DDIT (IT) 4(1), MUMBAI v. M/s. MCKINSEY & COMPANY CANADA, MUMBAI

ITA 930/MUM/2009 | 2005-2006
Pronouncement Date: 28-01-2011 | Result: Allowed

Appeal Details

RSA Number 93019914 RSA 2009
Assessee PAN AAECM3644F
Bench Mumbai
Appeal Number ITA 930/MUM/2009
Duration Of Justice 1 year(s) 11 month(s) 16 day(s)
Appellant DDIT (IT) 4(1), MUMBAI
Respondent M/s. MCKINSEY & COMPANY CANADA, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted L
Tribunal Order Date 28-01-2011
Date Of Final Hearing 19-01-2011
Next Hearing Date 19-01-2011
Assessment Year 2005-2006
Appeal Filed On 11-02-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH MUMBAI BEFORE SHRI R.S.PADVEKAR (JM) AND SHRI RAJENDRA SI NGH(AM) ITA NO.930/M/2009 ASSESSMENT YEAR 2005-06 THE DY.DIRECTOR OF INCOMETAX M/S.MCKINSEY & CO. C ANADA (INTERNATIONAL TAXATION)-4(1) C/O.M/S. BMR & ASS OCIATES 133 SCINDIA HOUSE BALLARD PIER 3F CONTRACTOR BLD G. 41 R.KAMANI MARG MUMBAI 400 038. BALLARD ESTATE MUMBAI 400 038. PAN : AAECM3644F APPELLANT RESPONDENT REVENUE BY : SHRI KESHAV SAXENA ASSESSEE BY : SHRI PORUS KAKA O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 27.11.2008 OF CIT(A) FOR THE ASSESSMENT YEAR 2005-0 6. THE DISPUTES RAISED BY THE REVENUE RELATE TO WHETHER THE CONSULTANCY SERVI CES PROVIDED BY THE ASSESSEE COULD BE CONSIDERED AS INCLUDED SERVICES WITHIN THE MEANING OF ARTICLE 12 OF INDO CANADA TREATY AND IF NOT WHETHER THE SAME COULD BE TAXED UNDER ARTICLE 7 OF THE TREATY AS BUSINESS INCOME. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE WAS PART OF MCKINSEY GROUP OF ENTITIES THE PRIMARY BUSINESS OF WHICH WERE TO REN DER STRATEGIC CONSULTANCY SERVICES TO OTHER CLIENTS FOR MEETING THEIR PERFORM ANCE PROFITABILITY 2 PRODUCTIVITY ETC. MCKINSEY INDIA WHICH WAS ONE OF T HE ENTITIES HAD DURING THE YEAR RECEIVED CERTAIN DATA INFORMATION AND OTHER A DVISORY SUPPORT FOR WHICH A SUM OF RS.1 71 39 988/- HAD BEEN PAID TO THE ASSESS EE. THE ASSESSEE CLAIMED THAT THE RECEIPTS WERE BUSINESS RECEIPTS AND SINCE THE ASSESSEE DID NOT HAVE ANY PERMANENT ESTABLISHMENT (PE) IN INDIA THE SAME COULD NOT BE TAXED UNDER ARTICLE 7 OF DTAA BETWEEN INDIA AND CANADA. THE AO HOWEVER OBSERVED THAT THE ASSESSEE HAD NOT FILED DETAILS PERTAINING TO TH E PROJECT IN RESPECT OF WHICH INFORMATION WAS MADE AVAILABLE AND UTILIZED BY MCKI NSEY INDIA AND THE MANNER OF UTILIZATION. THE ASSESSEE HAD ALSO NOT FILED DET AILS WITH RESPECT TO THE NATURE OF INFORMATION OR OTHER DETAILS THAT WERE PROVIDED BY IT TO MCKINSEY INDIA OR COPIES OF CORRESPONDENCE BETWEEN THE TWO ENTITIES W ITH RESPECT TO SERVICES PROVIDED. FROM THE FACTS AVAILABLE THE AO CONCLUDED THAT THE PAYMENTS RECEIVED BY THE ASSESSEE WERE IN THE NATURE OF CONS IDERATION FOR RENDERING OF TECHNICAL AND CONSULTANCY SERVICES SO AS TO MAKE AV AILABLE TO MCKINSEY INDIA TECHNICAL KNOWLEDGE SKILL KNOW HOW EXPERIENCE AN D PROCESS WHICH WAS OF THE NATURE OF FEES FOR INCLUDED SERVICES COVERED BY A RTICLE 12(4)(B). THE ARTICLE 12(4) OF THE INDO CANADA TREATY WHICH DEFINED FEES FOR INCLUDED SERVICES IS REPRODUCED BELOW AS READY REFERENCE. PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATIO N FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) IF SU CH SERVICES : (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3 IS RECEIVED; OR 3 (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE EXPERIENCE SKI LL KNOW-HOW OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRA NSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. 3. THE AO OBSERVED THAT USE OF THE EXPRESSION MADE AVAILABLE CLEARLY SHOWED THAT IT WAS NOT NECESSARY FOR PROVIDING OF S ERVICES TO PARTICIPATE IN THE ACT OF RENDERING SERVICES. THE AO ALSO REFERRED TO THE PROVISIONS OF INDO US TREATY WHICH WERE SIMILAR TO THE PROVISIONS OF INDO CANADA TREATY. HE NOTED FROM THE MOU OF THE INDO-US TREATY THAT THE CONSULT ANCY SERVICES WERE NOTHING BUT ADVISORY SERVICES WHETHER OR NOT EXPERTISE IN A TECHNOLOGY WAS REQUIRED TO PERFORM SUCH SERVICES. THE RELEVANT PORTION OF MOU WAS REPRODUCED BY THE AO AS UNDER: ARTICLE 12 INCLUDES ONLY TECHNICAL AND CONSULTANCY SERVICES. BY TECHNICAL SERVICES WE MEAN IN THIS CONTEXT ADVISORY SERVICES . HOWEVER THE CATEGORY OF CONSULTANCY SERVICES ALSO INCLUDES ADVI SORY SERVICE WHETHER OR NOT EXPERTISE IN A TECHNOLOGY IS REQUIRED TO PER FORM IT. 4. THE AO THUS CONCLUDED THAT THE PAYMENT RECEIVED BY THE ASSESSEE WAS NOTHING BUT FEES FOR INCLUDED SERVICES UNDER ARTI CLE 12(4)(B). SUCH INCOME AS PER THE PROVISIONS OF DTAA WAS REQUIRED TO BE TAXED IN THE CONTRACTING STATE IN WHICH THE INCOME AROSE. HE THEREFORE HELD THAT THE SAID INCOME HAS TAXABLE IN INDIA AND ACCORDINGLY ASSESSED THE INCOME OF RS.1 7 1 39 988/- IN THE HANDS OF THE ASSESSEE. 5. IN APPEAL THE ASSESSEE SUBMITTED BEFORE CIT(A) T HAT VIDE LETTER DATED 20.12.2007 IT HAD FILED BEFORE THE AO SAMPLE CORRE SPONDENCE INCLUDING THE 4 INFORMATION THAT WAS TYPICALLY PROVIDED BY THE ASSE SSEE AND THE VARIOUS GROUP COMPANIES TO MCKINSEY INDIA. THE AO WAS THEREFORE N OT CORRECT IN STATING THAT THE ASSESSEE HAD FAILED TO PROVIDE ANY DOCUMENTARY EVIDENCE/ PROOF IN SUPPORT OF SERVICES RENDERED. THE ASSESSEE ALSO RELIED ON C ERTAIN TRIBUNAL DECISIONS WHICH ACCORDING TO IT WERE IN ITS FAVOUR. CIT(A) IN PARA 6 OF THE ORDER HELD THAT HE HAD GONE INTO THE FACTS OF THE CASE AND THAT ON THE IDENTICAL FACTS THE TRIBUNAL IN A SIMILAR CASE FOR A.Y.1995-96 TO 2002- 03 IN THE ORDER DATED 26.4.2006 HAD HELD THAT THE PAYMENT IN QUESTION COU LD NOT BE TREATED AS FEES FOR TECHNICAL SERVICES. THEREAFTER CIT(A) BRIEFLY R EFERRED TO THE PROVISIONS OF MOU DATED 15.5.89 BETWEEN INDIA & USA AND CONCLUDED THAT THE ASSESSEE WAS RENDERING CONSULTANCY SERVICES WHICH WAS NOT OF TEC HNICAL IN NATURE AND ACCORDINGLY HELD THAT THE INCOME COULD NOT BE CONSI DERED AS INCLUDED SERVICES UNDER ARTICLE 12(4). IT WAS ALSO HELD BY HIM THAT S INCE THE ASSESSEE DID NOT HAVE ANY PE THE RECEIPTS COULD NOT BE TAXED UNDER ARTICLE 7 OF THE TREATY AS BUSINESS INCOME. THE DECISION OF THE CIT(A) THAT CO NSULTANCY SERVICES COULD NOT BE CONSIDERED AS INCLUDED SERVICES UNDER ARTICLE 12 (4) AS WELL AS THE DECISION HOLDING THAT THE ASSESSEE HAD NO PE IN INDIA HAS BE EN CHALLENGED BY THE DEPARTMENT BEFORE THE TRIBUNAL. 6. WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECO RDS AND CONSIDERED THE MATTER CAREFULLY. THE LEARNED AR FOR THE ASSESSEE S UBMITTED THAT THE ASSESSEE VIDE LETTER DATED 28.12.2007 A COPY OF WHICH WAS PL ACED AT PAGE 45 OF THE PAPER BOOK HAD PROVIDED THE DETAILS OF SERVICES AND THE PROJECTS IN WHICH THESE WERE UTILIZED. THE AO WAS THEREFORE NOT CORRECT IN STATING THAT DETAILS AND EVIDENCES HAD NOT BEEN GIVEN. HOWEVER WE NOTICE TH AT THE SAID LETTER WAS FILED IN THE RECEIPT SECTION OF THE OFFICE OF AO ON THE D ATE OF PASSING OF ORDER ON 28.12.2007 AND THEREFORE THERE IS NO EVIDENCE TO SH OW THAT THE SAME WAS 5 BEFORE THE AO AT THE TIME OF PASSING OF THE ORDER. FURTHER THE LETTER MENTIONS THAT THE SERVICES PROVIDED BY THE ASSESSEE WERE IN THE FORM OF INFORMATION AND OTHER INPUTS FROM THE ASSESSEE IN DIFFERENT PROJECT S BUT DETAILS OF SUCH INFORMATION AND INPUT IS NOT CLEAR FROM THE SAID LE TTER. CIT(A) HAS ALSO NOT PLACED ON RECORD THE DETAILS OF EXACT SERVICES PROV IDED BY THE ASSESSEE. CIT(A) IN PARA 6 OF HIS ORDER HAS MENTIONED THAT FACTS IN CASE OF THE ASSESSEE WERE IDENTICAL TO THE FACTS IN THE CASE OF THE ASSESSEE MENTIONED IN THE ORDER DATED 26.4.2006 OF THE TRIBUNAL. HOWEVER FULL FACTS OF T HAT CASE OR THE EXACT NATURE OF THE SERVICES HAVE NOT BEEN DISCUSSED BY THE CIT( A). EVEN THE NAME OF THE CASE AND APPEAL NUMBER HAS NOT BEEN MENTIONED. CIT( A) IN HIS ORDER HAS ONLY REPRODUCED THE VARIOUS SUBMISSIONS MADE BY THE ASSE SSEE DURING THE APPELLATE PROCEEDINGS WITHOUT GIVING ANY CLEAR FINDING AS TO WHAT WAS THE EXACT NATURE OF SERVICES PROVIDED BY THE ASSESSEE TO ONE OF ITS ENT ITIES IN INDIA. IT MAY BE NOTED THAT THE ASSESSEE HAS PROVIDED SERVICES NOT T O ANY CLIENT BUT TO ONE OF ITS OWN ENTITIES WHO IS PROVIDING CONSULTANCY SERVICES TO VARIOUS CORPORATE CLIENTS. WE ALSO NOTE THAT THE AO HAD NOT EXAMINED THE ISSUE OF PE AS HE HAD TAXED THE INCOME UNDER ARTICLE 12(4)(B) AND NOT UNDER ARTICLE 7. CIT(A) HAS ALSO NOT EXAMINED THE ISSUE OF PE AND SUMMARILY CONCLUDED TH AT THE ASSESSEE HAD NO PE WITHOUT GIVING ANY BASIS OF SUCH FINDING. THE IS SUE OF PE IS REQUIRED TO BE EXAMINED ONCE IT IS HELD THAT INCOME IS NOT TAXABLE AS FEES FOR INCLUDED SERVICES AS IN THAT CASE TAXABILITY AS BUSINESS PR OFIT UNDER ARTICLE 7 IS REQUIRED TO BE SEEN FOR WHICH PE IS RELEVANT. VARIOUS ASPECT S INCLUDING THE FACTUM OF ONE OF THE ASSESSEES OWN GROUP ENTITIES HAVING BUSINES S IN INDIA ARE REQUIRED TO BE CONSIDERED CAREFULLY BEFORE GIVING A FINDING ON THE ISSUE OF PE. THE CIT(A) HAD NOT PASSED A PROPER AND SPEAKING ORDER ON THE SUBJE CT. SUCH ORDER CANNOT BE SUSTAINED. WE ACCORDINGLY SET ASIDE THE ORDER OF CI T(A) AND RESTORE THE MATTER BACK TO HIM FOR PASSING A REASONED AND SPEAKING ORD ER GIVING CLEAR FINDING AS 6 TO THE NATURE OF SERVICES RENDERED BY THE ASSESSEE AND AS TO HOW THE CASE OF THE ASSESSEE IS COVERED BY ANY OTHER TRIBUNAL DECIS ION AFTER BRINGING ON RECORD FULL FACTS OF THE CASE CITED. HE IS ALSO REQUIRED T O EXAMINE THE PE ISSUE AND GIVE A REASONED FINDING. THE CIT(A) WILL GIVE AN OPPORTU NITY OF HEARING TO THE ASSESSEE BEFORE PASSING THE FRESH ORDER. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLOW ED FOR STATISTICAL PURPOSE. 8. THE ORDER WAS PRONOUNCED IN OPEN COURT ON 28.01. 2011. SD/- SD/- ( R. S. PADVEKAR) (RAJEN DRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 28.01.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR L BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ALK