In a setback to the global white shoe consulting firm the Supreme Court rejected a special leave petition (SLP) filed by McKinsey Knowledge Centre against a Delhi High Court order.
The High court had upheld an Income Tax Appellate Tribunal’s (ITAT) order that ruled that research and information services rendered by McKinsey India to its associated enterprise was categorized as high-end knowledge based research services (KPO). The services, ruled the ITAT were not a business process outsourcing (BPO) unit.
Though there have been several judgements till date regarding the distinction between the BPO and KPO, but this judgement is significant. Lower judicial levels in this case analysed the facts of the case in detail and gave clear findings on them. The Supreme Court, after duly hearing both the sides, upheld them, the Deloitte research said.
This comes at a time when several BPOs have been under intense scrutiny by the indirect tax department.
ET on November 19 first reported that several back offices at multinationals now face 18% Goods and Services Tax (GST) liabilities after a tax body said they are merely intermediaries. Even Indian companies providing offshore support services to multinationals are liable to pay the 18% GST levy on their revenues.
So, services provided by Indian entities to foreign companies would not be treated as exports and hence taxable in India. Currently, taxes are not applied on exports in most situations. In a recent ruling, the Authority of Advance Ruling (AAR) said that back office support services qualify as “intermediary” services and not exports.
The High court had upheld an Income Tax Appellate Tribunal’s (ITAT) order that ruled that research and information services rendered by McKinsey India to its associated enterprise was categorized as high-end knowledge based research services (KPO). The services, ruled the ITAT were not a business process outsourcing (BPO) unit.
The High court also upheld the ITAT order on interest on delayed realisation of receivables, considering it to be a separate international transaction requiring an independent benchmarking. The Supreme Court after duly hearing both the sides, dismissed the SLP of McKinsey India, a research by Deloitte said.
Though there have been several judgements till date regarding the distinction between the BPO and KPO, but this judgement is significant. Lower judicial levels in this case analysed the facts of the case in detail and gave clear findings on them. The Supreme Court, after duly hearing both the sides, upheld them, the Deloitte research said.
This comes at a time when several BPOs have been under intense scrutiny by the indirect tax department.
ET on November 19 first reported that several back offices at multinationals now face 18% Goods and Services Tax (GST) liabilities after a tax body said they are merely intermediaries. Even Indian companies providing offshore support services to multinationals are liable to pay the 18% GST levy on their revenues.
Discover the stories of your interest
So, services provided by Indian entities to foreign companies would not be treated as exports and hence taxable in India. Currently, taxes are not applied on exports in most situations. In a recent ruling, the Authority of Advance Ruling (AAR) said that back office support services qualify as “intermediary” services and not exports.
Get Unlimited Access to The Economic Times
