ITAT Rules McKinsey Payments Not Taxable in India; No "Included Services" Under India-US Treaty, No Permanent Establishment.

The ITAT concluded that the payments received by the appellant-companies from McKinsey India do not qualify as "fees for included services" under Article 12(4) of the India-US treaty. The services provided did not "make available" technical knowledge or skills to McKinsey India, as required by Article 12(4)(b). Consequently, these payments are not taxable in India, given the absence of a permanent establishment. The ITAT directed the Assessing Officer to remove the disputed additions, thereby ruling in favor of the appellant-companies and allowing all six appeals.

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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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