TMI Blog2011 (9) TMI 754X X X X Extracts X X X X X X X X Extracts X X X X ..... e qualified to be in the nature of fees for technical services as contemplated under Article 13(4)(c) of the DTAA between India & UK. - Decided in favor of the assessee - ITA No. 2443 (Delhi) of 2011 - - - Dated:- 30-9-2011 - C. L. Sethi And K. G. Bansal, JJ Pavan Kumar and Amit Aggarwal for the Appellant. Ashwani Kumar Mahajan for the Respondent. ORDER C. L. Sethi, Judicial Member The assessee, namely, Guy Carpenter Co. Limited, a company incorporated in London, is in appeal against the order dated 18.02.2011 passed by the Commissioner of Income Tax (Appeals) [CIT(A)] in the matter of an assessment made by the Assessing Officer (AO) u/s 143(3) of the Income Tax Act, 1961, for the A.Y. 2006-07. 2. The grounds of appeal raised by the assessee are as under: - 1. That on the facts and in the circumstances of the case and in law, the ld. Commissioner of Income Tax (Appeals) - XI [Ld. CIT(A)] has erred in upholding the order of the ld. AO treating the receipts which are in the nature of reinsurance brokerage/ commission of the appellant amounting to ₹ 20,078,715/-, as fees for technical services and in holding that the same is taxable in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007 and served upon the assessee. Assessee's Authorized Representative appeared before the AO and furnished the information as discussed in the assessment order. 5. In the computation of income, the assessee annexed a note stating that assessee company incorporated in the United Kingdom operates as a recognized insurance broker in the United Kingdom, and it is licensed to intermediate insurance business by the Financial Services Authority (FSA) of the United Kingdom. 6. It was noticed by the AO that, during the year, the assessee had received commission from the following persons: - S.No. Name of the Payer Amount (in GBP) 1. New India Assurance Co. Ltd. 101,556 2. Tata AIG General Ins. Co. Ltd. 32,328 3. General Insurance Corp. of India 105,688 4. Agriculture Ins. Co. of India Ltd. 974 5. HDFC CHUBB General Ins. Co. Ltd. 3,985 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance intermediaries would share the total brokerage income equally. It may however, be noted that in any reinsurance transaction more than one insurance intermediary may be involved at the India and overseas level. For e.g. in the illustrative transaction the Indian brokers involved were JB Boda MB Boda and international brokers involved are Guy Carpenter Alsford Page and Gems Ltd. 9. The assessee also submitted the information about the visit of his employees to India during F.Y. 2004-05, 2005-06 2006-07 and contended before the AO that there was occasional business visits by two or three personnel in India to maintain general business awareness and reinforce business contracts/relationships in India for 15 calendar days (Solar days) in a year (aggregating to 45 man days), neither of which meet the time threshold provided in Article 5(2)(k) of the India U.K. tax treaty. The AO then collected the certain information from the website of the company and directed them in para 3.4 of his order. 10. The AO then had taken note of the expression fees for technical services as defined u/s 9(1)(vii) of the Act and also under Article 13 of the tax treaty between the Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the facts in brief, now the contentions of the assessee are discussed hereunder: (i) The assessee has referred to the decision of Hon'ble Madras High Court in the case of Skycell Communications Ltd. v. DCIT 119 Taxman 496. The decision was with regard to payment by the subscribers for availing cellular telephone services and the applicability of sec. 194J of the act was the issue. The Hon'ble Court held that these are the standard services availed by the subscribers and provisions of sec. 194J will not apply. The facts are different; therefore, the ratio of this decision is not applicable. (ii) The assessee has further claimed that the services related to commission or brokerage are covered by sec. 194H of the Act, therefore, provisions of sec. 9(1)(vii) will not apply. This contention is misplaced, because the provisions of sections 194H and 194J are for the purpose of deduction of tax out of payments to resident. These sections do not characterize the income. The assessee on its website did not claim that it is a broker, but the same states that it provides assistance, advise, studies, reduce etc. and also a host of financial analysis-related consultancy service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and U.K. Accordingly, such payments are made by the Indian companies, therefore, the fees for technical services is deemed to arise in India as per provisions of Paragraph 7 of Article 13 and such fees for technical services is taxable at a reduced rate of 15% of the gross amount of fee. The gross receipts of the assessee are GBP 258,663, which works out to ₹ 20,078,715/-(Exchange rate of INR 77.625). These receipts are taxable @ 15% as per the provisions of tax treaty and accordingly, tax is worked out at ₹ 3,011,807/-. 13. Being aggrieved with the AO's order, the assessee preferred an appeal before the ld. CIT(A). 14. Before the ld. CIT(A) the assessee submitted that services provided by the assessee were not in the nature of technical services within the meaning of Explanation 2 to sec. 9(1)(vii) of the Act as well within the meaning of Article 13 of tax treaty between India and UK. It was further submitted that the income received by the assessee by way of commission from insurance companies is in the nature of brokerage and does not constitute fees for technical services as the assessee, as a broker, is not engaged in the business of providing manager ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished both form and the subject matter of the case under review), providing the client deep technical insides and transaction capabilities by line of business, providing various services under the head current market intelligence would prove beyond any iota of doubt that the payments under question would fall within the ambit of sec. 9(1)(vii) read with para 4(c) of the Article 13. I find no merit in the argument of the appellant and thereby the action of the AO is sustained. 16. Hence, the assessee is in further appeal before the Tribunal. 17. In the course of hearing of this appeal, the ld. Counsel for the assessee highlighted the activities undertaken by the assessee with regard to the process of reinsurance of the risks placed by Indian Insurance Companies with International Reinsurance Companies and has explained the background of the activities undertaken by the assessee for earning reinsurance brokerage income by the assessee from Indian Insurance Companies. In this regard, he invited our attention to the assessee's submission dated December 26, 2007 filed before the AO during the course of assessment proceedings. The assessee also invited our attention to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. Explanation 1 - For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before the date. Explanation [2] - For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve years for which this Convention has effect ; (aa) 15% of the gross amount of such royalties or fees for technical services when the payer of the royalties or fees for technical services is the Government of the first mentioned Contracting State or a political sub-division of that State, and (bb) 20% of the gross amount of such royalties or fees for technical services in all other cases; and (ii) during subsequent years, 15% of the gross amount of such royalties or fees for technical services; and (b) in the case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10% of the gross amount of such royalties and fees for technical services. 3. ** ** ** 4. For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term fees for technical services means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application of enjoyment of the right, property or information for whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the language employed in section 9(1)(vii) of the Income tax Act, 1961 and included managerial services. But in the subsequent agreement in 1993, the Article 13.4(c) used different language as may be seen. It dropped the managerial services. There are also significant additions. It is however common ground that Article 13.5 does not apply. We should also keep in view the gentle but firm reminder of Mr. Dastur that in the meantime (1990) India had entered into a DTA with USA and also a MoU thereunder in which the parties thereto had understood the definition in a particular way and there was no reason why the parties would not have intended to give the same meaning to the identical definition in the subsequent DTA with UK. There is a good deal of sense and logic in the argument because it is difficult to postulate that the same country (India) would have intended to give different types of treatment to identically defined services rendered by entrepreneurs from different countries. There must be strong and incontrovertible evidence to show such an intendment. We have not been referred to any such evidence on behalf of the Revenue. Thus, not only is there a significant departu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as under: Note - The relative pronouns who and which can be used (i) To restrict, limit, or define more clearly the antecedent; .. (ii) To give some additional information about the antecedent; . (italicized ours) 92. We hold that the word which occurring in the article after the word services and before the words make available not only describes or defines more clearly the antecedent noun ( services ) but also gives additional information about the same in the sense that it requires that the services should result in making available to the user technical knowledge, experience, skill, etc. Thus, the normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services is not roped in unless the person utilizing the services is able to make use of the technical knowledge etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill etc. must remain with the person utilizing the services even after the rendering of the services has come to an end. A transmission of the technical knowledge, exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position taken by the assessee company before us as to the interpretation of the words make available . 95. Article 12.4(b) of the DTA with Singapore was relied on by both sides - by Mr. Dastur to show that the words sued therein, viz. if such services ..make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein merely make it explicit what is meant by make available while Mr. Kapila contended that these words being absent in the DTA with UK, it indicates that the assessee-company need not be in a position to apply the technology for its own use in future without recourse to the person rendering the services. On a careful consideration of the matter, we are of opinion that the addition of these words in the Singapore DTA merely make it explicit what is embedded in the words make available appearing in the DTA with UK and USA. The MoU under the US DTA and the examples given there under, to which we have already referred, make it clear. The meaning of those words were expressly incorporated in the Singapore agreement by adding the necessary words. What would be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A is held applicable, then no part of the fees for managerial services can be considered as fees for technical services, since the word managerial does not find a place in the article concerned. There can be no two opinions about his view. We, therefore, hold that the management commission of US$ .0938 per GDR cannot be charged to tax in the hands of Merrill Lynch to whom the same is paid. The assessee-company consequently was under no obligation to deduct tax u/s 195. We hold accordingly. 100. As regards the underwriting commission , in view of the foregoing discussion, we have to hold that no technical knowledge, etc. was made available to the assessee company by the rendering of the underwriting services and therefore, the definition in the Double Tax Agreement is not applicable. 101. As regards selling concession or selling commission , Mr. Dastur relies on circular No. 786, dated 7.2.2000 (copy placed at pages 318-319 of the paper book filed by the assessee) to contend that it is not income in the hands of the recipient. We have gone through the circular. It is applicable to export commission paid by an assessee to a non-resident for services rendered by the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance intermediaries (brokers) and is a tax resident of United Kingdom. It is a recognized broker of the financial services authority of UK. It is an admitted position that assessee does not maintain any office in India. It has been stated by the assessee that assessee maintains strong relationships with the International reinsurance market, which is concentrated in London (Lloyds market) and elsewhere including Europe Switzerland/Germany/France) and also Japan. The assessee has submitted that assessee has a referral relationship with J.B. Boda Reinsurance Brokers P. Ltd. of Mumbai. J.B. Boda is duly licensed by Insurance Regulatory Development Authority to transact reinsurance business in India. 26. During the year under consideration the assessee received from Indian clients total commission amounting to GBP 2,54,859/- equivalent to ₹ 20078715/- (exchange rate of INR 77625/-) for the alleged services of reinsurance intermediation rendered outside India. During the year, the assessee was engaged by certain Indian Insurance Companies to help place reinsurance business in the International market. During the course of assessment proceedings, the assessee submitted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Alsford Page and Gems Ltd. 27. In the illustrative transaction, New India Insurance Co. Ltd. In India has entered into an agreement to reinsure on an Excess Loss basis the catastrophe risk arising from its primary insurance cover in conjunction with J.B. Boda and Alsford Page and Gems Ltd. (the reinsurance brokers). The terms of the agreement specifies that the assessee in conjunction with J.B. Boda are recognized as intermediary, through whom all communications relating to this agreement shall pass. The terms of the agreement further provides that the assessee will provide all the details of agreed endorsements to the reinsurers by e-mail or facsimile and shall submit the slip policy to XIS (Lloyd's processing market) for signing. The assessee will act as a claim administrator and will submit claims advices to relevant market systems. For the services rendered, the assessee along with the other reinsurance brokers acting as an intermediary in the reinsurance process for New India Assurance Co. will be entitled to 10% brokerage. From the role played by the assessee in the reinsurance process as discussed above, it is evident to us that the assessee was rendering only int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntermediary, it is clear that what was made available by the assessee to the Indian Insurance co. was advisory services and opinion for selection of reinsurer in the international market. It has been mentioned by the AO that the services provided by the assessee were consultancy in nature as it provides a host of financial analysis related consultancy services, rating agency advisory services, risk based capital analysis etc. on the basis of some observations found mentioned in the assessee's website but the AO has not been able to point out any material or evidence on the basis of which, it could be said that the consideration received by the assessee during the year under consideration is towards any financial analysis related consultancy services, rating agency advisory services, risk based capital analysis etc. 29. At this stage, it is pertinent to note that the language used in Article 13(4) excludes Managerial services . It emphasizes only a rendering of any technical or consultancy services. It is further noticed that in the Article 13(4)(c), the expression used is make available . The meaning ascribed to the words make available has been elaborately appreciated b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s must remain with the person receiving the services even after the particular contract comes to an end. It is, thus, fairly clear that mere provision of technical services is not enough to attract Article 13(4)(c) of the Indo-UK Treaty. It additionally requires that the service provider should also make his technical knowledge, experience, skill, know-how etc. known to the recipient of the service so as to equip him to independently perform the technical function himself in future, without the help of the service provider. In other words, payment of consideration would be regarded as fees for technical services only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. 30. The identical view taken by the Income-tax Appellate Tribunal, Mumbai Bench 'C' in the case of Raymond Ltd. (supra), has also been taken in the following cases:- 1. Invensys Systems Inc., In re [2009] 317 ITR 438 (AAR - New Delhi). 2. Intertek Testing Services India P. Ltd., In re [2008] 307 ITR 418 (AAR - New Delhi). 3. R.R. Donnelley India Outsource (P.) Ltd., In Re [2011] 335 ITR 122 (AAR - New Delhi). 4. Asstt. CIT v. Viceroy Hot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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