Determination of nature of fees received by a foreign company from its Indian branch

RELEVANT PARAGRAPH

14.1 The undisputed fact which is confirmed by the learned counsel for the assessee, Shri Porus Kaka is that, no e-mail, correspondence, bill or any other documents or evidence pertaining to the impugned assessment year 2003-04 has been furnished or filed before the assessing officer during the assessment proceedings despite requests to do so. Shri Porus Kaka on this undisputed fact wants us to rely on the copy of the e-mail correspondence of 27-10-1997 of one Ms. Sonali Surajhita. For ready reference, the copy of the e-mail which is so heavily relied upon by Shri Porus Kaka is extracted herein below:

“Please find below a request that I’d sent out to the other offices. I’ll also send a sample response.

Regards,

Forwarded by Sonali Surachita on 15-12-97 04.01 PM Sonali Surachita 27-10-997 02.23 PM FY 97-98 AY 98-99 To : NY-R&I Services, TK-R&I Services,  DU-R&I  Services,  MA-R&I Services, ZH-R&I Professionals.

UN-R&I Services,  PA-R&I Services, ML-R&I Services,  MO-R&I Professionals.

WA-R&I Professionals

Gaurav Gupta CC Dyestuff Companies

Hello from Mumbai:

We are trying to put together some information on dyestuff companies across several countries. The companies that we are looking at are the mid-sized companies in tenns of size, i.e., excluding the top six players such as BASF, Hoechst, Bayer, Crompton Knowles etc. While the attached excel sheet gives a list of such companies in various countries, this list is flexible.

In India, there is something called the manufacturers directory for dyestuff companies which gives the basic profiles for such companies. You might have a similar director for your country or an alternate publication / database for this information. Right now it would be sufficient if you restrict yourselves to secondary sources of information.

It is important that you inform me who’s handling the request. Also, it would be best if you could send in the replies by Tuesday (28^th October). Since I will not be in office for a week from 29^th Oct (our time) on wards, if yo do send it on 29^th October (your time), please send it directly to Gaurav with a cc to me if you are sending it by e-mail Or, fax it to Gaurav at the Delhi office fax number (91-11-379) with a cc to me.   Do give me a call at the Mumbai office (91-022028505532 – x 2073) if something is unclear. The charge code is ZXE332.

The information requirement is as indicated below, (please indicate the value in US $ or indicate the conversion rates).

Indicators of size of company

–  Turnover

–  Assets

–  Number of employees

–   Plant locations / capacities

–  Exports Listed / Unlisted

Nature of business

– companies could be in any of the chain of activities  manufacturing, blending, distribution combination of above

Customer profile

–  industries covered (textiles/leather/paper)”

There are many annexures thereafter giving list of company in various countries. This e-mail does not appear to be directly connected for a particular job of consultancy to a particular client. It is only gathering of information. On a perusal of this copy of e-mail w We are unable to persuade ourselves to the proposition being canvassed by Shri Porus Kaka that not furnishing evidence, as sought by the assessing officer, for the impugned assessment year by all these assessees, will enable the assessing officer to come to a conclusion that facts of all subsequent years are same and fees is not “fee for technical services” based on this e-mail. No doubt the Special Bench of the Tribunal in the case of Motorola, Inc cited supra has held that the burden of proof is first on the revenue to show that the assessee has a taxable income under the DTAA. But this proposition of law has to be read in conformity with the judgment of the Hon’ble Supreme Court in the case of CIT vs Best & Co Pvt Ltd 60 ITD 11 (SC) on page 18 has held as follows:

We may point out, as some argument was advanced on the question of burden of proof, that this court did not lay down that the burden to establish that an income was taxable was on the revenue was immutable in the sense that it never shifted to the assessee. The expression “in the first instance” clearly indicates that it did not say so. When sufficient evidence, either direct or circumstantial, in respect of its contention was disclosed by the revenue, an adverse inference could be drawn against the assessee if he failed to put before the department material which was in his exclusive  possession. This process is described in the law of evidence as shifting of the onus in the course of a proceeding from one party to the other. There is no reason why the said doctrine is not applicable to income-tax proceedings. While the income-tax authorities have to gather the relevant material to establish that the compensation given for the loss of agency was a taxable income, adverse inference could be drawn against the assessee if he had suppressed documents and evidence, which were exclusively within the knowledge and keeping.”

14.2 In all these cases, the assessing officer, had called for information which is in the exclusive possession of the assessees. When certain documentation and evidence could be furnished for the assessment years 1997-98 and also for the assessment year 2006-07 we do not see why similar evidence or documentation cannot be furnished by the assessee to the assessing officer for the impugned assessment years. The assessment order in the case of the Indian branch of McKinsey & Co, Inc, also does not come to the rescue of the assessee because, the fact whether the services received by the Indian branch of the assessee is directly relatable to the services rendered by the Indian branch of McKinsey & Co, Inc has also to be verified by the assessing officer and it is for the assessee to lead evidence to that extent. The voluminous paper book filed by the assessee does not contain even one document or paper relating to the impugned assessment year. So even if it is 500 pages or 800 pages, it does not make any difference to the case. The submissions made by the assessee vide its letter dated 24-05-2005 are only submissions and not facts. Submissions made by the assessee or its counsel cannot take the place of evidence. It is the duty of the assessee to lead evidence, so as to prove that his submissions are in tune with the facts. When evidence cannot be furnished, the same cannot be made up or substituted with submissions or arguments.in the submission dated 24-05-2005 at paragraph 7 it is given as follows:

“7. Details of revenues earned

The revenues earned by the assessee represents the consideration for the time and expenses incurred in rendering the above services to McKinsey India. The details of the revenues earned are as follows:

14.3 The question here is what evidence is produced to demonstrate that the services in question are not “included services” in terms of India US DTAA. General examples and general knowledge does not take the place of evidence. The assessing officer, in our considered opinion, should not be prevented from calling for details, under the pretext of “the world knows what McKinsey & Co, Inc does”. Even if, the burden is on the assessing officer to prove that a particular item of income is taxable, at the same time when the assessee does not co-operate or give any information or documentation whatsoever when specifically asked for and when it is undisputed that these documents are in its exclusive possession and only relies on its history and facts that were submitted in the earlier assessments, in our humble opinion, the assessing officer can draw an adverse inference. Nobody could refuse to furnish any information which is exclusively in their possession and then argue that the revenue has not discharged the burden of proof. It is out our conclusion that the services in question are “included services”. It might be true that same nature of services that have been rendered in the earlier assessment years are identical to the nature of services rendered in the impugned assessment year also. In such a case the issues is definitely covered on legal aspects by a series of orders of this Bench of the Tribunal. But to hold that a model e-mail of 1997 and some other correspondence of 2005-06 that too belonging to some other assessee of the same group have to be taken as evidence for the impugned assessment year and for all other intervening assessment years to come to a conclusion that the services are not “included services”, in our humble opinion, is not the correct position of law and thus cannot be accepted. These are multi national management consultancy groups and documentation can and would have been maintained for each and every item. It is hard to accept the required documentation to demonstrate the nature of services is not maintained or cannot be given. The correspondence, the invoices, the bills, etc. have to be furnished, to demonstrate that the assessee’s claim is correct.