2004 (10) TMI 265 - AT - Income Tax

Tribunal directs fresh adjudication, requires documentary evidence for service nature verification

The Tribunal set aside the appeals to the file of the AO for fresh adjudication, directing the assessees to provide documentary evidence to verify the ... Double Taxation Relief Issues Involved:1. Whether the monies received by the assessee company from the Indian branch constitute 'fees for included services' within the meaning of Article 12(4) of the India-US treaty.2. Whether the income arising in India can be taxed under Article 7 as 'business profits' due to the absence of a PE (Permanent Establishment) in India.Issue-wise Detailed Analysis:1. Fees for Included Services:The Revenue contended that the fees received by the assessees from the Indian branch of McKinsey & Co Inc. should be classified as 'fees for included services' under Article 12(4) of the India-US treaty. The Assessing Officer (AO) based this classification on the TDS certificates and the nature of business described as 'strategic consultancy and other related services.'The first appellate authority referred to previous Tribunal decisions in similar cases, such as McKinsey & Co. Inc. Philippines, Norway, FSU, Finland, Indonesia, and Austria, which concluded that the payments in question could not be treated as 'fees for included services.' The Tribunal had consistently held that the nature of services provided by McKinsey & Co Inc. did not involve technology transfer and thus did not fall under the definition of 'fees for included services.'The Departmental Representative argued that the assessee had not provided specific information for the assessment year 2003-04, making it difficult for the AO to apply the Tribunal's earlier rulings to the current year. The learned counsel for the assessee, however, asserted that the nature of services remained consistent over the years and that the burden of proof lay with the Revenue to demonstrate that the fees were for included services.2. Business Profits and Permanent Establishment:The first appellate authority also held that since the appellant companies did not have a PE in India, the income arising could not be taxed under Article 7 as 'business profits.' This decision was based on the Tribunal's earlier rulings, which had consistently found that McKinsey & Co Inc. did not have a PE in India and thus could not be taxed under Article 7.The Departmental Representative did not dispute the legal position but emphasized the need for the assessee to furnish relevant evidence for the specific assessment year to verify that the facts were identical to those of previous years.Tribunal's Conclusion:The Tribunal noted that the assessee had not furnished any specific documents or evidence for the assessment year 2003-04, despite requests from the AO. The Tribunal emphasized that while the burden of proof initially lies with the Revenue, the assessee must provide information in its exclusive possession when requested.The Tribunal acknowledged the consistent rulings in favor of the assessee in previous years but stressed the importance of providing current evidence to verify that the facts remained unchanged. The Tribunal concluded that the AO should be allowed to call for details and evidence to determine the nature of services rendered.Final Decision:The Tribunal set aside the appeals to the file of the AO for fresh adjudication. The assessees were directed to furnish documentary evidence such as emails, correspondence, bills, and invoices to enable the AO to verify the nature of services. If the facts were found to be identical to those of previous years, the AO was instructed to apply the legal propositions established by the Tribunal and grant relief accordingly.Outcome:The appeals filed by the Revenue were treated as allowed for statistical purposes.