India Tax Weekly - May 4, 2012

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