The tribunal ruled that borrowed service fees from foreign entities do not constitute technical fees under the applicable double taxation treaties.

ORDER

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. 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 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 asse