Provision of data is not Royalty & the same cannot be taxed as ‘Other Income’ under Article 22 – Mum ITAT


P.T. McKinsey Indonesia v DDIT IT APPEAL NO. 7625 (MUM.) OF 2010 (dtd 16.1.2013) (Mum ITAT)

Background:

Assessee, a foreign company, engaged in the business of providing Strategic Consultancy Services filed its return of income on 27-10-2007 declaring NIL income. During the assessment proceedings, AO found that assessee had claimed to have received a sum of Rs. 23.41 Lakhs under the head ‘Business Receipts’.

AO held that the payments received by the assessee were in the nature of consideration received for rendering of technical and consultancy services so as to make available technical knowledge, skill, know how, experience or process and thus was in the nature of fees for included services as covered by Article 12 of the DTAA between India and Indonesia’.

Assessee’s contentions:

  • Information supplied was typically statistical or qualitative data and that pieces of information borrowed by the Indian counter-part of the assessee were of general nature and did not satisfy the tests of Royalty
  • Services rendered by the assessee were commercial services and not technical services,
  • Assessee had no permanent establishment in India and sums received for giving advice could not be treated Royalty.

Tax Authority’s arguments:

  • Expression ‘made available’ would mean that the person providing the services merely enabled the acquirer to use the knowledge and the provider die not participate in the act of doing the job himself.
  • Fees received by the assessee in respect of services (which were consultancy/advisory services with no technology in it) rendered fell in the category of ‘Royalty’ in terms of Article 12 of the DTAA.
  • DRP contended that provision of Article 22(3) of the DTA Treaty were applicable in the case under consideration.

HELD:

  • Reliance is placed on the orders of Mumbai Tribunal in McKinsey & Company, Inc (Philippines) & Others v. ADIT (99 TTJ 857); DDIT (IT) v. McKinsey & Company, Inc United States & Others v. ADIT (IT) (ITA No. 3483/ M/ 05); McKinsey & Company, Inc. China & Others v. DCIT (ITA No. 7239/M/02) and ADIT(IT) v. McKinsey & Company, Inc. Belgium (ITA No. 3711/M/2006)
  • AO has nowhere established that pieces of information supplied by the assessee 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.
  • As far as taxing the receipts under the head ‘Other Income’ is concerned, residuary head is analogous to sections 56-57 of the Act. If a certain receipt cannot be taxed under any 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.

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