MCKINSEY AND COMPANY SINGAPORE PTE LIMITED,MUMBAI V. ACIT INTERNATIONAL TAXATION 3 2 1 MUMBAI, INCOME TAX DEPARTMENT MUMBAI

MA 77/MUM/2025

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Mckinsey & Company Singapore PTE Ltd. filed miscellaneous applications challenging the Tribunal's earlier order which remanded the issue of the existence of a Permanent Establishment (PE) in India back to the AO. The Tribunal had previously held that the borrowed services are not Fees for Technical Services (FTS) and are to be considered as business income under Article 7 of the India-Singapore DTAA, provided there is no PE. The assessee contended that the issue of PE was not in dispute and had been consistently ruled in their favor in earlier years. However, the Tribunal found that the existence of PE was not examined in the context of the specific facts for the years under consideration and thus remanded the issue for a factual determination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 711433 (ITAT-MUMBAI)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 23-07-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Assessment Year: 2017-2018
• Other Referred Cases: Sarika Jain vs. Commissioner of Income Tax, Bareilly [2018] 407 ITR 254 (All), Income Tax Officer vs. R. L. Rajghoria [1979] 119 ITR 872 (Cal.), CIT vs. Swadeshi Mining & Manufacturing Co. Ltd. 112 ITR 276 (Cal), Deputy Commissioner of Income Tax vs. Rajendra M. Vyas [2013] 33 taxmann.com 518 (Guj.), Maruti Udyog Ltd. vs. Income Tax Appellate Tribunal 244 ITR 303 (Del.), CIT vs. Maersk Global Services Centre Private Limited (ITA No. 692 of 2012), GE Energy Parts Inc. vs. Assistant Commissioner of Income-tax (International Taxation) [2024] 159 taxmann.com 573 (Delhi - Trib.)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAM KRISHN KEDIA
• Keywords: Business income; Transfer pricing; International transaction; Principle of natural justice; Double taxation relief; Permanent establishment
• Section: 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE MS. KAVITHA RAJAGOPAL, JM & SMT. RENU JAUHRI, AM MA Nos.77 to 79/Mum/2025 (Arising out of ITA Nos. 1816, 1815 & 1814/Mum/2024) (Assessment Year: 2017-18 to 2018-19) Mckinsey & Company Singapore PTE Ltd. Ernst and Young LLP, Cas 14th Floor, The Ruby, Senapati Bapat Marg, Dadar, Mumbai 400028. Vs. ACIT International Taxation (3)(2)(1), Mumbai. PAN/GIR No. AAECM4465A (Applicant) : (Respondent) Applicant by : Shri Porus Kaka, Shri Divesh Chawla Respondent by : Shri Ram Krishn Kedia, (SR. DR) Date of Hearing : 25.04.2025 Date of Pronouncement : 23.07.2025 O R D E R Per Kavitha Rajagopal, J M: These Miscellaneous Applications are filed by the assessee/applicant u/s. 254(2) of the Income Tax Act, 1961 (‘the Act' for short), challenging the Tribunal’s order dated 08.10.2024, pertaining to A.Y. 2017-18, 2018-19 and 2019-20 on the ground that there is mistake apparent from the record in the impugned order. 2. As the facts are identical in all these Miscellaneous Applications, we hereby take MA No. 77/Mum/2025 in ITA No. 1816/Mum/2024, for A.Y. 2017-18 as the lead case for the sake of convenience. Printed from counselvise.com 2 MA No. 77 to 79/Mum/2025 (A.Y. 2017-18 to 2019-20) Mckinsey and Company Singapore PTE Ltd. 3. Briefly stated the assessee company had entered into international transaction with its AEs which was engaged in rendering strategic consultancy services towards clients which includes various services. The assessee facilitates the use of certain data, information and other supporting services to Mckinsey India for which a consideration of Rs. 20,76,36,061/- was received during the year under consideration which the assessee had claimed to be a business receipt stating that there was no Permanent Establishment (PE) and therefore the assessee was not liable to be taxed in India. The ld. AO made an addition of the impugned amount as Fee for Included Service (FIS) and Rs. 8,30,090/- as ‘reimbursement of expenses’ and passed the final assessment order dated 26.10.2021 u/s. 143(3) r.w.s. 144C(3) of the Act. The ld. CIT(A) vide order dated 24.01.2021 deleted the impugned addition on the ground that the Tribunal in A.Y. 2012- 13, 2014-15 and 2015-16 had held that the borrowed service fees are not fees for technical services and also had given a finding that in the absence of PE in India, the business income from borrowed service fees was held to be not taxable in India. 4. The revenue was in appeal before the Tribunal, challenging the order of the ld. CIT(A). 5. The Tribunal vide order dated 08.10.2024 held that the borrowed services are not FTS/FIS/Royalty and are held to be business income of the assessee as per Article 7 of the treaty and had remanded the issue to the file of the ld. AO for the limited purpose to examine whether the assessee had a PE during the year under consideration and whether the said receipt was taxable in India as per Article 7 of the treaty, thereby partly allowing the appeal filed by the revenue. The relevant extract of the said decision is cited herein under for ease of reference: Printed from counselvise.com 3 MA No. 77 to 79/Mum/2025 (A.Y. 2017-18 to 2019-20) Mckinsey and Company Singapore PTE Ltd. “9. Pertinently, it is observed that there has been a Mutual Agreement Procedure (MAP) resolution for A.Y. 2007-08 in the group cases of the assessee, pertaining to India-USA DTAA (vide Order No. 480/2/2008-FTD.1 u/s.90 of I.T. Act, 1961 r.w. Article 27 of India-USA DTAC) which has been extensively relied upon by the assessee, where the said receipt was held to be not taxable in India and the Revenue after duly accepting the same has withdrawn its appeals filed before the Hon'ble Jurisdictional High Court. The ld. AR for the assessee submitted that in the mutual agreement proceeding, one of the receipt was borrowed service charges and since then the Tribunal has been consistently holding the impugned receipt to be ‘not FTS/FIS/royalty’. The Revenue has also not placed its argument on the ground that MAP is binding on the assessee only for the year in which it was passed and has also not brought anything on record to show if there was any change in the nature of services rendered by it to the Indian entity, as that of the earlier years. In the absence of the same, we deem it fit to hold that the borrowed services are not FTS/FIS/royalty and are held to be business income of the assessee. As we have held the same to be ‘business income’ as per Article 7 of the Treaty, it is pertinent to examine whether or not the assessee had a permanent establishment (PE) in India qua the year under consideration, which fact was not examined by the lower authorities. We, therefore, remand this issue back to the file of the ld. A.O. for the limited purpose of whether the assessee had a PE during the impugned year for considering whether the said receipt is taxable in India as per Article 7 of the Treaty. The appeal filed by the Revenue in ITA No. 1814/Mum/2024 (A.Y. 2019-20) is partly allowed for statistical purpose.” 6. The assessee/applicant has filed the present miscellaneous applications stating that there is mistake apparent from the record in the impugned order of the Tribunal. The ld. AR for the assessee contended that the ld. AO has held that the borrowed service fees was taxable as FTS and that the ld. AO also did not raise any objection on the issue of the existence of Permanent Establishment (PE) by considering the consistent view taken in assessee’s case for earlier years. The ld. AR further stated that the revenue has not raised any issue regarding the Permanent Establishment (PE) and that the earlier Tribunal’s orders has reached finality before the Hon'ble Jurisdictional High Court as the same was withdrawn. The ld. AR further contended that the ld. CIT(A) has already Printed from counselvise.com 4 MA No. 77 to 79/Mum/2025 (A.Y. 2017-18 to 2019-20) Mckinsey and Company Singapore PTE Ltd. held that the same to be a business income not chargeable to tax in India. The ld. AR brought our attention to the grounds of appeal raised by the revenue before the ld. CIT(A) and stated that the grounds were restricted only to the issue whether the income is a business profit without PE or in the nature of fees for technical services and contended that the issue of existence of PE was not a ground before the Tribunal. The ld. AR argued that the Tribunal had inadvertently remanded the issue to the ld. AO for verifying whether the assessee/applicant had a PE in India for the relevant A.Y. despite the fact that the same was not in dispute and contended that the impugned order was erroneous and contrary to the facts and law. The ld. AR further argued that u/s. 254(1) of the Act, the Tribunal is confined to decide only issues which are subject matter of appeal and cannot go beyond the grounds or the subject matter and since the issue of absence of PE has already been accepted by the ld. AO, the same was not the matter of dispute before the Tribunal. The ld. AR contended that an opportunity of hearing should have been granted before remanding the matter to the ld. AO and violation of the same tantamounts to violation of principle of natural justice. Without prejudice it was argued that the ld. CIT(A) had already accepted that the assessee did not have a PE in India during the year under consideration. The ld. AR relied on the following decisions in support of the assessee/applicant’s contention. a. Sarika Jain vs. Commissioner of Income Tax, Bareilly [2018] 407 ITR 254 (All) b. Income Tax Officer vs. R. L. Rajghoria [1979] 119 ITR 872 (Cal.) c. CIT vs. Swadeshi Mining & Manufacturing Co. Ltd. 112 ITR 276 (Cal) d. Deputy Commissioner of Income Tax vs. Rajendra M. Vyas [2013] 33 taxmann.com 518 (Guj.) e. Maruti Udyog Ltd. vs. Income Tax Appellate Tribunal 244 ITR 303 (Del.) f. CIT vs. Maersk Global Services Centre Private Limited (ITA No. 692 of 2012). Printed from counselvise.com 5 MA No. 77 to 79/Mum/2025 (A.Y. 2017-18 to 2019-20) Mckinsey and Company Singapore PTE Ltd. 7. The ld. DR on the other hand controverted the said fact and stated that the issue of the existence of PE was neither considered by the ld. AO nor before the ld. CIT(A). The ld. DR iterated that the presence of PE has to be seen for each year as to the facts of the year under consideration and cannot be followed as per the earlier year’s facts. The ld. DR relied on the order of the Tribunal. 8. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee/applicant company had entered into international transaction with its associated concerns for which it had rendered various services performed outside India and the receipts on account of the same has been treated as business receipts which was not liable to tax as it was alleged that the assessee did not have a Permanent Establishment (PE) in India. The ld. AO throughout the assessment proceeding had considered the borrowed services to be fees for included services thereby, failing to consider the assessee’s submission that the same is a business profit taxed as per Article 7 of India-Singapore treaty and in the absence of Permanent Establishment (PE), the same is not liable to be taxed in India. The assessee/applicant had during the assessment proceeding contended that the same was business profit without PE in India. The ld. AO held the same to be fees for included services under Article 12 of DTAA. The ld. AO had no opportunity to get into the issue of the existence of PE during the assessment proceeding and had also failed to consider the assessee’s submission that the same is ‘business receipt with no PE”. Before the first appellate authority, the assessee had challenged the order of ld. AO contending that the said receipt for borrowed services was not in the nature of fee for technical services under Printed from counselvise.com 6 MA No. 77 to 79/Mum/2025 (A.Y. 2017-18 to 2019-20) Mckinsey and Company Singapore PTE Ltd. Article 12 of DTAA but was a business receipt not taxable in India in the absence of PE. 9. On perusal of the order of ld. CIT(A) in holding the same to be a business receipt with no PE, it is observed that the ld. CIT(A) had merely considered the assessee’s submission that the assessee has no Permanent Establishment (PE) in India and by relying on the Tribunal’s order in assessee’s own case for several earlier years along with various other decisions had held the same to be a business income not taxable in India as per Article 7 of India-Singapore DTAA, there being no PE in India. It is trite to reproduce the relevant extract of the ld. CIT(A)’s order herein under for ease of reference: 5.3.1 The order of the ITAT in the case of appellant for A.Ys. 2012-13, 2014- 15 and 2015-16 has been perused. Other case laws relied upon by the appellant has been perused. On going through the ITAT order in the appellant's own case for AYs. 2012-13, 2014-15 and 2015-16, it is seen that the ITAT, Mumbai has held that the taxability of receipts including borrowed service fees/loaned service fees was to be determined as per Mutual Agreement Procedure (MAP) statement, therefore, the aforesaid receipts were business profit covered by Article 7 of the treaty and was not in the nature of royalty or fees for included services. Further, the ITAT has held that the assessee had no PE in India, therefore, those receipts were not chargeable to tax in India. Further, the resolution under MAP, in the case of group companies from AYs. 2002-03 to 2016-17 have also been perused. Thus, the ITAT, Mumbai in the appellant's own case for AYs. 2012-13, 2014-15 and 2015-16 has held that the borrowed service fees are not fees for included services and further in absence of PE in India, the business income from borrowed service fees is not taxable in India. The facts of the case of the appellant for AY 2017-18 are identical to the facts of the appellant's own case in AYs. 2012-13, 2014-15 and 2015-16. Thus, respectfully following the order of the ITAT, Mumbai in the appellant's own case for A.Ys. 2012-13, 2014-15 and 2015-16, the borrowed service fees are not held as fees for included Printed from counselvise.com 7 MA No. 77 to 79/Mum/2025 (A.Y. 2017-18 to 2019-20) Mckinsey and Company Singapore PTE Ltd. services/fees for technical services. Further, there being no PE in India, the business income from borrowed service fees is also not taxable in India as per Article 7 of the India-Singapore DTAA. and Identical issue was involved in the case of the appellant for AYs. 2012- 13 to 2015-16. In the appellate order for AYs. 2012-13 and 2013-14 in appellate order nos. ITBA/APL/S/250/2022-23/1051681039(1) ITBA/APL/S/250/2023-24/1052408264(1), respectively, dated 30.03.2023 and 27.04.2023, the issue has been decided by me in favour of the appellant. Thus, the addition of Rs.8,39,44,867/- made by the AO in respect of borrowed service fees is treated as deleted. Accordingly, grounds of appeal nos. 1 to 4 are Allowed.” 10. On a further consideration of the finding of ld. CIT(A), it is observed that the issue of existence of permanent establishment has not been considered qua the facts of the year under consideration but has held that there is no PE by relying on the order of the Tribunal in assessee’s case for earlier years which is A.Y. 2012-13, 2014-15 and 2015- 16, where the taxability of the receipt including borrowed services fees/loaned service fees was determined as per the Mutual Agreement Procedure (MAP) and also the resolution under MAP in the case of group companies for A.Y. 2002-03 to 2016-17, the ld. CIT(A) has further held that the facts of A.Y. 2017-18 being identical with that of A.Y. 2012-13, 2014-15 and 2015-16 was to be followed. Pertinently, there is no Mutual Agreement Procedure (MAP) for the impugned year or rather the same was not brought to the notice of the Bench during the appellate proceeding nor was there any mention of the same neither in the assessment order nor in the ld. CIT(A)’s order. It is evident that though the facts are alleged to be the same for the year under consideration, facts for this year are distinguished from the earlier years on the above note. Having said that the facts for earlier years are distinguishable and also the fact that the ld. AO Printed from counselvise.com 8 MA No. 77 to 79/Mum/2025 (A.Y. 2017-18 to 2019-20) Mckinsey and Company Singapore PTE Ltd. has not dealt with whether or not there is a Permanent Establishment (PE) and the ld. CIT(A) having failed to give a categorical finding as to the absence of the Permanent Establishment (PE) for the year under consideration, there is no iota of doubt in holding that the issue of existence of Permanent Establishment (PE) in India has not been looked into by the lower authorities nor was the relevant facts before us for considering the same. The arguments of the counsels were with regard to whether the same is fee for technical service/a business income for which we have already upheld the receipt to be a business income taxable as per Article 7 of India-Singapore DTAA but whether or not the same is exempt in the absence of the Permanent Establishment (PE) in India is a factual aspect that has to be considered qua the facts of the year under consideration. 11. The ld. CIT(A) has extensively placed reliance in the order of the Tribunal in assessee’s own case for the earlier years which are tabulated herein under: Assessment Year ITA appeal reference Date of order 1999-00 ITA No. 8217/M/2003 26.04.2006 2001-02 ITA No. 7337/M/2004 26.04.2006 2006-07 ITA No. 7595/M/2010 21.02.2014 2007-08 ITA No. 8775/M/2011 19.06.2015 2008-09 ITA No. 7661/M/2012 17.04.2015 2009-10 ITA No. 7662/M/2012 17.04.2015 2010-11 ITA No. 1579/M/2014 21.10.2016 2011-12 ITA No. 1760/M/2016 14.03.2018 2012-13 ITA No. 2123/M/2023 28.09.2023 2014-15 ITA No. 2124/M/2024 28.09.2023 2015-16 ITA No. 2125/M/2025 28.09.2023 12. On perusal of the above mentioned orders, it is observed that there has been no specific finding as to whether there is a PE in India during the relevant years and rather the moot issue in all these appeals were whether the receipt was FTS/FIS/Royalty as per Article 12 or was a ‘business income’ as per Article 7 of the India-Singapore DTAA. In our Printed from counselvise.com 9 MA No. 77 to 79/Mum/2025 (A.Y. 2017-18 to 2019-20) Mckinsey and Company Singapore PTE Ltd. view, the Tribunal has rightly remanded this issue to the ld. AO for examining the existence of Permanent Establishment (PE) in India which has to be prima facie decided, to hold whether the business income is taxable in India or exempt in terms of the provisions of Article 7 of the Treaty. We are also not convinced with the argument of the ld. AR in contending that the issue of existence/absence of PE was not before the Tribunal and that the Tribunal has gone beyond its jurisdiction in looking into the same, for the reason that the Tribunal being the last fact finding authority is duty bound to get into the facts of the issues which in the present case is whether the income of the assessee is taxable or not, for which the existence of PE with regard to the facts in hand has to be examined. From the orders of the lower authorities, it is evident that the existence of PE has not been examined as per the parameters to determine whether the assessee has a PE in India or not in terms of the provisions of law and the DTAA Treaty. Therefore, the decision of the Tribunal in remanding the limited issue of examining the presence of PE does not warrant any interference and the same does not tantamount to a mistake apparent on record. 13. We also draw support from the decision of the coordinate bench in the case of GE Energy Parts Inc. vs. Assistant Commissioner of Income-tax (International Taxation) [2024] 159 taxmann.com 573 (Delhi - Trib.)[15-02-2024], where it was held that “the decision taken in the past assessment years cannot be followed blindly……” and the issue of the existence of the PE has to be examined on the facts and evidences brought on record for the impugned assessment years and cannot be decided merely by relying upon the earlier orders of the authorities and existence of PE has to be decided based on the definition of PE in the relevant tax treaty and further it had relied on the Hon'ble Apex Court decision in Printed from counselvise.com 10 MA No. 77 to 79/Mum/2025 (A.Y. 2017-18 to 2019-20) Mckinsey and Company Singapore PTE Ltd. the case of M/s. Bentley Nevada Inc. and in the case of E-Funds IT Solution Inc., where the Hon'ble Supreme Court has very categorically held that the onus is entirely on the Revenue based on the evidence brought on record by the assessee to establish existence of PE. It is also pertinent to point out that in 2017, the OECD committee brought about various changes to the PE definition as a result of adoption of report of OECD/G20 on Base Erosion and Profit Shifting Project which are prospective in nature and would not be applicable for the earlier years but would be applicable for the subsequent years, thereby substantiating further that findings of earlier years cannot be adopted verbatim for this year under consideration. 14. Lastly, the scope and ambit of the power of the appellate Tribunal u/s. 254(2) of the Act is only to amend any mistake apparent from the record which is akin to order XLVII Rule 1 of the Code of Civil Procedure, 1908 and cannot revisit its earlier order. We place reliance on the decision of the Hon'ble Apex Court in the Commissioner of Income-tax (IT-4), Mumbai vs. Reliance Telecom Ltd. [2021] 133 taxmann.com 41 (SC)/[2022] 284 Taxman 517 (SC)/[2022] 440 ITR 1 (SC)[03-12-2021], wherein it was held that in case the order of the Tribunal was erroneous either on facts or in law, the only remedy that was available to the assessee was to appeal before the Hon'ble High Court, as the Tribunal becomes functus officio after passing of the original order and cannot relook or revisit the said order, for the reason that Section 254(2) of the Act confers only limited powers to the Tribunal to rectify/amend its order. The Miscellaneous Application filed by the assessee cannot be recalled or rectified as prayed by the assessee. 15. For the aforementioned reasons, we do not find any merit in the miscellaneous application filed by the assessee/applicant and we hereby dismiss the same as not maintainable. Printed from counselvise.com 11 MA No. 77 to 79/Mum/2025 (A.Y. 2017-18 to 2019-20) Mckinsey and Company Singapore PTE Ltd. 16. In the result, the miscellaneous application filed by the assessee/applicant is hereby dismissed. MA No. 78/Mum/2025, (A.Y. 2018-19) MA No. 79/Mum/2025, (A.Y. 2019-20) 17. The findings recorded in MA No. 77/Mum/2025 applies mutatis mutandis to these miscellaneous applications also. 18. In the result, the Miscellaneous Applications filed by the assessee/applicant are hereby dismissed. Order pronounced in the open court on 23.07.2025 Sd/- Sd/- (RENU JAUHRI) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Mumbai; Dated: 23.07.2025 Karishma J. Pawar (Stenographer) Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai Printed from counselvise.com "