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Facts
The Revenue appealed against the CIT(A)'s orders for AY 2021-22 and 2020-21. The assessee, a Singapore-incorporated company, received payments for 'borrowed services' from its Indian entities. The Revenue argued these payments were Fees for Technical Services (FTS) taxable in India, while the assessee contended they were not taxable due to absence of PE and lack of 'make available' clause.
Held
The Tribunal held that the issue of taxability of borrowed service charges as FTS has been consistently decided in favour of the assessee by its Co-ordinate Bench in earlier years, including specific MAP resolutions and High Court withdrawals by the Revenue. The Tribunal found no distinguishing facts and followed its previous decisions.
Key Issues
Whether 'borrowed service charges' received by the assessee are taxable in India as FTS under Article 12 of the India-Singapore DTAA, especially in light of prior MAP settlements and Tribunal rulings.
Sections Cited
12, 147, 148, 143(3)
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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SMT BEENA PILLAI, JM &
O R D E R Per Padmavathy S, AM: These appeals by the Revenue are against the separate orders of the Commissioner of Income Tax (Appeals)-57, Mumbai, (in short "the CIT(A)") both dated 26.02.2024 for Assessment Year (AY) 2021-22 & 2020-21. The common grounds of appeal raised by the Revenue for both the AYs are as under:
1. & 2570/Mum/2024 McKinsey and Company Singapore Pte. Ltd “1. Whether in the facts and in circumstances of the case and in law, the Ld.CIT(A) is correct in following the MAP settlement decision arrived between Competent Authorities of India and USA, without appreciating the fact that the assessee is a resident of Singapore and was never subject to the MAP proceedings between Indian and Singapore?
2. Whether on facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in holding that fees for "borrowed services" were not FTS despite the same being specific to the requirements of clients of the Indian AE of the Assessee?
3. Whether on facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in giving relief to the assessee based on Mutual Agreement Procedure of US- incorporated associated enterprises of the Assessee, despite the fact that Assessee was not a party to any of the Mutual Agreement Procedure?
4. Whether on facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in holding that the assessee's receipts from India were of the nature of business receipts not taxable due to absence of PE in India, and not FTS despite the fact that the Assessee had rendered specific and specialized services only to its own AE in India that were specific to the requirements of the clients of the Indian AE?”
2. The assessee is a foreign company incorporated in Singapore. The assessee is part of McKinsey Group of entities the primary business of which is to render strategic consultancy services to its clients which includes the analysis of performance, developments, strengths and weakness of the clients improving their profitability and productivity and similar other parameters. In order to analyse these parameters the entities in various countries, McKinsey Indian Entities makes use of certain data, information and other support which is provided by the assessee. The assessee for AY 2020-21 received a sum of Rs. 12,82,94,347/- from McKinsey & Co. Inc. and Rs. 5,16,14,236/- from McKinsey & Co. India LLP towards provision of borrowed services. For AY 2021-22 the assessee received similar payments amounting to Rs. 15,33,32,462/-. The assessee filed the return of & 2570/Mum/2024 McKinsey and Company Singapore Pte. Ltd income for AY 2020-21 on 14.02.2021 declaring a total income of NIL. The return for AY 2021-22 was filed on 15.03.2022 declaring a total income of Rs. 15,65,555/-. The cases were selected for scrutiny and the statutory notices were duly served on the assessee. The assessee submitted before the AO that the payment received is towards services rendered outside India and since the assessee does not have a PE in India the same cannot be taxed in India as Business Income under Indo-Singapore Tax Treaties. The assessee further submitted that its does not make available any technical knowledge, skill etc. to the service recipients and accordingly stated that the borrowed services cannot be treated as Fees for Technical Services (FTS) under Article 12 of Indo-Singapore Tax Treaty. The assessee also submitted various documentary evidences substantiating the nature of services along with reason as to why the receipts towards rendering of services is not taxable in India. The AO however did not accept the submissions of the assessee and held that the receipt towards borrowed services is to be taxed as FTS as per article 12 of the DTAA between India and Singapore. On further appeal, the CIT(A) allowed the appeal by following his own decision in assessee's case for AY 2017-18.
3. For AY 2021-22 the AO made a similar addition to the tune of Rs. 15,33,32,462/-. The CIT(A) by relying on its own decision for AY 2017-18 allowed the appeal in favour of the assessee. The revenue is in appeal against both the orders of CIT(A) for AY 2020-21 and 2021-22.
4. There is a delay of 21 days in filing both the appeals before the Tribunal and the revenue has filed a condonation petition in this regard. Having heard both the parties and perused the material on record, we are of the view that there is a reasonable and sufficient cause for the delay in filing the appeal before the & 2570/Mum/2024 McKinsey and Company Singapore Pte. Ltd Tribunal. Therefore following the Hon’ble Supreme Court decision in the case of Collector, Land Acquisition Vs. MST.Katiji & Ors., (167 ITR 471) (SC) we condone the delay of 21 days in filing the appeal for both AY 2020-21 & 2021-22 and admit the appeals for adjudication
5. We heard the parties and perused the material on record. The ld. AR at the outset submitted that the issue of treating the services rendered by the assessee as taxable under article 12 of DTAA between India and Singapore has been a recurring issue and that the Co-ordinate Bench has been consistently holding the issue in favour of the assessee. The ld. AR in this regard drew our attention to recent order of the Co-ordinate Bench in assessee's own case for AY 2013-14 (ITA No. 2535/Mum/2023 dated 21.06.2024) where it has been held that “7. After giving a thoughtful consideration to the orders of the authorities below, we are of the considered view that the quarrel has been decided by this Tribunal in assessee’s own case in earlier assessment years. This Tribunal in a bunch of appeal of the group companies of the assessee vide order dated 21.10.2016 in has considered the quarrel of the assessee for A.Y. 2010-2011. The relevant finding of the co-ordinate Bench reads as under:- “Before us, Shri Porus Kaka and Mr. Divesh Chawla, Id Counsel for the assessee brought our attention to the above said order assessment order for the AY 2010-11 and submitted that the Assessing Officer proceeded to make above addition in all the cases under consideration substantially relying on his order for the AY 2007-2008. Assessing Officer did not recognise the binding nature of the Mutual Agreement Procedure (MAP) order relevant to the issue under consideration. Further, Ld Counsel for the assessee submitted that assessment for the AY 2007-08 was a subject matter of litigation before the Tribunal and the Tribunal passed the order in favour of the assessee holding that the said loan service charges earned by the assessee do not amount to FTS. Therefore, as per the Ld AR, the addition has to be deleted for all these ten AYs. He further mentioned that the issue in all these ten appeals is common and the same stands covered in favour of the assessee by the order of the Tribunal in the assessee's own case not only for the AY 2007-08 but also rest of the & 2570/Mum/2024 McKinsey and Company Singapore Pte. Ltd AYs as well i.e. AYs 2008-09 to 2011-12. In support of the same, Ld Counsel for the assessee brought our attention to page 100 of the paper book wherein a copy of the order of the Tribunal in (AY 2006-07), dated 21.2.2014 is placed. Bringing our attention to page 2 of the said Tribunal's order for the AY 2006-07 (supra), Ld Counsel for the assessee submitted that the Ground no.1 of the said appeal relates to Article 12 of the Treaty and if the borrowed service charges constitutes FTS or not? Further, bringing our attention to para 6 of the said decision of the Tribunal (supra), Ld Counsel for the assessee demonstrated that the issue was decided in favour of the assessee and the AO was directed to grant relief after verification of the facts and finally the appeals of the assessee are allowed. Ld Counsel for the assessee also mentioned that Article 12 of both Indo-US IndoSingapore treaties are commonly worded therefore, the said order of the Tribunal is equally applicable to the facts of the companies registered in US as well as Singapore. Bringing our attention to the of the AO / DRP, Ld Counsel for the assessee also demonstrated that they approved the order of the AO merely by stating that the MAP is year specific and they cannot be extended to the other Assessment Years. On this issue, he submitted that the fact are alike in all the AYs / appeals under consideration, the issue is common and the conclusions will not differ and therefore, the order of the Tribunal is fairly applicable to the facts of the present case. Further, bringing our attention to page 82 of the paper book, Ld Counsel for the assessee submitted that the resolution under MAP was duly accepted by the Department. In such case, the DRP / AO cannot take a different view in the matter. Further, referring to para 3.3 on page 85 of the paper book (a copy of the MAP proceedings vide File No.480/02/2008-FTD.I), Ld Counsel for the assessee mentioned that the 'borrowed service charges shall not be taxable in India as 'royalty' or 'FIS'.' Relevant lines from the said para 3.3 read as under:- "3.3. The amount paid by McKinsey India to Mckinsey & Co., Inc. Or any other McKinsey entity incorporated in the US on account of...........borrowed service charges.......shall not be taxable in India as royalty or fees for included services......."
4. These MAP proceedings are relevant for the AYs 2008-09 and 2009- 10 where such service charges were held conclusively not taxable in India. He further mentioned that if the facts are common, the above said conclusions are equally applicable to the appeals under consideration for the AY 2010-2011 too. Ld Counsel for the assessee also submitted that the proceedings pending before the Hon'ble jurisdictional High Court on this issue were also withdrawn by virtue of the judgment dated & 2570/Mum/2024 McKinsey and Company Singapore Pte. Ltd 23.1.2013, a copy of which is placed at pages 94 & 95 of the paper book. In essence, Ld Counsel for the assessee submitted that the issue under consideration stands covered in favour of the assessee considering the discussion given in paras 3 to 7 of the said order of the Tribunal (supra) for the AY 2007-2008, wherein one of us (AM) is a party to the said order.
5. Per contra, Ld DR for the Revenue submitted that MAP is year specific and therefore, the issue under consideration cannot be decided relying on the Tribunal's order for the AY 2007-2008.
We have heard both the parties and perused the order of the DRP / AO well as the relevant material placed before us. On hearing both the parties, we ha perused paras 5, 6 and 7 of the order of the assessment, which are extracted above and find that it is obvious that the Assessing Officer relied heavily on the assessment order for the AY 2007-2008 and found the issue is one and the same ie 'if the borrowed service charges constitutes FTS under Article 12 of the Indo-Singapor DAA. Since, the language of Article 12 is common for Indo-US and Indo-Singapor DTAA, the order of the Tribunal is equally relevant for all the US based companies as well.
We have heard Shri Poras Kaka Id. Senior Counsel of the assessee as well as Id. DR and considered the relevant mater on record. The Id. Senior Counsel has pointed out that the issue involved in this appeal has already been considered and decided by this Tribunal in the number of decisions in the cases of group concerns of the assessee. He has referred the following decisions. > P.T.McKinsey Indonesia v/s DDIT(IT), (ITA No.7625/M/ 2010) > DDIT(IT) v/s McKinsey Incorporated & Ors. (ITA NO.2289/M/ 2009) > ADIT(IT) /s McKinsey & Company, Inc. United States (ITA No.649/M/2007) * McKinsey & Company, Inc. Switzerland v/s ADIT(IT)(ITA No.7238/M/2002) > McKinsey & Company, Inc. (Philippines) & Ors. v/s ADIT (99TT) 857) > DDIT(IT) V/s McKinsey & Company, Inc. United States & Others v ADIT(IT)(ITA No.3483/M/2005) > McKinsey & Company, Inc. China & Others v/s DCIT (ITA No.7239/M/2002) > ADIT(IT) /s McKinsey & Company, Inc. Belgium (ITA No.3711/Mum/2006)
The Id. Counsel has further invited our attention that even the amount paid by the Indian Branch to the head office on account of borrowed service charges has been accepted and decided in favour of the assessee under Mutual Agreement Procedure (MAP) resolution and therefore the same is not taxable. The Id. Counsel has referred letter dated 23/03/2012 to show that under the Mutual Agreement Proceeding, one of the item was borrowed service charges. The Id. Counsel has further pointed out that the revenue challenged the decision of this Tribunal before the Hon'ble High Court record the issue involved in the appeal how duly been resolved under MAP and given effect by the Assessing Officer. He has referred the decision of the Hon'ble Jurisdiction High Court dated 23/01/2013, wherein the appeals filed by the revenue were allowed to withdrawn and dismissed accordingly. On the other hand, the Id. DR though has not disputed the withdrawn of the appeals however submitted that whether these issues in these appeals have been settled under MAP requires verification.
We have heard the rival submissions and considered the relevant material on record, we noted that these issues have already been decided by this Tribunal in the various decisions as mentioned above in the group concerns of the assessee before us. Against the decision of the Tribunal, the revenue filed the appeals before the
6. Thus, it is clear that the issue involved regarding borrowed service charges was decided by this Tribunal in favour of the assessee and further the department has resolved that the issue under MAP and consequently withdrawn the appeals filed before the Hon'ble High Court. Further, the assessee has filed a letter dated 12/02/2014 thereby stated & 2570/Mum/2024 McKinsey and Company Singapore Pte. Ltd that the issue relating to taxability of firm function charges does not arise in case of these three appeals and the only issue involved in these appeals is the taxability of borrowed service charges, which has been decided in favour of the assessee under the Mutual Agreement Procedure. In view of the above facts and circumstances, when the issues involved in these appeals have already resolved under the Mutual Agreement Procedure, we direct the AO to grant the relief accordingly to the assessee after verification of fact that the issues have already been resolved under the Mutual Agreement Procedure.
In the result, appeals of the assessee are allowed.
7. We have extracted and inserted in the preceding paras of this order, the stand of the Competent Authority India on the such loan service charges collected by the assessee and the same were held as neither 'royalty' nor 'FIS'. If the facts are similar over the other AYs and also the other assessees of the group, the ratio of the order of the Tribunal for the AY 2007-2008 in the case of other assessees becomes relevant for adjudicating the similar issue of the ten appeals under consideration. As such, the assessee's MAP is pending in all these cases before the authorities. Further, we find that it is not the case of the AO that the facts are not similar to that of the AY 2007-2008 and others. Therefore, the argument that the MAP relevant for the other AY has no application to the facts of the present AY 2010-2011 is not sustainable.
Considering the above settled nature of the issue under consideration, we direct the AO to grant relief accordingly to the assessee after verification of the fact that the issues have already been resolved under the Mutual Agreement Procedure. Accordingly, all the grounds raised
by the assessees in all the ten appeals are allowed.
8. As no distinguishing facts have been brought to our notice, respectfully following the decision of the co-ordinate Bench (supra), we decline to interfere in the finding of the CIT(A).”
6. The ld. AR also took the Bench through the various decisions of the Co- ordinate Bench in earlier AYs in assessee's own case where it has been held that the borrowed services cannot be treated as FTS under Article 12 of DTAA between India and Singapore. From the combined perusal of the findings of the Co-ordinate Bench in assessee's case for the earlier AYs and facts pertaining to AY 2020-21 and 2021-22 we notice that facts pertaining to the impugned issue are & 2570/Mum/2024 McKinsey and Company Singapore Pte. Ltd similar. We further notice that the CIT(A) has given relief to the assessee by following his own order for AY 2017-18 which also substantiates that the facts are identical as compared to earlier AYs. During the course of hearing, the ld. DR did not bring anything on record to controvert that the facts are identical. In view of this discussion and respectively following the decision of the Co-ordinate Bench in assessee's own case, we hold that the receipts towards borrowed services cannot be treated as FTS under Article 12 of the DTAA between India and Singapore for both AY 2020-21 & 2021-22. Accordingly, we see no reason to interfere with the decision of the CIT(A) in allowing the appeals in favour of the assessee.
7. In result, the appeals of Revenue for AY 2020-21 and 2021-22 are dismissed.