SWISS REINSURANCE COMPANY LTD, MUMBAI V. DCIT (IT) RG 4(2)(2), MUMBAI

ITA 2759/MUM/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0212 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 17-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JASBIR CHAUHANB
• Assessee Lawyers: P J PARDIWALA NISHANT THAKKAR
• Keywords: Business income; Double taxation relief; Application of stay; Permanent establishment; Revised return
• Section: 143(3); 244A; 234B

Judgement Text

, L , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM & SHRI RAVISH SOOD, JM ITA NO.2759/MUM/2017 : ASST.YEAR 2013-2014 & SA NO.266/MUM/2017 M/S. SWISS REINSURANCE CO.LIMITED A 701, 7 TH FLOOR, ONE BKC PLOT NO.C-66, BANDRA KURLA COMPLEX MUMBAI 400 051. PAN : AACCS2650M. / VS. DY.COMMISSIONER OF INCOME - TAX (INTERNATIONAL) RANGE 4(2)(2) MUMBAI. ( / APPELLANT) ( / RESPONDENT) /APPELLANT BY : S/SHRI P.J.PARDIWALA, NISHANT THAKKAR & MS.JASMIN AMALSADVALA /RESPONDENT BY : SHRI JASBIR CHAUHANB (CIT-DR) / DATE OF HEARING : 12.06.2017 / DATE OF PRONOUNCEMENT : 04.07.2017 / O R D E R PER SHAMIM YAHYA, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE ASSESSING OFFICER DATED 04.11.2016 AND CORRIGENDUM DATED 10.03.2017 PASSED U/S 143(3) R.W.S. 144C(13) PURSUANT TO DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL DATED 28.09.206. 2. THE GROUNDS OF APPEAL READ AS UNDER:- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, SWISS REINSURANCE COMPANY LTD (HEREINAFTER REFERRED TO AS 'SRCL' OR THE 'THE APPELLANT') CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME-TAX ITA NO.2759/MUM/2017. M/S.SWISS REINSURANCE CO.LTD. 2 (INTERNATIONAL TAXATION) RANGE - 4(2)(2), MUMBAI (HEREINAFTER REFERRED TO AS THE 'LEARNED AO') UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE INCOME-TAX ACT, 1961 (ACT) AND THE CORRIGENDUM THERETO, IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE HON'BLE DISPUTE RESOLUTION PANEL - 2, MUMBAI (HEREINAFTER REFERRED TO AS THE 'HON'BLE DRP') ON THE FOLLOWING GROUNDS, EACH OF WHICH ARE WITHOUT PREJUDICE TO AND INDEPENDENT OF THE OTHERS: 1. GROUND 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 355,489,099 AS AGAINST RS NIL AS RETURNED BY THE APPELLANT. 2. GROUND 2 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 HOLDING THAT 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-SWITZERLAND DOUBLE TAXATION AVOIDANCE AGREEMENT (IS TAX TREATY) AND CONSEQUENTLY, THE REINSURANCE PREMIUM EARNED BY THE APPELLANT FROM INDIAN INSURANCE COMPANIES (HEREINAFTER REFERRED TO AS 'CEDENTS') IS TAXABLE IN INDIA EVEN THOUGH THE RISKS ARE INSURED FROM OUTSIDE INDIA. WITH REGARD TO THE ABOVE, THE LEARNED AO ERRED ON THE FOLLOWING GROUNDS: 2.1 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 CONCLUDING THAT THE APPELLANT HAS A BUSINESS CONNECTION IN INDIA AS PER THE PROVISIONS OF SECTION 9(1 )(I) OF THE ACT. 2.2 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 HOLDING THAT THE EMPLOYEES OF SWISS RE SERVICES INDIA PRIVATE LIMITED (SRSIPL) ARE DE FACTO EMPLOYEES OF THE ITA NO.2759/MUM/2017. M/S.SWISS REINSURANCE CO.LTD. 3 APPELLANT AND THEY RENDER SERVICES TO THE APPELLANT, SINCE SRSIPL HAS BEEN REMUNERATED BY THE APPELLANT AT A COST PLUS MARK-UP AND SUCH COSTS INCLUDE THE COST OF THE EMPLOYEES OF SRSIPL. THE LEARNED AO HAS FURTHER ERRED IN HOLDING THAT SRSIPL, BEING A CAPTIVE SERVICE PROVIDER, CARRIES OUT THE PRIMARY AND CORE BUSINESS OF THE APPELLANT IN INDIA. THE LEARNED AO HAS, THEREFORE, ALSO ERRED IN HOLDING THAT SRSIPL CONSTITUTES A SERVICE PE OF THE APPELLANT IN INDIA. 2.3 THE LEARNED AO HAS, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, AND BASED ON THE DIRECTIONS OF THE HON'BLE DRP, ERRED IN HOLDING THAT THE SERVICES PROVIDED BY SRSIPL TO THE APPELLANT ARE TECHNICAL AND CORE REINSURANCE SERVICES LIKE RISK ASSESSMENT AND BUSINESS FACILITATION TO THE APPELLANT. FURTHER, THE LEARNED AO HAS ALSO ERRED IN HOLDING THAT SRSIPL HAS THE AUTHORITY TO, AND DOES SECURE AND SOLICIT CONTRACTS FOR THE APPELLANT IN INDIA. THE LEARNED AO HAS, THEREFORE, HELD THAT SRSIPL IS A DEPENDENT AGENT PE OF THE APPELLANT IN INDIA. THE LEARNED AO HAS, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, AND BASED ON THE DIRECTIONS OF THE HON'BLE DRP, ERRED IN HOLDING THE THIRD PARTY INDIAN CEDENTS TO BE THE AGENTS OF THE APPELLANT IN INDIA ON THE GROUND THAT THE CEDENTS EXERCISE 'COMPREHENSIVE' CONTROL OVER THE APPELLANT. 2.4 THE LEARNED AO HAS, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, AND BASED ON THE DIRECTIONS OF THE HON'BLE DRP, ERRED IN HOLDING THAT SRSIPL COULD ALSO CONSTITUTE A SUBSIDIARY PE OF THE APPELLANT IN INDIA AS IT CARRIES OUT ALL THE ACTS OF THE PARENT COMPANY IN INDIA. 2.5 THE LEARNED AO HAS, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, AND BASED ON THE DIRECTIONS OF THE HON'BLE DRP, ERRED IN ESTIMATING 10 PER CENT OF THE GROSS RECEIPTS ATTRIBUTABLE TO THE INDIAN OPERATIONS TO BE THE PROFIT GENERALLY MADE BY A RE-INSURANCE COMPANY IN INDIA AND IN ESTIMATING 50 PER CENT OF THE PROFIT DETERMINED ABOVE TO BE ATTRIBUTABLE TO THE APPELLANT IN INDIA. ITA NO.2759/MUM/2017. M/S.SWISS REINSURANCE CO.LTD. 4 2.6 THE LEARNED AO HAS, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, AND BASED ON THE DIRECTIONS OF THE HON'BLE DRP, ERRED IN HOLDING THAT THE REMUNERATION PAID TO SRSIPL IS NOT AT ARM'S LENGTH PRICE WITHOUT GIVING ANY DETAILED REASONS THEREOF. 3. GROUND 3 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 NOT FOLLOWING THE DECISION OF THE HON'BLE INCOME-TAX APPELLATE TRIBUNAL (ITAT), MUMBAI IN THE APPELLANT'S OWN CASE, ON THE SAME FACTS, FOR AY 2010-11, WHEREIN IT WAS HELD THAT THE APPELLANT NEITHER HAS A BUSINESS CONNECTION IN INDIA IN LIGHT OF EXPLANATION 2 TO SECTION 9(1) OF THE ACT NOR DOES IT HAVE A PE IN INDIA UNDER THE PROVISIONS OF IS TAX TREATY; THEREFORE, NO INCOME EARNED BY THE APPELLANT FROM CEDENTS WOULD BE TAXABLE IN INDIA. GROUND 4 THE LEARNED AO HAS, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, ERRED IN ISSUING A CORRIGENDUM TO THE ORDER ISSUED UNDER SECTION 143(3} READ WITH SECTION 144C(13) OF THE ACT. 5. GROUND 5 THE LEARNED AO HAS, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, ERRED IN GRANTING CREDIT FOR TAX DEDUCTED AT SOURCE (TDS) ONLY TO THE EXTENT OF RS 39,219,764 INSTEAD OF RS 43,813,138 AS CLAIMED IN THE REVISED RETURN OF INCOME FILED FOR AY 2013-14, RESULTING IN A SHORT GRANT OF CREDIT FOR TDS AMOUNTING TO RS 4,593,374. 6. GROUND 6 THE LEARNED AO HAS, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, ERRED IN CONSIDERING THAT A REFUND OF RS 39,219,764 HAS BEEN GRANTED TO THE APPELLANT WHERE IN FACT, NO SUCH REFUND HAS BEEN RECEIVED BY THE APPELLANT. 7. GROUND 7 ITA NO.2759/MUM/2017. M/S.SWISS REINSURANCE CO.LTD. 5 THE LEARNED AO HAS, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT AMOUNTING TO RS 52,882,080 INSTEAD OF RS 50,677,249, RESULTING IN AN EXCESS LEVY OF INTEREST AMOUNTING TO RS 2,204,831. 8. GROUND 8 THE LEARNED AO HAS, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, ERRED IN CONSIDERING THAT INTEREST UNDER SECTION 244A OF THE ACT AMOUNTING TO RS 8,628,356 HAS BEEN PAID TO THE APPELLANT WHERE IN FACT, NO REFUND HAS BEEN RECEIVED BY THE APPELLANT FOR THE YEAR UNDER CONSIDERATION AND THUS, NO CONSEQUENTIAL INTEREST UNDER SECTION 244A OF THE ACT HAS BEEN RECEIVED BY THE APPELLANT. THE ABOVE GROUNDS OF OBJECTIONS ARE ALL INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT, SUBSTITUTE OR AMEND ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF THE APPEAL, SO AS TO ENABLE THE HON'BLE INCOME-TAX APPELLATE TRIBUNAL TO DECIDE THIS APPEAL ACCORDING TO LAW. 3. AT THE OUTSET IN THIS CASE THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE IN THIS CASE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT MUMBAI BENCHES IN ASSESSEES OWN CASE. HE SUBMITTED THAT THIS HAS BEEN DULY ACKNOWLEDGED BY THE DISPUTE RESOLUTION PANEL IN ITS ORDER AS WELL AS THE ASSESSING OFFICER IN HIS ORDER. 4. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT DISPUTE THE PROPOSITION THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE. 5. IN THIS REGARD, WE MAY GAINFULLY REFER TO PARAGRAPH 28 OF THE DIRECTION OF THE DISPUTE RESOLUTION PANEL AS UNDER:- ITA NO.2759/MUM/2017. M/S.SWISS REINSURANCE CO.LTD. 6 28. DIRECTIONS OF THE DRP 28.1 WE HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. THE ORDER OF THE ITAT IS BINDING ON ALL THE LOWER AUTHORITIES. WE HAVE ALREADY DIRECTED IN CASE OF GROUND OF OBJECTION NO.1 THAT THE AO SHOULD FOLLOW THE ORDER OF THE ITAT FOR A.Y. 2010-11. THE DEPARTMENT IS PERMITTED TO FILE AN APPEAL AGAINST THE DRPS DIRECTIONS. THIS OBJECTION IS THEREFORE DISPOSED OFF. 28.2 THE AO IS DIRECTED FROM THE ORIGINAL RECORDS TO SEE IF ANY APPEAL HAS BEEN FILED BEFORE THE HONBLE MUMBAI HIGH COURT ON ANY OF THE ABOVE RAISED OBJECTIONS. IF THAT BE THE CASE, THE AO IS DIRECTED TO KEEP THE ISSUE ALIVE IN THE INTEREST OF REVENUE AND MAKE SUITABLE ADJUSTMENTS / ADDITIONS ON THE ISSUES RAISED ABOVE. 29. THE ASSESSING OFFICER SHALL GIVE EFFECT TO THE ABOVE DIRECTIONS AS PER PROVISIONS OF SECTION 144C(13) OF THE INCOME- TAX ACT, 1961. 6. THIS ASPECT HAS BEEN DULY ACKNOWLEDGED BY THE ASSESSING OFFICER IN HIS ORDER AS UNDER:- 10. THE ASSESSEE HAD CONTESTED THE ABOVE CONTENTION BEFORE THE HONBLE DISPUTES RESOLUTION PANEL-2, MUMBAI. HONBLE DRP VIDE ITS ORDER U/S 144C(5) OF THE I.T.ACT, 1961 DATED 28.09.2016 HAS GIVEN ITS FINDINGS RELYING ON THE DECISION OF THE HONBLE ITAT IN THE ASSESSEES OWN CASE FOR A.Y. 2010-11 AND THE DECISION OF THE HONBLE DRP IN ASSESSEES OWN CASE FOR A.Y. 2011-12 AND 2012-13. HONBLE 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 ITA NO.2759/MUM/2017. M/S.SWISS REINSURANCE CO.LTD. 7 AND AUXILIARY IN NATURE. FURTHER, THE HONBLE 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 HONBLE HIGH COURT. THE SAID PARA IS REPRODUCED BELOW: `THE AO IS DIRECTED FROM THE ORIGINAL RECORDS TO SEE IF ANY APPEAL HAS BEEN FILED BEFORE THE HONBLE MUMBAI HIGH COURT ON ANY OF THE ABOVE RAISED OBJECTIONS. IF THAT BE THE CASE,THE AO IS DIRECTED TO KEEP THE ISSUE ALIVE IN THE INTEREST OF REVENUE AND MAKE SUITABLE ADJUSTMENTS / ADDITIONS ON THE ISSUES RAISED ABOVE. SINCE, THE ISSUES INVOLVED ARE CONTESTED BY THE REVENUE BEFORE THE HONBLE HIGH COURT ON THE VERY SAME GROUNDS AS NARRATED IN THIS ORDER, THE ADDITIONS / ADJUSTMENTS ARE BEING MADE AS UNDER: PARTICULARS IN RS. TOTAL INCOME AS PER COMPUTATION OF INCOME 00 ADDITIONS/DISALLOWANCES TO INCOME AS DISCUSSED ABOVE: BUSINESS PROFITS @ 5% OF GROSS RECEIPTS (PARA NO.8 & 9) 35,54,89,099 ------------------- TOTAL INCOME 35,54,89,099 TAX ON BUSINESS INCOME @ 40% 14,21,95,640 ITA NO.2759/MUM/2017. M/S.SWISS REINSURANCE CO.LTD. 8 8. SINCE THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNALS DECISION IN ITS OWN CASE AND THE APPEAL HAS BEEN FILED BY THE REVENUE SOLELY TO KEEP THE MATTER ALIVE BEFORE THE HONBLE HIGH COURT, WE SET ASIDE THE ORDERS OF THE ASSESSING OFFICER AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 9. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. 10. STAY APPLICATION NO.266/MUM/2017 11. SINCE THE INCOME-TAX APPEAL WITH REFERENCE TO WHICH THIS STAY APPLICATION HAS BEEN FILED, HAS ALREADY BEEN ALLOWED BY US IN FAVOUR OF THE ASSESSEE AS ABOVE, THIS STAY APPLICATION HAS BECOME INFRUCTUOUS. ACCORDINGLY, THIS STAY APPLICATION STANDS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED ON THIS 04 TH DAY OF JULY, 2017. SD/- SD/- ( RAVISH SOOD ) ( SHAMIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 04 TH JULY, 2017. DEVDAS* / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A), MUMBAI 5. , , / DR, ITAT, MUMBAI 6. [ / GUARD FILE.