TaxTMI 
TaxTMI 
TaxTMI 
2011 (9) TMI 754
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....is taxable in India @ 15% as per Article 13 of the India United Kingdom (U.K) Double Tax Avoidance Agreement (DTAA). 2. That on the facts and circumstances of the case & in the law, the ld. CIT(A) has erred in fact and in law by confirming the view of the ld. AO that 2.1 The services provided by the assessee are consultancy in nature and the payments fall within the definition of fees for technical services within the meaning of Sec. 9(1)(vii) of the Act. 2.2 The consideration received by the appellant make available experience, skill of the appellant to the Indian Insurance Companies, accordingly, the payment is also covered by the definition of FTS available in para 4(c) of Article 13 of the India U.K. DTAA. 3. That while upholding so, the ld. CIT(A) failed to appreciate the contention of the appellate that 3.1 The receipts are in the nature of a 'transaction fee' not involving any technical or managerial service. 3.2 Without prejudice to the above, if the amount is treated as fee for technical services u/s 9(1)(vii) of the Act, the same is not liable to tax in India under para 4(c) of Article 13 of the India U.K. Double tax Avoidance Agreement since it does n....
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....t. Ltd. and M.B. Boda and Alsford Page and Gems Ltd. The type of insurance is catastrophic excess of loss. In the case of New India Assurance Co. Ltd., the reinsurers are Hannover Ruckversicherung AG, CCR, Lloyd's Underwriter Syndicate, Swiss Re and Wurttembergische London. 8. In the course of assessment proceedings, the AO asked the assessee to explain the process of selecting the clients, and on what basis the clients are selected and furnished copy of correspondence with the clients and Indian intermediaries. The assessee submitted the required information which are extracted by the AO in his order, as under: - "Key Steps (a) Originating insurer in India (New India) contacts JB Boda/MB Boda for placing identified risks/ class of risks with international reinsurers. (b) JB Boda contacts one or more international firms of reinsurance brokers outside India requesting for proposals from international reinsurers/syndicates. (c) International reinsurance brokers like Guy Carpenter contact other primary brokers and various syndicates in the Lloyds market for competitive proposals. (d) Based on the various offers received JB Boda presents the various options to New India ....
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....1 nor under the provisions of Article 13 of the Indo-U.K. tax treaty. 11. The AO then issued a notice u/s 133(6) to New India Insurance Company Ltd. to provide certain information. The following information were submitted by the company as reproduced by the AO in para 4.1 of his order: - (1) "Officials from Guy Carpenter visit our office occasionally. Normally they visit us alongwith Foreign Insurers/Reinsurers who are transacting business with us through Guy Carpenter. (2) They do not make any presentations during the meetings but the proposals for reinsurance is done through the broker (Guy Carpenter) who places business with the reinsurer for the ceding company. These proposals are sent through post/ mail. (3) Accounts are received through the broker and the related correspondence is done only with the broker. The correspondence/accounts for the last six months would be very voluminous and it will take us some time to extract the information. (4) The proposal presentations from Brokers/ Reinsurers always help in better understanding the nature of business, international market, trends and the impact of global phenomena. (5) Normally the payments are done from our Fore....
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.... of Hon'ble ITAT, Bombay in the case of Raymond Ltd. and also the decision of Kolkata High Court in the case of SESC Ltd. and decisions in other cases. In the case of the assessee, it is clear that it provides advisory/consultancy services and New India (Customer), has submitted that the proposals/ presentations from brokers/reinsurers always help in better understanding the nature of business, international market trends etc. It is the advise and services provided by the persons like assessee, the Indian insurance companies understands the complexities involved in the reinsurance, it helps them to analyse the risks and ultimately in selecting the appropriate reinsurance company. The assessee has developed the quantitative and modeling skills and its extensive reinsurance services provides essential resources for clients looking to capitalize on trends, enhance their risk management and make informed business decisions. Therefore, it is clear that the advisory/ consultancy services of the assessee make available the necessary skills, knowledge, experience to the recipient of services. Accordingly, considering the facts of the case of the assessee, the consideration received....
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....ssessee from Insurance Company is in the nature of fees for technical services. The operative portion of ld. CIT(Appeals) order in this regard is as under: - "2.5 The rule of "plain meaning" or "literal interpretation" described in Maxwell's Interpretation of Statute as "the primary rule" could not be altogether abandoned today in interpreting any document. It is said that the length and detailed of modern legislation, has undoubtedly reinforced the claim of literal construction as the only safe rule. The object of interpretation and of construction is to discover the intention of the law maker in every case. This object can, obviously, be best achieved by first looking at the language used in the relevant provisions. Other methods of extracting the meaning can be resorted to only if the language used is contradictory, ambiguous or leads really to absurd results. 2.6 The appellant has referred the case of Cushman & Wakefield (supra). Cushman was on internationally famed real estate broker. In the present case, the services provided are different and the factual finding as established by the AO would also speak for itself regarding creating the same as FTS. In Azadi Bachao (....
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....sessee then explained that the amount of commission received by the assessee for the services of reinsurance of intermediation rendered outside India would not qualify as fee for technical services as defined under Explanation 2 to sec. 9(1)(vii) of the Act or under Article 13 of the Indo-UK treaty. In this respect the ld. Counsel for the assessee has relied upon the following decisions: - (i) Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791 (Mum.) (ii) Real Resourcing Ltd., In re [2010] 322 ITR 558 (AAR - New Delhi) 18. The ld. Departmental Representative on the other hand, merely relied upon the orders of the authorities below and reiterated their respective orders. 19. We have heard both the parties and perused the material on record. We have gone through the orders of the authorities below as well as various papers and documents placed in the paper book filed by the assessee. 20. In this case, we are concerned with the question as to whether payments received by the assessee in consideration of services rendered to Insurance Co. in India in the process of re-insurance of the risk placed by Indian Insurance Co. with international re-insurance companies is amounted to "fees for tec....
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....f August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India. Explanation - For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,- (i) the non-resident has a residence or place of business or business connection in India; or (ii) the non-resident has rendered services in India.] 22. The assessee is admittedly a non-resident, being a company incorporated in London and, therefore, the treaty under DTAA between India & UK is applicable to the present case. We, therefore, find it proper to refer to the definition of fees for technical services as defined under Article 13 of the treaty between India & UK, which reads as under: - ARTICLE 13- Royalties and fees for technical services- 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident ....
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....her than property described in paragraph 3(a) of this Article; (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic; (c) for teaching in or by educational institutions; (d) for services for the private use of the individual or individuals making the payment; or (e) to an employee of the person making the payments or to any individual or partnership for professional services as defined in Article 15 (Independent personal services) of this Convention. 6. to 9 ** ** ** 23. The meaning and scope of the words "fees for technical services" appearing in Article 13.4(c) of the DTAA with UK has been explained by the Income Tax Appellate Tribunal, Mumbai Bench, 'C' in the case of Raymond Ltd. (supra) by observing and holding as under:- "90. Having thus, held that the UK agreement of 1993 was rightly applied by the AO, we now proceed to a consideration of the question as to the meaning and scope of Article 13.4 of the same. On a very careful consideration of the rival contentions which were, with respect....
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.... see if the meaning ascribed to the words "make available" by Mr. Dastur is acceptable or reasonable. Whereas section 9(1)(vii) stops with the "rendering" of technical services, the DTA goes further and qualifies such rendering of services with words to the effect that the services should also make available technical knowledge, experience, skills etc. to the person utilizing the services. These words are "which make available". The meaning ascribed by Mr. Kapila for the Department is that these words merely mean "to allow somebody to make use of, whether actually made use of or not", but in our opinion and with respect, this meaning does not take due note of the addition of such words to the "rendering of any technical or consultancy services". The meaning suggested by Mr. Kapila is embedded in the "rendering of the services itself. When somebody "renders" services, it presupposes that somebody else is "making use" of the same. But the "making use of" should be contrasted with the "making available". The "making available", in our opinion, refers to the stage subsequent to the "making use of" stage. The qualifying word is "which" - the use of this relative pronoun as a conjunction....
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....essee-company is left with no technical knowledge, experience, skill etc. and still continues to manufacture cement, suitings etc. as in the past. 94. The Memorandum of Understanding appended to the DTAA with USA and the Singapore DTA can be looked into as aids to the construction of the UK DTA. They deal with the same subject (fees for technical services, referred to in the US agreement as "fees for included services"). As noted earlier, it cannot be said that different meanings should be assigned to the US and UK agreements merely because of the MOU despite the fact that the subject matter dealt with is the same and both have been entered into by the same country on one side (India). The MOU supports the contention of the assessee regarding the interpretation of the words "make available". The portions of the MOU explaining para 4(b) of the relevant article, which we have extracted earlier in our order while adverting to the contentions of the assessee, fully support its interpretation. Example (4) given in the MoU also supports it. This is of a US company manufacturing wallboard for the assessee using assessee's raw material but using its own plant. No technical knowledge,....
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....as made explicit by adding the necessary words in the Singapore agreements. As Mr. Dasture rightly remarked, it is a process of evolution guided by experience and what started in 1990 - the DTA with the US - as a MoU gradually crystallized and got incorporated in the article itself in the DTA with Singapore. 96. Contrast the definition of "fees for technical services" in article 3(b) of the DTA with Belgium, article 13.4 of the DTA with Canada, article 13.4 of the DTA with Denmark and article 13.4 of the DTA with Sweden. In all these articles, the definition is substantially the same as in the superseded DTA with UK and in sec. 9(1)(vii) of the I.T. Act. Thus, a different intention has been expressed in these articles, which include managerial services within the fold of technical services and also do not contain words indicating that the rendering of services should "make available" technical knowledge, experience, skill etc. We cannot give the same meaning to words differently defined in two sets of Double Tax Avoidance Agreements, which would be the result if we accept what has been argued before us on behalf of the department. 97. For the above reasons, we are of the consid....
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....t to the same in the view we have taken regarding the interpretation of the words "technical services" appearing in sec. 9(1)(vii) read with Explanation 2. It may be recalled that we have taken the view that the services rendered by the lead manager and other managers in connection with the GDR issue shall be considered as "managerial" or "consultancy" services. The circular would appear to take a contrary view. However, the circular has no application where the interpretation of the relevant article in the DTA is involved. It has been issued in connection with sec. 195 of the Act. In the view we have taken of the import of the words "make available" appearing in article 13.4(c) of the DTA with UK, it is unnecessary for us to dilate on the circular further. In fact, the reference to the circular in connection with the interpretation of the said article, with respect, would appear to be out of place. 103. For the above reasons, we hold that neither the management commission, nor the underwriting commission nor even the selling commission/concession would amount to fees for technical services within the meaning of the DTA with UK and consequently there is no obligation on the part ....
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....shall be sealed by the Bureau where applicable in accordance with the provisions as stated under the form. Before the AO, the assessee explained key steps in placing risks by the Indian Insurance Companies with International reinsurers, which has already been set out above in para 8 of this order. The originating insurer in India used to conduct J.B. Boda/M.B. Boda for placing identify risks/class of risks with International reinsurers, and J.B. Boda in turn contacts one or more International firms of reinsurance brokers like assessee, for competitive proposals from international reinsurers. International reinsurance brokers like present assessee contact other primary brokers and various syndicates in the Lloyds market for competitive proposals. Based on the various offers or proposals given by International Reinsurance Brokers to J.B. Boda, J.B. Boda presents the various options to originating Insurer in India, which makes the final decision. Based on the decisions made by the originating insurer in India, the policy terms are agreed and the risk is placed with the International Reinsurers. As per normal industry practice, the reinsurance premium net of brokerage of 10% as per the....
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....leged by the A.O. 28. On going through the definition of "Fees for technical services" given in the DTAA between India and UK so as to find out whether the services rendered by the present assessee would fall under the purview of "Fees for technical services" as enumerated in Article 13(4) of DTAA between India & U.K., it is clear that Article 13(4) emphasis on rendering any technical or consultancy services, which are ancillary and subsidiary to the application for enjoyment of any right, property or information for which a payment is received, or made available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of technical plan or technical design. In the present case, we are concerned with the scope of meaning of Article 13(4)(c) of Indo-UK Treaty, which emphasizes a rendering of any technical or consultancy services (including provisions of services of technical or other personnel), which made available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of technical plan or technical design. 28.1 From the nature of services rendered by the present assessee as noted abo....
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....es more clearly the antecedent noun ("services") but also give 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, know-how or processes etc. Thus, the normal, plain and grammatical meaning of the language employed in the said Article 13(4)(c) 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, experience, skills, know-how or processes 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, know-how or processes 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, experience, skills, know-how or processes from the person rendering the services to the person utilizing the same is contemplated by the Article 13(4)(c) of the Indo-UK Treaty. Some sort of durability or permanency of the result of the "rendering of services" is envisaged which will remain at the disposal of the pe....