India Tax Weekly - May 4, 2012

Profession:JSA Advocates & Solicitors
 
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Director of Income-tax vs Guy Carpenter & Co Ltd – Delhi High Court

Taxpayer, a UK tax resident, is an international reinsurance broker. It receives commission / brokerage from Indian insurance companies under re-insurance. During tax year 2005-2006, the Tax Officer treated such commission/brokerage as 'fees for technical services' (FTS) under Incometax Act, 1961 (IT Act) read with article 13 of the India-UK DTAA. The first appellate authority also agreed with the order passed by the Tax Officer and treated such receipts as FTS subject to tax in India.

The Tax Tribunal reviewed the entire process of reinsurance transaction and ruled that such payments were not subject to tax in India as FTS. The Tribunal held that the 'make available' condition under India-UK DTAA was not satisfied as taxpayer did not make available any technical knowledge, experience, skill, know-how, processes to the Indian insurance companies operating in India. The Tribunal further held that there was no development or transfer of any technical plan or technical design in the present case.

Delhi High Court confirmed the order of the Tribunal and ruled in favour of the taxpayer. Delhi High Court held that the taxpayer did not make available any technical knowledge, experience, skill, know-how, processes to the Indian insurance companies. Accordingly, commission/brokerage received by the taxpayer was not subject to tax in India as FTS under IT Act and/or article 13 of India- UK DTAA.

ITA No. 202/2012. Judgment delivered on April 23, 2012

Mahindra Engineering & Chemical Products vs Income-tax Officer – Mumbai Tax Tribunal

Taxpayer, an Indian tax resident, assigned trademarks namely 'MSeal' and 'Mr. Fixit' to Pidilite Industries Limited (PIL) for tax year 1999-00. Taxpayer also sold copyrights, technical knowhow, assets and goodwill pertaining to the 'sealants and adhesives business' to PIL. Taxpayer and PIL entered into nine separate agreements for a total consideration of INR 320 millions. Out of the total consideration received, taxpayer offered to pay Income-tax on the portion of consideration received on account of goodwill and non-compete fee. The balance consideration received on account...

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