TMI Blog2005 (10) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... axable 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-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tates of America, and are covered by the India-USA Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion 187 ITR (Statute) 102 - referred to as the India-US treaty in this order. There is no dispute about this factual position, as also the fact that the appellant-companies did not have any permanent establishment in India. The appellant-companies have rendered certain services to the India branch office of McKinsey Inc. (referred to McKinsey India, in short). McKinsey Inc. is worldwide engaged in the business of providing strategic consultancy services. McKinsey India carries on this business and renders these services to its clients in India. In the course of rendering these services, McKinsey India needs some information inputs from other group companies, such as the appellant-companies before us which specialise in respect of particular geographical locations as the names of the appellant-companies also indicate, and the payments are made for supply of the said information inputs. A typical example of this information requisition, as evident from copy of the e-mail placed at page 8 of the paper-book, is as follows: Sub : Dyestuff companies Hello from Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the Town Hall where they informed me that the only dye company in that area is Lorilleux Lefranc. This company must be very small, since it does not appear in our database; they informed me over the phone that they only make dyes for paper. Palafolls. This town is located near Barcelona. At Town Hall, they gave me the only dye factory within their area of jurisdiction, Escolor. Escolor told me that they do not manufacture dyes they only dye products for the textile industry. I am sending you information on these three companies. Please let me know if you want me to send any more. Attachment : General Quimica, SA.xls Regards. CP* (Page 20 of paper-book) Sub : Swedish dyestuff companies Attachment : dyestuff.xls Hello, In this attachment, you will find some of the information that you have asked for. We have not been able to find any answers to the more customer-oriented questions. As you can see the companies you specified are very small. If you find that this is not what you were looking for, please contact us again and specify more closely what kind of dyestuff you are looking for. None of the above companies includes the dying of pulp for instance. If you have any questions re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer further placed on record his perception that the distinguishing feature between sub-article (3) and sub-article (4) of article 12 is that, in the former, consideration is paid to the grantor by the licensee for granting know-how so that the licensee can use them for his own account and the grantor plays no part in the application of know-how/formulae granted, whereas, in the latter case, there is a provision of service which the provider of service undertakes to use the customary skills of his calling to execute work himself for the other party and that it is in this context that the expression made available has been used in clause ( b ) of sub-article (4) of article 12 of the DTAA . To interpret this expression in any other manner, except for the clarification given in the MoU , according to the Assessing Officer, would be doing violence to the clause . The Assessing Officer also noted that the assessees have not filed complete documentary evidence/proof to ascertain the nature of services, and that, in the absence of the relevant information, reliance could be placed on the classification mentioned on TDS certificates as fees for consultancy services . It was in this bac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so rendered should also be such that make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. 6. The question then arises as to what are connotations of the expression make available appearing in article 12(4)( b ) of the India-US treaty. 7. The connotations of expression make available were considered by the Tribunal in the case of Raymond Ltd. v. Dy. CIT [2003] 80 TTJ (Mum.) 120. The Tribunal, after elaborate analysis of all the related aspects, observed that Thus, the normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services not roped in unless the person utilizing the services is able to make use of technical knowledge, etc., by himself in his business and or for his own benefit and without recourse to the performer of services, in future . In Raymond Ltd. s case ( supra ), the Tribunal also held that rendering of technical services cannot be equated with making available the technical services. This is precisely what the authorities below have ended up doing in the case of CESC Ltd. v. Dy. CIT [2003] 87 ITD 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f his calling to execute work himself for the other party . The interpretation so canvassed by him is diametrically opposed to the understanding arrived at between the respective Governments entering into this tax treaty, set out in Memorandum of Understanding concerning fees for included services in Article 12 dated 15th May, 1989, which states that the scope of Article 12(4)( b ) excludes any service that does not make technology available to the person acquiring the service and that generally speaking, technology will be considered to be made available when the person acquiring the service is enabled to apply the technology . I am, therefore, unable to approve the stand of the Assessing Officer on this issue. His observations to the effect that the expression made available would mean that the person providing the service merely enables the acquirer to use knowledge and the provider does not participate in the act of doing the job himself are also, accordingly, unsustainable in law. Once an expression has received an authoritative interpretation from the authorities no less than the respective Governments which have entered into the tax treaty in which the said expression is use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinct - Article 12(3) deals with the consideration for granting use or right to use certain physical or intellectual properties, whereas Article 12(3) deals with rendering of managerial, technical or consultancy services under certain specific conditions. The Assessing Officer is not correct in being of the view that if non-technical services are excluded from the scope of Article 12(4)( b ), its scope will be the same as that of Article 12(3)( a ). His observations that it is settled law that any construction, which renders other provisions of the statute meaningless, has to be avoided are also, therefore, irrelevant. I am therefore not inclined to uphold this objection raised by the Assessing Officer either. 9. Having carefully perused the material on record, I find 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 suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(b), consultancy services which are not of a technical nature cannot be included services . [Emphasis supplied] It is thus 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a Division Bench of this Tribunal, I had observed that . . . the scope of fees for technical services under Article 12(4)( b ) [which is materially the same as the scope of fees for included services under article 12(4)( b ) of the India-US treaty] does not cover consultancy services unless these services are technical in nature . In coming to this conclusion, the Division Bench was guided by the MoU on the India-US treaty as the provisions of the India-Singapore treaty, which the Division Bench was considering in that case, were in pari materia with the provisions of the India-US treaty. It cannot thus be open to me to take any other view of the matter when the provisions of India-US treaty itself are being considered in the present case. 10. For the reasons set out above, 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 service ..... X X X X Extracts X X X X X X X X Extracts X X X X
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