ST: Input services includes "Dismantling"; CENVAT Credit should be allowed

CESTAT, NEW DELHI BENCH

Commissioner of Central Excise, Meerut-II

v.

Jindal Pipes Ltd.

FINAL ORDER NO. 1491 OF 2012 - SM (BR) ; APPEAL NO. E/3338 OF 2010-SM ; NOVEMBER 5, 2012

The captioned case relates to credit of input services used for dismantling of existing structure in the factory.

Relevant Facts

In general, credit of input services used for repair or renovation of factory or office is allowed. Services used in relation to renovation or repairs of factory, premises of provider of output service provider or an office relating to such factory or premises are specifically provided of in the inclusive part of the definition of input services.

In the captioned case, the taxpayer claimed Cenvat credit of Rs.5,074/- on the services received in respect of dismantling of existing structure in the factory. However Revenue rejected the same. The taxpayer appealed in the office of Commissioners (Appeals). Commissioner (Appeal) ordered in the favour of the taxpayer and observed that renovation includes dismantling.

Revenue appealed against the order of Commissioners (Appeals).

New Delhi Bench of CESTAT observed

“3…….I find no infirmity in the order of Commissioner (Appeals). Admittedly renovation involves dismantling of the existing structure on which a new structure can be erected. I find no infirmity in the impugned order of Commissioner (Appeals). The Revenues appeal is accordingly rejected.”

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CA Gaurav Garg

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New Delhi, India

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India-Indonesia DTAA: Receipt for the data services is in the nature of business income

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

1. Fees received for the data services is not services in the nature of Royalty. 
2. Receipt for the data services is in the nature of business income.
3. 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. 

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Best Regards

CA Gaurav Garg

JGarg Economic Advisors

New Delhi, India

(M) +91 9899994934

(E) gaurav@jgarg.com