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

O R D E R

Per Shamim Yahya, AM

“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 . M/s.Swiss Reinsurance Co.Ltd. (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 . M/s.Swiss Reinsurance Co.Ltd. 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.

. M/s.Swiss Reinsurance Co.Ltd.

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 . M/s.Swiss Reinsurance Co.Ltd. 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.

. M/s.Swiss Reinsurance Co.Ltd.

“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 DRP’s 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 Hon’ble 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.

10. The assessee had contested the above contention before the Hon’ble Disputes Resolution Panel-2, Mumbai. Hon’ble 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 Hon’ble ITAT in the assessee’s own case for A.Y. 2010-11 and the decision of the Hon’ble DRP in Assessee’s own case for A.Y. 2011-12 and 2012-13. Hon’ble 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 . M/s.Swiss Reinsurance Co.Ltd. and auxiliary in nature. Further, the Hon’ble 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.