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2013 (1) TMI 622 - AT - Income TaxIndia-Indonesia DTAA - Royalty receipt - Held that - After going through the orders of Group Companies of McKinsey where similar issue has been adjudicated in favour of the assessee no need of further deliberation into the issue. AO has nowhere established that pieces of information supplied by the assessee were arising out of exploitation of the know-how generated by the skills or innovation of the persons who possesses such talent. Information received by McKinsey India was in the nature of data and same cannot be held to payment received as Royalty. Word 'Royalty' in taxation-terminology has its distinct meaning and the amounts received by the assessee does not fall in that category. As far as taxing the receipts under the head 'Other Income' is concerned, it is to be opinion that residuary head is analogous to sections 56-57. If a certain receipt cannot be taxed under any other head, only then the sections dealing with 'Income from Other Sources', come into play in domestic taxation matters. Likewise, under the DTAAs, if a sum can be taxed under any other Article, provisions of Article 22 will not be applicable. Thus in light of the earlier decisions of the Mumbai Tribunal income received by the assessee-company form McKinsey India is not to be treated as Royalty-rather it has to assessed as business income as per Article 7 of the DTAA - in favour of the assessee.
Issues involved:
1. Taxability of borrowed services under the India-Indonesia Double Taxation Avoidance Agreement. 2. Interpretation of fees for technical services under the India-Indonesia Tax Treaty. 3. Assessment of evidence submitted by the assessee. 4. Charging of interest under Section 234B of the Income Tax Act. Issue 1: Taxability of borrowed services under the India-Indonesia Double Taxation Avoidance Agreement: The appellant, a foreign company providing Strategic Consultancy Services, contested the taxability of services rendered to Mc Kinsey India. The Assessing Officer (AO) held that the payments received were in the nature of fees for included services under Article 12 of the DTAA between India and Indonesia. The Dispute Resolution Panel (DRP) invoked Article 22(3) of the DTAA. The appellant argued that the services provided were commercial and not technical, and the information supplied did not constitute royalty. The tribunal, after reviewing previous decisions, concluded that the information provided did not amount to royalty and should be assessed as business income under Article 7 of the DTAA. Issue 2: Interpretation of fees for technical services under the India-Indonesia Tax Treaty: The appellant challenged the AO's conclusion that the fees received for borrowed services were taxable under the India-Indonesia Tax Treaty. The appellant argued that the services rendered were not technical but commercial in nature. The tribunal agreed with the appellant, stating that the information provided did not meet the criteria for being classified as royalty under Article 12 of the DTAA. The tribunal held that the receipts should be treated as business income under Article 7 of the DTAA. Issue 3: Assessment of evidence submitted by the assessee: The AO found discrepancies in the details submitted by the assessee regarding the nature of services provided to Mc Kinsey India. The tribunal noted that the information supplied was data and did not constitute royalty. The tribunal emphasized that the amounts received did not fall under the category of royalty as defined in tax law. The tribunal also clarified the tax treatment under the DTAA, distinguishing between royalty and business income. Issue 4: Charging of interest under Section 234B of the Income Tax Act: The AO charged interest under Section 234B of the Income Tax Act, which the appellant contested. The tribunal did not provide specific details on the resolution of this issue in the summary of the judgment. In conclusion, the tribunal decided in favor of the appellant, allowing the appeal and ruling in favor of the assessee based on the interpretation of the DTAA provisions and the nature of the services provided. The tribunal's decision was influenced by previous Mumbai Tribunal orders and the distinction between royalty and business income under the DTAA.
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