2015 (11) TMI 1117 - AT - Income Tax

Taxability of borrowed service charges and the applicability treaty benefits under India-US tax treaty - Held that - The issue has been settled under the MAP proceedings arrived at settlement between Government to Government level and therefore, honouring the same, we hold that such a borrowed services is not part of fees for technical services/fees for included services and hence not taxable in India. - Decided in favour of assessee

Summary

Issues: Taxability of borrowed service charges and applicability of treaty benefits under India-US tax treaty for assessment years 2007-08 and 2008-09.

Analysis:
1. Taxability of Borrowed Service Charges: The appeals were filed by separate assessees against impugned orders related to the taxability of borrowed service charges for the assessment years 2007-08 and 2008-09. The senior counsel argued that the assessees, part of the McKinsey group, are eligible for benefits under the Indo-US Double Taxation Avoidance Agreement. The Tribunal had previously held that such services do not fall under fees for services as per the treaty. The Departmental representative also acknowledged that the issue was settled. The Tribunal, considering the settled issue under MAP proceedings, held that borrowed services are not taxable in India under the treaty as they do not qualify as fees for technical services. Additionally, it was noted that the assessees do not have a permanent establishment in India, further supporting the non-taxability of the services under the treaty.

2. Applicability of Treaty Benefits: The Tribunal referenced previous cases involving the McKinsey group and the Indo-Singapore treaty to support its decision regarding the Indo-US treaty. It was highlighted that the Department had withdrawn appeals in earlier years due to the settlement under MAP. The Tribunal consistently ruled in favor of the assessees, emphasizing that the services provided did not fall under the definition of fees for technical services as outlined in the treaty. Citing judicial precedents and the settled issue under MAP, the Tribunal concluded that the services rendered by the assessees were not taxable in India under the treaty. The judgment also highlighted that the McKinsey and Company Singapore Pte Ltd. case had been previously decided in favor of the assessee in the assessment year 2006-07, with directions given to the Assessing Officer to grant relief accordingly.

3. Final Decision: The Tribunal allowed all appeals of the assessees, directing the Assessing Officer to grant relief based on the settled issues under the mutual agreement procedure. The judgment was pronounced on June 19, 2015, confirming the non-taxability of borrowed service charges and the applicability of treaty benefits under the India-US tax treaty for the specified assessment years.