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TMI Blog2005 (10) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residents of the United States of America, and are covered by the India-USA Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion 187 ITR (Statute) 102 - referred to as 'the India-US treaty' in this order. There is no dispute about this factual position, as also the fact that the appellant-companies did not have any permanent establishment in India. The appellant-companies have rendered certain services to the India branch office of McKinsey Inc. (referred to McKinsey India, in short). McKinsey Inc. is worldwide engaged in the business of providing strategic consultancy services. McKinsey India carries on this business and renders these services to its clients in India. In the course of rendering these services, McKinsey India needs some information inputs from other group companies, such as the appellant-companies before us which specialise in respect of particular geographical locations as the names of the appellant-companies also indicate, and the payments are made for supply of the said information inputs. A typical example of this information requisition, as evident from copy of the e-mail placed at page 8 of the paper-book, is as follows: "Sub : D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nueva. This factory belongs to Manuel Villaseca SA. Badalona. This is a town in the province of Barcelona. I called the Town Hall where they informed me that the only dye company in that area is Lorilleux Lefranc. This company must be very small, since it does not appear in our database; they informed me over the phone that they only make dyes for paper. Palafolls. This town is located near Barcelona. At Town Hall, they gave me the only dye factory within their area of jurisdiction, Escolor. Escolor told me that they do not manufacture dyes--they only dye products for the textile industry. I am sending you information on these three companies. Please let me know if you want me to send any more. Attachment : General Quimica, SA.xls Regards. CP* (Page 20 of paper-book) "Sub : Swedish dyestuff companies Attachment : dyestuff.xls Hello, In this attachment, you will find some of the information that you have asked for. We have not been able to find any answers to the more customer-oriented questions. As you can see the companies you specified are very small. If you find that this is not what you were looking for, please contact us again and specify more clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the sense that the scope of article 12(3)(a) will be the same as that of article 12(4)(a), but then "it is settled law that any construction, which renders other provisions of the statute meaningless, has to be avoided". The Assessing Officer further placed on record his perception that "the distinguishing feature between sub-article (3) and sub-article (4) of article 12 is that, in the former, consideration is paid to the grantor by the licensee for granting 'know-how' so that the licensee can use them for his own account and the grantor plays no part in the application of know-how/formulae granted, whereas, in the latter case, there is a provision of service which the provider of service undertakes to use the customary skills of his calling to execute work himself for the other party" and that "it is in this context that the expression "made available" has been used in clause (b) of sub-article (4) of article 12 of the DTAA". "To interpret this expression in any other manner, except for the clarification given in the MoU", according to the Assessing Officer, "would be doing violence to the clause". The Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al knowledge, experience, skill or know-how etc. In other words, in order to attract the taxability of an income under article 12(4)(b), not only the payment should be in consideration for rendering of technical or consultancy services, but, in addition to the payment being consideration for rendering of technical services the services so rendered should also be such that 'make available' technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. 6. The question then arises as to what are connotations of the expression 'make available' appearing in article 12(4)(b) of the India-US treaty. 7. The connotations of expression 'make available' were considered by the Tribunal in the case of Raymond Ltd. v. Dy. CIT [2003] 80 TTJ (Mum.) 120. The Tribunal, after elaborate analysis of all the related aspects, observed that "Thus, the normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services not roped in unless the person utilizing the services is able to make use of technical knowledge, etc., by himself in his business and or for his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication of know-how, copyrights and information regarding industrial, commercial or scientific experience is concerned but then it is difficult to understand as to on what basis the Assessing Officer comes to the conclusion that article 12(4)(b) visualizes a situation in which "there is a provision of service which the provider of service undertakes to use the customary skills of his calling to execute work himself for the other party". The interpretation so canvassed by him is diametrically opposed to the understanding arrived at between the respective Governments entering into this tax treaty, set out in Memorandum of Understanding concerning fees for included services in Article 12 dated 15th May, 1989, which states that the scope of Article 12(4)(b) "excludes any service that does not make technology available to the person acquiring the service" and that "generally speaking, technology will be considered to be 'made available' when the person acquiring the service is enabled to apply the technology". I am, therefore, unable to approve the stand of the Assessing Officer on this issue. His observations to the effect that "the expression 'made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part in the application of know-how/formulae granted". The Assessing Officer has thus rightly noticed that so far as Article 12(3) is concerned, the role of the assessee is non-participative or passive. In Article 12(4), the role of the assessee is participative or active, in the sense that 'rendering of services' is the basic pre-condition for application of Article 12(4). The scope of these two provisions are thus mutually exclusive and clearly distinct - Article 12(3) deals with the consideration for granting use or right to use certain physical or intellectual properties, whereas Article 12(3) deals with rendering of managerial, technical or consultancy services under certain specific conditions. The Assessing Officer is not correct in being of the view that if non-technical services are excluded from the scope of Article 12(4)(b), its scope will be the same as that of Article 12(3)(a). His observations that "it is settled law that any construction, which renders other provisions of the statute meaningless, has to be avoided" are also, therefore, irrelevant. I am therefore not inclined to uphold this objection raised by the Assessing Officer either. 9. Having c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice. However, the category of consultancy services also includes an advisory service, whether or not expertise in technology is required to perform it. Under paragraph 4, technical and consultancy services are considered included services only to the following extent : (1) as described in paragraph 4(a), if they are ancillary and subsidiary to the application or enjoyment of a right, property or information for which a royalty payment is made; or (2) as described in paragraph 4(b), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(b), consultancy services which are not of a technical nature cannot be included services." [Emphasis supplied] It is thus 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply of commercial and industrial information inputs cannot be treated as fees for included services under article 12(4)(b). Having come to the conclusion that the appellant-companies have received consideration for supply of commercial and industrial information. I have to hold that the monies so received by the appellant-companies are not taxable under article 12(4)(b). I may also add that in the case of Dy. CIT v. Boston Consulting Group (P.) Ltd. [2005] 94 ITD 31 (Mum.), and while articulating the views of a Division Bench of this Tribunal, I had observed that ". . . the scope of fees for technical services under Article 12(4)(b) [which is materially the same as the scope of fees for included services under article 12(4)(b) of the India-US treaty] does not cover consultancy services unless these services are technical in nature". In coming to this conclusion, the Division Bench was guided by the MoU on the India-US treaty as the provisions of the India-Singapore treaty, which the Division Bench was considering in that case, were in pari materia with the provisions of the India-US treaty. It cannot thus be open to me to take any other view of the matter when the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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