2012 (4) TMI 271 - AT - Income Tax

Receipts in the nature of reinsurance brokerage/commission of the appellant treated by AO as fees for technical services as per Article 13 of the UK DTAA - Tribunal s order in assessee s own case for AY 2006-07 in his favour - DR relied on a recent ruling of AAR in the case of Verizon Data Services India limited (2011 - TMI - 205159 - AAR - Income Tax) after elaborately interpreting the provisions of Article 12 of the Indo-US DTAA and guiding protocol to the Treaty has concluded that it is not necessary to make available consultancy know how to the recipient in order to hold the same taxable under FIS Ld - Held that - decision of AAR on the issue of applicability of Art. 12(4)(b) of the Indo-US DTAA has been set aside by the Hon ble Madras High Court vide their order dated 9th August, 2011 in WP 14921 of 2011, we set aside the order of the ARA and remit the matter back giving an opportunity to the assessee to state its case as to the nature of services given by the seconded employees - the services do not fit into either of the categories defined in Article 13, since the services rendered by the assessee do not involved technical expertise, nor did the assessee made available any technical knowhow, experience, skill etc. - assessee was basically acting as an intermediary in the process of finalization of reinsurer suggesting various options to the Indian Insurance Co. for their consideration and acceptance - cannot be qualified to be in the nature of fees for technical services as contemplated under Article 13(4)(c) of the DTAA between India & UK - in favour of assessee.

Issues Involved:
1. Taxability of reinsurance brokerage/commission as fees for technical services under Article 13 of the India-UK DTAA.
2. Classification of services provided by the assessee as consultancy services under Section 9(1)(vii) of the Act.
3. Applicability of the Hon'ble Tribunal's previous order for the assessment year 2006-07.
4. Levy of interest under Section 234B of the Act.
5. Additional grounds concerning the classification of income as royalties and the applicable tax rate.

Detailed Analysis:

1. Taxability of Reinsurance Brokerage/Commission:
The primary issue was whether the reinsurance brokerage/commission amounting to Rs. 26,289,574 received by the assessee should be classified as fees for technical services under Article 13 of the India-UK DTAA. The Assessing Officer (AO) held that the services provided by the assessee were consultancy in nature, thus falling within the definition of fees for technical services under Section 9(1)(vii) of the Act. The AO also argued that the consideration received made available the experience and skill of the appellant to Indian insurance companies, thereby qualifying it as fees for technical services under Article 13 of the India-UK DTAA.

2. Classification of Services as Consultancy:
The AO classified the services provided by the assessee as consultancy services, arguing that they fell within the definition of fees for technical services. The Dispute Resolution Panel (DRP) supported this view, stating that the services rendered by the assessee involved advising Indian insurance companies on reinsurance options, which is a consultancy service. The DRP further stated that the payments could also be considered royalties for the use of commercial experience, skill, and know-how.

3. Applicability of Previous Tribunal Order:
The assessee argued that the AO failed to follow the Hon'ble Tribunal's order for the assessment year 2006-07, which held that the payment received by the assessee did not qualify as fees for technical services under the India-UK DTAA and was therefore not taxable in India. The Tribunal noted that the facts and circumstances for the current year were parallel to those in the assessment year 2006-07. Following the previous decision, the Tribunal concluded that the payment received by the assessee was not taxable as fees for technical services under Article 13(4)(c) of the India-UK DTAA.

4. Levy of Interest under Section 234B:
The assessee contended that the AO erred in levying interest under Section 234B, as the entire income was subject to tax deduction at source. The Tribunal found this ground to be consequential and academic, given that the entire addition made by the AO was deleted.

5. Additional Grounds Concerning Royalties and Tax Rate:
The assessee sought to raise additional grounds, arguing that the DRP's direction to classify the income as royalties was in violation of Section 144C(5) read with Section 144C(8) of the Act. The Tribunal rejected these additional grounds, noting that the AO's order, which was under dispute, did not classify the amount as royalties but as fees for technical services. Consequently, the prayer for admission of additional grounds was not entertained.

Conclusion:
The Tribunal allowed the appeal, holding that the payment received by the assessee from Indian insurance companies for reinsurance services was not taxable in India as fees for technical services under Article 13(4)(c) of the India-UK DTAA. The Tribunal also deleted the addition made by the AO and found the issue of levying interest under Section 234B to be academic. The additional grounds concerning the classification of income as royalties were rejected, as they did not emerge from the AO's order.

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