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
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
ITA No. 202/2012. Judgment delivered on April 23,
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 of sale of trademarks, copyright
and technical knowhow (amounting to INR 280 millions) was not
offered to Income-tax. Taxpayer claimed the latter portion of
consideration to be capital receipts and not taxable under IT Act.
Tax Officer observed that taxpayer had transferred its entire
'sealant and adhesive division' to PIL. Accordingly, Tax
Officer held that the transaction constitutes a slump sale of
entire business and not an itemized sale of assets as claimed by
the taxpayer. The first appellate authority also agreed with the
order passed by the Tax Officer.
Tax Tribunal observed that for the purposes of 'slump
sale', IT Act defines 'undertaking' to include any part
of an undertaking, or a unit or division of an undertaking or a
business activity taken as a
whole. The Tribunal held that the provisions in relation to
'slump sale' were rightly invoked as the business was sold
as a whole and does not constitute an itemized sale of assets. The
Tribunal held that the 'substance' of the agreements is to
be considered and 'form' has to be ignored. Accordingly,
the Tribunal concluded that trademarks, plant and machinery,
technical knowhow, copyright along with goodwill and renunciation
of right to compete is part and parcel of the same business. Such
assets were integral, indivisible components of a composite unit
sold to PIL. A joint reading of all the agreements leads to a
conclusion that what was sold by the taxpayer to PIL was 'the
running business as a going concern' and not merely a few
assets under an itemized sale.
Tribunal also rejected the taxpayer's argument that since
land was not transferred, the transaction could not be considered a
slump sale as the same is not the deciding factor. The Tribunal
also distinguished on facts the Special Bench decision in Summit
Securities Ltd [ITA No.4977/Mum/2009]among others.
ITA No.2544/Mum/2010. Judgment delivered on April 18,
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Cummins Inc. is a foreign company, rendering services in respect of desktop/laptop software license and internet mail facilities to its Indian associated enterprises, i.e. CIL and CSSL which were paying IT charges provided by the taxpayer.
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