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TMI Blog2012 (4) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by the assessee are consultancy in nature and the payments fall within the definition of fees for technical services within the meaning of Section 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 UK DTAA. 3. The learned Assessing Officer has erred in not following the Hon'ble Tribunal's order in assessee's own case for assessment year 2006-07 where the Hon'ble Tribunal has held that the payment received by the appellant company in the process of placing the reinsurance risk of the Indian Insurance companies with international insurance companies does not qualify as fee for technical services under the DTAA between India-UK, and, therefore, not taxable in India. 4. Without prejudice to the above, whether on the facts and law, the learned AO erred in levy of interest u/s 234B of the Act ignoring the provisions of section 234B of the Act read with section 191, 208 & 209 of the Act which does not provide for charge under section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h J.B. Boda Reinsurance Brokers Pvt. Ltd. and explained the process of selection of clients as under :- (a) "Originating insurer in India contacts Boda for placing identified risk/class of risks with international re-insurers. (b) Boda contacts one or more international firms of reinsurance brokers outside India requesting for proposals from international re-insurers/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 the Indian Insurers which makes the final decisions. Based on the decisions made by the Indian Insurer the policy terms are agreed and the risk is placed with the Lloyds market. Further, as per normal industry practice the reinsurance premium net of brokerage of 10% as per the policy contract is remitted to Guy Carpenter for onward transmission to the re-insurers in the Lloyds market. (e) Separately the intermediation fee (brokerage) is shared by a mutually agreed ratio which accounts for their relative contributions in the reinsurance pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cacious solution of re-insurance need of the Indian insurers. The assessee is one of the reputed reinsurance brokers, who have a repository of contacts, information, commercial experience, skill, know-how of locating a proper solution for particular kind of risk sought to be re-insured by the Indian insurer. The assessee contacts the reinsurance companies located abroad and advises the Indian company to enter into contracts with such companies. The nature of services rendered by the assessee clearly shows that it is rendering consultancy services to the Indian concerns, which is covered under the definition of Fee for Technical Services under section 9(1)(vii) of the Income Tax Act. We also find that the case law of Raymond Limited relied upon by the assessee in fact supports the contention of the A.O. that the services rendered are in the nature of consultancy service. In the case of Raymond Limited, services of underwriter in issuing of GDR was held taxable as consultancy services under section 9(1)(vii) of the Income Tax Act by the ITAT Mumbai. Thereafter the ITAT goes on to hold that such services are not FIS under Indo-US Treaty. However as regards taxability under the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y services (including through the provision of services of technical or other personnel) if such services: (a) Are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) Make available technical knowledge/experience/skill, know-how or process, or consist of the development and transfer of a technical plan or technical design." The applicant contends that as the managerial services are not made available to the applicant, the services rendered by the seconded employees are not covered under Art 12(4)(b) of the DTAA. In this connection we may refer to the memorandum of understanding of the DTAA which explains the meaning of ''fees for included services" as under: "Article 12 includes only certain technical and consultancy services. By technical services we mean in this context services requiring expertise in a technology. By consultancy services we mean in this context advisory services. The categories of technical and consultancy services are to some extent overlapping because a consultancy service could also be a technical service. However, the category of consul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture, the payments are also covered under "fee for technical services" as defined under Explanation 2 to section 9(1)(vii) of the Act." Secondly the services rendered by the assessee can also be covered under the term royalties which covers the payment received as consideration for use or right to use of information concerning commercial ,industrial or scientific experience. In view of the detailed discussions in the foregoing paragraphs, the Panel is of the considered view that the payments received by the assessee is taxable as Fee for Technical Service and/or royalties under relevant provisions of Income Tax Act as well as DTAA between India and UK. 8.1.6.7 Accordingly, the AO is right in taxing the consideration received by the assessee as royalty in terms of clause (v) of Explanation 2 to clause (vi) of subsection (1) of Section 9 of the Act as also under Article 13(3) of the Indo-UK DTAA. No intervention is ,therefore, required u/s 144C(5) of the Act with reference to ground of objection No. 1" 4. In the light of aforesaid directions of the DRP, the AO following his own findings in the assessment order for the AY 2006-07,concluded that the services provided by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of explanation 2 to section 9(1)(vii) of the Act as also within the clause 4(c) of the Article 13 of the tax treaty between India & UK. Nowhere in the said order, now disputed before us, the AO brought to tax the amount as royalty. 6.1 Before proceeding further, we may have a look at the decision dated 27th May, 2011 of the AAR in the case of Verizon Data Services India (P.) Ltd. (supra), relied upon by the ld. DR. In that case, the issue before the AAR was as to whether the amounts, representing salary and benefits payable by GTE-OC to Expatriate employees, reimbursed by the applicant therein to GTC-OC was income, liable to deduction of tax at source u/s 195 of the Act and whether the same was taxable as Fees for Included Services under the Act read with Indo-US DTAA. The AAR decided both the questions in the affirmative. We find that the said 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 in the following terms: "28..................In the circumstances ,we feel that this portion of the order of the Advance Ruling Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and will submit claims advices to relevant market systems. For the services rendered, the assessee along with the other reinsurance brokers acting as an intermediary in the reinsurance process for New India Assurance Co. will be entitled to 10% brokerage. From the role played by the assessee in the reinsurance 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 servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital analysis etc. 29. At this stage, it is pertinent to note that the language used in Article 13(4) excludes "Managerial services". It emphasizes only a rendering of any technical or consultancy services. It is further noticed that in the Article 13(4)(c), the expression used is "make available". 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 availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Raymond Ltd. (supra), has also been taken in the following cases:- 1. Invensys Systems Inc., In re (2009) 317 ITR 438 (AAR). 2. Intertek Testing Services India P. Ltd., In re (2008) 307 ITR418 (AAR). 3. R.R. Donnelley India Outsource P. Ltd., In Re (2011) 335 ITR 122(AAR). 4. CIT v. Vice Roy Hotel Ltd. (2011) 11 Taxmann.com 216 (Hyd)/46 SOT 4 URO decided by ITAT, Hyderabad Bench. 31. In the present case, the New India Insurance Co. or other Insurance Company in India, who avails the services of the assessee as a broker in the process of the re-insurance of the risk is left with no technical knowledge, experience, skill, know-how or processes so as to bring the services rendered by the assessee within the ambit of Article 13(4)(c) of the Treaty. As already observed above, the nature of services rendered by the assessee are also not in the nature of any technical or consultancy services which make available technical knowledge, experience, skill, know-how or processes to the user. We, therefore, hold that the payment received by the assessee in consideration for rendering intermediary or advisory services in the proces ..... X X X X Extracts X X X X X X X X Extracts X X X X
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