2012 (5) TMI 31 - HC - Income Tax

India U.K. DTAA - Reinsurance brokerage/commission with international re-insurance companies Revenue treated it within the definition of fees for technical services u/s 9(1)(vii) r.w Article 13 of the India U.K. DTAA - Held that - The assessee company was an international reinsurance intermediary (broker) a tax resident of United Kingdom - not maintaining any office in India and had a referral relationship with reinsurance Broker duly licensed by the Insurance Regulatory & Development Authority to transact reinsurance business in India - the role played by the assessee in the reinsurance process is only rendering intermediary services or facilitator in getting the reinsurance cover for New India Insurance Co - Tribunal rightly held that such receipts would not amount to FTS as the make available clause contained in article 13(4)(c) had not been satisfied in the facts and circumstances of the present case in favour of assessee.

Summary

Issues Involved:
1. Whether payments received by the assessee for services rendered in the reinsurance process are considered "fees for technical services" under the DTAA between India and the U.K.
2. Whether the ITAT erred in holding that such payments are not taxable in India as "fees for technical services."
3. The nature of reinsurance brokerage/commission under section 9(1)(vii) of the Income Tax Act and Article 13 of the DTAA.
4. Whether the services provided by the assessee are consultancy services and fall within the definition of fees for technical services under section 9(1)(vii) of the Income Tax Act.

Detailed Analysis:

1. Definition of "Fees for Technical Services" under DTAA:
The primary issue revolves around whether the payments received by the assessee for services rendered to insurance companies in India in the process of reinsurance qualify as "fees for technical services" under the DTAA between India and the U.K. According to Article 13(4)(c) of the DTAA, 'fees for technical services' means payments for rendering technical or consultancy services that "make available" technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or design. The Tribunal found that the "make available" condition was not satisfied, as the assessee did not provide any technical knowledge, experience, skill, know-how, or processes to the Indian insurance companies. This finding was based on the factual matrix of the case, indicating that the services rendered were intermediary in nature and did not involve any transfer of technical expertise.

2. ITAT's Decision on Taxability:
The Tribunal held that the payments received by the assessee from Indian insurance companies were not taxable in India as "fees for technical services." This conclusion was based on the assessment that the services provided by the assessee did not meet the criteria outlined in Article 13(4)(c) of the DTAA. The Tribunal's decision was grounded in the factual determination that the assessee's role was limited to acting as an intermediary in the reinsurance process, without providing any technical or consultancy services that would qualify as "fees for technical services."

3. Nature of Reinsurance Brokerage/Commission:
The Tribunal examined whether the reinsurance brokerage/commission received by the assessee was assessable as fees for technical services under section 9(1)(vii) of the Income Tax Act and Article 13 of the DTAA. The Tribunal found that the assessee, an international reinsurance intermediary, did not render any technical or consultancy services. Instead, the assessee facilitated the reinsurance process by acting as an intermediary, which involved coordinating with other brokers and presenting competitive proposals to the originating insurer in India. The Tribunal concluded that the brokerage/commission received was for intermediary services and not for any technical or consultancy services.

4. Consultancy Services and Fees for Technical Services:
The Tribunal also addressed whether the services provided by the assessee could be classified as consultancy services under section 9(1)(vii) of the Income Tax Act. It was determined that the assessee's role in the reinsurance process did not involve providing consultancy services. The Tribunal noted that the assessee's activities were limited to facilitating the reinsurance process and did not involve any financial analysis, rating agency advisory services, or risk-based capital analysis. Therefore, the payments received by the assessee did not fall within the definition of fees for technical services.

Conclusion:
The Tribunal's findings were based on a thorough examination of the factual circumstances surrounding the assessee's activities. The Tribunal concluded that the payments received by the assessee were not for technical or consultancy services but were for intermediary services in the reinsurance process. As such, these payments did not qualify as "fees for technical services" under the DTAA or section 9(1)(vii) of the Income Tax Act. The High Court upheld the Tribunal's decision, noting that the findings were factual in nature and did not raise any substantial question of law. Consequently, the appeal was dismissed, and no costs were awarded.