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2005 (10) TMI 416 - AT - Income TaxDouble taxation relief - Whether or not the CIT(A) was justified in holding that the monies received by these companies from India branch office of McKinsey Co. Inc. constitute fees for included services within the meanings of article 12(4) of the India-US treaty, and, are accordingly liable to be taxed in India - HELD THAT - The nature of assessee s activities is furnishing of geographical specific data and information inputs, which are commercial and industrial information in nature. This fact is clear from my perusal of the copies of e-mail communications, and attachments thereto, exchanged between the appellant-companies and McKinsey India. In any event, there is no material before me to suggest that the payment is for any such services which enable the recipients of these services to apply the technology. The onus is on the revenue to demonstrate that the assessee has a taxable income even under the DTAA. This onus, in my considered view, has not been discharged by the revenue in the present case. Merely because the assessees have rendered certain consultancy services to the McKinsey India does not by itself can be reason enough to conclude that the consideration for such consultancy services is taxable in India under article 12(4)( b ) as fees for included services . As for the non-technical consultancy services, as I will now point out, it is specifically agreed to between the Governments of India and the USA that such services shall not be covered by article 14(2)( b ). In the protocol note attached to and forming part of the aforesaid DTAA, Government of India has confirmed that memorandum of understanding between India and USA with regard to interpretation of article 12 (royalties and fees for included services) also represents the views of the Indian Government. It is clear that so far as the India-US tax treaty is concerned, consultancy services, which are not technical in nature, cannot be treated as fees for included services . The stand taken by the revenue, right from the assessment stage, is that the services rendered by the appellant-companies are consultancy services , though non-technical, and for that reason the consideration for these services is taxable as fees for included services . In fact, the Assessing Officer specifically observes that the fees received by the assessee in respect of the services (which are consultancy/ advisory services with no technology in it) rendered fall in the category of fees for included services in terms of clause (4) of article 12 . There is an inherent contradiction in this stand. Even if the services are consultancy services but are non-technical in nature, the same cannot be held to taxable under article 12(4)( b), since the MoU, relevant extracts from which have been reproduced above, specifically provides that, under paragraph 4(b), consultancy services which are not of, a technical nature cannot be included services . As I have taken note of in the preceding paragraph, what is supplied by the appellant-companies to McKinsey India is nothing but geographical specific data and information inputs which are commercial and industrial information in nature. I am of the considered view that the CIT(A) indeed erred in holding that the monies received by the appellant-companies from McKinsey India constitute fees for included services within the meanings of Article 12(4) of the India-US treaty, and are accordingly liable to be taxed in India. In my view, the payments in question, for the detailed reasons set out above, cannot be treated as fees for included services . Since the appellant-companies do not have any permanent establishment in India, the incomes so arising to them in India cannot be taxed under Article 7 as business profits either. Therefore, I direct the Assessing Officer delete the impugned additions. The assessees get relief accordingly. In the result, all the six appeals are allowed.
Issues Involved:
1. Whether the monies received by the appellant-companies from the India branch office of McKinsey & Co. Inc. constitute "fees for included services" under Article 12(4) of the India-US treaty. 2. Applicability of Article 12(4)(b) of the India-US treaty to the services rendered. 3. Interpretation of the term "make available" in the context of Article 12(4)(b). 4. Distinction between Article 12(3) and Article 12(4) of the India-US treaty. 5. Nature of services rendered by the appellant-companies and their taxability under the India-US treaty. Detailed Analysis: 1. Whether the monies received by the appellant-companies from the India branch office of McKinsey & Co. Inc. constitute "fees for included services" under Article 12(4) of the India-US treaty: The primary issue is whether the payments received by the appellant-companies from McKinsey India for providing information inputs constitute "fees for included services" under Article 12(4) of the India-US treaty. The appellant-companies are residents of the USA and do not have any permanent establishment in India. The services rendered involve providing geographical-specific data and information inputs to McKinsey India, which are commercial and industrial information in nature. 2. Applicability of Article 12(4)(b) of the India-US treaty to the services rendered: Article 12(4) defines "fees for included services" as payments for technical or consultancy services that either (a) are ancillary and subsidiary to the application or enjoyment of the right, property, or information, or (b) make available technical knowledge, experience, skill, know-how, or processes. The revenue's case hinges on the applicability of Article 12(4)(b). The Tribunal concluded that merely rendering consultancy services does not attract taxability under Article 12(4)(b) unless the services "make available" technical knowledge, experience, skill, or know-how. 3. Interpretation of the term "make available" in the context of Article 12(4)(b): The term "make available" implies that the recipient of the service can apply the technology independently in their business without further assistance from the service provider. The Tribunal referred to previous judgments, including Raymond Ltd. v. Dy. CIT and CESC Ltd. v. Dy. CIT, which clarified that mere rendering of services does not equate to making available technical services. The protocol to the India-US treaty also supports this interpretation, stating that technology is made available when the recipient can apply it independently. 4. Distinction between Article 12(3) and Article 12(4) of the India-US treaty: Article 12(3) deals with payments for the use or right to use intellectual properties or information, where the grantor plays no active role in the application of the know-how. In contrast, Article 12(4) involves rendering services where the provider actively participates. The Tribunal rejected the Assessing Officer's interpretation that Article 12(4)(b) involves the provider executing work for the other party, emphasizing that the expression "make available" requires enabling the recipient to apply the technology independently. 5. Nature of services rendered by the appellant-companies and their taxability under the India-US treaty: The services rendered by the appellant-companies involve providing commercial and industrial information, which does not qualify as "making available" technical knowledge or skills. The Tribunal cited the MoU between India and the USA, which states that consultancy services not of a technical nature are not included services under Article 12(4)(b). The Tribunal also referred to Example No. 7 in the MoU, which clarifies that providing commercial information, even if it involves technical skills, does not constitute making available technical services. Conclusion: The Tribunal concluded that the monies received by the appellant-companies from McKinsey India do not constitute "fees for included services" under Article 12(4) of the India-US treaty. Since the appellant-companies do not have any permanent establishment in India, the incomes arising from these services cannot be taxed as "business profits" under Article 7. The Tribunal directed the Assessing Officer to delete the impugned additions, allowing all six appeals in favor of the appellant-companies.
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