TaxTMI 
TaxTMI 
2011 (9) TMI 754
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....for technical services and in holding that the same 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 ....
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.... the assessee company had submitted a copy of agreement with New India Assurance Co. Ltd., Mumbai. This agreement was entered in conjunction with J.B. Boda Reinsurance Brokers Pvt. 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 ....
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....produced by the AO in para 4 of his order. The assessee contended that in the light of the explanation given by the assessee, the commission income would not qualify as fees for technical services under the Income Tax Act, 1961 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 t....
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....ion of fees for technical services and emphasis has been laid on the applicability of make available clause. It has also compared the contents of the Indo-UK tax treaty with Indo-US tax treaty and has also referred to the MoU appended to the DTAA with USA. It has also referred to the decision 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 managemen....
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....the Act read with Article 13 of the treaty. The ld. CIT(A) observed that if plain meaning or literal interpretation is given to the definition of fees for technical services as defined under Explanation 2 to sec. 9(1)(vii) of the Act and also under Article 13 of Indo-UK treaty, it would clear that the amount received by the assessee 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 ....
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....iled before the ld. CIT(A). In these submissions, filed before the AO as well as before ld. CIT(A) the assessee has explained the activities undertaken by the assessee company to earn brokerage income received from Indian Insurance Companies on account of services of reinsurance intermediation rendered outside India. The ld. Counsel for the assessee 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 place....
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....ch would be income of the recipient chargeable under the head "Salaries". (2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the constitution or to a person who, having been appointed before the 15th day of 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 inco....
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....ubsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or (c) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. 5. The definition of fees for technical services in paragraph 4 of this Article shall not include amounts paid: (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property, other 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. ....
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....m the language employed in the first DTA agreement (which was similar to the Income-tax Act) but the departure has also been explained and understood in a particular manner with reference to the US agreement where also the language employed in the concerned article is similar in substance with that employed in the second UK agreement. To, therefore, understand the meaning and scope of the concerned article in the same manner as one would understand the relevant provisions of the Income-tax Act - as suggested on behalf of the Department before us - would be totally off the mark. 91. Now, we have to 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 n....
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....chnical knowledge, experience, skills etc. from the person rendering the services to the person utilizing the same is contemplated by the article. Some sort of durability or permanency of the result of the "rendering of services" is envisaged which will remain at the disposal of the person utilizing the services. The fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience, skills etc. 93. In the present case, as Mr. Dastur pertinently pointed out, after the services of the managers (Merrill Lynch and other co-managers) came to an end, the assessee-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 beca....
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....dding the necessary words. What would be the use of coining the words "make available" if it is not intended, as contended by Mr. Kapila, that the person utilizing the services should be in a position to apply the technology for his own use in his business in future without recourse to the person rendering the services? Would it not be a contradiction in terms to say that though the technical knowledge etc. are "made available", the person to whom they are made available cannot apply the same for his benefit? The treaties, in our opinion, could not have intended such a result. What was therefore, implicit in the concerned articles in the UK and US DTAs was 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....
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....commission paid by an assessee to a non-resident for services rendered by the latter outside India. The CAG had raised an objection that since no tax was deducted from the commission by the resident, sec. 40(a)(i) of the Act applied and the commission cannot be allowed in the assessment as a deduction. The Board, following its earlier circular issued in 1969, took the view that the commission cannot be considered as income arising to the non-resident agent operating outside India and, therefore, no tax was deductible u/s 195. The viewpoint was explained to the CAG who had agreed to drop the objection. 102. The circular prima facie appears to support the assessee but we are unable to give effect 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 ....
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....rnational market. During the course of assessment proceedings, the assessee submitted a copy of agreement with the New India Insurance Company Ltd., Mumbai. The said agreement is entered in conjunction with J.B. Boda Reinsurance Brokers P. Ltd. and M.B. Boda and Alsford Page and Gems Ltd. By this agreement, the New India Insurance Company placed the risks for Reinsurance with the International Reinsurance Company. The reinsurer is Hannover Ruckversicherung AG, CCR, Lloyd's Underwriter Syndicate, Swiss Re and Wurttembergische, London. In this agreement, it is stated that Slip Policy shall be submitted by this assessee company to Axis for Signing. This Slip Policy constitutes a full taxed Slip Policy wording and 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 ....
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....process as discussed above, it is evident to us that the assessee was rendering only intermediary services while acting as an intermediary/facilitator in getting the reinsurance cover for New India Insurance Co. There exists no material or basis on the basis of which, it could be said that the assessee was rendering any kind of technical/consultancy service within the meaning of Article 13 of Indo-UK treaty. The consideration received by the assessee acting as an intermediary in the reinsurance process cannot, by any stretch of imagination, be qualified as a consideration received for rendering any financial analysis related consultancy services, rating agency advisory services, risk based capital analysis etc. as alleged 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 ....
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....". The meaning ascribed to the words "make available" has been elaborately appreciated by the ITAT, Mumbai Bench 'C' in the case of Raymond Ltd. v. DCIT (supra), where it has been observed that once sec. 9(1)(vii) of the Income-tax Act stops with the "rendering" of technical services, the DTAA between India & UK goes further and qualifies such rendering of services with words to the effect that the services should also make available technical knowledge, experience, skills, know-how or processes to the person utilizing the services. The Hon'ble Tribunal further observed that the word "which" occurring in the said Article after the word "services" and before the words "make available" not only describes or defines 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....