Cholamandalam MS General Insurance Co. Ltd., In re

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The Tax Publishers2009 TaxPub(DT) 1381 (AAR) : (2009) 309 ITR 0356 : (2009) 221 CTR 0721 : (2009) 178 TAXMAN 0100 : (2009) 019 DTR 0001 In Re, Cholamandalam Ms General Insurance Co. Ltd. INCOME TAX ACT, 1961 Income deemed to accrue or arise in India- Under section 9(1)(vi)/(vii)-Royalty or fees for Technical services-Reimbursement of salary and other benefits Assessee, an Indian company, was engaged in the business of non-life insurance and was interested in building up business relationship with Indian companies which were subsidiaries/joint ventures of certain foreign companies. It had two divisions dealing with the Korean and Japanese segments in India. It was in need of persons from the respective jurisdictions abroad who were well-versed with insurance business practices, foreign language and other related information that would be of use of the applicant in the expansion of its business activities. It was entered into secondment agreement with Korean company. Employee of korean company had to be engaged in certain specified activities under the supervision and control of the assessee for two years. Assessee directly reimbursed Korean company part of the salary and other benefits payable to seconded employee as provided in the agreement and no part of the salary or benefit was payable to the secondee by the assessee. Second continued to be employee of the Korean company and received salary from Korean company. It had been deducting tax from the salary payable to the secondee and deposited thereof. *Held:* Explanation 2 to section 9(1)(vii) and Article 13.4 of the Double Taxation Avoidance Agreement between India and Korea defined fees for technical services( FTS) as 'any consideration for the rendering of any managerial, technical or consultancy services (including provision of services of technical or other personnel) but did not include consideration for any construction, assembling, mining or like projects undertaken by the recipient or consideration which would be the income of the recipient chargeable under the head Salary. But provision of services of technical personnel was within the purview of Explanation 2 to section 9(1)(vii). Hence, no tax was liable to be deducted at source by assessee in respect of the payments made or to be made to Korean company under the terms of the secondment agreement. Income-tax Act, 1961 Section 9 Double Taxation Avoidance Agreement between India and Korea, Article 13.4 Case Law Analysis:In Intertek Testing Services India (P.) Ltd. [2008] 175 Taxman 375 (AAR -New Delhi) [Para8.3]; G.V.K. Industries Ltd. v. ITO [1997] 228 ITR 564 /[1998] 96 Taxman 179 (AP) [Para 8.3]; CIT v. Dunlop Rubber Co. Ltd. [1983] 142 ITR 493 /[1982] 10 Taxman 179 (Cal.) [Para 9.1]; CIT v. Industrial Engg. Projects (P.) Ltd. [1993] 202 ITR 1014 (Delhi) [Para 9.2] followed. In AT&S India (P.) Ltd., In re [2006] 287 ITR 421/157 Taxman 198 (AAR -New Delhi) [Para 10]; In Danfoss Industries (P.) Ltd., In re [2004] 268 ITR 1 /138 Taxman 287 (AAR -New Delhi) [Para 10.1] distinguished. Decision: In Favour of Assessee. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2009 TaxPub(DT) 1381 (AAR) : (2009) 309 ITR 0356 : (2009) 221 CTR 0721 : (2009) 178 TAXMAN 0100 : (2009) 019 DTR 0001

In Re, Cholamandalam Ms General Insurance Co. Ltd.

INCOME TAX ACT, 1961

Income deemed to accrue or arise in India- Under section 9(1)(vi)/(vii)-Royalty or fees for Technical services-Reimbursement of salary and other benefits

Assessee, an Indian company, was engaged in the business of non-life insurance and was interested in building up business relationship with Indian companies which were subsidiaries/joint ventures of certain foreign companies. It had two divisions dealing with the Korean and Japanese segments in India. It was in need of persons from the respective jurisdictions abroad who were well-versed with insurance business practices, foreign language and other related information that would be of use of the applicant in the expansion of its business activities. It was entered into secondment agreement with Korean company. Employee of korean company had to be engaged in certain specified activities under the supervision and control of the assessee for two years. Assessee directly reimbursed Korean company part of the salary and other benefits payable to seconded employee as provided in the agreement and no part of the salary or benefit was payable to the secondee by the assessee. Second continued to be employee of the Korean company and received salary from Korean company. It had been deducting tax from the salary payable to the secondee and deposited thereof. Held: Explanation 2 to section 9(1)(vii) and Article 13.4 of the Double Taxation Avoidance Agreement between India and Korea defined fees for technical services( FTS) as 'any consideration for the rendering of any managerial, technical or consultancy services (including provision of services of technical or other personnel) but did not include consideration for any construction, assembling, mining or like projects undertaken by the recipient or consideration which would be the income of the recipient chargeable under the head Salary. But provision of services of technical personnel was within the purview of Explanation 2 to section 9(1)(vii). Hence, no tax was liable to be deducted at source by assessee in respect of the payments made or to be made to Korean company under the terms of the secondment agreement.

Income-tax Act, 1961 Section 9

Double Taxation Avoidance Agreement between India and Korea, Article 13.4

Case Law Analysis:In Intertek Testing Services India (P.) Ltd. [2008] 175 Taxman 375 (AAR -New Delhi) [Para8.3]; G.V.K. Industries Ltd. v. ITO [1997] 228 ITR 564 /[1998] 96 Taxman 179 (AP) [Para 8.3]; CIT v. Dunlop Rubber Co. Ltd. [1983] 142 ITR 493 /[1982] 10 Taxman 179 (Cal.) [Para 9.1]; CIT v. Industrial Engg. Projects (P.) Ltd. [1993] 202 ITR 1014 (Delhi) [Para 9.2] followed.

In AT&S India (P.) Ltd., In re [2006] 287 ITR 421/157 Taxman 198 (AAR -New Delhi) [Para 10]; In Danfoss Industries (P.) Ltd., In re [2004] 268 ITR 1 /138 Taxman 287 (AAR -New Delhi) [Para 10.1] distinguished.

Decision: In Favour of Assessee.