September 2019

Sections 5 and 9 of the Act As insurance compensation received by foreign parent company from foreign insurer was for protection of its financial interest in Indian subsidiary, it was not taxable in hands of the Indian subsidiary, although compensation was paid pursuant to fire damage to assets and stock of the Indian subsidiary

Geeta Jani | Dhishat B. Mehta
Chartered Accountants

21.  TS-439-ITAT-2019 (Del.) M/s. Adidas India Marketing vs. IT Officer (P) Ltd. ITA No.: 1431/Del/2015 A.Y.: 2011-12 Date of order: 2nd July, 2019;

 

Sections 5 and 9 of the Act As insurance compensation received by foreign parent company from foreign insurer was for protection of its financial interest in Indian subsidiary, it was not taxable in hands of the Indian subsidiary, although compensation was paid pursuant to fire damage to assets and stock of the Indian subsidiary

 

FACTS

The assessee was an Indian company engaged in the business of sourcing, distribution and marketing of products in India under a brand name owned by its overseas group company. A German company (F Co) was the ultimate parent / holding company of the assessee. The assessee had insured its fixed assets and stocks with an Indian insurer. F Co had insured its financial interest in its worldwide subsidiary companies (including in India) under a global insurance policy (GIP) with a foreign insurer. The assessee had a fire incident against which it received compensation from the Indian insurer during the relevant year. In respect of loss incurred by the assessee, F Co also received insurance compensation under GIP in Germany from the foreign insurer towards loss in economic value of its financial interest in the assessee. The compensation received was reduced by the amount of compensation received by the assessee from the Indian insurer. Further, F Co had paid taxes in Germany on the compensation received under GIP.

 

The AO contended that the insurance compensation received by F Co was in respect of loss of stock of the assessee and that the email correspondence between the assessee and F Co indicated that all receipts from insurance, relating to physical loss, business interruption and mitigation cost, belonged to the assessee. Thus, overseas compensation received by F Co had a direct business relationship with the business activities of the assessee and hence the same should be taxed in India in the hands of the assessee.

 

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