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Income Tax Appellate Tribunal, ‘C‘ BENCH
Before: SHRI AMIT SHUKLA & SHRI S RIFAUR RAHMAN&
आदेश / O R D E R
PER AMIT SHUKLA (J.M): The aforesaid appeals have been filed by the Revenue against separate impugned order of even date, 18/11/2022
In both the years, the common issue involved is with respect to addition made u/s .40(a)(i) of Rs.198,87,87,466/- in the A.Y.2016-17; and Rs.61,45,36,712/- in the A.Y.2017-18.
At the outset, the ld. Counsel for the assessee submitted that this issue stands covered by the decision of the Tribunal in assessee’s own case for A.Y.2016-17 in vide order dated 13/06/2022. The ld. DR also admitted that the issue is covered by the decision of the Tribunal. However, he relied strongly on the order of the AO.
The facts in brief of the case are that assessee is a private limited company incorporated in India and is licensed as ‘composite broker’ under regulations of Insurance Regulatory and Development Authority (IRDI) engaged in the business of insurance and re-insurance broking and consultancy services. Before the Assessing Officer, the assessee submitted that it is in the business of providing re-insurance services to insurers / cedents and is primarily involved in providing re-insurance services for life insurance companies. It enters into various re- insurance treaties with Indian Insurance Company and it collects re-insurance premiums with cedents and remits the same to the overseas parties. Within the relevant Financial Year, it has remitted total re-insurance premium of Rs. 248,95,64,492/- collected from insurance companies in India. The assessee claimed that above receipts are re-insurance 3 & 77/Mum/2023 M/s. International Reinsurance & Insurance Consultancy premium paid by Indian Insurance Company to the overseas entities and hence, these receipts are not taxable in India. However, the AO observed that the assessee has signed reinsurance agreements with various insurers in India, and has also signed an agreement dated 20/09/2013 with AON UK Limited and AON Benfield, Singapore by which the assessee company (IRICBS) is exploring the Indian Market for the placement of reinsurances, finding clients in India and holding discussions with them for their needs for reinsurance protection on behalf of AON UK Limited, identifying and creating business opportunities for them, identifying, quoting markets and submission of quotes to the clients, handling two way settlements between clients and AON Benfield, maintaining the clients as well as exploring new business opportunities, attending meetings and discussions with clients on behalf of AON Benfield and carrying out all the mandatory documentary procedures for placement of reinsurance Thus, the assessee company is providing marketing research contract management, client relationship management and administrative assistance to the AON Benfield. After taking into account the submissions made by the assessee, the AO in para 18 of the assessment order concluded that, "it is clear that disallowance is attracted on payments in the nature of 'other sums' chargeable under this Act Reinsurance premium which is clearly in the nature of other sums chargeable to tax in India comes under the provisions of Section 40(a)(1). The ledger account of the assessee in respect of Premium paid/payable to AON Benfield as per Annexure 1 of submissions dated 29.11.2018 shows that the assessee does 4 & 77/Mum/2023 M/s. International Reinsurance & Insurance Consultancy not just act as facilitator of the premiums payments but has control over the payments. This is evident from the fact that the payments are not immediately transferred to the foreign reinsurer but there is considerable time lag as is evident from the current liabilities of Rs. 35,71,43,378 as appearing in the balance sheet of the assessee as against total receipt of Rs. 246,94,21,201. Moreover the settlement of claims have been done by the assessee to the Indian Insurers on the advice of the foreign reinsurer. Taking into consideration all these facts and circumstances, the gross income of the assessee will be inclusive of the premium amount received from the insurers and the remittances made are to be considered as expenses, which are hereby being disallowed under section 40(a)(1) of the Act as the provisions of Section 195 have not been adhered to. Hence an amount of Rs 1.98 87.57.466 is hereby being disallowed under Section 40(a)(1) of the Act. This amount represents the premium payments on account of business done during the year as against the earlier quoted figure of Rs 246,94,21,201 which also includes balances of earlier years remitted during the year.”
Ld. CIT (A) has noted the detail submissions made by the assessee which has been dealt and incorporated in the impugned order. After considering the facts and submissions of the assessee, the ld. CIT (A) has deleted the said addition after observing as under:- 7.1 I find from the statement of Facts and further the submission of the appellant Company made during the appellate proceedings along with various annexures that the Appellant is licensed as composite broker under the regulations of Insurance Regulatory and Development Authority IRDAI engaged in the business of insurance and reinsurance broking and consultancy services The Appellant submitted that in the insurance and reinsurance broking business typically the Indian broker on record acts as the producing Broker cum placing broker for placement of reinsurances placed with Insurers domiciled in India and works in conjunction with an overseas broker who is referred to as the Placing Broker co-broker. The co-broker has the 5 & 77/Mum/2023 M/s. International Reinsurance & Insurance Consultancy responsibility to effect settlement of the premium due to various overseas non-resident reinsurers NRRS from whom brokerage is earned by both the Indian Licensed broker and the Co-broker and also effects recovery of their share of claims. The premium thus collected and paid are neither recognized in the balance sheet of the Indian Broker nor does it hit the profit and loss account. IRDAI Regulations requires that the broker on record with the insurer has to be an Indian licensed broker and requires the Indian insurer to pay 100 percent of the reinsurance premium to the Indian licensed broker. The Indian licensed broker after receiving the gross reinsurance premium from the Indian Insurer forwards the same to the overseas co- broker for distribution of the reinsurance premium to the NRRS and the NRRS pay brokerage to both the Indian licensed broker and the co-broker. The premium thus collected and paid are recognized in the balance sheet of the Indian broker and does not hit the profit and loss account. The brokerage received from the NRRS is booked as income of the Indian broker. In the present case the Appellant is the Indian broker and as per IRDAI regulations all premiums are payable to the NRRS through the Indian licensed broker. The AO has made disallowance of premiums paid/payable to NRRS through co-broker under section 40(a)(1) of the Act when no deduction of such premiums paid/payable was claimed by the Appellant. It is submitted by the Appellant that the Appellant and co-brokers are independent brokers facilitating payments between the cedants and NRRS. The premium paid by the Appellant to NRRS through co-brokers is not income of co-broker but a remittance of funds received by the Appellant from India cedant for onward transfer to NRRS The Appellant merely eams a miniscule percentage of the premium as brokerage which is its income Overseas Co-broker/NRRS do not have a PE in India. Thus, the premium is not chargeable to tax in India. It is further submitted by the Appellant that the Appellant is not a DAPE of the NRR.co-broker as its activities are not wholly devoted to the co- broker or its group entities but has various other streams of income. The Appellant is not the agent of co-broker but the NRRS &hence it's the Indian cedants and not the Appellant who are ought to be liable for deduction of taxes, if any. Consequently, no taxes are required to be deducted at source on payment of premium by the Appellant to NRRS through Co-broker and thus disallowance under section 40(a)(i)of the Act 6 & 77/Mum/2023 M/s. International Reinsurance & Insurance Consultancy is unwarranted. The Appellant and the overseas co-brokers work on a principal to principal basis and the Appellant cannot be treated as the representative assessee of the co-broker. The Appellant further submitted that similar issue had arisen in the case of Appellant in the appellate proceedings against the order passed under section 201 of the Act for the same AY 2016-17 wherein the Honorable CIT(Appeals)-56, Mumbai has disposed of the Appeal in favour of the Appellant. The Appellant further submitted that the Hon'ble ITAT, I Bench, Mumbai dismissed the appeal filed by the Revenue against the order of Hon'ble CIT(A) for AY 2016-17 in respect of order u/s 201. Therefore the appellant requested delete the addition made by the AO. Thereafter, he has referred to the findings of the ld. CIT(A) as well as the Tribunal order for the earlier year.
We find that this issue had been dealt in detail by this Tribunal in assessee’s own case, the relevant finding reads as under:-
We have heard both the parties and also perused the relevant findings as well as material placed before us. The fact of the issue is that the assessee company is an Indian broker for placement of reinsurances placed with insurers domicile in India to work in conjunction with overseas brokers. The reinsurance contract is between Indian insurers and the non-resident insurance companies. The details of payment made by the assessee on which non deduction of tax at source is alleged are as under:- Sr. NRRs Tax Reinsurance Claim Net Amount No. Residence Premium amount (1NR) Paid (INR) Amount(INR) 1 Axis Reinsurance USA 32,37,22,438 17,34,43,503 15,02,78,935 Company 2 SA Caisse France 1,11,61,650, - 1,11,61,650 Centrale de 7 & 77/Mum/2023 M/s. International Reinsurance & Insurance Consultancy Reassurance (CCR) 3 Endurance UK 5,89,37,276 - 5,89,37,276 Worldwide 4 IRB Brasik Brazil 26,74,84,559 42,82,692 26,32,01,867 Resseguros S.A 5 Korean Korea 7,68,05,884 3,312,01,351 4,56,04,533 Reinsurance Company 6 Lanforsakringar Sweden 7,82,698 - 7,82,698 Sak Forsakringsaklieb olag 7 Muchener Germany 19,94,80,010 1,68,84,348 18,25,95,662 Ruckoersicher ungs Gesellscliaft Actiongelsehaft 8 Swis Re-insurance Switzerla 1,98,49,981 - 1,98,49,981 Company Limited nd 9. Tokio Marine UK 1,19,07,200 - 1,19,07,200 Underwriting Limited on behalf of Lloyd‟s Syndicate 1880 8. The aforesaid amounts of premium are collected by the assessee from the insurers and instruct them to remit the premium to the „co-broker‟ who on receipt of the same passes it to the NRR companies as per the share of the risk insurers. The assessee is not the payer, albeit is merely facilitating remittance of premium on behalf of Agriculture Insurance Company of India. Ld. CIT (A) has summarized the chain of the transaction in the following manner:- 9. In the instant case there are 4 players. They are:- A. Agricultural Insurance Company of India, the insured.
8 & 77/Mum/2023 M/s. International Reinsurance & Insurance Consultancy B. International Reinsurance and Consultancy and Brokerage Pvt. Ltd., the appellant C. Aon Benfield Asia Pte Ltd., foreign broker D. Non-Resident Reinsurance companies, entities to whom insurer had spread its risk 10. On the above actual payer of premium is A and actual receiver is D. But A (the policy holder) does not pay D directly. A pays B. B is turn, pays C and C passes to D. D gives commission to C and C shares the commission with B. This is the scheme under which the businesses operate.
9. Thus, the assessee as well as AB Singapore (co-broker) are mere facilitator for transferring the premium from the Indian Cedant companies to the NRRs and is entitled to its commission as per the broker regulations of IRDAI. The assessee has remitted AB Singapore, Rs. 74,43,19,802/- as premium received from AICI, net of recovery of claims of the gross premium of Rs. 97,01,31,696/- less claims of Rs. 22,58,11,894/- (as per details enumerated above). The premium so remitted cannot be held to be income of AB Singapore, because AB Singapore in turn, is required to remit the same, further to NRRs. The said premium are in fact receipts of NRRs which would be subjected to tax in the country of domicile and not in India as admittedly they do not have PE in India. The assessee has already filed copy of TRC, Form 10F of these NRR entities alongwith no PE declaration which fact has not been controverted by the AO. In absence of PE, the premium received by NRRs cannot be held as chargeable to tax in India. As borne from the record, only in the case of one such NRR Swiss Re, AO has treated that it had a service PE and accordingly certificate u/s 197 was obtained which was filed as additional evidence before Ld. CIT (A).
From the perusal of the profit and loss account of the assessee, it is seen that it reflects only brokerage as its income. All the monies received by the Assessee from the Indian Insurance companies, i.e., Indian Cedents is held in a bank account which is classified as the “Client Money Account” and this is required to be maintained in accordance with Clause 27 of the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2013 read with Schedule V 9 & 77/Mum/2023 M/s. International Reinsurance & Insurance Consultancy thereto. The monies lying in this account are not assessee‟s money and the assessee is only the trustee of the monies as per IRDAI Regulations and hence the monies are not available to it. Monies in this account are to be paid to the NRRs either directly or through co-brokers not later than 2 weeks from receipt thereof. This account is reflected in the balance sheet of the Assessee with a corresponding liability "Reinsurance Premium payable to Reinsurers" and hence to assume that said premium is Assessee‟s income is fallacious. The regulatory authority on reinsurance in India is IRDAI, who has issued a clarification upon the Assessee‟s request wherein they have stated as under: “... We are also of the view that the amount transferred by the domestic broker as reinsurance premium to the correspondent overseas broker is not the income of the overseas broker. It is the premium income of the foreign reinsurer who provide reinsurance cover for the risk undertaken by the direct reinsurer. Therefore, no tax is required to be deducted at source for such remittances”
Thus, Ld. CIT(A) has rightly held that, when assessee is merely a broker and does not have any ownership on the premium amount transferred to NRR, then there was no liability to deduct TDS for remitting the said amount to the co-broker in Singapore.
In so far as AO‟s contention that assessee is DAPE of AB Singapore, it has been pointed out before us by the Ld. Counsel of the assessee that assessee is an independent broker and works on „principal to principal‟ basis with its co-broker and also works with other several persons/ entities. The assessee has earned brokerage during FY 2015-16 (AY 2016-17) from 275 transactions for doing brokerage business with various NRRs without any involvement of AB Singapore and hence, assessee cannot be recoked as DAPE of AB Singapore. In any case, the conditions provided in Article 5(8) and 5(9), which reads as under:- 8. Notwithstanding the provisions of paragraphs 1 and 2, where a person -other than an agent of an independent status to whom paragraph 9 applies -is acting in a Contracting State on behalf of an enterprise of the other Contracting State that enterprise shall 10 & 77/Mum/2023 M/s. International Reinsurance & Insurance Consultancy be deemed to have a permanent establishment in the first- mentioned State, if: (a) he has and habitually exercises in that State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise; (b) he has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise; or (c) he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise.
An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise itself or on behalf of that enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph.
In so far as applicability of para 8 of Article 5 is concerned, here it is not the case where assessee has any authority to conclude contracts on behalf of AB Singapore and conditions with respect to stock of goods are also not applicable. It is also not a case here that assessee secures order only on behalf of AB Singapore. Thus, Article 5 (8) is not applicable in the present case. 13.1 In so far Article 5(9) is concerned, the transaction between assessee and AB Singapore, who both are independent broker work on principal to principal basis and the assessee carried out a transaction of remittance of premium in ordinary course of business. In any case, assessee is an independent 11 & 77/Mum/2023 M/s. International Reinsurance & Insurance Consultancy broker under IRDAI and has earned majority of brokerage (73%) from NRRs without having any transaction with AB Singapore or involvement of AB Singapore. Its activities are not wholly or exclusively devoted to AB. In support of this, financial statements of the assessee for the relevant financial year i.e. FY 2015-16 have been filed. This break up of its revenue was filed before the Ld. CIT (A) as additional evidence which has been accepted by Ld. CIT (A). From the perusal of the same, it is seen that assessee received brokerage from more than 76 NRRs and majority of them without involvement of AB Singapore. Thus, the condition of Article 5(9) is also not satisfied.
Thus we hold that:- Firstly, the assessee and AB Singapore are independent brokers facilitating payments between Cedants and NRRs. Secondly, the premium paid by the assessee to NRRs through AB Singapore is not the income of AB Singapore, but a remittance of funds received by the assessee from insurer AICI for onward transfer to NRRs. Thirdly, neither NRR nor co-broker AB Singapore have PE in India and thus, premium is not chargeable to tax in India. Lastly, the assessee received its brokerage income from more than 76 NRRs and not done work wholly and exclusively for AB Singapore and hence, assessee is not a DAPE of AB Singapore.
Before us, Ld. DR had relied on 2 decisions of ITAT Chennai Bench in the case of United India Insurance Co. Ltd. vs. JCIT (2018) 97 taxmann.com 466 (Chn-Trib) and DCIT vs. Cholamandalam Ms General Insurance Co. Ltd. (2018) 99 taxmann.com 302 (Chn-Trib). On perusal of above, both these judgments are not applicable on the facts of the present case because in those cases, the assessee were themselves insurance companies and have paid reinsurance premium to non-resident reinsurance company and claim the same as deduction while computing taxable income. The disallowance was made by the AO u/s 40(a)(i) on the ground that TDS was not deducted by making the said payment. But here in this case, there is no deduction claimed in the profit & loss account by the 12 ITA No.76 & 77/Mum/2023 M/s. International Reinsurance & Insurance Consultancy assessee on the reinsurance premium paid. Accordingly, the grounds of appeal
raised by revenue are dismissed.
7. Thus, respectfully following the legal precedents, this issue is decided in favour of the assessee and consequently the appeal of the Revenue is dismissed.
8. Similarly, in A.Y.2017-18 similar findings are parimeteria and therefore, the aforesaid judgment in the earlier year order is applicable mutatis mutandis to this year also. Accordingly, the appeal of the Revenue for A.Y.2017-18 is also dismissed.
9. In the result, both the appeals of the Revenue are dismissed. Order pronounced on 31st March, 2023