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Income Tax Appellate Tribunal, “L”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI SANJAY GARG, JM
O R D E R PER R.C.SHARMA (A.M): These are the appeals filed by the revenue against the order of CIT(A), Mumbai, for the assessment years 2006-07 to 2008-09, in the matter of order passed u/s.201(1)/201(1A) of the I.T.Act.
2. Common grounds have been taken in all the three assessment years under consideration, therefore all the three appeals were heard together and now disposed off by this order for convenience and brevity. Grounds taken for the assessment year 2006-07 are as under :- “1 . On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the non-resident insurers from the non treaty countries have no business connection in 2 India without appreciating that the source of income is in India and the property in the form of reinsured assets are in India.
On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the assessee functioned as independent broker and that there was no business connection in India, without appreciating that the assessee acted as collecting agent of the non- resident reinsures, that the payment made to the agent amounts to payment made to the non resident reinsurers and that the payment was made in India. Even as per IRDA regulations the payment made to the agent amounts to payment made to the reinsurance companies.
3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the assessee was not required to deduct tax on the reinsurance premium paid to the non resident reinsurance companies in the non treaty countries.
4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the assessee was not an assessee was not in default u/s.201 and 201(1A) of the Income Tax Act.
The appellant prays that the order of ld. CIT(A) on the above ground(s) be set aside and that of the Assessing Officer restored.”
Rival contentions have been heard and record perused. Brief facts are that assessee M/s.Aon Global Insurance Services Pvt.Ltd., is an Indian Company incorporated in 2002 and registered as a "Composite Broker" with Insurance Regulatory Development Authority (IRDA). The assessee is an independent insurance broker in the insurance market. It is a joint venture between Global Insurance Services (Brokers) Pvt. Ltd.(74% holding) and AON holding b.v. Rotterdam (26% holding). The assessee is an independent broker, it works with a number of foreign reinsurers to evaluate the quality of their security, to make an assessment of the terms offered and to compare the rates offered by them with a view to ensure that the interest of the insurance company (the buyer of reinusrance) is fully protected. The A.O has noted that a survey u/s.133A 3 of the Act was conducted on 12.02.2008 at the business premises of the assessee and it was gathered during the course of survey that the assessee was not deducting any tax at source before making payment of reinsurance premium to the non-resident Re-insurer. The AO has further observed that the assessee has not collected tax residency certificates (TRCs) of the NRRS to verify their residency and their tax liability in India nor the assessee has made any application u/s.195 of the Act for withholding order. The AO also further noted that the assessee has also remitted money to reinsurers located in the countries with which India does not have any DTAA.
In view of the above observations the AO held that assessee is liable to deduct tax at source on the re-insurer remittance made in three financial year to non-resident reinsurer (NRRs) @ 41.82%. The AO also charged interest u/s.201(1)/201(1A) on these remittance.
5. Against the above order of AO, assessee preferred appeal before the CIT(A). The contention of assessee before the CIT(A) was that provisions of Section 192 to 195 relating to tax deducted at source are not applicable to the assessee, therefore, question of deducting tax at source does not arise at all. Accordingly, it was pleaded that the assessee is not liable to make any deduction on the reinsurance remittance to NRRs. By the impugned order the CIT(A) held that assessee is not covered by the provisions of Section 192 to 195, therefore, the assessee is not in default u/s.201(1) & 201(1A) of the Act. Precise observation of the CIT(A) was as under :-
4 “1.3.1 I have considered the facts and findings of the AO and submission of the AR. It is seen that the assessee is an insurance broker in the insurance market. The appellant acts as a reinsurance broker between Re-insurers generally located in India and NRRs generally located outside India. Its main job is to identify and place the risk of time to the selected NRRs or progress as the case may be. It may be noted that the reinsurance contracts and agreements between Indian insurers and the foreign insurers on a principle to principle basis. The appellant in its capacity as a broker may handle the premium funds to provide administrative convenience to the insurers and reinsurers but has no authority to act as an agent. Whereas an agent is allowed to act only on behalf of one insurance company. Once a broker is appointed as an agent of a particular insurance company he cannot solicit business of any other insurance company. An agent has to work under the supervision, control and direction of the insurance company which appoints him as an agent. Broker on the other hand is not restricted like an agent who is allowed to act only on behalf of one insurance company. In other words a broker can solicit business of many insurance companies simultaneously. Broker for all practical purposes works in the capacity of independent entity. It does not have to work under the supervision, control and direction of the insurance company for which he works as a broker. It is seen that the appellant works with various insurance companies in India as well as the NRRs located outside India. Therefore the appellant is a broker and not an agent. The A.R. has placed reliance on CIT vs R.D. Aggarwal & Co. 26 ITR 20 (SC) which also support their view point. 1.3.2 It is also seen that proviso to explanation 2 to clause (i) of subsection (1) of Section 9 of the I.T.Act provides as under: "provided that such business connection shall not include any business activity carried out through a broker, general commission 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" Thus the above proviso to section 9(1)(i) is very clear about business connection of a broker. The proviso specifically excludes an independent broker. Neither the non resident insurers nor any Indian insurance company have any control over the appellant. Therefore the appellant is having an independent status and acting in the ordinary course of its business. It is also seen that the reinsurance money received is a trust money and the remittance is carried out to discharge appellant's function as reinsurance broker only with a obligation to remit the same as per IROA regulations. Therefore the appellant is not liable to make TDS on the remittance made to non resident insurers. The appellant is a registered broker and has to abide by regulation of IROA, which does not permit any deduction from trust money other than charges, fees or commission earned. If the appellant deduct any sum other than charges, fees or commission earned then reinsurance premium agreed in the 5 contract between Indian Insurance companies and NRRs i.e. Principal to Principal it would be contrary to the IRDA rules. The appellant has also place reliance on the decision of ITA T Mumbai in the case of GIC vs ACIT(TOS) (ITA.No.4479 to 4481/Mum/M/2007 dated 13.2.09 wherein it was held that in order to attract section 194D the commission or any other payment covered under the section should be a remuneration or reward for soliciting or procuring the insurance business. The insurance companies do not procure business for the reinsurance company nor does the Re-insurers pay commission or other payment for soliciting the business from the insurance companies. Therefore it was concluded that for making payment to NRRS the provisions of section 195 are not attracted. "In view of these facts it is seen that the assessee is an independent broker and not an agent who does not carry out any activity on behalf of anyone entity and has no authority to enter into contracts in India. Therefore provisions of section 192 to section 195 relating to TDS are not at all applicable to the applicant. Hence the appellant was not required to deduct tax at source on the payments made to NRRs. It is also held that the non-resident insurers do not carry out any operation in India at all and the insurance business has been specifically excluded of are, independent broker under the proviso to section 9(1)(i) of the Act. Thus in absence of any operations being carried out by NRRs in India no income should be deemed to accrue or arise in India u/s.9(1) of the Act which is also fortified by a decision of Supreme Court in the case of CIT Vs. A.P.Toshoku Ltd. (125 ITR 525.). as 'relied by the appellant. 1.3.3 It is seen that the A.O himself has admitted in para 6 of his order passed u/s.201(1)/201(1A) that countries with which India has a DTA, the income of NRRs can be taxed in India only if the NRR has P.E. in India. However, the AO has treated the remittance made 'to AON London U.K. liable to withholding tax on the ground that the' details of location of ultimate beneficiaries of reinsurance premium is not known. The appellant has argued that the AO did not ask to submit the said details during the course of hearing. In view of such circumstances remand report was called for from the AO to examine and report that the reimbursed payments made to AON London were in fact made to ultimate beneficiaries which were located in countries with which India has a DTAA agreement. The AO vide his remand report dated 20.05.09 submitted that the additional evidence filed by the assessee is liable to be rejected as the assessee could not produce these evidences for remittance either during the course of survey proceedings or proceedings u/s 201. However, without prejudice, the AO examined the details filed by the assessee in the form of 5 box files in respect of remittances to AON London and it was found that the ultimate beneficiaries of the reinsurance premium in all but one case were located in country with which India is having a DTAA. With regard to remittance of Rs.96,98,839/- mentioned at S.No.29 in respect of reinsurance premium received from New India Insurance made on 25.05.06, the assessee could not furnish the relevant details so it could not be 6 verified. However, during the course of appellate proceedings, the appellant has furnished documentary evidence in respect of the said payment of Rs.96,98,839/· vide his letter dated 17th June,2009 according to which they were also located in the countries with which India has DTAA. It appears that no specific showcause was issued by the AO and these evidences being primary evidences same are admitted to do the natural justice. 1.3.4 Since the AO in para 6 of his order has come to a conclusion that income of NRR would be taxed in India only if NRR has P.E. in India. Since it is noticed that the appellant has no business connection on behalf of the NRRs, the provision of section 192 to 195 are not applicable in the case of the appellant. Further the AO himself has held that no TDS is required in respect of payments made to ultimate beneficiaries who were located in countries with whom India has DTAA. Therefore, remittances are not chargeable to tax in India. 1.3.5 As regards remittance made to non-treaty countries, it is seen that the appellant is an independent broker and has no business on behalf of NRRs of India and there is no P.E. of the NRR in India. The income arrived from the transactions of reinsurance arrangements cannot be treated as accrued or arise to NNRs u/s.9(1)(i) of the Act. Hence the appellant was not required to make TDS on the reinsurance premium remitted. 1.3.6 As regards remittances made to Re-insurers situated in Australia, I agree with the appellant that there is no concept of deemed permanent establishment for insurance premium under Article 5 and 6 OECD Model Convention. It is also seen that no services rendered in India , the assessee contracts broker and he does not know who is the person to whom he is making payment. Therefore the appellant being independent broker has no business connection. Hence the appellant was not required to make TDS on remittances made to NRRs & Australia. Further Article 7 of India - Australia DTAA provides that a person having an independent status will have no permanent establishment in other contracting states. Further the proviso to section 9(1)(i) specifically excludes an independent broker. Therefore, appellant was not required to deduct tax at source to the remittance made to Re-insurers situated in Australia. The activities of insurers were conducted out of India, therefore the amount to be remitted is not taxable in India in the light of Supreme Court decision in the case of (1) Ishikawajima - Harirna Heavy Industries Ltd. vs ClT, Mumbai (288 ITR 408)(SC) and Bombay High Court in Clifford Chance vs DCIT(221 CTR 1)(Bom). Thus the ground No.1 to 3 is allowed. 1.3.7 As regards ground No.4 of computing of profit @ 20% is concerned it is treated as allowed in view of findings that remittances made to NRRs have been held as not taxable in India.
7 1.3.8 In the light of above discussion the appellant's appeal is allowed in respect of all the four grounds of appeal and the AO is directed not to treat appellant in default u/s.201 and 201(1A). Consequently, the tax of Rs.1,95,32,001/- u/s.201 and interest of Rs.35,14,966/- u/s.201(1A) is deleted. 2.0 In the result the appeal is allowed."
6. Against the above order of CIT(A), the revenue is in further appeal before us.
7. Smt. Vandana Sagar, ld. CIT DR appeared on behalf of the revenue and contended that the Non Resident Reinsurer (NRR) received payment directly from the assessee, a resident of India. Thus, there was a direct source of Income in India. As per ld. CITDR It is also a matter of fact that the assets which have been insured, are located in India. Thus, there is accrual of income indirectly from an asset in India. The Insurance Companies which pay reinsurance premium to the NRR through the assessee are located in India. Thus, there is indirect source of income in India. Thus, it can be said with certainty that income is deemed to accrue/arise in India within the meaning of Section 9(1)(i) of the Act.
8. With regard to aassessee’s reliance on the decision of G.E.India Ltd.(SC), she contended that there is no dispute about the judgement that obligation to deduct tax arises only when the remittance is a sum chargeable under the Act. The word used is CHARGEABLE, not charged. It has been held by Hon'ble Supreme Court in Azaadi Bachao Andolan 263 ITR 706, “In our view the contention of the assessee proceeds on the fallacious premise that the liability to taxation is same as payment of tax. Liability to taxation is a legal situation, payment of tax is a fiscal fact.”
9. As per ld. CIT DR, as long as the remittance is chargeable, whether or not actually charged, obligation to deduct arises. It cannot therefore be interpreted that since the payee was not charged, the obligation of the payee gets diluted or waived off. Such an interpretation will be erroneous and contrary to the view taken by Hon'ble Supreme Court in the case of Azadi Bachao Andolan (supra).
10. With regard to assessee reliance placed on Mahindra and Mahindra, Crompton Greaves, VSNL, Shipping Corporation, the contention of ld. CIT DR was that an important point to note is that there was amendment in section 201 w.e.f 1/04/2010. In none of these cases, this aspect has been discussed that it was only after 1/04/2010, a time limit was introduced to pass order u/s 201. As per ld. CIT DR sub sections 3 and 4 to section 201 were inserted by Finance Act 2009 wef 1/4/2010. Till then there was no limit on passing an order u/s 201 to treat assessee in default; whereas there is/was a time limit for assessment and reassessment .This proves that the two provisions/sections, those relating to 201, and those pertaining to assessment/ reassessment were independent of each other and application of one did not presuppose application of another or require one as a precondition for another. 11. She further contended that the view canvassed by the Ld counsel for assessee appellant that an order passed u/s 201(1) within period of 6 years becomes Invalid by the mere fact that no order of assessment is passed in case of Nonresident payee till such period of 6 year as per ratio of Mahindra & Mahindra 313 ITR(AT)263(Mumbai)(SB) needs to appreciated on facts of each case and the said special bench decision cannot be applied ipso-facto to each case in view of the subsequent Supreme court and High court decisions and "whether on facts and circumstances of the case and in law an order u/ s 195 read with 201 is barred by limitation within 4 years from end of relevant asstt year in absence of any express provision in the Act" The SB held that that maximum time limit for initiating the proceedings u/s 201(1) is four/six years and maximum time for completion of these proceedings is one year from end of FY in which proceedings were initiated. The question of time by which an assessment has to be made in hands of payee was never for consideration before SB and it was only to explain its view of ascertaining the limit of 4/6 years for passing 201 order that the SB also drew support from the time limit available for making assessment in case of payee. The said observation of SB was therefore out of context of the question referred to it and hence in the nature of obiter-dicta and not the ratio-descendi.
As per ld. DR the Income tax Act does not stipulate any such mandatory condition for holding the validity of the order u/s 201 only if it is followed by asstt order in case of payee within 6 years. Even while making amendment u/s 201(3) by Finance Act No 2 of 2009 w.e.f 1/4/2010 setting the time limit for passing order u/s 201, no such condition of passing asstt order in hands of payee also has been mentioned under the Act though this amendment has taken note of conflicting views of various ITATs and High courts.
Ld. DR further contended that once an order u/s 201 is passed lawfully within time and was valid as on date of passing such order, then subsequently 10 on happening or non happening of any other event will not make such order void ab initio unless the order was conditional by itself or there was specific statutory requirement to be fulfilled later to maintain the validity of such order. It has already been explained in earlier paragraphs that there was no such requirement under the Act and particularly no requirement under Act in case of nonresidents even after amendment. There is no decision of any High court or Supreme court holding the invalidity of a valid 201(1) order due to mere passage of time. How just by delaying the appeal at any forum, can the appellant be allowed to make an argument that now the order u/s 201 is barred as no action has been taken in hands of payee. If the appellants appeal before ITAT would have been decided prior to the 4/6 years period, could this objection have been raised by appellant; the answer is No. Thus holding a valid order to be invalid just due to passage of time wherein some action in case of payee has not been taken would be against the legal principles that too when. the statute does not provide so. Hence by this logic also the proposition of SB of laying down additional requirement of passing assessment order in hands of payee also as one of conditions is not tenable 14. On the other hand, ld. AR reiterated the contention made before the CIT(A) and relied on the findings recorded by CIT(A) to the effect that provisions of Section 192 to 195 related to tax deduction at source are not applicable to the assessee.
We have considered rival contentions, carefully gone through the orders of the authorities below and found that detailed finding has been recorded by the CIT(A) to the effect that assessee is an independent broker and not an agent. The assessee does not carry out any activity on behalf of anyone in India and has no authority to enter into any contract in India. In these circumstances, 11 the provisions of Section 192 to 195 relating to tax deduction at source are not applicable to the assessee. The provisions of Section 9(1)(i) specifically excludes an independent broker, neither the non-resident reinsurer nor any independent insurance company have any control over the assessee. Furthermore, the AO has also accepted in para 6 of his order u/s.201/201(1)(A) of the Act that the countries with which India do not have a DTAA, the income of NRRs could be taxed in India only if the NRRs has permanent establishment in India. Since the assessee has no business activity on behalf of the NRRs, the provision of Section 192 to 195 of the IT Act are not applicable, hence, the question of tax deduction at source does not arise at all. It is pertinent to mention that none of the earlier/subsequent years, the assessee was found to be liable for deduction of tax u/s.192 to 195 of the IT Act. The detailed finding recorded by CIT(A) at para 1.3.1 to 1.3.6 have not been controverted by the department by brining any positive material on record. Accordingly, we do not find any reason to interfere in the order of CIT(A).
As the facts and circumstances in all the years under consideration are same, following the reasoning given by the CIT(A), we uphold the order of CIT(A) in all the three years under consideration.
In the result, all the three appeals of revenue are dismissed. Order pronounced in the open court on this 30/11//2015.