONTENTION THE LD. DR RELIED UPON THE RULING IN AAR NO.542 OF 2001, ( 274 ITR 501 ) , ITAT DELHI BENCH IN THE CASE OF MOTOROLA INC. V. DCIT 95 ITD 269. LD. DR ALSO RELIED UPON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF DIT (IT) VS.MORGAN STANLEY & COMPANY, 292 ITR 416(SC) A ND HONBLE DELHI HIGH COURT IN THE CASE OF CENTRICA INDIA OFF SHORE P. LTD. VS. CIT, 44 TAXAMANN.COM 300 AND HONBLE KARNATAKA HIGH COUR T IN THE CASE OF JEBON CORPORATION INDIA VS. CIT, 245 CTR 300(KAR). 5. HAVING HEARD THE RIVAL SUBMISSIONS, WE HAVE CARE FULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE RELEVANT DO CUMENTARY EVIDENCES BROUGHT TO OUR NOTICE IN THE LIGHT OF JUDICIAL DEC ISIONS 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 BR ANCH OF SRZ TO THE CLIENTS (OTHER THAN CONTRACTS OF RE-INSUR ANCE AND CONFIRMATION OF LIABILITY) AFTER TRANSLATING IN LOC AL LANGUAGE, WHERE REQUIRED. 1.6 THE COMPANY HEREBY ACKNOWLEDGES AND CONFIRMS THAT IT IS NOT THE AGENT, BROKER OR LEGAL REPRESENTATIVE OF THE BR ANCH OF SRZ FOR ANY PURPOSES WHATSOEVER, AND AGREES THAT AT NO TIME SHALL IT REPRESENT ITSELF TO BE THE AGENT OR BROKER OF THE B RANCH OF SRZ IN INDIA. THE COMPANY AGREES TO INDEMNIFY AND HOLD TH E BRANCH OF SRZ HARMLESS WITH RESPECT TO ANY BREACH OF THIS SEC TION BY THE COMPANY. 5.6 COMPANY WILL REMAIN FOR ALL PURPOSES AN INDEPE NDENT CONTRACTOR UNDER THIS AGREEMENT. NOTHING IN THIS A GREEMENT WILL BE DEEMED TO CONSTITUTE OR WILL BE CONSTRUED AS CON STITUTING A PARTNERSHIP, JOINT VENTURE OR PRINCIPAL-AGENCY RELA TIONSHIP BETWEEN ./I .T.A. NOS. 1667 /MUM/2014 ( ) ) ) ) / ASSESSMENT YEAR : 2010-11 7 THE COMPANY AND THE BRANCH OF SRZ. ALL COMPANY PER SONNEL WILL BE CONSIDERED SOLELY COMPANY EMPLOYEES OR GENTS, AN D COMPANY WILL BE RESPONSIBLE FOR (I) COMPLIANCE WITH ALL LAW S RELATING TO SUCH PERSONNEL AND (II) PAYMENT OF ALL WAGES, TAXES AND OTHER COST AND EXPENSES RELATING TO SUCH PERSONNEL (INCLUDING UNEMPLOYMENT, SOCIAL SECURITY AND OTHER PAYROLL TAXES) AND COMPLI ANCE WITH ALL WITHHOLDING REQUIREMENTS AS REQUIRED BY LAW. 5.1 BEFORE WE PROCEED TO EXAMINE, WHETHER SRSIPL AN D ITS ACTIVITIES CONSTITUTE PE OF THE ASSESSEE OR WHETHER SRSIPL C AN BE CONSIDERED AS A SERVICE PE/ AGENCY PE OF THE ASSESSEE, IT WOULD BE APPROPRIATE AT THE OUTSET TO CONSIDER THE DECISION OF THE HONBLE DEL HI HIGH COURT IN THE CASE OF E-FUNDS IT SERVICES (SUPRA), WHEREIN HONB LE COURT HAS HELD THAT ESTABLISHING SUBSIDIARY IN THE OTHER TREATY COUNTRY WOULD NOT RESULT IN CREATING AND ESTABLISHING A PE OF A FOREIGN HOLD ING COMPANY IN THE SAID THIRD COUNTRY. THUS, AT THE OUTSET THE SUBSIDIARY SRSIPL OF THE ASSESSEE DOES NOT CONSTITUTE A PE OF ITS HOLDING COMPANY I.E . THE ASSESSEE. NOW LET US SEE WHETHER THERE IS ANY BUSINESS CONNECTION OF THE ASSESSEE IN INDIA. THE ANSWER LIES IN EXPLANATION 2 TO SECTION 9(1) OF THE ACT. SECTION 9(1) -EXPLANATION 2 FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED TH AT 'BUSINESS CONNECTION' SHALL INCLUDE ANY BUSINESS ACTIVITY CAR RIED OUT THROUGH A PERSON WHO, ACTING ON BEHALF OF THE NON-RESIDENT: - (A) HAS AND HABITUALLY EXERCISES IN INDIA, AN AUTHO RITY TO CONCLUDE CONTRACTS ON BEHALF OF THE NON-RESIDENT, UNLESS HIS ACTIVITIES ARE LIMITED TO THE PURCHASE OF GOODS OR MERCHANDISE FOR THE NON- RESIDENT; OR (B) HAS NO SUCH AUTHORITY, BUT HABITUALLY MAINTAINS IN INDIA A STOCK OF GOODS OR MERCHANDISE FROM WHICH HE REGULARLY DEL IVERS GOODS OR MERCHANDISE ON BEHALF OF THE NON-RESIDENT; OR (C) HABITUALLY SECURES ORDERS IN INDIA, MAINLY OR W HOLLY FOR THE NON-RESIDENT OR FOR THAT NON-RESIDENT AND OTHER NON -RESIDENTS ./I .T.A. NOS. 1667 /MUM/2014 ( ) ) ) ) / ASSESSMENT YEAR : 2010-11 8 CONTROLLING, CONTROLLED BY, OR SUBJECT TO THE SAME COMMON CONTROL, AS THAT NON-RESIDENT: PROVIDED THAT SUCH BUSINESS CONNECTION SHALL NOT IN CLUDE ANY BUSINESS ACTIVITY CARRIED OUT THROUGH A BROKER, GEN ERAL COMMISSION AGENT OR ANY OTHER AGENT HAVING AN INDEPENDENT STAT US, IF SUCH BROKER, GENERAL COMMISSION AGENT OR ANY OTHER AGENT HAVING AN INDEPENDENT STATUS IS ACTING IN THE ORDINARY COURSE OF HIS BUSINESS : PROVIDED FURTHER THAT WHERE SUCH BROKER, GENERAL CO MMISSION 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 NON- RESIDENTS WHICH ARE CONTROLLED BY THE PRINCIPAL NON -RESIDENT OR HAVE A CONTROLLING INTEREST IN THE PRINCIPAL NON-RE SIDENT OR ARE SUBJECT TO THE SAME COMMON CONTROL AS THE PRINCIPAL NON-RESIDENT, HE SHALL NOT BE DEEMED TO BE A BROKER, GENERAL COMM ISSION 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) ABO VE ARE SATISFIED. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE IS H AVING ANY BUSINESS CONNECTION IN INDIA. NOW LET US SEE WHETHER THE AS SESSEE HAS ANY PE WITHIN THE PURVIEW OF ARTICLE-5 OF INDIA SWISS TR EATY, WHEREIN IS PROVIDED AS UNDER: (L) THE FURNISHING OF TECHNICAL SERVICES, OTHER TH AN SERVICES AS DEFINED IN ARTICLE 12, WITHIN A CONTRACTING STATE B Y AN ENTERPRISE THROUGH EMPLOYEES OR TOHER PERSONNEL, BUT ONLY IF: - (I) ACTIVITIES OF THAT NATURE CONTINUE WITHIN THAT STA TE FOR A PERIOD OR PERIODS AGGREGATING MORE THAN 90 DAYS WITHIN ANY TWELVE MONTH PERIOD; OR (II) THE SERVICES ARE PERFORMED WITHIN THAT STATE FOR A RELATED ENTERPRISE (WITHIN THE MEANING OF PARAGRAPH 1 OF ARTICLE 9) FOR A PERIOD OR PERIODS AGGREGATING M ORE THAN 30 DAYS WITHIN ANY TWELVE MONTH PERIOD. ./I .T.A. NOS. 1667 /MUM/2014 ( ) ) ) ) / ASSESSMENT YEAR : 2010-11 9 5.3 ASSUMING THAT CONDITIONS OF (I) & (II) MENTIONE D HEREIN ABOVE ARE FULFILLED, WE DO NOT FIND THAT THE EMPLOYEES OF SR SIPL ARE PROVIDING SERVICES TO THE ASSESSEE AS IF THEY WERE THE EMPLO YEES OF THE ASSESSEE. THEREFORE, CONDITION LAID DOWN UNDER ARTICLE-5 OF T HE TREATY ARE ALSO NOT FULFILLED TO TREAT SRSIPL AS PE OF THE ASSESSEE. ARTICLE 5(4) OF THE TREATY READS AS UNDER:- NOTWITHSTANDING THE PRECEDING PROVISIONS OF THIS A RTICLE, AN INSURANCE ENTERPRISE OF CONTRACTING STATE SHALL, EX CEPT IN REGARD TO RE-INSURANCE, BE DEEMED TO HAVE A PERMANENT ESTABL ISHMENT IN OTHER CONTRACTING STATE IF IT COLLECTS PREMIUMS IN THE TERRITORY OF THAT OTHER STATE OR INSURES RISKS SITUATED THEREIN THROUGH A PERSON OTHER THAN AN AGENT OF AN INDEPENDENT STATUS TO WH OM PARAGRAPH 6 APPLIES. 5.4 THUS, IT CAN BE SEEN THAT REINSURANCE HAS BEEN SPECIFICALLY EXCLUDED BY THE TREATY. LET US ALSO NOW CONSIDER THE RELEVA NT EXTRACT OF OECD COMMENTARY OF ARTICLE 5- TAXATION OF SERVICES. CL AUSE 42.30 READS AS UNDER: 42.30 THE PROVISION APPLIES TO SERVICES PERFORMED BY AN ENTERPRISE. THUS, SERVICES MUST BE PROVIDED BY THE ENTERPRISE TO THIRD PARTIES. CLEARLY, THE PROVISION COULD NOT HA VE THE EFFECT OF DEEMING AN ENTERPRISE TO HAVE A PERMANENT ESTABLISH MENT MERELY BECAUSE SERVICES ARE PROVIDED TO THAT ENTERPRISE. FOR EXAMPLE, SERVICES MIGHT BE PROVIDED BY AN INDIVIDUAL TO HIS EMPLOYER WITHOUT THAT EMPLOYER PERFORMING ANY SERVICES (E.G. AN EMPLOYEE WHO PROVIDES MANUFACTURING SERVICES TO AN ENTERPRI SE THAT SELLS MANUFACTURED PRODUCTS). ANOTHER EXAMPLE WOULD BE W HERE THE EMPLOYEES OF ONE ENTERPRISE PROVIDE SERVICES IN ONE COUNTRY TO AN ASSOCIATED ENTERPRISE UNDER DETAILED INSTRUCTIONS A ND CLOSE SUPERVISION OF THE LATTER ENTERPRISE; IN THAT CASE, ASSUMING THE SERVICES IN QUESTION ARE NOT FOR THE BENEFIT OF ANY THIRD PARTY, THE LATTER ENTERPRISE DOES NOT ITSELF PERFORM ANY SERVI CES TO WHICH THE PROVISION COULD APPLY. ./I .T.A. NOS. 1667 /MUM/2014 ( ) ) ) ) / ASSESSMENT YEAR : 2010-11 10 42.31 ALSO, THE PROVISION ONLY APPLIES TO SERVICES THAT ARE PERFORMED IN A STATE BY A FOREIGN ENTERPRISE. WHET HER OR NOT THE RELEVANT SERVICES ARE FURNISHED TO A RESIDENT OF TH E STATE DOES NOT MATTER; WHAT MATTERS IS THAT THE SERVICES ARE PERFO RMED IN THE STATE THROUGH AN INDIVIDUAL PRESENT IN THAT STATE. 5.5 CONSIDERING THE SERVICES RENDERED BY SRSIPL IN THE LIGHT OF THE OECD COMMENTARY, SRSIPL CANNOT BE CONSIDERED AS PE OF THE ASSESSEE. THE DECISION RELIED UPON BY LD. DR DO NOT SUPPORT T HE REVENUE ON THE FACTS OF THE PRESENT CASE, LIKE IN THE CASE OF DELH I BENCH OF THE TRIBUNAL IN THE CASE OF MOTOROLA INC. (SUPRA, THE FACTS WERE TH AT THE EMPLOYEES OF THE ASSESSEE HAD WORKED BOTH FOR THE ASSESSEE AS WELL A S ITS INDIAN SUBSIDIARY. THE EMPLOYEES ALSO HAD THE RIGHT TO ENTER THE OFFI CE OF THE INDIAN SUBSIDIARY EITHER FOR THE PURPOSE OF WORKING FOR IN DIAN SUBSIDIARY OR FOR THE PURPOSE OF WORKING FOR THE ASSESSEE AND THE IND IAN SUBSIDIARY PROVIDED PERQUISITE TO THE EMPLOYEES OF THE ASSESSE E AND THE ASSESSEE PAID SALARIES TO THE EMPLOYEES, ON THESE FACTS THE INDIA N SUBSIDIARY WAS CONSIDERED AS PLACE OF BUSINESS. HOWEVER, FACTS O F THE CASE IN HAND CLEARLY SHOW THAT THE EMPLOYEES OF THE SRSIPL HAS ONLY PROVIDED SERVICES TO SRSIPL AND THERE IS NO NOTING ON RECOR D TO PROVE THAT THE EMPLOYEES HAD PROVIDED SERVICES TO THE ASSESSEE OR THE ASSESSEE IS PAYING THEIR SALARIES OR PERQUISITES. THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF MORGAN STANLEY (SUPRA) HAS BEEN DULY CONSIDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF E-FUNDS IT SOLUTIONS (SUPRA). THE DECISION IN THE CASE OF JEBON CORPORATION OF IN DI(SUPRA) IS NOT AT ALL RELEVANT ON THE FACTS OF THE CASE IN HAND. 5.6 TO SUM UP, THE ASSESSEE DOES NOT HAVE ANY BUSIN ESS CONNECTION IN INDIA IN THE LIGHT OF EXPLANATION-2 TO SECTION 9(1) OF THE ACT. THE ASSESSEE DOES NOT HAVE ANY PE IN INDIA. THE FACTS ON RECORD SHOW THAT ./I .T.A. NOS. 1667 /MUM/2014 ( ) ) ) ) / ASSESSMENT YEAR : 2010-11 11 THERE IS NEITHER SERVICE PE NOR AGENCY PE IN THE F ORM OF SRSIPL. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF THE RELEVANT PROVISIONS OF THE LAW AND THE DTAA AND THE JUDICIAL DECISIONS RE FERRED TO HEREIN ABOVE, WE HAVE NO HESITATION IN SETTING ASIDE THE ASSESSMENT ORDER AND ACCORDINGLY WE DIRECT THE AO NOT TO TREAT THE INCO ME OF THE ASSESSEE AS TAXABLE UNDER THE ACT. WITH THIS GROUND NO.1, 2 AN D ALL ITS SUB-GROUNDS ARE ALLOWED. 6. GROUND NO.2.3 RELATES TO THE ATTRIBUTION OF INCO ME TO THE PE IN INDIA. AS WE HAVE HELD THAT THE INCOME OF THE ASS ESSEE IS NOT TAXABLE THIS GROUND BECOME OTIOSE. 7. GROUND NO.3 RELATES TO THE LEVY OF INTEREST UNDE R SECTION 234B OF THE ACT. WE FIND THAT AT PARA-10.6 THE DRP FOLLO WING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF NGC NETWO RK ASIA LLC, 313 ITR 187 HAS DIRECTED THE AO NOT TO LEVY INTERES T AS THE ASSESSEE IS FROM A FOREIGN COUNTRY. THE AO HAS NOT FOLLOWED T HE DIRECTION OF THE DRP. WE ACCORDINGLY, DIRECT THE AO TO FOLLOW THE DIRECTIONS OF THE DRP. GROUND NO.3 IS TREATED AS ALLOWED FOR STATIST ICAL PURPOSES. 8.IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 13 TH DAY OF FEB.2015. SD/- SD/- (AMIT SHUKLA ) (N.K. BILLAIYA) '# /JUDICIAL MEMBER ! '# / ACCOUNTANT MEMBER MUMBAI; 5' DATED : 13.02.2015 . . ./ VM , SR. PS ./I .T.A. NOS. 1667 /MUM/2014 ( ) ) ) ) / ASSESSMENT YEAR : 2010-11 12 '& '& '& '& 1 11 1 .% .% .% .% 6)% 6)% 6)% 6)% / COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. 89 .% , , / DR, ITAT, MUMBAI 6. 9: ; / GUARD FILE. '& '& '& '& / BY ORDER, /% .% //TRUE COPY// < << < / = = = = + + + + (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI