TaxTMI 
TaxTMI 
2010 (8) TMI 8
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....s 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 by AXA ARC in providing the services and includes labour cost, office expenses, utilization of IT hardware and software, telecommunications, training and printing & stationery, professional services, depreciation of assets etc. The total cost is apportioned amongst various affiliate entities. 3. The applicant desires to know if AXA ARC has any liability to pay tax in India in respect of the fee received from the applicant. The following questions are framed for seeking ....
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....mprove 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 compulsorily adopted by BAGI. AXA ARC merely provides suggestions and inputs on the strategies developed by BAGI. * HR support - AXA ARC provides BAGI with HR support assistance with developing appropriate performance appraisal procedures, review of job profiles and other related HR support services. The applicant points out that the advice/suggestions provided by AXA ARC to various AXA entities including BAGI are purely recommendatory in nature except certain s....
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....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 concluded to globally leverage the usage of these applications. AXA ARC obtains a license for the software applications. AXA ARC is either granted global unlimited licenses or limited licenses enabling it to grant Affiliates such as the applicant access to the applications. AXA ARC is assigned as the licensee, which, in turn, is permitted to enable access for its Affiliates (i.e. such Affiliate does not own the license but is granted access to it). By virt....
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....ntained 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 come to the Treaty provision the qualifying words "make available technical knowledge, experience, skills, know-how, which enables the recipients of services to apply the technology contained therein" make material difference. All the technical or consultancy services cannot be brought within the scope of this definition unless they make available technical knowledge, know-how, etc, which in turn facilitates the person acquiring the services to apply the tec....
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....ledge 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 service rendered by the doctor cannot be said to have made available to the patient, the knowledge and expertise possessed by the doctor. On the other hand, if the same doctor teaches or trains the students on the aspects of diagnosis or techniques or surgery, that will amount to making available the technical knowledge and experience of the doctor". 8. Similar views are expressed in a more recent ruling in the case of Ernst & Young (P) Limited (AAR N....
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....tained 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 in the computer software provided by AXA ARC. Applying the principle laid down in Dassult Systems case{322 ITR 125} and the earlier ruling in FactSet Research Systems Inc.{317 ITR 169},etc. we are of view that clause (a) of Art. 12.3 of Tax Treaty relating to 'use of' or 'right to use', copyright of literary/scientific work is attracted. The payments made for access to the system hosted in Singapore is for availing of the facility provided by AXA ARC and it ....