TaxTMI 
TaxTMI 
2010 (4) TMI 235
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....i) firm function services, which constitute a central support function that is dedicated to provide a range of administrative and support services for the worldwide offices of the McKinsey group, including the Indian branches of McKinsey Inc. The firm function services comprehend administrative support provided worldwide on legal issues, taxation and administration. In so far as the borrowed services are concerned, the consistent view of the Assessing Officer was that such services amounted to technical fees for included services under the Indo-US Treaty and were chargeable in India at the rate of 15 per cent. on a gross basis. 3. The Income-tax Appellate Tribunal by its decision dated April 26, 2006, came to the conclusion that the payments made to the petitioner for borrowed services would have to be regarded as normal business income and not as fees for included services. In arriving at this conclusion, the Tribunal placed reliance on the memorandum of understanding concerning fees for included services entered into on May 15, 1989, between the Governments of India and United States. The MoU inter alia clarifies that under article 12(4)(b) of the US-India Tax Treaty, consulta....
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.... the petitioner that these receipts are in the nature of business receipts was unverifiable. Consequently, the receipts were held to be taxable in India as fees for technical services under section 9(1)(vii) of the Act and taxable as fees for included services under article 12 of the Indo-US Treaty, liable to be taxed at the rate of 15 per cent. Consequently, it has been directed that the taxes would be withheld at the rate of 15 per cent. on the gross amount to be paid or payable to the petitioner for financial year 2009-10. 7. The application that was made by the petitioner was under section 197(1), which provides that subject to the rules made under sub-section (2A), where, in the case of any income of any person or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the diverse provisions of the Act and the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in that behalf, gi....
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....hes. In the present case, there was absolutely no justification for the Assessing Officer not to follow the order passed by the Commissioner for the assessment year 2008-09. 9. On the other hand, it has been urged on behalf of the Revenue that the Assessing Officer has while directing a deduction computed at 15 per cent. on the gross amount that is paid or payable to the petitioner relied on a draft assessment order for the assessment year 2006-07 issued on November 27, 2009, and in doing so the Assessing Officer has followed a consistency of approach. In the draft assessment order, it was held that the amount received by the petitioner while rendering firm function services would be taxable in India as fees for technical services within the meaning of section 9(1)(vii) of the Act and would be taxable as fees for included services under article 12 of the Indo-US Tax Treaty. 10. For the purposes of these proceedings and having regard to the limited nature of the issue which falls for consideration of the court, it is not necessary to expand upon the ambit of the controversy. The material on record indicates that for the assessment year 2008-09 the Assessing Officer had while r....
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.... prima facie be accepted since admittedly that order is a draft assessment order, pending the conclusion of the Dispute Resolution Procedure. The Assessing Officer has furnished no basis whatsoever, for making a departure from the position adopted in the order passed by the Director of Income-tax (International Taxation) under section 264, for the assessment year 2008-09. There was no valid basis for the Assessing Officer to determine that tax be withheld at the rate of 15 per cent. on gross payments received by the petitioner from the Indian branches. 13. The Assessing Officer in the impugned order has stated that the petitioner had during the course of proceedings for the assessment year 2006-07 not made available the schedules to the preparation of consolidated accounts, indicating the financials of the assessee. At this stage, even if the statement which has been made in paragraph 4 of the impugned order to this effect were to be accepted, though counsel appearing on behalf of the assessee has seriously contested its correctness, that by itself would not furnish any justification for the Assessing Officer to depart from the order passed by the Director of Income-tax (Interna....