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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 ..... ither 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. - IT Appeal No. 5646 (Delhi) of 2011 - - - Dated:- 24-2-2012 - R.P. TOLANI, A.N. PAHUJA, JJ. Pawan Kumar and Sanjay Arora for the Appellant. D.K. Gupta for the Respondent. ORDER A.N. Pahuja Accountant Member This appeal filed on 15th December, 2011 by the assessee against an order dated 3rd October, 2011 of the Assistant DIT, Circle 1(2), International Taxation, New Delhi, raises the following grounds:- 1. "That on the facts and in the circumstances of the case and in law, the Assessing Officer has erred in his order dated October 3,2011 in holding that the receipts which are in the nature of reins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Royalties". Ground No.7: That the learned Assessing Officer has erroneously applied the tax rate of 15% while passing the final assessment order without assigning any reason whereas in the draft assessment order it was proposed that the income shall be taxed at the rate of 10% as per section 115A of the Act" 2. Facts in brief, as per relevant orders are that e-return declaring nil income filed on 23rd September, 2008 by the assessee, a foreign company tax resident of the UK, was selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act). The assessee, a reputed insurance broking firm licensed by the FSA to negotiate insurance/reinsurance business, did not have any office or place of business in India. During the year under consideration, the assessee's London offices were engaged by certain Indian insurance companies to help them place reinsurance business in the international market. The assessee claimed that all the activities relating to such work were carried out outside India and for providing such assistance, it retained a commission, being the prevailing fee for such work in the UK market. Inter al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . [2006] 9 SOT 100 (Delhi); CESC Ltd. v. Dy. CIT [2003] 87 ITD 653(Kol.); NQA Quality Systems Register Ltd. v. Dy. CIT [2005] 2 SOT 249 (Delhi) that no technology or knowhow was made available by the assessee to any of its Indian clients and therefore, the income received by them did not qualify as fee for technical services. However, the AO did not accept the submissions and following his findings in the preceding assessment year, proposed to bring to tax an amount of Rs. 2,62,85,579/- received by the assessee @10% in terms of provision of section 115A of the Act. 3. The assessee approached DRP and raised a number of objections. The DRP in their order dated 9.8.2011concluded as under:- "6. The basic issue pertains to whether the services rendered by the assessee for advising the right reinsurance option to the Indian Insurance Companies can be termed as Fee for Technical Service under the Income Tax Act and Fee for Included Service under the Indo-UK DTAA or not. To answer the question it would be imperative to understand the key steps/process undertaken by the assessee to earn commission income from Indian Insurance Companies. Reinsurance is insurance that is purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence directly in cases when they find that a particular re-insurance company with whom it had earlier arrangement by virtue of advice given by the assessee, is able to satisfy their requirements. They need not take the advice of the reinsurance broker i.e. the assessee again. Hence, in a way, it can be seen as a case where technical and commercial experience is made available to the recipient of service. Without prejudice to the above, a recent ruling of AAR in the case of Verizon Data Services India limited, 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. Since the scope of FIS is similar in Indo-UK treaty as in Indo-US Treaty and assistance of explanation and examples given in the protocol of Indo-US treaty is widely accepted, we find sufficient merit in the contention that it is not necessary to actually make available the consultancy know how to the recipient in order to become taxable under Article 13 of the Indo-UK DTAA. Relevant extracts from the ruling of the AAR is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained In the MOU as under: "Paragraph 4(b) of Article 12 refers to technical or consultancy services that make available to the person acquiring the service technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design to such person. (For this purpose, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person.) This category is narrower than the category described in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service. Generally speaking, technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc. are made available to the Person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available." 7. From the memorandum of understa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal reinsurance companies, is not taxable as "fee for technical services." The ld. AR pointed out that the DRP exceeded their jurisdiction while holding the payment as royalty and in this connection relied upon the decision of the Hon'ble Karnataka High Court in GE India Technology Centre (P.) Ltd. v. Dispute Resolution Panel [2011] 338 ITR 416/201 Taxman 191/12 taxmann.com 442 (Kar.). On the other hand, the ld. DR supported the findings of the AO in the light of decision dated 27th May, 2011 of the AAR in the case of Verizon Data Services India (P.) Ltd., In re [2011] 199 Taxman 242/11 taxmann.com 177 (AAR - New Delhi) 865 of 2010. In his rejoinder, the ld. AR submitted that the said decision of AAR has been set aside by the Hon'ble Madras High Court vide their order dated 9th August, 2011 in WP 14921 of 2011. 6. We have heard both the parties and gone through the facts of the case as also the decisions relied upon by both the sides. Indisputably, the AO in his draft order dated 7.12.2010, brought to tax the payment received by the assessee from Indian Insurance Companies on account of reinsurance business in the year under consideration, as fee for technical services, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... morandum of Understanding. Since the said issue is remanded, we feel, in fitness of things, question Nos. 3 to 5 also merit fresh consideration at the hands of Advance Ruling Authority." 6.1.1 In view of aforesaid decision of the Hon'ble Madras High Court, we are of the opinion that reliance by the ld. DR on the aforesaid decision of the AAR, rendered in different facts and circumstances is totally misplaced. 6.2 We further notice that after the objections of the assessee against draft assessment order were disposed of by DRP vide their order dated 9.8.2001, a co-ordinate Bench while considering an identical issue in the assessee's own case for the AY 2006-07 in their order dated 30th September, 2011, referred to a decision of the Mumbai Bench in the case of Raymond Ltd. ( supra ) and concluded as under:- "27. In the illustrative transaction, New India Insurance Co. Ltd. In India has entered into an agreement to reinsure on an Excess Loss basis the catastrophe risk arising from its primary insurance cover in conjunction with J.B. Boda and Alsford Page and Gems Ltd. (the reinsurance brokers). The terms of the agreement specifies that the assessee in conjunction with J.B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable 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 above, 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. What was being done by the 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. From the agreement of services entered into by the assessee with Indian company for acting as an intermediary, it is clear that what was made available by the assessee to the Indian Insurance co. was advisory services and opinion for selection of reinsurer in the international market. It has been mentioned by the AO that the services provided by the assessee were consultancy in nature as it provides a host of financial analysis related consultancy services, rating agency advisory services, risk based capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tilizing 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 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, know-how or processes. 29.1 By making available the technical skills or know-how and the like, the recipient of the service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into terminology "make available", the technical knowledge, skills, know-how or processes must remain with the person receiving the services even after the particular contract comes to an end. It is, thus, fairly clear that mere provision of technical services is not enough to attract Article 13(4)(c) of the Indo-UK Treaty. It additionally requires that the service provider should also make his technical knowledge, experience, skill, know-how etc. known to the recipient of the service so as to equip him to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other Articles of DTAA between India and U.K. 33. In the light of the discussion made above, we, therefore, hold that the payment received by the assessee from Indian Insurance Co. in the process of reinsurance risk placed by Indian Insurance Co. with International reinsurance companies is not taxable in India as "fees for technical services". We, therefore, delete the addition confirmed by the CIT(A) by setting aside the orders of the authorities below and allow this appeal filed by the assessee." 7. Indisputably and as pointed out by the AO also, the facts and circumstances in the year under consideration are parallel to the facts and circumstances in the AY 2006-07. Accordingly, following the view taken by the co-ordinate Bench in their decision in the assessee's own case for the AY 2006- 07, we have no alternative but to hold that the payment received by the assessee from Indian Insurance Company in the process of re-insurance risk placed with International Insurance Companies, is not taxable in India as fee for technical services within the meaning of Article 13(4)(c) of the treaty. Accordingly, addition made by the AO is deleted. Consequently, ground nos. 1 to 3 in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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