2011 (9) TMI 754 - AT - Income Tax

Reinsurance brokerage not taxable under India-UK DTAA

Guy Carpenter & Co. Ltd. Versus Additional Director of Income-tax, Circle 1 (2), International Taxation, New Delhi

Guy Carpenter & Co. Ltd. Versus Additional Director of Income-tax, Circle 1 (2), International Taxation, New Delhi - [2012] 18 ITR 333 Issues Involved:1. Whether the receipts from reinsurance brokerage/commission are taxable as fees for technical services under Section 9(1)(vii) of the Income Tax Act, 1961, and Article 13 of the India-UK Double Tax Avoidance Agreement (DTAA).2. Whether the services provided by the assessee qualify as consultancy services, making the payments fall within the definition of fees for technical services.3. Whether the receipts are in the nature of a transaction fee not involving technical or managerial service.4. Whether the levy of interest under Section 234B of the Income Tax Act is justified.Detailed Analysis:Issue 1: Taxability of Reinsurance Brokerage/Commission as Fees for Technical ServicesThe primary issue revolves around whether the reinsurance brokerage/commission received by the assessee from Indian insurance companies qualifies as fees for technical services under Section 9(1)(vii) of the Income Tax Act, 1961, and Article 13 of the India-UK DTAA.The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] treated the receipts as fees for technical services, taxable at 15% under Article 13 of the India-UK DTAA. The AO argued that the services provided by the assessee were consultancy in nature and made available technical knowledge, experience, skill, or processes to the Indian insurance companies.However, the Income Tax Appellate Tribunal (ITAT) concluded that the services rendered by the assessee were intermediary services in the reinsurance process and did not involve technical expertise or make available any technical knowledge, experience, skill, or processes. The ITAT referred to the definition of 'fees for technical services' under Article 13(4)(c) of the India-UK DTAA, emphasizing that mere rendering of services does not qualify as fees for technical services unless the services make available technical knowledge, experience, skills, know-how, or processes to the recipient.The ITAT held that the payments received by the assessee for intermediary services in the reinsurance process do not qualify as fees for technical services under Article 13(4)(c) of the DTAA. Therefore, the receipts are not taxable in India as fees for technical services.Issue 2: Qualification of Services as Consultancy ServicesThe AO and CIT(A) argued that the services provided by the assessee were consultancy in nature, falling within the definition of fees for technical services under Section 9(1)(vii) of the Income Tax Act and Article 13 of the DTAA. They cited the assessee's website, which mentioned financial analysis-related consultancy services, rating agency advisory services, and risk-based capital analysis.The ITAT, however, found no material evidence to support the AO's claim that the consideration received by the assessee was for consultancy services. The ITAT concluded that the assessee acted as an intermediary in the reinsurance process, providing advisory services and opinions for selecting reinsurers, which do not involve technical expertise or consultancy services as defined under Article 13 of the DTAA.Issue 3: Nature of Receipts as Transaction FeeThe assessee contended that the receipts were in the nature of a transaction fee, not involving any technical or managerial service. The ITAT agreed with the assessee, noting that the services rendered were intermediary services in the reinsurance process, which do not qualify as technical or consultancy services under Article 13 of the DTAA.Issue 4: Levy of Interest under Section 234BThe assessee argued that the levy of interest under Section 234B was not justified, as the entire income was subject to deduction of tax at source. The ITAT did not specifically address this issue in the detailed analysis, as the primary focus was on the taxability of the receipts as fees for technical services.Conclusion:The ITAT allowed the appeal filed by the assessee, holding that the payments received from Indian insurance companies for intermediary services in the reinsurance process are not taxable in India as fees for technical services under Article 13(4)(c) of the India-UK DTAA. The ITAT set aside the orders of the AO and CIT(A), thereby deleting the addition confirmed by the CIT(A).