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2005 (10) TMI 416 - AT - Income TaxDouble taxation relief - Whether or not the CIT(A) was justified in holding that the monies received by these companies from India branch office of McKinsey & Co. Inc. constitute "fees for included services" within the meanings of article 12(4) of the India-US treaty, and, are accordingly liable to be taxed in India - HELD THAT:- The nature of assessee’s activities is furnishing of geographical specific data and information inputs, which are commercial and industrial information in nature. This fact is clear from my perusal of the copies of e-mail communications, and attachments thereto, exchanged between the appellant-companies and McKinsey India. In any event, there is no material before me to suggest that the payment is for any such services which enable the recipients of these services to apply the technology. The onus is on the revenue to demonstrate that the assessee has a taxable income even under the DTAA. This onus, in my considered view, has not been discharged by the revenue in the present case. Merely because the assessees have rendered certain consultancy services to the McKinsey India does not by itself can be reason enough to conclude that the consideration for such consultancy services is taxable in India under article 12(4)(b) as ‘fees for included services’. As for the non-technical consultancy services, as I will now point out, it is specifically agreed to between the Governments of India and the USA that such services shall not be covered by article 14(2)(b). In the protocol note attached to and forming part of the aforesaid DTAA, Government of India has confirmed that memorandum of understanding between India and USA with regard to interpretation of article 12 (royalties and fees for included services) also represents the views of the Indian Government. It is clear that so far as the India-US tax treaty is concerned, consultancy services, which are not technical in nature, cannot be treated as ‘fees for included services’. The stand taken by the revenue, right from the assessment stage, is that the services rendered by the appellant-companies are ‘consultancy services’, though non-technical, and for that reason the consideration for these services is taxable as ‘fees for included services’. In fact, the Assessing Officer specifically observes that "the fees received by the assessee in respect of the services (which are consultancy/ advisory services with no technology in it) rendered fall in the category of ‘fees for included services’ in terms of clause (4) of article 12". There is an inherent contradiction in this stand. Even if the services are consultancy services but are non-technical in nature, the same cannot be held to taxable under article 12(4)( b), since the MoU, relevant extracts from which have been reproduced above, specifically provides that, "under paragraph 4(b), consultancy services which are not of, a technical nature cannot be included services". As I have taken note of in the preceding paragraph, what is supplied by the appellant-companies to McKinsey India is nothing but geographical specific data and information inputs which are commercial and industrial information in nature. I am of the considered view that the CIT(A) indeed erred in holding that the monies received by the appellant-companies from McKinsey India constitute "fees for included services" within the meanings of Article 12(4) of the India-US treaty, and are accordingly liable to be taxed in India. In my view, the payments in question, for the detailed reasons set out above, cannot be treated as ‘fees for included services’. Since the appellant-companies do not have any permanent establishment in India, the incomes so arising to them in India cannot be taxed under Article 7 as ‘business profits’ either. Therefore, I direct the Assessing Officer delete the impugned additions. The assessees get relief accordingly. In the result, all the six appeals are allowed.
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