THE ITAT MUMBAI BENCH
P.T. McKinsey Indonesia
v.
Deputy Director of Income-tax (International Taxation) -
4(1), Mumbai
IT APPEAL NO. 7625 (MUM.) OF 2010
[ASSESSMENT YEAR 2007-08]
JANUARY 16, 2013
Key Observations of the Mumbai Tribunal
- Fees received for the data services is not services in the nature of Royalty.
- Receipt for the data services is in the nature of business income.
- If the receipt cannot be taxed under any other article in such case only it would be treated as "other income".
Facts
P.T. Mckinsey Indonesia (‘Mckinsey Indonesia’ or ‘taxpayer’)
is a part of McKinsey group (‘Group’) and is a company incorporated in and a
tax resident of Indonesia. The Group and
the taxpayer provide consultancy services to their clients. The Indian branches
of McKinsey & Company, Inc ('McKinsey India') were set up to provide
similar services in India.
During Assessment
Year 2007-08, Mckinsey Indonesia provided certain information from outside
India to Mckinsey India and charged for the same. The taxpayer claimed received
of fees from McKinsey India as business receipt and in absence of permanent
establishment of the recipient the same was not taxable in India.
Assessing Officer (‘AO’) considered the same as fees for
included services and taxed as per
Article 12 of the INDIA-INDONESIA DTAA. The taxpayer appealed before the Dispute
Resolution Panel (‘DRP’), wherein DRP opined that receipt-in-question was to be
taxed as per the provisions of Article 22 of the Agreement i.e. other income.
Observation of the
Tribunal
AO has nowhere established that pieces of information
supplied by the taxpayer to Mckinsey India were arising out of exploitation of
the know-how generated by the skills or innovation of the persons who possesses
such talent. Information received by McKinsey India was in the nature of data
and same cannot be held to payment received as Royalty. Word 'Royalty' in
taxation-terminology has its distinct meaning and the amount received by the
taxpayer does not fall in that category.
As far as taxing the receipts under the head 'Other Income'
is concerned, as held by the penal, the Tribunal observed that residuary head
is analogous to sections 56-57 of the Act. If a certain receipt cannot be taxed
under any other head, only then the sections dealing with 'Income from Other
Sources',come into play in domestic taxation matters. Likewise, under the
DTAAs, if a sum can be taxed under any other Article, provisions of Article 22
will not be applicable. Income received by the taxpayer’s company form McKinsey
India is not to be treated as Royalty-rather it has to assessed as business
income as per Article 7 of the DTAA.
While forming an opinion the Tribunal relied upon various
orders of Mumbai Tribunal in case of the other Group entities on the same
issues.
For advisory on International Taxation and Direct Taxation, please contact us.
Best Regards
CA Gaurav Garg
JGarg Economic Advisors
New Delhi, India
(M) +91 9899994934
(E) gaurav@jgarg.com
