SWISS REINSURANCE COMPANY LTD, MUMBAI V. ASST CIT (IT) RANGE-4(2)(2), MUMBAI

ITA 4898/MUM/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8146 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Assessment Year: 2015-2016
• Appeal Filed On: 20-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NISHANT SONAJYA
• Keywords: Transfer pricing; Double taxation relief; Opportunity of being heard; Permanent establishment; Revised return; TDS; Set aside
• Section: 143(3); 234B; 201; 9(1); 9(1); 9(1); 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI R. C. SHARMA , AM AND SHRI AMARJIT SINGH , JM I.T.A. NO . 4898 /M/ 20 1 8 ( ASSESSMENT YEAR : 201 5 - 1 6 ) SWISS REINSURANCE COMPANY LTD. A 701, 7 TH FLOOR, ONE BKC PLOT NO. C - 66, BANDRA KURLA COMPLEX MUMBAI - 400051 . VS. ACIT(INTERNATIONAL TAXATION - RANGE 4(2)(2) 16 TH FLOOR, ROOM NO. 1624, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400021. ./ ./ PAN/GIR NO. : AACCS 2650 M ( APPELLANT ) .. ( RESPONDENT ) DATE OF HEARING : 11 . 10 .2018 DATE OF PRONOUNCEMENT : . 26. 12. 201 8 O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER OF THE ASSESSING OFFICER DATED 18.07.2018 PASSED U/S 143(3) R.W.S 144C(13) OF THE ACT PURSUANT TO DIRECTION OF THE LD. DISPUTE RESOLUTION PANEL DATED 11.06.2018. 2 . AT THE VERY OUTSET, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ISSUE NO. 1 TO 3 HAS DULY BEEN COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE ITAT, MUMBAI BENCH IN ASSESSEE BY: SHRI NISHANT THAKKAR/MS. JASMIN AMALSADVALA DEPARTMENT BY: SHRI NISHANT SONAJYA (DR) ITA. NO. 4898 /M/201 8 A.Y. 2015 - 16 2 THE ASSESSEES OWN CASE, THEREFORE, THE CLAIM OF THE ASS ESSEE IS LIABLE TO BE ALLOWED. 3 . PER CONTRA THE LD. DEPARTMENTAL REPRESENTATIVE DID NOT DISPUTE THE PROPOSITION THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE ITAT IN THE ASSESSEES OWN CASE. 4 . WE HAVE HEARD THE ARGUMENT AND ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. THE COPY OF THE ORDER FOR THE A.Y. 2010 - 11 IN THE ASSESSEES OWN CASE IN ITA. NO.1667/M/2014 DATED 13.02.2015 IS ON THE FILE IN WHICH THE RELEVANT FIND ING HAS BEEN GIVEN IN PARA NO. 5 & 6 WHICH IS HEREBY REPRODUCED AS UNDER.: - 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 COMMUNICA TION 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 ITA. NO. 4898 /M/201 8 A.Y. 2015 - 16 3 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 VENTURE OR PRINCIPAL - AGENCY RELATIONSHIP BETWEEN THE COMPANY AND THE BRANCH OF SRZ. ALL COMPANY PERSONNEL WILL BE CONSIDERED SOLELY COMPANY EMPLOYEES OR GENTS, AND COMPANY WILL BE RESPONSIBLE FOR (I) COMPLIANCE WITH ALL LAWS RELATING TO SUCH PERSONNEL AND (II) PAY MENT OF ALL WAGES, TAXES AND OTHER COST AND EXPENSES RELATING TO SUCH PERSONNEL (INCLUDING UNEMPLOYMENT, SOCIAL SECURITY AND OTHER PAYROLL TAXES) AND COMPLIANCE WITH ALL WITHHOLDING REQUIREMENTS AS REQUIRED BY LAW.' 5.1 BEFORE WE PROCEED TO EXAMINE, WHETHE R SRSIPL AND ITS ACTIVITIES CONSTITUTE PE OF THE ASSESSEE OR WHETHER SRSIPL CAN BE CONSIDERED AS A SERVICE PE/ AGENCY PE OF THE ASSESSEE, IT WOULD BE APPROPRIATE AT THE OUTSET TO CONSIDER THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF E - FUNDS IT SERVICES (SUPRA), WHEREIN HON'BLE COURT HAS HELD THAT ESTABLISHING SUBSIDIARY IN THE OTHER TREATY COUNTRY WOULD NOT RESULT IN CREATING AND ESTABLISHING A PE OF A FOREIGN HOLDING COMPANY IN THE SAID THIRD COUNTRY. THUS, AT THE OUTSET THE SUBSIDIARY SRSIP L 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 THAT 'BUSINESS CONNECTION' SHALL INCLUDE ANY BUSINESS ACTIVITY CARRIED OUT THROUGH A PERSON WHO, ACTING ON BEHALF OF THE NON - RESIDENT: - (A) HAS AND HABITUALLY EXERCISES IN INDIA, AN AUTHORITY 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 ITA. NO. 4898 /M/201 8 A.Y. 2015 - 16 4 (B) HAS NO SUCH AUTHORITY, BUT HABITUALLY MAINTAINS IN INDIA A STOCK OF GOODS OR MERCHANDISE FROM WHICH HE REGULARLY DELIVERS GOODS OR MERCHANDISE ON BEHALF OF THE NON - RESIDENT; OR (C) HABITUALLY SECURES ORDERS IN INDIA, MAINLY OR WHOLLY FOR THE NON - RESIDENT OR FO R THAT NON - R ESIDENT AND OTHER NON - RESIDENTS CONTROLLING, CONTROLLED BY, OR SUBJECT TO THE SAME COMMON CONTROL, AS THAT NON - RESIDENT: PROVIDED THAT SUCH BUSINESS CONNECTION SHALL NOT INCLUDE ANY BUSINESS ACTIVITY CARRIED OUT THROUGH A BROKER, GENERAL COMMIS SION AGENT OR ANY OTHER AGENT HAVING AN INDEPENDENT STATUS, 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 COMMISS ION 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 - RESID ENT 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 O F 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 TOHER PERSONNEL, BUT ONLY IF: - (I) ACTIVITIES OF THAT NATURE CONTINUE WITHIN THAT STATE FOR A PERIOD OR PERIODS AGGREGATING MORE THAN 90 DAYS WITHIN ANY TWELVE MONTH PERIOD; OR ITA. NO. 4898 /M/201 8 A.Y. 2015 - 16 5 (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 MORE THAN 30 DAYS WITHIN ANY TWELVE - MONTH PERIOD.' 5.3 ASSUMING THAT CONDITIONS OF (I) & (II) MENTIONED HEREIN ABOVE AREFULFILLED, WE DO NOT FIND THAT THE EMPLOYEES OF SRSIPL ARE PROVIDING SERVICES TO THE ASSESSEE AS IF THEY WERE THE EMPLOYEES OF THE ASSESSEE. THEREFORE, CONDITION LAID DOWN UNDER ARTICLE - 5 OF THE 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 ARTICLE, AN INSURANCE ENTERPRISE OF CONTRACTING STATE SHALL, EXCEPT IN REGARD TO RE - INSURANCE, BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT 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 WHOM PARAGRAPH 6 APPLIES.' 5.4 THUS, IT CAN BE SEEN THAT REINSURANCE HAS BEEN SPECIFICALLY EXCLUDED BY THE TREATY. LET US ALSO NOW CONSID ER THE RELEVANT EXTRACT OF OECD COMMENTARY OF ARTICLE 5 - TAXATION OF SERVICES. CLAUSE 42.30 READS AS UNDER: ' 42.30 THE PROVISION APPLIES TO SERVICES PERFORMED BY AN ENTERPRISE. THUS, SERVICES MUST BE P ROVIDED BY THE ENTERPRISE TO THIRD PARTIES. CLEARLY, THE PROVISION COULD NOT HAVE THE EFFECT OF DEEMING AN ENTERPRISE TO HAVE A PERMANENT ESTABLISHMENT MERELY BECAUSE SERVICES ARE PROVIDED TO THAT ENTERPRISE. FOR EXAMPLE, SERVICES MIGHT BE PROVIDED BY AN I NDIVIDUAL TO HIS EMPLOYER WITHOUT THAT EMPLOYER PERFORMING ANY SERVICES (E.G. AN EMPLOYEE WHO PROVIDES MANUFACTURING SERVICES TO AN ENTERPRISE THAT SELLS MANUFACTURED PRODUCTS). ANOTHER EXAMPLE WOULD BE WHERE THE EMPLOYEES OF ONE ENTERPRISE PROVIDE SERVICE S IN ONE COUNTRY TO AN ASSOCIATED ENTERPRISE UNDER DETAILED INSTRUCTIONS AND 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 PERFO RM ANY SERVICES TO WHICH THE ITA. NO. 4898 /M/201 8 A.Y. 2015 - 16 6 PROVISION COULD APPLY. ALSO, THE PROVISION ONLY APPLIES TO SERVICES THAT ARE PERFORMED IN A STATE BY A FOREIGN ENTERPRISE. WHETHER OR NOT THE RELEVANT SERVICES ARE FURNISHED TO A RESIDENT OF THE STATE DOES NOT MATTER; WHAT MATT ERS IS THAT THE SERVICES ARE PERFORMED 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 UP ON BY LD. DR DO NOT SUPPORT THE REVENUE ON THE FACTS OF THE PRESENT CASE, LIKE IN THE CASE OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MOTOROLA INC. (SUPRA, THE FACTS WERE THAT THE EMPLOYEES OF THE ASSESSEE HAD WORKED BOTH FOR THE ASSESSEE AS WELL AS ITS INDIAN SUBSIDIARY. THE EMPLOYEES ALSO HAD THE RIGHT TO ENTER THE OFFICE OF THE INDIAN SUBSIDIARY EITHER FOR THE PURPOSE OF WORKING FOR INDIAN SUBSIDIARY OR FOR THE PURPOSE OF WORKING FOR THE ASSESSEE AND THE INDIAN SUBSIDIARY PROVIDED PERQUISITE TO THE EM PLOYEES OF THE ASSESSEE AND THE ASSESSEE PAID SALARIES TO THE EMPLOYEES, ON THESE FACTS THE INDIAN SUBSIDIARY WAS CONSIDERED AS PLACE OF BUSINESS. HOWEVER, FACTS OF THE CASE IN HAND CLEARLY SHOW THAT THE EMPLOYEES OF THE SRSIPL HAS ONLY PROVIDED SERVICES T O SRSIPL AND THERE IS NO NOTING ON RECORD TO PROVE THAT THE EMPLOYEES HAD PROVIDED SERVICES TO THE ASSESSEE OR THE ASSESSEE IS PAYING THEIR SALARIES OR PERQUISITES. THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MORGAN STANLEY (SUPRA) HAS BEEN DU LY CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF E - FUNDS IT SOLUTIONS (SUPRA). THE DECISION IN THE CASE OF JEBON CORPORATION OF INDI(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 B USINESS 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 THERE IS NEITHER SERVICE PE NOR AGENCY PE I N THE FORM OF SRSIPL. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF THE RELEVANT PROVISIONS OF THE LAW AND THE DTAA AND THE JUDICIAL DECISIONS REFERRED TO HEREIN ABOVE, WE HAVE NO HESITATION IN SETTING ASIDE THE ASSESSMENT ORDER AND ACCORDINGLY WE DIRE CT THE AO NOT TO TREAT THE INCOME OF THE ASSESSEE AS TAXABLE UNDER THE ACT. WITH THIS GROUND NO.1, 2 AND ALL ITS SUB - GROUNDS ARE ALLOWED. ITA. NO. 4898 /M/201 8 A.Y. 2015 - 16 7 5 . ON APPRAISAL OF THE ABOVE MENTIONED FINDING, I T HAS ALREADY BEEN ESTABLISHED THAT THE ASSESSEE IS NOT HAVING BUSINESS CO NNECTION IN INDIA I N THE LIGHT OF EXPLANATION - 2 TO SECTION 9(1) OF THE ACT . T HE ASSESSEE DOES NOT HAV E ANY PE IN INDIA. THE FACTS ON RECORD SHOW THAT THERE IS NO SERVICE PE IN FORM OF SRSIPL. ACCORDINGLY, IT IS HELD THAT THE ASSESSEE WAS NOT HAV ING TAXABLE INCOME UNDER THE ACT. BY FOLLOWING THE FINDING OF THE ABOVE MENTIONED CASE WHICH IS RELATED TO THE ASSESSEES OWN CASE , W E DECIDE THE ISSUE NO S . 1 TO 3 IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. I SSUE NOS. 4 & 5 6 . ISSUE NOS . 4 & 5 IS IN CONNECTION WITH THE NON - GRANTING OF CREDIT FOR TAX DEDUCTED AT SOURCE (TDS) AS CLAIMED IN THE REVISED RETURN OF INCOME AND NON - COMPUTING OF INTEREST U/S 234B O F THE ACT. SINCE THESE MATTERS ARE FACTUAL AND REQUIRED VERIFICATION ON ACCOUNT OF N ON - VERIFICATION OF THE REVISED RETURN OF INCOME AS WELL AS CALCULATION OF INTEREST IN ACCORDANCE WITH LAW , THEREFORE, W E SET ASIDE THE FINDING OF THE AO ON THESE ISSUES AND RESTORED OF THE MATTER AFRESH BEFORE THE AO TO DECIDE THE MATTER OF CONTROVERSY AFR ESH BY GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH LAW. ITA. NO. 4898 /M/201 8 A.Y. 2015 - 16 8 7 . IN RESULT, APPEAL FILED BY THE ASSESSEE IS HEREBY ORDERED TO BE ALLOWED IN PART , IN TERMS INDICATED HEREINABOVE. ORDER P RONOUNCED IN THE OPEN COURT ON 26. 12. 2 018 . SD/ - SD/ - ( R. C. SHARMA ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 26. 12. 2018 V IJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI