TaxTMI 
TaxTMI 
2026 (7) TMI 1958
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.... the Ld. CIT(A) erred in concluding that borrowed services fees received by the assessee do not constitute Fee for Technical Services in its hand and the same falls within the ambit of "Business Profit" under Article 7 of the India-United Kingdom Double Taxation Avoidance Agreement and other relevant DTAAs? ii. Whether on the facts and circumstances of the case and in law Ld. CIT(A) erred in holding the income as Business Profit without PE, whereas the nature of income is of "Fee for Technical Services"? iii. Whether on the fact and circumstances of the case and in law the Ld. CIT(A) erred in holding that the assessee had no permanent establishment in India whereas upon the perusal of Article-5 of the Indo UK Double Taxation Avoidance, it fits into the definition of PE as follows read with the fact that M/s. McKinsey Inc. is 100% holding company of the assessee company." Since the grounds are connected, the same are taken up together for adjudication hereinafter. 3. The relevant facts in brief are that the Assessee is a foreign company and tax resident of the United Kingdom. It is admitted position that the Assessee is entitled to claim benefit of Double Tax....
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.... India LLP were claimed to be exempt under the provisions of the Tax Treaty. It was contended that while providing the 'borrowed services'/'advisory support', the Assessee did not make available any technical knowledge, skill etc. to the service recipients. Accordingly, the receipts did not qualify as 'Fees for Technical Services' under Article 13 of the Tax Treaty and therefore, the same were not liable to tax in India. It was further contended the services were performed during the ordinary course of business, and therefore, the receipts qualified as business receipt. In the absence of a Permanent Establishment (PE) of the Assessee in India in terms of Article 5 of the Tax Treaty, the receipts were not be taxable in India as per the provisions of Article 7 of the Tax Treaty. In support the Assessee filed details along with tabular summary of the services rendered and the nature thereof giving reasoning for non-taxation of such service/receipts in India. The Assessee also submitted tabular summary outlining the scope of all projects/client assignments of McKinsey India on which the Assessee provided assistance to McKinsey India to substantiate that services rendered by the assesse....
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....and in the circumstances of the case and in law, the learned AO has failed 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-USA Tax Treaty in the case of group companies of the Appellant for prior years wherein it has been held that the borrowed service fees should not be taxable in india in the hands of the Appellant. The Appellant prays that the principles underlying the said order ought to have been applied. 5. The learned AO has erred in treating the amount of INR. 11,47,574 received by the Appellant towards reimbursement of expenses as FIS under Article 13 of the India-UK Tax Treaty. 6. Without prejudice to the above, the learned AO has erred in not computing tax liability at 10.30% in accordance with Section 115A(1)(b) of the Act in respect of income earned from McKinsey & Company India LLP, an Indian concern. 7. The learned AO has erred in levying interest of INR. 13,718 under Section 2348 of the Act. 8. The learned AO has erred in initiating penalty proceedings under Section 270A of the Act. 9. Vide Common Order, dated 24/01/2024, wherein the Learned CIT(A....
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....a, information and other support. It was stated by the assessee that the services were performed outside India and were rendered in the ordinary course of the business, therefore, it was business receipt. Further, the assessee had no permanent establishment (PE) India, therefore, incidence of tax did not arise in India. Thus, the assessee had filed Return of income claiming benefit of DTAA between India and United Kingdom. The AO asked the assessee to explain as to why loaned service income amounting to Rs. 1,83,15,483/- should not be treated as Fees for Technical Services. In response to the query raised by the AO, the AR of the assessee submitted tabular summary related to services rendered by the assessee to McKinsey India during the year along with the reason for non-taxation of borrowed (loaned) services. The assessee also submitted the tabular summary outlining the scope of all projects/client assignments of McKinsey India on which the assessee has provided assistance to McKinsey India were India to substantiate the services rendered by the services to McKinsey not "Fees for Included Services" under Article 13 of DTAA between India and United Kingdom. However, the AO was not ....
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.... received by the assessee on account of "borrowed services" were clearly the fees for consultancy services and it would fall in the definition of fees for included services as per Article 12 of India-UK DTAA. Therefore, the AO treated income from "borrowed services (loaned services)" amounting to Rs. 1,83,15,483/- as Fees for Technical Services. The AO further noted that the Income Tax Act do not prescribe rate of tax on royalty or fees for technical services in respect of payment made by one non-resident to another non-resident, therefore, the rate of tax should be determined on a net basis. After considering India-UK DTAA, the AO taxed the income @15% on gross basis. Accordingly, the AO has made addition of Rs. 1,83,15,483/- in respect of income from borrowed (loaned) services considering it as fees for included services. xx xx 5.3.1 The order of the ITAT in the case of McKinsey & Co. Inc., US and others for AYs. 2011-12 and 2012-13 has been perused. Other case laws relied upon by the appellant has been perused On going through the ITAT order in the case of group companies for AY. 2011-12, it is seen that the ITAT, Mumbai has held that the taxability of receipts....
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....essment proceedings, the assessee did not submit any details with respect to the income from reimbursement of expenses. The AO issued a show-cause as to why the same should not be taxed as income in India. In response to the query raised by the AO, the assessee did not make any submission and also did not produce substantiating evidence to prove that the income from reimbursement of expenses was exempt and not taxable. The AO held that the assessee was in the business of providing strategic consultancy services and earned income during the year by providing services in the nature of consultancy in technical/management and financial matters that was 'make available' in nature as per India-UK DTAA. In the absence of any evidence to prove the reimbursement of expenses was truly reimbursement in nature, the AO held reimbursement of expenses as fees for technical services. Accordingly, the AO has taxed reimbursement of expenses amounting to Rs. 3,75,507/- as fees for technical services. xx xx 6.3. The facts recorded and finding of the AO in the assessment order and submission made by the appellant have been considered. received The an facts of the case of the a....
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.... Gmbh (Bom HC) (ITA No. 2626 of 2009), CIT vs Industrial Engineering Products Pvt Ltd [202 ITR 1014 (Del HC)] and CIT vs Dunlop Rubber Co Ltd (142 ITR 493 Cal HC)). The appellant further submitted that in subsequent years, in the case of the appellant as well as the group companies, the AO has accepted that reimbursement of expenses was not taxable as FTS. The AO has considered reimbursement of expenses as FTS because the reimbursement of expenses was related to providing services which were technical, managerial and consultancy in nature. By providing such services technical. knowledge, experience, skill, know-how or processes was made available as per Article 12(4). From nature of the services, it is seen that reimbursement of expenses was related to travelling expenses, travelling charges. The reimbursement was made without any mark-up and no element of profit was involved in reimbursement of such expenses. Further, in the case of the appellant for AY. 2021- 22, the AO has not considered the reimbursement of expenses taxable as FTS. Therefore, reimbursement of expenses which is in the nature of travelling expenses and telephone charges did not 'make available technical knowl....
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....hall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 (Business profits) or Article 15 (Independent personal services) of this Convention, as the case may be, shall apply." On perusal of above it is apparent that as per Article 13(6) of the Tax Treaty that FTS income effectively connected to a PE it is taxed as Business Profits under Article 7 of Tax Treaty and not as FTS under Article 13(1)/(2) of Tax Treaty. In the present case the Assessing Officer has invoked Article 13(1)/(2) of the Tax Treaty. Therefore, it can be inferred that the Assessing Officer had taken a view that the receipts were not connected with the PE, if any....
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.... consistently denied the existence of a PE before the lower authorities. Given that Article 5(6) explicitly debars a subsidiary from being treated as a PE purely on account of shareholding, and taking note of absence of any evidentiary material demonstrating the existence of a PE of the Assessee in India, we reject the Revenues plea to tax receipts as business profits under Article 7 of the Tax Treaty. Thus, Ground No. 2 and 3 raised by the Revenue are dismissed. 17. This takes us to the core issue of taxability of receipts as 'Fee for Technical Services'. The contention of the Assessee before the Assessing Officer was that the requirement of 'make available' contained in Article 13(4) of the Tax Treaty was not satisfied in the facts and circumstances of the present case, and therefore, the receipts fell outside the ambit of 'Fee for Technical Services'. The aforesaid contention of the Assessee was rejected by the Assessing Officer. However, in the appellate proceedings, the Learned CIT(A) found merit in the same and deleted the additions. Now, the Revenue has carried the issue in appeal before this Tribunal by way of Ground No. 1. 18. On perusal of the material on record, we....
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....ted. The Assessee has also placed on record, the decision of Co-ordinate Bench of the Tribunal, dated 15/07/2024, passed in the case of the Assessee for the Assessment Year 2016-2017 [ITA No. 2759/Mum/2023 and C.O. No. 14/Mum/2024]. By way of aforesaid decision, dated 15/07/2024, the Co-ordinate Bench of the Tribunal dismissed Ground No. 2 raised by the Revenue challenging the order passed by the first appellate authority holding that the fee received for 'borrowed services' was not in the nature of Fee for Technical Services as defined in Article 13 of Tax Treaty. The relevant extract of the decision of the Tribunal reads as under: "2. The grievance of the revenue reads as under:- "Ground of appeal No. 1 xx xx Ground of appeal No. 2 The assessee is providing strategic consultancy services and has earned income during the year by providing services in the nature, consultancy, technical, management and financial matter that are make available in the nature as India UK DTAA. As per the article 13 of the India-UK DTAA the fees received by the assessee on account of borrowed services are fee for consultancy services. Therefore the Ld. CIT(A)....
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....10-2011. Drawing support from the findings given by the A.O. in earlier assessment years, the AO treated the income of Rs.6,79,39,779 as fees for technical services and added the same to the total income of the assessee. 5. The assessee carried the matter before the CIT(A). It was brought to the notice of the CIT(A) that the Tribunal in assessee's own case has taken up consistent view for various assessment years that the income from borrowed services is not taxable under the India-Singapore Treaty. The assessee submitted the orders of the Tribunal from AYs 1999-2000 to 2011-2012. It was also brought to the notice of the CIT(A) that against the order of the Tribunal for AYs 2006-2007, 2007-2008 and 2008-2009 to 2010-2011, the Revenue had preferred appeals before the Hon'ble High Court of Bombay, but subsequently the appeals were withdrawn due to low tax effect. It was further brought to the notice of the CIT(A) that in the case of group companies for AYs 2006-2007, 2011-2012 and 2012- 2013, the Department withdrew the appeals as the issue was resolved under Mutual Agreement Procedure (MAP). Considering the facts of the case in totality and following the judicial discip....