TaxTMI 
TaxTMI 
2018 (3) TMI 791
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....ed, we dispose-off the same by way of this common order for the sake of convenience & brevity. First, we take up ITA No. 1748/Mum/2016 for AY 2011-12 as lead case wherein the following Grounds of Appeals have been raised by the assessee:- 1. The Hon'ble Dispute Resolution Panel ('DRP) has failed to consider the detailed evidence furnished and the order shows non-application of mind, is erroneous and ought to be quashed. 2. The learned AO / Hon'ble DRP has erred in assessing various inter-company payments ignoring the detailed documentation and explanations filed by the Appellant during the course of the assessment proceedings on the basis that it does not have any evidentiary value. 3. The Learned AO's order and finding on the evidence submitted is contrary to the details filed before him and also the Hon'ble DRP. 4. The learned AO/Hon'ble DRP has erred in concluding that the loaned service fee received are in the nature of 'fees for included services' and hence, taxable under Article 12 of the India-US Double Taxation Avoidance Treaty ('India-US Tax Treaty') and under Section 9(1)(vii) of the Act. 5. The Learned AO/Hon'ble DRP has erred in not applying the principles....
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....cts and in the circumstances of the case and in law, the Learned AO/Hon'ble DRP has filed to appreciate and apply the order passed by the Competent Authorities of India and United States of America as per Article 27 of the India-US Tax Treaty in the case of the Appellant for prior years wherein it has been held that only to the extent of the mark-up element of 3 percent. The Appellant prays that the principles underlying the order ought to have been applied and pray accordingly. 13. The finding of the Hon'ble DRP that the Appellant had not followed the order passed by the Competent Authorities of India and United States of America as per Article 27 of the India-US Tax Treaty, is erroneous and ought to be set aside. 14. The learned AO has erred in concluding that the reimbursement of other expenses received by the Appellant is taxable in India in the hands of the Appellant, without considering the detailed documentation and explanations filed by the Appellant. 15. The Learned AO has erred in initiating penalty proceedings under Section 271(1)(c) of the Act. 2. Facts leading to the same are that the assessee being a foreign entity incorporated in United States of America [U....
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....ch should be applied in the present case. Our attention is drawn to various judicial pronouncements / Tribunal's order in assessee's own case and its group companies where the said plea has been accepted. The Ld. Departmental Representative [DR] while contending that the MAP settlement was year-specific could not controvert the same by any binding judicial pronouncement. 4. We have carefully heard the rival contentions and perused several orders of the Tribunal in assessee's case and in the case of its group companies including MAP settlement terms from AY 2002-03 to 2007-08 & from AY 2008-09 to 2009-10 as placed before us in the paper-book. A perusal of Clause 3.3 of Resolution u/s 90 read with Article 26 of India-USA Treaty reached by competent authority in India and USA under MAP of India-USA DTAC, F.No.480/02/2008-FTD-1 dated 01/10/2015 for AYs 2008-09 to 2009-10 as placed on Page No. 108 of the Paper-book reveals that Knowledge Pool Charges, Borrowed Service Charges, Firm Committee Pool Charge & Regional Corporate Finance Charges have been agreed to be not taxable in India as Royalty or Fees for included Service. Further, Firm Function Service fees payable by Mckinsey India s....
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....o be accepted at a mark up of 3% as per MAP settlement of earlier years. Needless to say that the same may suitably be modified by the revenue, if required, on the basis of outcome of MAP settlement for impugned AYs. 7. Resultantly, Ground Nos.4,5,7,8,9,11 stands allowed in assessee's favour. Ground Numbers 1 to 3 are general in Nature. Ground No. 6 stands partly allowed in the sense that Firm Function Charges would be chargeable to tax with a mark-up of 3% in terms of MAP settlement, which is also an alternative Ground No. 12. Ground No. 10 & 13, being alternative ground becomes infructuous. Ground No. 15 contest initiation of penalty, which is premature at this stage and hence dismissed. 8. The remaining Ground No. 14 contest additions with respect to reimbursement of Firm Training Charges & Other expenses. The Ld. AR, at the outset, submitted that the issue requires re-appreciation by lower authorities since these expenses were mere reimbursements in nature without any profit element and therefore, the assessee be afforded another opportunity to demonstrate the same. The Ld. DR did not raise any serious objections against the same. Resultantly, the issue stands remitted back t....
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....d. AR has already demonstrated that MAP settlement from AY 2010-11 to 2012-13 with respect to the captioned assessee are already in progress. Therefore, on factual matrix, applying the MAP terms of earlier years and cited order of the Tribunal, we uphold the stand of the assessee that Loaned Service Income was not taxable as FIS / Royalty in terms of Article-12 of the Treaty and exempted as Business income in the hands of assessee as per Article-7 since the assessee do not have any PE in India. This ground of assessee's appeal stands allowed. Resultantly, the assessee's appeal stands partly allowed in terms of our above order. Appeal Nos. 3 to 16 14. Similarly aggrieved, the other US based group entities of the assessee are in further appeal before us with identical worded grounds of appeal as per the following details:- Appeal No. Name of the Assessee Assessment Year Loaned Service Income Reimbursement of expenses 1750/Mum/2016 McKinsey & Company, Inc. Thailand 2012-2013 2,56,83,102/- Nil 1751/Mum/2016 McKinsey & Company, Inc. Phils 2012-2013 1,03,89,242/- Nil 1752/Mum/2016 McKinsey & Company, Inc. Luxembourg 2012-2013 70,72,659/- Nil 1753/Mum....
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....t the impugned services qualifies as Business Income under Article-7 of the Treaty and not taxable since the assessee do not have any PE in India. The relevant portion from latest order of the Tribunal rendered in ITA No. 660-662/Mum/2013 dated 23/06/2017 is extracted as follows:- 3. At the time of hearing the parties addressed the facts in ITA No. 662/Mum/2015 which is governed by India-Canada Treaty. The remaining appeals namely ITA No. 660/Mum/2015 and ITA No. 661/Mum/2015 are governed by India-Spain and India-Sweden Treaties respectively. It was a common stand of the parties that the relevant clauses were identical to the India-US Treaty. Reverting to the facts in ITA No. 662/Mum/2015 the assessee is a foreign company incorporated in Canada. As in the earlier years, it had entered into international transactions with the its associates concern, Mckinsey & Co., Inc. (Indian Branch) and had provided assistance in the form of borrowed services to Mckinsey India. In consideration for which the assessee received an amount for Rs. 7,615,310/- from Mckinsey India. This income was not offered by the assessee for tax in the return of income filed by it on the reasoning that the borrow....
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....ble Bombay High Court vide its order dated 23rd January, 2013 in I.T.Appeal No. 1218 of 2011 and others in the case of Director of Income Tax (International Taxation) V. Mckinsey & Company Inc. dismissed the appeals filed by the Revenue as withdrawn. It was further submitted that the similar directions were given to the CIT-DR in the ITAT and he was requested to withdraw the appeals filed before the ITAT in the following cases on the basis of Mutual Agreement Procedure of India-USA DTA:- 1. M/s Mckinsey & Company Inc. United States - A.Y.2004-05 2. M/s Mckinsey international, Inc. - A.Y.2003-04 3. M/s Mckinsey & Company Inc. Austria - A.Y.2004-05 4.1 The ld. Counsel also invited our attention to the order of the ITAT placed at paper book pages 120 to 122 whereby the appeals filed by the Revenue were dismissed as withdrawn. 4.2 In the said background, our attention was invited to paper book page 36 to 45 and it was submitted that the ITAT vide its order dated 17.4.2015 in ITA No. 7646/Mum/2012, ITA No. 7654 to 7661/Mum/2012 & ITA No. 7662 to 7669/Mum/2012 for A.Y.2009-10 decided the appeals of group companies where the tax payer in the present proceedings were also co....