BADAR DURREZ AHMED, J (ORAL)
1. The Revenue is in appeal before us being aggrieved by the order
dated 30.09.2011 passed in ITA No. 2443/Del/2011 pertaining to the
assessment year 2006-07. The Revenue has proposed that the following
questions are substantial question of law which ought to be considered by
us:-
"1. Whether payments received by the assessee in
consideration of services rendered to insurance Co. in
India in the process of re-insurance of the risk placed by
Indian Insurance Co. with international re-insuracne
companies is amounted to "fees for technical services"
within the meaning of the same under the DTAA
between India and U.K?
2. Whether learned ITAT erred in holding 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"?
3. Whether nature of reinsurance brokerage/commission
which is assessable as fees for Technical Services within the
meaning of section 9(1)(vii) of the Act and/or Article 13 of
the India United Kingdom (U.K.) Double Tax Avoidance
Agreement (DTAA)?
4. Whether the services provided by the assessee are
consultancy in nature and the payments fall within the
definition of fees for technical services within the meaning
of Sec. 9 (1) (vii) of the Act?"
2. At the outset we would like to state that none of the above questions,
according to us, are substantial question of law and the only issues which
arise are factual in nature which has already been determined by the Income
Tax Appellate Tribunal, being the final fact finding authority insofar as the
scheme under the Income Tax Act, 1961 (hereinafter referred to as 'the said
Act') is concerned. Unless and until some perversity in a finding of fact
returned by the Tribunal is pointed out, there is no scope for interference by
this court under section 260A of the said Act. The reasons for us arriving at
this conclusion are indicated below.
3. Before the Tribunal the issue which arose for consideration was
whether the nature of reinsurance brokerage/commission which was paid by
Insurance Companies operating in India to the assessee was assessable as
'fees for technical services' within the meaning of section 9 (1) (vii) of the
said Act read with article 13 of the India-United Kingdom (U.K.) Double
Tax Avoidance Agreement (hereinafter referred to as the 'DTAA'). The
assessee company had filed its return of income in respect of the said
assessment year showing its taxable income at Nil. The case was picked up
for scrutiny and a notice under section 143 (2) of the said Act was issued.
Thereafter, regular assessment proceedings ensued. The Assessing Officer
had noticed that the assessee had received commission from several
insurance companies operating in India such as the New India Assurance
Co. Ltd., Tata AIG General Ins. Co. Ltd., General Insurance Corp. of India,
Agriculture Ins. Co. of India Ltd., HDFC CHUBB General Ins. Co. Ltd.,
IFFCO Tokio General Ins. Co. Ltd., and Oriental Insurance Company Ltd.
4. The Assessing Officer required the assessee to submit a copy of the
agreement with New India Assurance Co. Ltd. The agreement was entered
in conjunction with J.B. Boda Reinsurance Brokers Pvt. Ltd. and M.B. Boda
and Alsford Page and Gems Ltd. The type of insurance was 'catastrophic
excess of loss'. In the case of New India Assurance Co. Ltd., the reinsurers
were Hannover Ruckversicherung AG, CCR, Lloyd's Underwriter
Syndicate, Swiss Re and Wurttembergische London. In response to the
Assessing Officer's query with regard to the process by which clients were
selected, the assessee submitted the following information, pertaining to,
New India Assurance Co. Ltd:-
"Key Steps
(a) Originating insurer in India (New India) contacts JB
Boda/MB Boda for placing identified risks/ class of risks
with international reinsurers.
(b) JB Boda contacts one or more international firms 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 makes the final
decisions. Based on the decisions made by New India
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 reinsurers in the Lloyds
market.
(e) Separately the intermediation fee (brokerage) is 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 relative contribution
in the reinsurance process. Typically however, the
Indian and overseas reinsurance intermediaries would
share the total brokerage income equally. It may
however, be noted that in any reinsurance transaction
more than one insurance intermediary may be involved at
the India and overseas level. For e.g. in the illustrative
transaction the Indian brokers involved were JB Boda
and MB Boda and international brokers involved are Guy
Carpenter & Alsford Page and Gems Ltd."
5. It was also made clear by the assessee that there were occasional
business visits by two or three persons from the assessee company to India
to maintain general business awareness and to reinforce business contacts/
relationship in India for 15 calendar days in a year which according to them
did not meet the time threshold provided in Article 5(2)(k) of the India U.K.
tax treaty. The Assessing Officer also collected certain information from
the website of the assessee company.
6. According to the Assessing Officer the receipts of commission by the
assessee from the said insurance companies operating in India amounted to
"fees for technical services" as defined under section 9 (1) (vii) of the said
Act and also under Article 13(4)(c) of DTAA. In the course of the
assessment proceedings, the Assessing Officer had also issued a notice
under section 133(6) to New India Assurance Company Ltd. to provide
certain information with regard to the nature of the transaction between
New India Assurance Company Ltd. and the assessee. The following
information was submitted by New India Assurance Company Ltd.:-
"(1) "Officials from Guy Carpenter visit our office
occasionally. Normally they visit us alongwith Foreign
Insurers/Reinsurers who are transacting business with 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 business
with the reinsurer for the ceding company. These
proposals are sent through post/mail.
(3) Accounts are received through the broker and the
related correspondence is done only with the broker. The
correspondence/accounts for the last six month would be
very voluminous and it will take us some time to extract
the information.
(4) The proposal presentations from Brokers/
Reinsurers always help in better understanding the nature
of business, international market, trends and 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 the
business is co-broked by JB Boda payment is done to
J.B. Boda."
However, despite the above information, as pointed out above, the
Assessing Officer came to the conclusion that the nature of payment
received by the assessee came within the definition of fees for technical
services as defined under the said Act as also under Article 13(4)(c) of the
DTAA.
7. The Commissioner of Income Tax (Appeals) also concurred with the
view taken by the Assessing Officer. Being aggrieved thereby, the assessee
preferred an appeal before the Income Tax Appellate Tribunal which
ultimately decided in favour of the assessee by virtue of the impugned
order.
8. Before we go on to examine the findings of the Tribunal it would be
pertinent to refer to article 13 of the DTAA to the extent it is relevant:-
"ARTICLE 13- Royalties and fees for technical services-
1. Royalties and fees for technical services arising in a
Contracting State and paid to a resident of the other
Contracting State may be taxed in that other State.
2. However, such royalties and fees for technical
services may also be taxed in the Contracting State in
which they arise and according to the law of that
State; but if the beneficial owner of the royalties or
fees for technical services 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
paragraphs 4 (a) and (c) of this Article,-
(i) during the first five years for which this
Convention has effect;
(aa) 15% of the gross amount of such royalties or
fees for technical services when the payer of the
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
amount of such royalties or fees for technical
services; and
(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 such royalties and fees for technical
services.
(3) xxxx
(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 application 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
development and transfer of a technical plan or
technical design.
5. The definition of fees for technical services in
paragraph 4 of this Article shall not include amounts
paid:
(a) for services that are ancillary and subsidiary,
as well as inextricable and essentially linked, to the
sale of property, other than property described in
paragraph 3 (a) of this Article;
(b) For services that are ancillary and subsidiary
to the rental of ships, aircraft, containers or other
equipment used in connection with the operation
of ships, or aircraft in international traffic;
individual or individuals making the payment; or
(e) To an employee of the person making the
payments or to any individual or partnership for
professional services as defined in Article 15
(Independent personal services) of this
Convention.
9. A plain reading of Article 13(4)(c) of the DTAA indicates that 'fees
for technical services' would mean payments of any kind to any person in
consideration for the rendering of any technical or consultancy services
which, inter alia, "makes available" technical knowledge, experience, skill,
know-how or processes, or consist of the development and transfer of a
technical plan or technical design. According to the Tribunal this "make
available" condition has not been satisfied inasmuch as no technical
knowledge, experience, skill, know-how, processes, have been made
available by the assessee to the insurance companies operating in India. It
also does not consist of the development and transfer of any technical plan
or technical design.
10. The Tribunal examined the evidence available on record in order to
return a finding on the issue as to whether the payments received by the
assessee from the insurance companies operating in India would fall within
the expression 'fees for technical services' as appearing in Article 13(4)(c)
of the DTAA read with section 9(1)(vii) of the said Act. While doing so the
Tribunal, inter alia, found that the assessee company was an international
reinsurance intermediary (broker) and was a tax resident of United
Kingdom. Further, that it was a recognized broker by the financial services
authority of United Kingdom. It was also an admitted position that the
assessee did not maintain any office in India and that it had a referral
relationship with J.B. Boda reinsurance (Broker) Pvt. Ltd of Mumbai and
that J.B. Boda was duly licenced by the Insurance Regulatory &
Development Authority to transact reinsurance business in India.
11. The Tribunal also observed 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. Boda are recognized as intermediary,
through whom all communications relating to this agreement
shall pass. The terms of the agreement further provides that
the assessee will provide all the details of agreed
endorsements to the reinsurers by e-mail or facsimile and
shall submit the slip policy to XIS (Lloyd's processing
market) for signing. The assessee will act as a claim
administrator 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 would 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."
The Tribunal also noted the process by which the transaction takes place. It
has been pointed out that the originating insurer in India would contact J.B.
Boda/ M.B. Boda for placing identified risks/ class of risks with
international reinsurers. J.B. Boda, in turn, would contact one or more
international firm(s) of reinsurance broker(s) like the assessee for
competitive proposals from the international reinsurer. Then, the
international reinsurance brokers like the assessee would contact other
primary brokers and various syndicates in the Lloyds market for
competitive proposals. Based on the various offers or proposals given by
the international reinsurance brokers, like the assessee, to J.B. Boda, the
latter would present various options to the originating insurer in India,
which would take a final decision in the matter. Based on the decision of
the originating insurer in India, the policy terms would then be agreed upon
and the risk would be placed with the international reinsurer. It was also
pointed out that as per the normal industry practice, the reinsurance
premium net of brokerage of 10% as per the policy contract is remitted to
the assessee, i.e., reinsurance brokers, for onward transmission to
international reinsurers. The intermediation fee which is another word for
brokerage is paid separately by the originating insurance in India to J.B.
Boda, the international reinsurance brokers like the assessee and other
intermediaries, based on a mutually agreed ratio which accounts for their
relative contribution in the reinsurance process.
12. Based on this manner of transacting, the Tribunal came to a
conclusion that the payment received by the assessee could not be regarded
as 'fees for technical services'. Further, more, the Tribunal also held that
such receipts would not amount to fees for technical services as the "make
available" clause contained in Article 13(4)(c) had not been satisfied in the
facts and circumstances of the present case.
13. In our view, the Tribunal has arrived at these conclusions purely on
assessing the factual matrix of the case at hand. The findings are in the
nature of factual findings and, therefore, according to us, no substantial
question of law arises for our consideration, particularly, because the
learned counsel for the Revenue was unable to point out any perversity in
the recording of such findings. As such no substantial question of law
arises for our consideration. The appeal is dismissed. There shall be no
order as to costs.
BADAR DURREZ AHMED, J
V.K. JAIN, J
APRIL 23, 2012
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