M/s Guy Carpenter & Co. Ltd., New Delhi V. ADIT, New Delhi

ITA 2443/DEL/2011

• Counselvise Citation: 244320114 RSA 2011
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 12-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHWANI KU MAR MAHAJAN
• Assessee Lawyers: AMIT AGGARWAL; SSH PAVAN KUMAR
• Keywords: Double taxation relief; Deemed to accrue or arise in india
• Section: 143(3); 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER & SHRI K.G. BANSAL, ACCOUNTANT MEMBER ITA NO. 2443/DEL/2011 ASSESSMENT YEAR: 2006-07 GUY CARPENTER & CO. LTD., ADIT, C/O PRICE WATER HOUSE & CO., VS. CIRCLE 1(2), 11-A, GATE NO. 2, SUCHETA BHAWAN, INTERNATIONAL TA XATION, VISHNU DIGAMBAER MARG, NEW DELHI. NEW DELHI. AACCG5465A (APPELLANT) (RESPONDENT) APPELLANT BY : S/SH. PAVAN KUMAR & AMIT AGGARW AL, FCA RESPONDENT BY : SH. ASHWANI KUMAR MAHAJAN, CIT(DR) ORDER PER C.L. SETHI, J.M. THE ASSESSEE, NAMELY, GUY CARPENTER & CO. LIMITED , A COMPANY INCORPORATED IN LONDON, IS IN APPEAL AGAINST THE OR DER DATED 18.02.2011 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] IN THE MATTER OF AN ASSESSMENT MADE BY THE ASSESSING OFFIC ER (AO) U/S 143(3) OF THE INCOME TAX ACT, 1961, FOR THE A.Y. 2006-07. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: - 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) XI [LD. CIT(A)] HAS ERRED IN UPHOLDING ITA NO. 2443/D/2011 2 THE ORDER OF THE LD. AO TREATING THE RECEIPTS WHICH ARE IN THE NATURE OF REINSURANCE BROKERAGE/ COMMISSION OF THE APPELLANT AMOUNTING TO RS. 20,078,715/-, AS FEE S FOR TECHNICAL SERVICES AND IN HOLDING THAT THE SAME IS TAXABLE IN INDIA @ 15% AS PER ARTICLE 13 OF THE IND IA UNITED KINGDOM (U.K) DOUBLE TAX AVOIDANCE AGREEMENT (DTAA). 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E & IN THE LAW, THE LD. CIT(A) HAS ERRED IN FACT AND IN LA W 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 TH E MEANING OF SEC. 9(1)(VII) OF THE ACT. 2.2 THE CONSIDERATION RECEIVED BY THE APPELLANT M AKE AVAILABLE EXPERIENCE, SKILL OF THE APPELLANT TO THE INDIAN INSURANCE COMPANIES, ACCORDINGLY, THE PAYMENT IS AL SO 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 T O APPRECIATE THE CONTENTION OF THE APPELLATE THAT 3.1 THE RECEIPTS ARE IN THE NATURE OF A TRANSACTIO N FEE NOT INVOLVING ANY TECHNICAL OR MANAGERIAL SERVICE. 3.2 WITHOUT PREJUDICE TO THE ABOVE, IF THE AMOUNT I S TREATED AS FEE FOR TECHNICAL SERVICES U/S 9(1)(VII) OF THE ACT, THE SAME IS NOT LIABLE TO TAX IN INDIA UNDER P ARA 4(C) OF ARTICLE 13 OF THE INDIA U.K. DOUBLE TAX AVOIDANC E AGREEMENT SINCE IT DOES NOT MAKE AVAILABLE ANY TECH NICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOWHOW OR PROCESSES OR CONSIST OF DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. 4. WITHOUT PREJUDICE TO THE ABOVE, WHETHER ON THE FACTS AND LAW, THE LD. CIT(A) ERRED IN NOT DELETING THE LEVY OF INTEREST U/S 234B OF THE ACT IGNORING THE PROVISIONS OF SEC. 234B OF THE ACT READ WITH SECTIO N 191, 208 & 209 OF THE ACT WHICH DOES NOT PROVIDE FOR CHA RGE ITA NO. 2443/D/2011 3 U/S 234B OF THE ACT WHERE THE ENTIRE INCOME IS SUBJ ECT TO DEDUCTION OF TAX AT SOURCE. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER , AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR A T THE TIME OF THIS APPEAL. 3. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REV OLVE AROUND THE QUESTION AS TO WHETHER NATURE OF REINSURANCE BROKER AGE/COMMISSION WHICH ASSESSABLE AS FEES FOR TECHNICAL SERVICES WITHIN TH E MEANING OF SEC. 9(1)(VII) OF THE ACT AND/OR ARTICLE 13 OF THE INDIA UNITED KINGDOM (U.K) DOUBLE TAX AVOIDANCE AGREEMENT (DTAA). 4. IN THIS CASE, THE ASSESSEE COMPANY FILED ITS RET URN OF INCOME IN OCTOBER, 2006 SHOWING TAXABLE INCOME AT RS. NIL. T HE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) OF THE ACT WAS ISSUE D ON 26.10.2007 AND SERVED UPON THE ASSESSEE. ASSESSEES AUTHORIZED RE PRESENTATIVE APPEARED BEFORE THE AO AND FURNISHED THE INFORMATION AS DISC USSED IN THE ASSESSMENT ORDER. 5. IN THE COMPUTATION OF INCOME, THE ASSESSEE ANNEX ED A NOTE STATING THAT ASSESSEE COMPANY INCORPORATED IN THE UNITED KINGDOM OPERATES AS A RECOGNIZED INSURANCE BROKER IN THE UNITED KINGDOM, AND IT IS LICENSED TO INTERMEDIATE INSURANCE BUSINESS BY THE FINANCIAL SE RVICES AUTHORITY (FSA) OF THE UNITED KINGDOM. ITA NO. 2443/D/2011 4 6. IT WAS NOTICED BY THE AO THAT, DURING THE YEAR, THE ASSESSEE HAD RECEIVED COMMISSION FROM THE FOLLOWING PERSONS: - S.NO. NAME OF THE PAYER AMOUNT (IN GBP) 1. NEW INDIA ASSURANCE CO. LTD. 101,556 2. TATA AIG GENERAL INS. CO. LTD. 32,328 3. GENERAL INSURANCE CORP. OF INDIA 105,688 4. AGRICULTURE INS. CO. OF INDIA LTD. 974 5. HDFC CHUBB GENERAL INS. CO. LTD. 3,985 6. IFFCO TOKIO GENERAL INS. CO. LTD. 10,569 7. ORIENTAL INSURANCE COMPANY LTD. 638 8. OTHERS (NET) -879 254,859 7. AS REQUIRED BY THE AO, 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 REINSURAN CE BROKERS PVT. LTD. AND M.B. BODA AND ALSFORD PAGE AND GEMS LTD. THE T YPE OF INSURANCE IS CATASTROPHIC EXCESS OF LOSS. IN THE CASE OF NEW IN DIA ASSURANCE CO. LTD., THE REINSURERS ARE HANNOVER RUCKVERSICHERUNG AG, CCR, L LOYDS 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 O N WHAT BASIS THE CLIENTS ARE SELECTED AND FURNISHED COPY OF CORRESPONDENCE WITH THE CLIENTS AND INDIAN INTERMEDIARIES. THE ASSESSEE SUBMITTED THE REQUIRE D INFORMATION WHICH ARE EXTRACTED BY THE AO IN HIS ORDER, AS UNDER: - KEY STEPS (A) ORIGINATING INSURER IN INDIA (NEW INDIA) CONTA CTS JB BODA/MB BODA FOR PLACING IDENTIFIED RISKS/ CLASS OF RISKS WITH INTERNATIONAL REINSURERS. ITA NO. 2443/D/2011 5 (B) JB BODA CONTACTS ONE OR MORE INTERNATIONAL FIRM S OF REINSURANCE BROKERS OUTSIDE INDIA REQUESTING FOR PROPOSALS FROM INTERNATIONAL REINSURERS/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 NEW INDIA WHICH MAK ES THE FINAL DECISIONS. BASED ON THE DECISIONS MADE B Y NEW INDIA THE POLICY TERMS ARE AGREED AND THE RISK IS P LACED WITH THE LLOYDS MARKET. FURTHER, AS PER NORMAL INDU STRY PRACTICE THE REINSURANCE PREMIUM NET OF BROKERAGE O F 10% AS PER THE POLICY CONTRACT IS REMITTED TO GUY CARPENTER FOR ONWARD TRANSMISSION TO THE REINSURERS IN THE LLOYDS MARKET. (E) SEPARATELY THE INTERMEDIATION FEE (BROKERAGE) I S REMITTED BY NEW INDIA TO JB BODA, GUY CARPENTER AND OTHER INDIAN AND OVERSEAS INTERMEDIARIES BASED ON A MUTUALLY AGREED RATIO WHICH ACCOUNTS FOR THEIR RELA TIVE CONTRIBUTION IN THE REINSURANCE PROCESS. TYPICALLY HOWEVER, THE INDIAN AND OVERSEAS REINSURANCE INTERMEDIARIES WOULD SHARE THE TOTAL BROKERAGE INCO ME EQUALLY. IT MAY HOWEVER, BE NOTED THAT IN ANY REINSURANCE TRANSACTION MORE THAN ONE INSURANCE INTERMEDIARY MAY BE INVOLVED AT THE INDIA AND OVERS EAS LEVEL. FOR E.G. IN THE ILLUSTRATIVE TRANSACTION TH E INDIAN BROKERS INVOLVED WERE JB BODA & MB BODA AND INTERNATIONAL BROKERS INVOLVED ARE GUY CARPENTER & ALSFORD PAGE AND GEMS LTD. 9. THE ASSESSEE ALSO SUBMITTED THE INFORMATION ABOU T THE VISIT OF HIS EMPLOYEES TO INDIA DURING F.Y. 2004-05, 2005-06 & 2 006-07 AND CONTENDED BEFORE THE AO THAT THERE WAS OCCASIONAL BUSINESS VI SITS BY TWO OR THREE PERSONNEL IN INDIA TO MAINTAIN GENERAL BUSINESS AWA RENESS AND REINFORCE ITA NO. 2443/D/2011 6 BUSINESS CONTRACTS/RELATIONSHIPS IN INDIA FOR 15 CA LENDAR DAYS (SOLAR DAYS) IN A YEAR (AGGREGATING TO 45 MAN DAYS), NEITHER OF WHI CH MEET THE TIME THRESHOLD PROVIDED IN ARTICLE 5(2)(K) OF THE INDIA U.K. TAX TREATY. THE AO THEN COLLECTED THE CERTAIN INFORMATION FROM THE WEB SITE OF THE COMPANY AND DIRECTED THEM IN PARA 3.4 OF HIS ORDER. 10. THE AO THEN HAD TAKEN NOTE OF THE EXPRESSION F EES FOR TECHNICAL SERVICES AS DEFINED U/S 9(1)(VII) OF THE ACT AND A LSO UNDER ARTICLE 13 OF THE TAX TREATY BETWEEN THE INDIA & U.K. THE AO THEN IS SUED A NOTICE TO THE ASSESSEE TO EXPLAIN AS TO WHY NOT THE INCOME RECEIV ED BY ASSESSEE, BE TAXED AS FEES FOR TECHNICAL SERVICES BOTH AS PER THE PR OVISIONS OF THE TAX TREATY AND THE INCOME TAX ACT. IN REPLY THERETO, THE ASSE SSEE SUBMITTED ITS REPLY VIDE LETTER DATED 15.12.2008, WHICH HAS BEEN REPROD UCED BY THE AO IN PARA 4 OF HIS ORDER. THE ASSESSEE CONTENDED THAT IN THE L IGHT OF THE EXPLANATION GIVEN BY THE ASSESSEE, THE COMMISSION INCOME WOULD NOT QUALIFY AS FEES FOR TECHNICAL SERVICES UNDER THE INCOME TAX ACT, 1961 N OR 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 I NDIA INSURANCE COMPANY LTD. TO PROVIDE CERTAIN INFORMATION. THE F OLLOWING 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 FORE IGN ITA NO. 2443/D/2011 7 INSURERS/ REINSURERS WHO ARE TRANSACTING BUSINESS W ITH 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 BUSIN ESS WITH THE REINSURER FOR THE CEDING COMPANY. THESE PROPOSALS ARE SENT THROUGH POST/ MAIL. (3) ACCOUNTS ARE RECEIVED THROUGH THE BROKER AND TH E 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 T IME TO EXTRACT THE INFORMATION. (4) THE PROPOSAL PRESENTATIONS FROM BROKERS/ REINSURERS ALWAYS HELP IN BETTER UNDERSTANDING THE NATURE OF BUSINESS, INTERNATIONAL MARKET, TRENDS AN D THE IMPACT OF GLOBAL PHENOMENA. (5) NORMALLY THE PAYMENTS ARE DONE FROM OUR FOREIGN CURRENCY BANK ACCOUNT IN LONDON/NEW YORK IF THE PAYMENTS ARE DONE DIRECTLY TO GUY CARPENTER. IF TH E BUSINESS IS CO-BROKED BY JB BODA PAYMENT IS DONE TO J.B. BODA. 12. AFTER CONSIDERING THE ASSESSEES CONTENTION AND THE MATERIALS ON RECORD, THE AO OPINED THAT THE SERVICES PROVIDED BY THE ASSESSEE ARE CONSULTANCY IN NATURE AND PAYMENTS RECEIVED BY THE ASSESSEE WOULD FALL WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICE S AS DEFINED UNDER EXPLANATION 2 TO SEC. 9(1)(VII) OF THE ACT AS WELL AS VIDE PARA (4) OF ARTICLE 13 OF THE TAX TREATY BETWEEN INDIA & U.K. THE AOS CONCLUSION IN THIS REGARD ARE AS UNDER: - AFTER ENUMERATING THE FACTS IN BRIEF, NOW THE CONTE NTIONS OF THE ASSESSEE ARE DISCUSSED HEREUNDER: ITA NO. 2443/D/2011 8 (I) THE ASSESSEE HAS REFERRED TO THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF SKYCELL COMMUNICATIONS LTD. VS. DCIT [119 TAXMAN 496] . THE DECISION WAS WITH REGARD TO PAYMENT BY THE SUBSCRIBERS FOR AVAILING CELLULAR TELEPHONE SERVICES AND THE APPLICABILITY OF SEC. 194J OF THE ACT WAS THE ISSUE. THE HONBLE COURT HELD THAT THESE ARE THE STANDARD SERVICES AVAILED BY THE SUBSCRIBERS AND PROVISIONS OF SEC. 194J WILL NOT APPLY. THE FACTS ARE DIFFERENT; THEREFORE, THE RAT IO OF THIS DECISION IS NOT APPLICABLE. (II) THE ASSESSEE HAS FURTHER CLAIMED THAT THE SERVICES RELATED TO COMMISSION OR BROKERAGE ARE COVERED BY SEC. 194H OF THE ACT, THEREFORE, PROVISIONS OF SEC. 9(1)(VII) WILL NOT APPLY. THIS CONTENTION IS MISPLACED, BECAUSE THE PROVISIONS OF SECTIONS 194H AND 194J ARE FOR THE PURPOSE OF DEDUCTION OF TAX OUT OF PAYMENTS TO RESIDENT. THESE SECTIONS DO NOT CHARACTERIZE THE INCOME. THE ASSESSEE ON ITS WEBSITE DID NOT CLAIM THAT IT IS A BROKER, BUT THE SAME STATES THAT IT PROVIDES ASSISTANCE, ADVISE, STUDIES, REDUCE ETC. AND ALSO A HOST OF FINANCIAL ANALYSIS-RELATED CONSULTANCY SERVICES, RATING AGENCY ADVISORY SERVICES, RISK BASED CAPITAL ANALYSIS. THEREFORE, THE SERVICES OF THE ASSESSEE ARE MORE OF ADVISORY/ CONSULTANCY IN NATURE, THEREFORE, THIS CONTENTION OF THE ASSESSEE IS ALSO NOT ACCEPTABLE. (III) THE ASSESSEE HAS REFERRED TO THE DEFINITION 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 HA ALSO REFERRED TO THE DECISION OF HONBL E 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 ITA NO. 2443/D/2011 9 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 T HE 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, ENHANC E THEIR RISK MANAGEMENT AND MAKE INFORMED BUSINESS DECISIONS. THEREFORE, IT IS CLEAR THAT TH E ADVISORY/ CONSULTANCY SERVICES OF THE ASSESSEE MAKE AVAILABLE THE NECESSARY SKILLS, KNOWLEDGE, EXPERIENCE TO THE RECIPIENT OF SERVICES. ACCORDINGLY, CONSIDERING THE FACTS OF THE CASE OF THE ASSESSEE, THE CONSIDERATION RECEIVED BY IT IS TAXABLE AS FEES FOR TECHNICAL SERVICES AND TH E AUTHORITIES CITED BY THE ASSESSEE ARE DISTINGUISHABLE ON FACTS. IN VIEW OF THESE FACTS, THE SERVICES PROVIDED BY THE ASSESSEE ARE CONSULTANCY IN NATURE AND THE PAYMENTS FALL WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICES AVAILABLE IN EXPLANATION 2 TO SEC. 9(1)(VII) OF THE ACT. THE CONSIDERATION RECEIVED BY THE ASSESSEE MAKE AVAILABLE EXPERIENCE, SKILL OF THE ASSESSEE TO THE INDIAN INSURANCE COMPANIES, ACCORDINGLY, THE PAYMENT IS ALSO COVERED BY THE DEFINITION OF FEES FOR TECHNICA L SERVICES AVAILABLE IN PARAGRAPH 4(C) OF THE ARTICLE 13 OF THE TAX TREATY BETWEEN INDIA AND U.K. ACCORDINGLY, SUCH PAYMENTS ARE MADE BY THE INDIAN COMPANIES, THEREFORE, THE FEES FOR TECHNICAL SERVICES IS DEEMED TO ARISE IN INDIA AS PER PROVISIONS OF PARAGRAPH 7 OF ARTICLE 13 AND SUCH FEES FOR TECHNICAL SERVICES IS TAXABLE AT A REDUCED RATE OF 15% OF THE GROSS AMOUNT OF FEE. ITA NO. 2443/D/2011 10 THE GROSS RECEIPTS OF THE ASSESSEE ARE GBP 258,663, WHICH WORKS OUT TO RS. 20,078,715/- (EXCHANGE RATE OF INR 77.625). THESE RECEIPTS ARE TAXABLE @ 15% AS PER THE PROVISIONS OF TAX TREATY AND ACCORDINGLY, TAX IS WORKED OUT AT RS. 3,011,807/-. 13. BEING AGGRIEVED WITH THE AOS ORDER, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). 14. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED TH AT SERVICES PROVIDED BY THE ASSESSEE WERE NOT IN THE NATURE OF TECHNICAL SE RVICES WITHIN THE MEANING OF EXPLANATION 2 TO SEC. 9(1)(VII) OF THE ACT AS WE LL WITHIN THE MEANING OF ARTICLE 13 OF TAX TREATY BETWEEN INDIA AND UK. IT WAS FURTHER SUBMITTED THAT THE INCOME RECEIVED BY THE ASSESSEE BY WAY OF COMMI SSION FROM INSURANCE COMPANIES IS IN THE NATURE OF BROKERAGE AND DOES NO T CONSTITUTE FEES FOR TECHNICAL SERVICES AS THE ASSESSEE, AS A BROKER, IS NOT ENGAGED IN THE BUSINESS OF PROVIDING MANAGERIAL AND TECHNICAL CONSULTANCY. 15. AFTER EXAMINING THE AOS ORDER AND ASSESSEES S UBMISSION, LD. CIT(A) HOLD THAT THE PAYMENTS RECEIVED BY THE ASSES SEE WOULD FALL WITHIN THE SCOPE OF FEES FOR TECHNICAL SERVICES AS DEFINED U/S 9(1)(VII) OF 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 D EFINITION OF FEES FOR TECHNICAL SERVICES AS DEFINED UNDER EXPLANATION 2 T O SEC. 9(1)(VII) OF THE ACT AND ALSO UNDER ARTICLE 13 OF INDO-UK TREATY, IT WOU LD CLEAR THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM INSURANCE COMPANY IS IN THE NATURE OF FEES FOR ITA NO. 2443/D/2011 11 TECHNICAL SERVICES. THE OPERATIVE PORTION OF LD. C IT(APPEALS) ORDER IN THIS REGARD IS AS UNDER: - 2.5 THE RULE OF PLAIN MEANING OR LITERAL INTERP RETATION DESCRIBED IN MAXWELLS INTERPRETATION OF STATUTE AS THE PRIMARY RULE COULD NOT BE ALTOGETHER ABANDONED TOD AY IN INTERPRETING ANY DOCUMENT. IT IS SAID THAT THE LEN GTH AND DETAILED OF MODERN LEGISLATION, HAS UNDOUBTEDLY REI NFORCED THE CLAIM OF LITERAL CONSTRUCTION AS THE ONLY SAFE RULE . THE OBJECT OF INTERPRETATION AND OF CONSTRUCTION IS TO DISCOVER T HE INTENTION OF THE LAW MAKER IN EVERY CASE. THIS OBJECT CAN, OBVI OUSLY, BE BEST ACHIEVED BY FIRST LOOKING AT THE LANGUAGE USED IN T HE RELEVANT PROVISIONS. OTHER METHODS OF EXTRACTING THE MEANIN G CAN BE RESORTED TO ONLY IF THE LANGUAGE USED IS CONTRADICT ORY, AMBIGUOUS OR LEADS REALLY TO ABSURD RESULTS. 2.6 THE APPELLANT HAS REFERRED THE CASE OF CUSHMAN & WAKEFIELD (SUPRA). CUSHMAN WAS ON INTERNATIONALLY FAMED REAL ESTATE BROKER. IN THE PRESENT CASE, THE SERVICES P ROVIDED ARE DIFFERENT AND THE FACTUAL FINDING AS ESTABLISHED BY THE AO WOULD ALSO SPEAK FOR ITSELF REGARDING CREATING THE SAME A S FTS. IN AZADI BACHAO (SUPRA) NOWHERE IT WAS STATED THAT THE RE SHOULD NOT BE LITERAL INTERPRETATION OF THE AGREEMENT ENTE RED UPON BETWEEN THE TWO STATES AND HENCE THIS EXAMPLE WILL NOT FORTIFY THE GROUNDS OF THE APPELLANT. EXAMINING IT FROM AN Y POINT OF VIEW BE IT FROM TAXATION STATUTE OR FROM THE AGREEM ENT ENTERED UPON BY TWO COUNTRIES, THERE IS NO ESCAPEMENT FROM THE FACT THAT THE RECEIPT SHOWN BY THE APPELLANT IS EXCLUSIVELY I N THE NATURE OF FTS. THE FACT THAT THE EMPLOYEES OF THE OTHER PERS ONNEL OF THE APPELLANT VISIT INDIA AND THE PROPOSALS ARE SUBMITT ED BY THEM, THE CONTENT OF THE WEBSITE AS GIVEN BY THE APPELLAN T (WHICH ESTABLISHED BOTH FORM AND THE SUBJECT MATTER OF THE CASE UNDER REVIEW), PROVIDING THE CLIENT DEEP TECHNICAL INSIDE S AND TRANSACTION CAPABILITIES BY LINE OF BUSINESS, PROVI DING VARIOUS SERVICES UNDER THE HEAD CURRENT MARKET INTELLIGENC E WOULD PROVE BEYOND ANY IOTA OF DOUBT THAT THE PAYMENTS UN DER QUESTION WOULD FALL WITHIN THE AMBIT OF SEC. 9(1)(V II) READ WITH PARA 4(C) OF THE ARTICLE 13. I FIND NO MERIT IN TH E ARGUMENT OF THE APPELLANT AND THEREBY THE ACTION OF THE AO IS S USTAINED. 16. HENCE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. ITA NO. 2443/D/2011 12 17. IN THE COURSE OF HEARING OF THIS APPEAL, THE LD . COUNSEL FOR THE ASSESSEE HIGHLIGHTED THE ACTIVITIES UNDERTAKEN BY THE ASSESS EE WITH REGARD TO THE PROCESS OF REINSURANCE OF THE RISKS PLACED BY INDIA N INSURANCE COMPANIES WITH INTERNATIONAL REINSURANCE COMPANIES AND HAS EX PLAINED THE BACKGROUND OF THE ACTIVITIES UNDERTAKEN BY THE ASSE SSEE FOR EARNING REINSURANCE BROKERAGE INCOME BY THE ASSESSEE FROM I NDIAN INSURANCE COMPANIES. IN THIS REGARD, HE INVITED OUR ATTENTION TO THE ASSESSEES SUBMISSION DATED DECEMBER 26, 2007 FILED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE ALSO INVIT ED OUR ATTENTION TO THE ASSESSEES SUBMISSION DATED JUNE 12, 2008, SEPTEMBE R 4, 2008, NOVEMBER 22, 2008, DECEMBER 15, 2008, DECEMBER 19, 2008 FILE D BEFORE THE AO. THE LD. COUNSEL FOR THE ASSESSEE ALSO DREW OUR ATTENTIO N TO THE SUBMISSION DATED FEBRUARY 9, 2011 FILED BEFORE THE LD. CIT(A). IN T HESE SUBMISSIONS, FILED BEFORE THE AO AS WELL AS BEFORE LD. CIT(A) THE ASSE SSEE HAS EXPLAINED THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE COMPANY TO EA RN 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 COMMISSI ON RECEIVED BY THE ASSESSEE FOR THE SERVICES OF REINSURANCE OF INTERME DIATION RENDERED OUTSIDE INDIA WOULD NOT QUALIFY AS FEE FOR TECHNICAL SERVIC ES AS DEFINED UNDER EXPLANATION 2 TO SEC. 9(1)(VII) OF THE ACT OR UNDER ARTICLE 13 OF THE INDO-UK ITA NO. 2443/D/2011 13 TREATY. IN THIS RESPECT THE LD. COUNSEL FOR THE AS SESSEE HAS RELIED UPON THE FOLLOWING DECISIONS: - I) RAYMOND LTD. VS. DCIT 86 ITD 791 (MUM.) II) REAL RESOURCING LTD., 322 ITR 558 (AAR.) 18. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND, MERELY RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND REITER ATED 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 PLACED IN THE PAPER BOOK FILED BY THE ASSESSEE. 20. IN THIS CASE, WE ARE CONCERNED WITH THE QUESTIO N AS TO WHETHER PAYMENTS RECEIVED BY THE ASSESSEE IN CONSIDERATION OF SERVICES RENDERED TO INSURANCE CO. IN INDIA IN THE PROCESS OF RE-INSURAN CE OF THE RISK PLACED BY INDIAN INSURANCE CO. WITH INTERNATIONAL RE-INSURANC E COMPANIES IS AMOUNTED TO FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF THE SAME UNDER THE DTAA BETWEEN INDIA AND U.K. IT IS, THEREFORE, APPR OPRIATE TO HAVE A LOOK AT THE RELEVANT PROVISIONS DEFINED IN THE INCOME-TAX A CT AS WELL UNDER THE TREATY BETWEEN INDIA AND U.K. 21. THE EXPRESSION FEES FOR TECHNICAL SERVICES IS DEFINED UNDER EXPLANATION 2 OF CLAUSE (VII) OF SUB SECTION (1) OF SECTION 9 WHICH READS AS UNDER: - ITA NO. 2443/D/2011 14 9(1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA (VII) INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABL E BY (A) THE GOVERNMENT; OR (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA; OR (C) A PERSON WHO IS A NON-RESIDENT, WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA: [ PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHALL APPLY IN RELATION TO ANY INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE IN PURSUANCE OF AN AGREEMENT MADE BEFORE THE 1 ST DAY OF APRIL, 1976, AND APPROVED BY THE CENTRAL GOVERNMENT.] [EXPLANATION 1 FOR THE PURPOSES OF THE FOREGOING PROVISO, AN AGREEMENT MADE ON OR AFTER THE 1 ST DAY OF APRIL, 1976, SHALL BE DEEMED TO HAVE BEEN MADE BEFORE THAT DATE IF THE AGREEMENT IS MADE IN ACCORDANCE WITH PROPOSALS APPROVED BY THE CENTRAL GOVERNMENT BEFORE THE DATE.] EXPLANATION [2] FOR THE PURPOSES OF THIS CLAUSE, FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTAN CY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIEN T CHARGEABLE UNDER THE HEAD SALARIES. (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (1), ANY PENSION PAYABLE OUTSIDE INDIA TO A PERSON RESID ING PERMANENTLY OUTSIDE INDIA SHALL NOT BE DEEMED TO AC CRUE OR ARISE IN INDIA, IF THE PENSION IS PAYABLE TO A P ERSON REFERRED TO IN ARTICLE 314 OF THE CONSTITUTION OR T O A PERSON WHO, HAVING BEEN APPOINTED BEFORE THE 15 TH DAY OF AUGUST, ITA NO. 2443/D/2011 15 1947, TO BE A JUDGE OF THE FEDERAL COURT OR OF A HI GH COURT WITHIN THE MEANING OF THE GOVERNMENT OF INDIA ACT, 1935, CONTINUES TO SERVE ON OR AFTER THE COMMENCEME NT OF THE CONSTITUTION AS A JUDGE IN INDIA. [EXPLANATION FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT FOR THE PURPOSES OF THIS SECTION, INC OME 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 TH E 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, BEIN G A COMPANY INCORPORATED IN LONDON AND, THEREFORE, THE TREATY U NDER DTAA BETWEEN INDIA & UK IS APPLICABLE TO THE PRESENT CASE. WE, THEREFORE, FIND IT PROPER TO REFER TO THE DEFINITION OF FEES FOR TECHNICAL SERVI CES AS DEFINED UNDER ARTICLE 13 OF THE TREATY BETWEEN INDIA & UK, WHICH READS AS UNDER: - ARTICLE 13- ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. ROYALTIES AND FEES FOR TECHNICAL SERVICES ARISING I N A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTH ER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICAL SERV ICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THE Y ARISE AND ACCORDING TO THE LAW OF THAT STATE; BUT IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVIC ES IS A RESIDENT OF THE OTHER CONTRACTING STATE, THE TAX SO CHARGED SHALL NOT EXCEED : (A) IN THE CASE OF ROYALTIES WITHIN PARAGRAPH 3(A) OF THIS ARTICLES, AND FEES FOR TECHNICAL SERVICES WITHIN PA RAGRAPHS 4(A) AND (C) OF THIS ARTICLE, - (I) DURING THE FIRST FIVE YEARS FOR WHICH THIS CON VENTION HAS EFFECT ; (AA) 15% OF THE GROSS AMOUNT OF SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES WHEN THE PAYER OF THE ITA NO. 2443/D/2011 16 ROYALTIES OR FEES FOR TECHNICAL SERVICES IS THE GOVERNMENT OF THE FIRST MENTIONED CONTRACTING STATE OR A POLITICAL SUB-DIVISION OF THAT STATE, AND (BB) 20% OF THE GROSS AMOUNT OF SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES IN ALL OTHER CASES; AND (II) DURING SUBSEQUENT YEARS, 15% OF THE GROSS AMO UNT OF SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES; A ND (B) IN THE CASE OF ROYALTIES WITHIN PARAGRAPH 3(B) OF THIS ARTICLE AND FEES FOR TECHNICAL SERVICES DEFINED IN PARAGRAPH 4(B) OF THIS ARTICLE, 10% OF THE GROSS AMOUNT OF SU CH ROYALTIES AND FEES FOR TECHNICAL SERVICES. 3. XXXXX 4. FOR THE PURPOSES OF PARAGRAPH 2 OF THIS ARTICLE , AND SUBJECT TO PARAGRAPH 5, OF THIS ARTICLE, THE TERM FEES FOR TECHNICAL SERVICES MEANS PAYMENTS OF ANY KIND OF ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF A TECHNICAL OR OTHER PERSONNEL) WHICH: (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATIO N OF ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3(A) OF THIS ARTICLE IS RECEIVED; OR (B) ARE ANCILLARY AND SUBSIDIARY 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 DEVELOPMEN T AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. 5. THE DEFINITION OF FEES FOR TECHNICAL SERVICES I N 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 PARAGRAP H 3(A) OF THIS ARTICLE; (B) FOR SERVICES THAT ARE ANCILLARY AND SUBSIDIARY TO THE RENTAL OF SHIPS, AIRCRAFT, CONTAINERS OR OTHER EQUI PMENT 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 INDIVID UAL OR INDIVIDUALS MAKING THE PAYMENT; OR (E) TO AN EMPLOYEE OF THE PERSON MAKING THE PAYMENT S OR TO ANY INDIVIDUAL OR PARTNERSHIP FOR PROFESSIONAL SERV ICES AS ITA NO. 2443/D/2011 17 DEFINED IN ARTICLE 15 (INDEPENDENT PERSONAL SERVICE S) OF THIS CONVENTION. 6. XXXXX 7. XXXXXX 8. XXXXXX 9. XXXXXX 23. THE MEANING AND SCOPE OF THE WORDS FEES FOR TE CHNICAL SERVICES APPEARING IN ARTICLE 13.4(C) OF THE DTAA WITH UK HA S BEEN EXPLAINED BY THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH, C IN THE CASE OF RAYMOND LTD. VS. DCIT (SUPRA) BY OBSERVING AND HOLD ING AS UNDER: - 90. HAVING THUS, HELD THAT THE UK AGREEMENT OF 1993 WAS RIGHTLY APPLIED BY THE AO, WE NOW PROCEED TO A CONS IDERATION OF THE QUESTION AS TO THE MEANING AND SCOPE OF ARTI CLE 13.4 OF THE SAME. ON A VERY CAREFUL CONSIDERATION OF THE R IVAL CONTENTIONS WHICH WERE, WITH RESPECT, PRESENTED BEF ORE US WITH ADMIRABLE CLARITY, ABILITY AND ASSIDUITY BY BOTH SI DES, WE FIND OURSELVES PERSUADED TO AGREE WITH THE ASSESSEES CO NTENTIONS WITH REGARD TO THE INTERPRETATION TO BE PLACED ON T HE AFORESAID ARTICLE. THE LANGUAGE USED IN THE ARTICLE, FIRST OF ALL, EXCLUDES MANAGERIAL SERVICES. WE HAVE THEREFORE, TO INTE RPRET THE TECHNICAL AND CONSULTANCY SERVICES. THE ARTICLE MAY BE EXTRACTED BELOW: THE DEFINITION OF TECHNICAL SERVICES IN ARTICLE 1 3.4 OF THE EARLIER DTA AGREEMENT WITH UK, WHICH WAS SUPERSEDED BY THE 1993 AGREEMENT, WAS SIMILAR TO THE LANGUAGE EMPLOYE D IN SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961 AND I NCLUDED MANAGERIAL SERVICES. BUT IN THE SUBSEQUENT AGREE MENT IN 1993, THE ARTICLE 13.4(C) USED DIFFERENT LANGUAGE A S MAY BE SEEN. IT DROPPED THE MANAGERIAL SERVICES. THERE ARE ALSO SIGNIFICANT ADDITIONS. IT IS HOWEVER COMMON GROUND THAT ARTICLE 13.5 DOES NOT APPLY. WE SHOULD ALSO KEEP IN VIEW T HE GENTLE BUT FIRM REMINDER OF MR. DASTUR THAT IN THE MEANTIME (1 990) INDIA HAD ENTERED INTO A DTA WITH USA AND ALSO A MOU THER EUNDER IN WHICH THE PARTIES THERETO HAD UNDERSTOOD THE DEF INITION IN A PARTICULAR WAY AND THERE WAS NO REASON WHY THE PART IES WOULD NOT HAVE INTENDED TO GIVE THE SAME MEANING TO THE I DENTICAL DEFINITION IN THE SUBSEQUENT DTA WITH UK. THERE IS A GOOD DEAL OF SENSE AND LOGIC IN THE ARGUMENT BECAUSE IT IS DIFFICULT TO ITA NO. 2443/D/2011 18 POSTULATE THAT THE SAME COUNTRY (INDIA) WOULD HAVE INTENDED TO GIVE DIFFERENT TYPES OF TREATMENT TO IDENTICALLY DE FINED SERVICES RENDERED BY ENTREPRENEURS FROM DIFFERENT COUNTRIES. THERE MUST BE STRONG AND INCONTROVERTIBLE EVIDENCE TO SHOW SUC H AN INTENDMENT. WE HAVE NOT BEEN REFERRED TO ANY SUCH EVIDENCE ON BEHALF OF THE REVENUE. THUS, NOT ONLY IS THERE A S IGNIFICANT DEPARTURE FROM THE LANGUAGE EMPLOYED IN THE FIRST D TA 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 AGREEMEN T WHERE ALSO THE LANGUAGE EMPLOYED IN THE CONCERNED ARTICLE IS SIMILAR IN SUBSTANCE WITH THAT EMPLOYED IN THE SECOND UK AG REEMENT. TO, THEREFORE, UNDERSTAND THE MEANING AND SCOPE OF THE CONCERNED ARTICLE IN THE SAME MANNER AS ONE WOULD U NDERSTAND THE RELEVANT PROVISIONS OF THE INCOME-TAX ACT AS SUGGESTED ON BEHALF OF THE DEPARTMENT BEFORE US WOULD BE TOTAL LY OFF THE MARK. 91. NOW, WE HAVE TO SEE IF THE MEANING ASCRIBED TO THE WORDS MAKE AVAILABLE BY MR. DASTUR IS ACCEPTABLE OR REA SONABLE. WHEREAS SECTION 9(1)(VII) STOPS WITH THE RENDERING OF TECHNICAL SERVICES, THE DTA GOES FURTHER AND QUALIF IES SUCH RENDERING OF SERVICES WITH WORDS TO THE EFFECT THAT THE SERVICES SHOULD ALSO MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXP ERIENCE, 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 NOT, BUT IN OUR OPINION AND WITH RESPECT, THIS MEANING D OES NOT TAKE DUE NOTE OF THE ADDITION OF SUCH WORDS TO THE REND ERING OF ANY TECHNICAL OR CONSULTANCY SERVICES. THE MEANING SU GGESTED BY MR. KAPILA IS EMBEDDED IN THE RENDERING OF THE SER VICES ITSELF. WHEN SOMEBODY RENDERS SERVICES, IT PRESUPPOSES TH AT SOMEBODY ELSE IS MAKING USE OF THE SAME. BUT THE MAKING USE OF SHOULD BE CONTRASTED WITH THE MAKING AVAIL ABLE. THE MAKING AVAILABLE, IN OUR OPINION, REFERS TO THE S TAGE SUBSEQUENT TO THE MAKING USE OF STAGE. THE QUALIF YING WORD IS WHICH THE USE OF THIS RELATIVE PRONOUN AS A CONJUNCTION IS TO DENOTE SOME ADDITIONAL FUNCTION THE RENDERING O F SERVICES MUST FULFILL. AND THAT IS THAT IT SHOULD ALSO MAK E AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL ETC. IN GRA MMAR, THE WORD WHICH IS CALLED A RELATIVE PRONOUN BECAUSE IT REFERS OR RELATES (I.E. CARRIES US BACK) TO SOME NOUN GOING B EFORE, WHICH ITA NO. 2443/D/2011 19 IS CALLED ITS ANTECEDENT [SEE HIGH SCHOOL ENGLISH GRAMMAR AND COMPOSITIONS BY WREN & MARTIN (1994) REVISED ED ITION, PAGE 45]. THE NOUN GOING BEFORE THE RELATIVE PRONO UN WHICH IN THE ARTICLE IS SERVICES. AT PAGES 46 & 47 OF THE SAME BOOK BY WREN & MARTIN, IT IS STATED AS UNDER: NOTE THE RELATIVE PRONOUNS WHO AND WHICH CAN BE USED (I) TO RESTRICT, LIMIT, OR DEFINE MORE CLEARLY THE ANTECEDENT;.. (II) TO GIVE SOME ADDITIONAL INFORMATION ABOUT THE ANTECEDENT;. (ITALICIZED OURS) 92. WE HOLD THAT THE WORD WHICH OCCURRING IN THE ARTICLE AFTER THE WORD SERVICES AND BEFORE THE WORDS MAK E AVAILABLE NOT ONLY DESCRIBES OR DEFINES MORE CLEAR LY THE ANTECEDENT NOUN (SERVICES) BUT ALSO GIVES ADDITIO NAL INFORMATION ABOUT THE SAME IN THE SENSE THAT IT REQ UIRES THAT THE SERVICES SHOULD RESULT IN MAKING AVAILABLE TO THE U SER TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, ETC. THUS, THE NORMA L, PLAIN AND GRAMMATICAL MEANING OF THE LANGUAGE EMPLOYED, IN OU R UNDERSTANDING, IS THAT A MERE RENDERING OF SERVICES IS NOT ROPED IN UNLESS THE PERSON UTILIZING THE SERVICES IS ABLE TO MAKE USE OF THE TECHNICAL KNOWLEDGE ETC. BY HIMSELF IN HIS BUS INESS OR FOR HIS OWN BENEFIT AND WITHOUT RECOURSE TO THE PERFORM ER OF THE SERVICES IN FUTURE. THE TECHNICAL KNOWLEDGE, EXPER IENCE, SKILL ETC. MUST REMAIN WITH THE PERSON UTILIZING THE SERV ICES EVEN AFTER THE RENDERING OF THE SERVICES HAS COME TO AN END. A TRANSMISSION OF THE TECHNICAL KNOWLEDGE, EXPERIENCE , SKILLS ETC. FROM THE PERSON RENDERING THE SERVICES TO THE PERSO N UTILIZING THE SAME IS CONTEMPLATED BY THE ARTICLE. SOME SORT OF DURABILITY OR PERMANENCY OF THE RESULT OF THE RENDERING OF SE RVICES 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 S OME CONCRETE SHAPE SUCH AS TECHNICAL KNOWLEDGE, EXPERIENCE, SKIL LS ETC. 93. IN THE PRESENT CASE, AS MR. DASTUR PERTINENTLY POINTED OUT, AFTER THE SERVICES OF THE MANAGERS (MERRILL LY NCH AND OTHER CO-MANAGERS) CAME TO AN END, THE ASSESSEE-COMPANY I S LEFT WITH NO TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL ETC. AND STILL CONTINUES TO MANUFACTURE CEMENT, SUITINGS ETC. AS IN THE PAST . ITA NO. 2443/D/2011 20 94. THE MEMORANDUM OF UNDERSTANDING APPENDED TO THE DTAA WITH USA AND THE SINGAPORE DTA CAN BE LOOKED I NTO 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 NOTE D EARLIER, IT CANNOT BE SAID THAT DIFFERENT MEANINGS SHOULD BE AS SIGNED TO THE US AND UK AGREEMENTS MERELY BECAUSE OF THE MOU DESPITE THE FACT THAT THE SUBJECT MATTER DEALT WITH IS THE SAME AND BOTH HAVE BEEN ENTERED INTO BY THE SAME COUNTRY ON ONE S IDE (INDIA). THE MOU SUPPORTS THE CONTENTION OF THE ASSESSEE REG ARDING THE INTERPRETATION OF THE WORDS MAKE AVAILABLE. THE PORTIONS OF THE MOU EXPLAINING PARA 4(B) OF THE RELEVANT ARTICL E, WHICH WE HAVE EXTRACTED EARLIER IN OUR ORDER WHILE ADVERTING TO THE CONTENTIONS OF THE ASSESSEE, FULLY SUPPORT ITS INTE RPRETATION. EXAMPLE (4) GIVEN IN THE MOU ALSO SUPPORTS IT. THI S IS OF A US COMPANY MANUFACTURING WALLBOARD FOR THE ASSESSEE US ING ASSESSEES RAW MATERIAL BUT USING ITS OWN PLANT. N O TECHNICAL KNOWLEDGE, EXPERIENCE, SKILLS, PLAN OR DESIGN IS HE LD TO HAVE BEEN MADE AVAILABLE IN SUCH A CASE. HOWEVER, IN CO NTRAST, EXAMPLE (5) IS OF A US COMPANY RENDERING CERTAIN SE RVICES IN CONNECTION WITH MODIFYING THE SOFTWARE USED BY THE INDIAN COMPANY TO SUIT A PARTICULAR PURPOSE. A MODIFIED C OMPUTER SOFTWARE PROGRAMME IS SUPPLIED BY THE US COMPANY TO THE INDIAN COMPANY. IT IS, THEREFORE, HELD THAT THERE IS A TRANSFER OF A TECHNICAL PLAN (I.E. COMPUTER SOFTWARE) WHICH THE US COMPANY HAS DEVELOPED AND MADE AVAILABLE TO THE IND IAN COMPANY. THE FEES ARE CHARGEABLE. THESE EXAMPLES AFFIRM THE POSITION TAKEN BY THE ASSESSEE COMPANY BEFORE US AS TO THE INTERPRETATION OF THE WORDS MAKE AVAILABLE. 95. ARTICLE 12.4(B) OF THE DTA WITH SINGAPORE WAS R ELIED ON BY BOTH SIDES - BY MR. DASTUR TO SHOW THAT THE WOR DS SUED THEREIN, VIZ. IF SUCH SERVICES..MAKE AVAILABLE TE CHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES , WHICH ENABLES THE PERSON ACQUIRING THE SERVICES TO APPLY THE TECHNOLOGY CONTAINED THEREIN MERELY MAKE IT EXPLI CIT WHAT IS MEANT BY MAKE AVAILABLE WHILE MR. KAPILA CONTENDE D THAT THESE WORDS BEING ABSENT IN THE DTA WITH UK, IT IND ICATES THAT THE ASSESSEE-COMPANY NEED NOT BE IN A POSITION TO A PPLY THE TECHNOLOGY FOR ITS OWN USE IN FUTURE WITHOUT RECOUR SE TO THE PERSON RENDERING THE SERVICES. ON A CAREFUL CONSID ERATION OF THE MATTER, WE ARE OF OPINION THAT THE ADDITION OF THESE WORDS IN THE SINGAPORE DTA MERELY MAKE IT EXPLICIT WHAT IS E MBEDDED IN ITA NO. 2443/D/2011 21 THE WORDS MAKE AVAILABLE APPEARING IN THE DTA WIT H UK AND USA. THE MOU UNDER THE US DTA AND THE EXAMPLES GIVEN THERE UNDER, TO WHICH WE HAVE ALREADY REFERRED, MAK E IT CLEAR. THE MEANING OF THOSE WORDS WERE EXPRESSLY INCORPORA TED IN THE SINGAPORE AGREEMENT BY ADDING THE NECESSARY WORDS. WHAT WOULD BE THE USE OF COINING THE WORDS MAKE AVAILAB LE IF IT IS NOT INTENDED, AS CONTENDED BY MR. KAPILA, THAT THE PERSON UTILIZING THE SERVICES SHOULD BE IN A POSITION TO A PPLY THE TECHNOLOGY FOR HIS OWN USE IN HIS BUSINESS IN FUTUR E WITHOUT RECOURSE TO THE PERSON RENDERING THE SERVICES? WOU LD IT NOT BE A CONTRADICTION IN TERMS TO SAY THAT THOUGH THE TEC HNICAL KNOWLEDGE ETC. ARE MADE AVAILABLE, THE PERSON TO WHOM THEY ARE MADE AVAILABLE CANNOT APPLY THE SAME FOR HIS BE NEFIT? THE TREATIES, IN OUR OPINION, COULD NOT HAVE INTENDED S UCH A RESULT. WHAT WAS THEREFORE, IMPLICIT IN THE CONCERNED ARTIC LES IN THE UK AND US DTAS WAS MADE EXPLICIT BY ADDING THE NECESSA RY WORDS IN THE SINGAPORE AGREEMENTS. AS MR. DASTURE RIGHTL Y REMARKED, IT IS A PROCESS OF EVOLUTION GUIDED BY EXPERIENCE A ND WHAT STARTED IN 1990 THE DTA WITH THE US AS A MOU GR ADUALLY CRYSTALLIZED AND GOT INCORPORATED IN THE ARTICLE IT SELF 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 A ND ARTICLE 13.4 OF THE DTA WITH SWEDEN. IN ALL THESE ARTICLES , THE DEFINITION IS SUBSTANTIALLY THE SAME AS IN THE SUPE RSEDED DTA WITH UK AND IN SEC. 9(1)(VII) OF THE I.T. ACT. THU S, A DIFFERENT INTENTION HAS BEEN EXPRESSED IN THESE ARTICLES, WHI CH INCLUDE MANAGERIAL SERVICES WITHIN THE FOLD OF TECHNICAL SE RVICES AND ALSO DO NOT CONTAIN WORDS INDICATING THAT THE RENDE RING OF SERVICES SHOULD MAKE AVAILABLE TECHNICAL KNOWLEDG E, EXPERIENCE, SKILL ETC. WE CANNOT GIVE THE SAME MEA NING TO WORDS DIFFERENTLY DEFINED IN TWO SETS OF DOUBLE TAX AVOIDANCE AGREEMENTS, WHICH WOULD BE THE RESULT IF WE ACCEPT WHAT HAS BEEN ARGUED BEFORE US ON BEHALF OF THE DEPARTMENT. 97. FOR THE ABOVE REASONS, WE ARE OF THE CONSIDERED OPINION THAT (1) THE DTA WITH UK APPLIES TO THE PRESENT CAS E AND (2) NO TECHNICAL KNOWLEDGE, EXPERIENCE, SKILLS, KNOW-HOW O R PROCESS ETC. WAS MADE AVAILABLE TO THE ASSESSEE-COMPANY B Y THE NON- RESIDENT MANAGERS TO THE GDR ISSUE (MERRILL LYNCH A ND OTHERS) WITHIN THE MEANING OF ARTICLE 13.4(C) OF THE DTA. ITA NO. 2443/D/2011 22 WHAT HAPPENS IF THE DTA WITH UK IS APPLICABLE? 98. WE NOW PROCEED TO CONSIDER THE CONSEQUENCE OF O UR CONCLUSION THAT THE DTA WITH UK IS APPLICABLE TO TH E PRESENT CASE. 99. IT WAS VERY FAIRLY STATED BY MR. KAPILA, LD. RE PRESENTATIVE FOR THE REVENUE, THAT IF THE DTA IS HELD APPLICABLE , THEN NO PART OF THE FEES FOR MANAGERIAL SERVICES CAN BE CONSID ERED AS FEES FOR TECHNICAL SERVICES, SINCE THE WORD MANAGERIAL DOES NOT FIND A PLACE IN THE ARTICLE CONCERNED. THERE CAN B E NO TWO OPINIONS ABOUT HIS VIEW. WE, THEREFORE, HOLD THAT THE MANAGEMENT COMMISSION OF US$ .0938 PER GDR CANNOT BE CHARGED TO TAX IN THE HANDS OF MERRILL LYNCH TO WHO M THE SAME IS PAID. THE ASSESSEE-COMPANY CONSEQUENTLY WAS UND ER NO OBLIGATION TO DEDUCT TAX U/S 195. WE HOLD ACCORDIN GLY. 100. AS REGARDS THE UNDERWRITING COMMISSION, IN V IEW OF THE FOREGOING DISCUSSION, WE HAVE TO HOLD THAT NO T ECHNICAL KNOWLEDGE, ETC. WAS MADE AVAILABLE TO THE ASSESSEE COMPANY BY THE RENDERING OF THE UNDERWRITING SERVICES AND THER EFORE, THE DEFINITION IN THE DOUBLE TAX AGREEMENT IS NOT APPLI CABLE. 101. AS REGARDS SELLING CONCESSION OR SELLING COMMISSION, MR. DASTUR RELIES ON CIRCULAR NO. 786, DATED 7.2.2000 (COPY PLACED AT PAGES 318-319 OF THE PAPER BOOK FILED BY THE ASSESSEE) TO CONTEND THAT IT IS NOT INCOME I N THE HANDS OF THE RECIPIENT. WE HAVE GONE THROUGH THE CIRCULAR. IT IS APPLICABLE TO EXPORT COMMISSION PAID BY AN ASSESSEE TO A NON- RESIDENT FOR SERVICES RENDERED BY THE LATTER OUTSID E INDIA. THE CAG HAD RAISED AN OBJECTION THAT SINCE NO TAX WAS D EDUCTED 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 IT S EARLIER CIRCULAR ISSUED IN 1969, TOOK THE VIEW THAT THE COM MISSION CANNOT BE CONSIDERED AS INCOME ARISING TO THE NON-R ESIDENT AGENT OPERATING OUTSIDE INDIA AND, THEREFORE, NO TA X 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 TH E ASSESSEE BUT WE ARE UNABLE TO GIVE EFFECT TO THE SAME IN THE VIEW WE HAVE TAKEN REGARDING THE INTERPRETATION OF THE WORDS TE CHNICAL ITA NO. 2443/D/2011 23 SERVICES APPEARING IN SEC. 9(1)(VII) READ WITH EXP LANATION 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 A S MANAGERIAL OR CONSULTANCY SERVICES. THE CIRCUL AR WOULD APPEAR TO TAKE A CONTRARY VIEW. HOWEVER, THE CIRCU LAR HAS NO APPLICATION WHERE THE INTERPRETATION OF THE RELEVAN T ARTICLE IN THE DTA IS INVOLVED. IT HAS BEEN ISSUED IN CONNECT ION WITH SEC. 195 OF THE ACT. IN THE VIEW WE HAVE TAKEN OF THE I MPORT OF THE WORDS MAKE AVAILABLE APPEARING IN ARTICLE 13.4(C) OF THE DTA WITH UK, IT IS UNNECESSARY FOR US TO DILATE ON THE CIRCULAR FURTHER. IN FACT, THE REFERENCE TO THE CIRCULAR IN CONNECTION WITH THE INTERPRETATION OF THE SAID ARTICLE, WITH RESPEC T, WOULD APPEAR TO BE OUT OF PLACE. 103. FOR THE ABOVE REASONS, WE HOLD THAT NEITHER TH E MANAGEMENT COMMISSION, NOR THE UNDERWRITING COMMISS ION NOR EVEN THE SELLING COMMISSION/CONCESSION WOULD AMOUNT TO FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF THE DT A WITH UK AND CONSEQUENTLY THERE IS NO OBLIGATION ON THE PART OF THE ASSESSEE-COMPANY TO DEDUCT TAX UNDER SECTION 195. 24. NOW, WE REVERT TO THE FACTS OF THE CASE AND DEC IDE THE ISSUE IN THE LIGHT OF MEANING OF FEES FOR TECHNICAL SERVICES AS NOTED ABOVE. IT IS AN ADMITTED POSITION THAT THE ASSESSEE IS A TAX RESIDENT OF THE U.K. AND THEREFORE, ELIGIBLE TO CLAIM SHELTER UNDER DOUBLE TAXATION AVOIDANCE AG REEMENT BETWEEN INDIA AND U.K. TO THE EXTENT MORE BENEFICIAL THAN THE COR RESPONDING PROVISIONS OF THE INCOME-TAX ACT, 1961, AS SO WELL SETTLED BY DEC ISIONS OF VARIOUS COURTS. 25. THE ASSESSEE COMPANY IS AN INTERNATIONAL REINSU RANCE INTERMEDIARIES (BROKERS) AND IS A TAX RESIDENT OF UNITED KINGDOM. IT IS A RECOGNIZED BROKER OF THE FINANCIAL SERVICES AUTHORITY OF UK. IT IS AN ADMITTED POSITION THAT ASSESSEE DOES NOT MAINTAIN ANY OFFICE IN INDIA . IT HAS BEEN STATED BY THE ASSESSEE THAT ASSESSEE MAINTAINS STRONG RELATIONSHI PS WITH THE INTERNATIONAL ITA NO. 2443/D/2011 24 REINSURANCE MARKET, WHICH IS CONCENTRATED IN LONDON (LLOYDS MARKET) AND ELSEWHERE INCLUDING EUROPE SWITZERLAND/GERMANY/FRAN CE) AND ALSO JAPAN. THE ASSESSEE HAS SUBMITTED THAT ASSESSEE HAS A REFE RRAL RELATIONSHIP WITH J.B. BODA REINSURANCE BROKERS P. LTD. OF MUMBAI. J.B. B ODA IS DULY LICENSED BY INSURANCE REGULATORY & DEVELOPMENT AUTHORITY TO TRA NSACT REINSURANCE BUSINESS IN INDIA. 26. DURING THE YEAR UNDER CONSIDERATION THE ASSESSE E RECEIVED FROM INDIAN CLIENTS TOTAL COMMISSION AMOUNTING TO GBP 2,54,859/ - EQUIVALENT TO RS.20078715/- (EXCHANGE RATE OF INR 77625/-) FOR TH E ALLEGED SERVICES OF REINSURANCE INTERMEDIATION RENDERED OUTSIDE INDIA. DURING THE YEAR, THE ASSESSEE WAS ENGAGED BY CERTAIN INDIAN INSURANCE CO MPANIES TO HELP PLACE REINSURANCE BUSINESS IN THE INTERNATIONAL MARKET. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED A CO PY OF AGREEMENT WITH THE NEW INDIA INSURANCE COMPANY LTD., MUMBAI. THE SAID AGREEMENT IS ENTERED IN CONJUNCTION WITH J.B. BODA REINSURANCE B ROKERS P. LTD. AND M.B. BODA AND ALSFORD PAGE AND GEMS LTD. BY THIS AGREEM ENT, THE NEW INDIA INSURANCE COMPANY PLACED THE RISKS FOR REINSURANCE WITH THE INTERNATIONAL REINSURANCE COMPANY. THE REINSURER IS HANNOVER RUC KVERSICHERUNG AG, CCR, LLOYDS UNDERWRITER SYNDICATE, SWISS RE AND WU RTTEMBERGISCHE, 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 ITA NO. 2443/D/2011 25 APPLICABLE IN ACCORDANCE WITH THE PROVISIONS AS STA TED UNDER THE FORM. BEFORE THE AO, THE ASSESSEE EXPLAINED KEY STEPS IN PLACING RISKS BY THE INDIAN INSURANCE COMPANIES WITH INTERNATIONAL REINS URERS, WHICH HAS ALREADY BEEN SET OUT ABOVE IN PARA 8 OF THIS ORDER. THE O RIGINATING INSURER IN INDIA USED TO CONDUCT J.B. BODA/M.B. BODA FOR PLACING IDE NTIFY RISKS/CLASS OF RISKS WITH INTERNATIONAL REINSURERS, AND J.B. BODA IN TUR N CONTACTS ONE OR MORE INTERNATIONAL FIRMS OF REINSURANCE BROKERS LIKE ASS ESSEE, FOR COMPETITIVE PROPOSALS FROM INTERNATIONAL REIMSURERS. INTERNATI ONAL REINSURANCE BROKERS LIKE PRESENT ASSESSEE CONTACT OTHER PRIMARY BROKERS AND VARIOUS SYNDICATES IN THE LLOYDS MARKET FOR COMPETITIVE PROPOSALS. BASED ON THE VARIOUS OFFERS OR PROPOSALS GIVEN BY INTERNATIONAL REINSURANCE BROKER S TO J.B. BODA, J.B. BODA PRESENTS THE VARIOUS OPTIONS TO ORIGINATING IN SURER IN INDIA, WHICH MAKES THE FINAL DECISION. BASED ON THE DECISIONS M ADE BY THE ORIGINATING INSURER IN INDIA, THE POLICY TERMS ARE AGREED AND T HE RISK IS PLACED WITH THE INTERNATIONAL REINSURERS. AS PER NORMAL INDUSTRY P RACTICE, THE REINSURANCE PREMIUM NET OF BROKERAGE OF 10% AS PER THE POLICY C ONTRACT HAS BEEN REMITTED TO THE ASSESSEE, REINSURANCE BROKER, FOR O NWARD TRANSMISSION TO INTERNATIONAL REINSURERS. SEPARATELY, THE INTERMED IATION FEE (BROKERAGE) IS REMITTED BY ORIGINATING INSURER IN INDIA TO J.B. BO DA, THE ASSESSEE AND OTHER INTERNATIONAL INTERMEDIARIES BASED ON A MUTUALLY AG REED RATIO WHICH ACCOUNTS FOR THE RELATIVE CONTRIBUTIONS IN THE REINSURANCE P ROCESS. IN THE ILLUSTRATIVE TRANSACTION WITH NEW INDIA INSURANCE COMPANY LTD., THE INDIAN BROKER ITA NO. 2443/D/2011 26 INVOLVED WERE J.B. BODA AND M.B. BODA AND INTERNATI ONAL BROKERS INVOLVED ARE ASESSEE AND ALSFORD PAGE AND GEMS LTD. 27. IN THE ILLUSTRATIVE TRANSACTION, NEW INDIA INSU RANCE CO. LTD. IN INDIA HAS ENTERED INTO AN AGREEMENT TO REINSURE ON AN EXC ESS LOSS BASIS THE CATASTROPHE RISK ARISING FROM ITS PRIMARY INSURANCE COVER IN CONJUNCTION WITH J.B. BODA AND ALSFORD PAGE AND GEMS LTD. (THE REIN SURANCE BROKERS). THE TERMS OF THE AGREEMENT SPECIFIES THAT THE ASSESSEE IN CONJUNCTION WITH J.B. BODA ARE RECOGNIZED AS INTERMEDIARY, THROUGH WHOM A LL COMMUNICATIONS RELATING TO THIS AGREEMENT SHALL PASS. THE TERMS O F THE AGREEMENT FURTHER PROVIDES THAT THE ASSESSEE WILL PROVIDE ALL THE DET AILS OF AGREED ENDORSEMENTS TO THE REINSURERS BY E-MAIL OR FACSIMILE AND SHALL SUBMIT THE SLIP POLICY TO XIS (LLOYDS PROCESSING MARKET) FOR SIGNING. THE A SSESSEE WILL ACT AS A CLAIM ADMINISTRATOR AND WILL SUBMIT CLAIMS ADVICES TO RELEVANT MARKET SYSTEMS. FOR THE SERVICES RENDERED, THE ASSESSEE A LONG WITH THE OTHER REINSURANCE BROKERS ACTING AS AN INTERMEDIARY IN TH E REINSURANCE PROCESS FOR NEW INDIA ASSURANCE CO. WILL BE ENTITLED TO 10% BR OKERAGE. FROM THE ROLE PLAYED BY THE ASSESSEE IN THE REINSURANCE PROCESS A S DISCUSSED ABOVE, IT IS EVIDENT TO US THAT THE ASSESSEE WAS RENDERING ONLY INTERMEDIARY SERVICES WHILE ACTING AS AN INTERMEDIARY/FACILITATOR IN GETT ING THE REINSURANCE COVER FOR NEW INDIA INSURANCE CO. THERE EXISTS NO MATERI AL OR BASIS ON THE BASIS OF WHICH, IT COULD BE SAID THAT THE ASSESSEE WAS RE NDERING ANY KIND OF TECHNICAL/CONSULTANCY SERVICE WITHIN THE MEANING OF ARTICLE 13 OF INDO-UK ITA NO. 2443/D/2011 27 TREATY. THE CONSIDERATION RECEIVED BY THE ASSESSEE ACTING AS AN INTERMEDIARY IN THE REINSURANCE PROCESS CANNOT, BY ANY STRETCH O F IMAGINATION, BE QUALIFIED AS A CONSIDERATION RECEIVED FOR RENDERING ANY FINAN CIAL ANALYSIS RELATED CONSULTANCY SERVICES, RATING AGENCY ADVISORY SERVIC ES, RISK BASED CAPITAL ANALYSIS ETC. AS ALLEGED BY THE A.O. 28. ON GOING THROUGH THE DEFINITION OF FEES FOR TE CHNICAL 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 T HE 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 SUBSI DIARY TO THE APPLICATION FOR ENJOYMENT OF ANY RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT IS RECEIVED, OR MADE AVAILABLE TECHNICAL KNOWLEDGE, EX PERIENCE, SKILL, KNOW- HOW OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN OR TECHNICAL DESIGN. IN THE PRESENT CASE, WE ARE CONCERNED WITH THE SCOPE OF MEANING OF ARTICLE 13(4)(C) OF INDO-UK TRE ATY, WHICH EMPHASIZES A RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICE S (INCLUDING PROVISIONS OF SERVICES OF TECHNICAL OR OTHER PERSONNEL), WHICH M ADE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN OR TECHN ICAL DESIGN. 28.1 FROM THE NATURE OF SERVICES RENDERED BY THE P RESENT ASSESSEE AS NOTED ABOVE, THE SERVICES DO NOT FIT INTO EITHER OF THE CATEGORIES DEFINED IN ITA NO. 2443/D/2011 28 ARTICLE 13, SINCE THE SERVICES RENDERED BY THE ASSE SSEE DO NOT INVOLVED TECHNICAL EXPERTISE, NOR DID THE ASSESSEE MADE AVAI LABLE ANY TECHNICAL KNOW- HOW, 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 O F SERVICES ENTERED INTO BY THE ASSESSEE WITH INDIAN COMPANY FOR ACTING AS A N 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 REIN SURER IN THE INTERNATIONAL MARKET. IT HAS BEEN MENTIONED BY THE AO THAT THE S ERVICES PROVIDED BY THE ASSESSEE WERE CONSULTANCY IN NATURE AS IT PROVIDES A HOST OF FINANCIAL ANALYSIS RELATED CONSULTANCY SERVICES, RATING AGENCY ADVISOR Y SERVICES, RISK BASED CAPITAL ANALYSIS ETC. ON THE BASIS OF SOME OBSERVAT IONS FOUND MENTIONED IN THE ASSESSEES WEBSITE BUT THE AO HAS NOT BEEN ABLE TO POINT OUT ANY MATERIAL OR EVIDENCE ON THE BASIS OF WHICH, IT COULD BE SAID THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONS IDERATION IS TOWARDS ANY FINANCIAL ANALYSIS RELATED CONSULTANCY SERVICES, RA TING AGENCY ADVISORY SERVICES, RISK BASED CAPITAL ANALYSIS ETC. 29. AT THIS STAGE, IT IS PERTINENT TO NOTE THAT THE LANGUAGE USED IN ARTICLE 13(4) EXCLUDES MANAGERIAL SERVICES. IT EMPHASIZE S ONLY A RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES. IT IS FURTH ER NOTICED THAT IN THE ARTICLE 13(4)( C), THE EXPRESSION USED IS MAKE AVAILABLE. THE MEANING ASCRIBED TO ITA NO. 2443/D/2011 29 THE WORDS MAKE AVAILABLE HAS BEEN ELABORATELY APP RECIATED BY THE ITAT, MUMBAI BENCH `C IN THE CASE OF RAYMOND LTD. VS. DC IT (SUPRA), WHERE IT HAS BEEN OBSERVED THAT ONCE SEC. 9(1)(VII) OF THE I NCOME-TAX ACT STOPS WITH THE RENDERING OF TECHNICAL SERVICES, THE DTAA BET WEEN INDIA & UK GOES FURTHER AND QUALIFIES SUCH RENDERING OF SERVICES WI TH WORDS TO THE EFFECT THAT THE SERVICES SHOULD ALSO MAKE AVAILABLE TECHNICAL K NOWLEDGE, EXPERIENCE, SKILLS, KNOW-HOW OR PROCESSES TO THE PERSON UTILIZI NG THE SERVICES. THE HONBLE TRIBUNAL FURTHER OBSERVED THAT THE WORD WH ICH OCCURRING IN THE SAID ARTICLE AFTER THE WORD SERVICES AND BEFORE T HE WORDS MAKE AVAILABLE NOT ONLY DESCRIBES OR DEFINES MORE CLEARLY THE ANTE CEDENT 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 LA NGUAGE 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 MAKE USE OF THE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILLS, KNOW-HOW OR PROCESSE S BY HIMSELF IN HIS BUSINESS OR FOR HIS OWN BENEFIT AND WITHOUT RECOURS E TO THE PERFORMER OF THE SERVICES IN FUTURE. THE TECHNICAL KNOWLEDGE, EXPER IENCE, SKILL, KNOW-HOW OR PROCESSES MUST REMAIN WITH THE PERSON UTILIZING THE SERVICES EVEN AFTER THE RENDERING OF THE SERVICES HAS COME TO AN END. A TR ANSMISSION OF THE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILLS, KNOW-HOW O R PROCESSES FROM THE ITA NO. 2443/D/2011 30 PERSON RENDERING THE SERVICES TO THE PERSON UTILIZI NG 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 REND ERING 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 K NOW-HO0W AND THE LIKE, THE RECIPIENT OF THE SERVICE WILL GET EQUIPPE D 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 PARTIC ULAR 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 RECI PIENT OF THE SERVICE SO AS TO EQUIP HIM TO INDEPENDENTLY PERFORM THE TECHNICAL FUNCTION HIMSELF IN FUTURE, WITHOUT THE HELP OF THE SERVICE PROVIDER. IN OTHER WORDS, PAYMENT OF CONSIDERATION WOULD BE REGARDED AS FEES FOR TECHNIC AL SERVICES ONLY IF THE TWIN TEST OF RENDERING SERVICES AND MAKING TECHNICA L KNOWLEDGE AVAILABLE AT THE SAME TIME IS SATISFIED. ITA NO. 2443/D/2011 31 30. THE IDENTICAL VIEW TAKEN BY THE INCOME-TAX APPE LLATE TRIBUNAL, MUMBAI BENCH `C IN THE 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 ITR 418 (AAR). 3. R.R. DONNELLEY INDIA OUTSOURCE P. LTD., IN RE (2 011) 335 ITR 122 (AAR). 4. CIT VS. VICE ROY HOTEL LTD. (2011) 11 TAXMANN.C OM 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 AS SESSEE AS A BROKER IN THE PROCESS OF THE RE-INSURANCE OF THE RISK IS LEFT WIT H NO TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES SO AS TO B RING 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 REND ERED BY THE ASSESSEE ARE ALSO NOT IN THE NATURE OF ANY TECHNICAL OR CONSULTA NCY SERVICES WHICH MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, K NOW-HOW OR PROCESSES TO THE USER. WE, THEREFORE, HOLD THAT THE PAYMENT REC EIVED BY THE ASSESSEE IN CONSIDERATION FOR RENDERING INTERMEDIARY OR ADVISOR Y SERVICES IN THE PROCESS OF SELECTING RE-INSURER, 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. SINCE THE DTAA BETWEEN INDIA & UK APPLIES TO THE ITA NO. 2443/D/2011 32 PRESENT CASE AND THE BENEFIT OF THE PROVISIONS CONT AINED IN DTAA WITH UK ARE AVAILABLE TO THE ASSESSEE AS SO WELL SETTLED, A ND SINCE THE PAYMENT RECEIVED BY THE ASSESSEE IS NOT QUALIFIED TO BE IN THE NATURE OF FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF ARTICLE 13 (4)(C ) OF THE TREATY, WE HOLD THAT THE PAYMENT RECEIVED BY THE ASSESSEE FROM THE INSURANCE COMPANY IN INDIA, CANNOT BE BROUGHT TO TAX IN INDIA AS FEES FOR TECHNICAL SERVICES. 32. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSE SSEE HAS A PE IN INDIA SO THAT THE AMOUNT RECEIVED BY THE ASSESSEE IS OTHERWI SE TAXABLE IN INDIA UNDER 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 INSURA NCE CO. IN THE PROCESS OF REINSURANCE RISK PLACED BY INDIAN INSURANCE CO. WITH INTERNATIONAL REINSURANCE COMPANIES IS NOT TAXABLE IN INDIA AS F EES FOR TECHNICAL SERVICES. WE, THEREFORE, DELETE THE ADDITION CONF IRMED BY THE CIT(A) BY SETTING ASIDE THE ORDERS OF THE AUTHORITIES BELOW A ND ALLOW THIS APPEAL FILED BY THE ASSESSEE. 34. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 35. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 30 TH SEPTEMBER, 2011. SD/- SD/- (K.G. BANSAL) (C.L . SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 TH SEPTEMBER, 2011. ITA NO. 2443/D/2011 33 ITA NO.2443/DEL/2011 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, *KAVITA/*MG DEPUTY REGISTRAR, ITAT.