TMI Blog2010 (8) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... Regional Centre Pvt. Ltd. (AXA ARC) is a company incorporated in Singapore and it is a part of the AXA group of companies. It acts as a Central service organization which caters to the requirements of AXA group companies in the region. The applicant entered into a Service Agreement with AXA ARC for receiving assistance such as business support, marketing information technology support services and strategy support etc. from AXA ARC. The applicant states that these services are merely advisory in nature and are procured with the intention of carrying on business in line with the best practices followed by other AXA group entities globally. 2. The applicant submits that the services provided by AXA ARC are not "a one off transaction" but they are meant to support the applicant's functioning on a continuous basis. For providing these services no employee of AXA ARC will physically visit India. AXA ARC has no business establishment in India. The applicant has stated that for the services rendered by it, AXA ARC charges a fee based on the actual cost incurred plus a markup of 5%. As per service agreement, the "actual costs and expenses" includes cost incurred directly or indirectly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e services specifically procured by BAGI from AXA ARC in this regard are given below: Product approval process - when a new insurance is developed by the applicant or an existing product requires development or review, BAGI makes a formal submission in a prescribed format providing details of the product in question. Subsequently, discussions are held between applicant and AXA ARC, where AXA ARC provides suggestions and inputs via email or conference calls to improve the product developed by BAGI to bring it in line with the practices by other AXA entities the globe. Lines of business - Periodical reviews are carried out by BAGI with ARC's involvement based on the projections and the results for each line of business viz. marine, health, fire, etc. Guidelines in connection with settlement of claims, marketing and risk analysis for the respective lines of business are tailored to adopt the best practices followed by AXA entities worldwide. Product Pricing - Based on periodical profitability reviews conducted by BAGI product pricing guidelines are developed by BAGI which are then reviewed by AXA, ARC. AXA ARC does not issue any documents or mandates which have to be compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar been utilized by the applicant. Single Acturial Organization Actuaries mathematically evaluate the likelihood of events and quantify the contingent outcomes in order to minimize losses, emotional and financial, associated with uncertain undesirable events. Since many events, including natural such as an earthquake, etc. cannot be avoided, it is helpful to take measures to minimize their financial impact when they occur. Actuaries help in estimating the damage in order to accurately price property insurance. BAGI develops actuarial methodologies based on their understanding and experience in the relevant insurance market. AXA ARC reviews the actuarial methodologies developed by BAGI and provides suggestions and inputs to ensure that standard actuarial practices are adopted by all AXA entities worldwide. IT Support Services The insurance software application system comprises of software applications which have been approved, adopted and put to common use by the AXA Group entities worldwide. The software applications are procured when they satisfy certain technical and commercial criteria required for usage by the AXA Group entities and subsequently, an agreement is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right, property or information for which a payment described in paragraph 3 is received; (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or (c) consist of the development and transfer of a technical plant or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein." 6. Obviously, neither clause (a) nor clause (c) is attracted in the instant case. Hence, the contentious issue is whether clause (b) of the definition of 'fee for technical services' (FTS) can be invoked by the Revenue. The definition of fee for technical services under the Income-tax Act, 1961 is wider as the expression 'FTS' is defined to mean consideration for rendering of services of managerial, or consultancy services (including the provision of technical or other personnel). The services rendered by AXA ARC may well be brought within the scope of this definition clause because they answer the description of consultancy services or some of them may be categorized as technical service also. But, when we c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r know-how, the recipient of service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into the terminology 'make available' the technical knowledge, skills etc must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be product of intense technological effort and lot of technical knowledge and experience of the service provider would have gone into it. But, that is not enough to fall within the description of services which make available the technical knowledge etc. The technical knowledge or skills or the provider should be imparted to and absorbed by the receiver so that there receiver can deploy similar technology or techniques in future without depending on the provider. Taking some examples, the training given to a commercial aircraft pilot or training the staff in particular skills such as software development would fall within the ambit of the said expression in clause (c). Supposing, a prescription and advice is given by the doctor after examining the patient and going through the clinical reports. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to achieve standard actuarial practices and processing guidelines in connection with the settlement of claims, marketing and risk analysis, fall short of the requirements laid down in the definition of fees for technical services in Tax Treaty between India and Singapore. It will be too much to say that by providing such services (assuming they are technical or consultancy services), the applicant receiving the services is enabled to apply the technology contained therein i.e. the technology, knowledge, skills, etc. possessed by the service provider or technical plan developed by the service provider. We do not find anything in the IT support services that answer the description of technical services as defined in the Treaty. 11. Coming to the payments made by the applicant to AXA ARC for providing access to software applications and to the server hardware system hosted in Singapore for internal purposes and for availing of related support services under the terms of the Service Agreement, we do not think that the payment can be brought within the scope of the definition of 'royalty' in Art. 12.3 of the India-Singapore Tax Treaty. There is no transfer of any copyright contained ..... X X X X Extracts X X X X X X X X Extracts X X X X
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