DDIT (IT)-4(1), MUMBAI vs. M/S. LINKLATERS, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “I”, MUMBAI

BEFORE SHRI ABY T. VARKEY, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER

ITA NO. 3280/MUM/2008(A.Y: 2005-06) Linklaters v. DDIT (International Taxation) – 4(1) Scindia House, N.M. Road C/o. Deloitte Haskins & Sells LLP Bellard Estate, Mumbai - 400001 Indiabulls Finance Centre Tower 3 28th Floor, Senapati Bapat Marg Elphinstone Road (West) Mumbai - 400013 PAN: AABFL2160M (Appellant) (Respondent)

ITA NO. 3039/MUM/2008(A.Y: 2005-06) DDIT (International Taxation) – 4(1) v. Linklaters Scindia House, N.M. Road C/o. Deloitte Haskins & Sells LLP Bellard Estate, Mumbai - 400001 Indiabulls Finance Centre Tower 3 28th Floor, Senapati Bapat Marg Elphinstone Road (West) Mumbai - 400013 PAN: AABFL2160M (Appellant) (Respondent)

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters

Assessee Represented by : Shri J.D. Mistry & Shri Niraj Sheth Department Represented by : Shri Ajay Kumar Sharma

Date of conclusion of Hearing : 27.07.2023 Date of Pronouncement : 11.10.2023

O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals)-XXXIII, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 28.02.2008 for the A.Y.2005-06.

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters 7. During the year ended March 31, 2005, the firm has provided professional service to certain clients whose operations extended to India. This was largely serviced by the partners and staff in the UK 8. No office or place of work was established by the firm in India. All expenses of travel and stay at hotels and incidentals were borne by the clients. 9. On the basis of the above facts, it is submitted that no income is chargeable to tax in India as the firm has no permanent establishment in India."

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters 4. Thus, income attributable to work done in India as well as work done outside India was regarded as business profits chargeable to tax under article 7 of the India-UK DTAA. Disbursements were also regarded as a part of business profits. The Assessing Officer held that the profits also fell within the scope of article 15 of the India-UK DTAA.

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters 6. Aggrieved with the above decision, both parties filed appeals before the Tribunal. Initially, when Department's appeal being ITA No. 3039/Mum/2008 came up for hearing, the request made by the assessee for consolidation of both appeals was not accepted by the Tribunal and the Department's appeal was heard and partly allowed vide order dated 27.12.2010. Against the said order, an appeal was filed by the assessee to the Hon'ble High Court at Bombay, wherein it was inter alia pleaded that the Tribunal ought to have heard the cross appeals together especially since the appeal involved connected issues. The Hon'ble Bombay High Court vide order dated 23.11.2022 accepted this plea, set-aside the ITAT's order and directed that both appeals be heard together. The Hon'ble High Court has clarified that all contentions are left open. Accordingly, both appeals were heard together by the bench.

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters the appellant only in respect of fees of £ 300,491 55, which were relatable to work performed in India. 3 The learned Commissioner (Appeals) erred in upholding the action of the Assessing Officer in treating disbursements as part of income of the appellant. 4. Without prejudice to ground 3 above, the learned Commissioner (Appeals) erred in confirming the disallowance in respect of disbursement to the extent of 15% of the disbursement claim proportionate to the fee relating to services rendered in India as compared to the total fees. The Commissioner (Appeals) ought to have entirely deleted the disallowance. 5. The learned Commissioner (Appeals) erred in not entirely deleting the interest levied under section 234B. 6. The learned Commissioner (Appeals) erred in not deciding the following grounds in the appeal: “6. The learned Deputy Director of income tax erred in not allowing deduction for remuneration paid by the appellant to its employees for services performed outside India. 7. The learned Deputy Director of Income tax erred in holding that the appellant was liable to tax in India under Article 15 of the Tax Treaty between India and U.K. The Deputy Director of Income tax ought to have appreciated that Article 15 was applicable only to individuals and was not applicable to the case of the appellant. 8. The learned Deputy Director of Income tax erred in holding that the appellant had a fixed base in India from which the appellant was performing its activities." 7. Each one of the above grounds of appeal is without prejudice to any of the others. 8. The appellant reserves the right to add, alter or amend any of the above grounds of appeal.”

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters “The foremost issue that arises in the present appeals (ground 1 in the assessee's appeal) is whether or not the assessee has a PE in India within the meaning of article 5(2)(k) of the India- UK DTAA. Article 5(1) and 5(2) of the said DTAA, which are relevant for the present purposes, read as under: Article 5: Permanent Establishment 1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" shall include especially: (a) place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) premises used as a sales outlet or for receiving or soliciting orders; (g) a warehouse in relation to a person providing storage facilities for others; (h) a mine, an oil or gas well, quarry or other place of extraction of natural resources; (i) an installation or structure used for the exploration or exploitation of natural resources; (j) a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity continues for a period of more than six months, or where such project or supervisory activity, being incidental to the sale of machinery or equipment, continues for a period not exceeding six months and the charges payable for the project or supervisory activity exceed 10 per cent of the sale price of the machinery and equipment; the furnishing of services including managerial services, (k) other than those taxable under Article 13 (Royalties and fees for

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters technical services), within a Contracting State by an enterprise through employees or other personnel, but only if: i. activities of that nature continue within that State for a period or periods aggregating more than 90 days within any twelve-month period; or ii. services are performed within that State for an enterprise within the meaning of paragraph (1) of Article 10 (Associated enterprises) and continue for a period or periods aggregating more than 30 days within any twelve-month period. Provided that for the purposes of this paragraph an enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through that permanent establishment if it provides services or facilities in connection with, or supplies plant and machinery on hire used or to be used in, the prospecting for, or extraction or production of, mineral oils in that State. 3. The term "permanent establishment" shall not be deemed to include: (a) the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise; the maintenance of a stock of goods or merchandise (b) belonging to the enterprise solely for the purpose of storage or display; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; the maintenance of a fixed place of business solely for the (d) purpose of purchasing goods or merchandise, or for collecting information, for the enterprise; (e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information or for scientific research, being activities solely of a preparatory or auxiliary character in the trade of business of the enterprise. However, this provision shall not be applicable where the enterprise maintains any other fixed place of business in the other Contracting State for any purpose or purposes other than the purposes specified in this paragraph;

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters (f) the maintenance of a fixed place of businesses solely for any combination of activities mentioned in sub-paragraphs (d) to (e) of the paragraph, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character. Article 5(1) of the DTAA provides an exhaustive definition of the term "permanent establishment" to mean a fixed place of business through which the business of an enterprise is wholly or partly carried on. Thus, for a PE to exist, the primary requirement is that there should be a fixed place of business through which the business of the enterprise must be carried on. Unless such a fixed place exists, there can be no question of the enterprise having a PE in India. Since the assessee does not have a fixed place of business in India, the requirements of article 5(1) are admittedly not satisfied. Article 5(2) provides an illustrative list of situations wherein a PE can be said to exist. For instance, it refers to place of management, a branch, an office, a factory, a workshop, premises used as a sales outlet or for receiving or soliciting orders, a warehouse, a mine, an oil or gas well, quarry, an installation or structure, a building site or construction, installation or assembly project, which all allude to physical places of business. Therefore, the fundamental requirement in article 5(1), namely, that a fixed place of business should exist is elucidated by the illustrations given in article 5(2). The question which arises is whether the said fundamental requirement of there being a fixed place of business is done away with in article 5(2)(k). It is submitted that this is not so and for a foreign enterprise to have a PE in India under article 5(2)(k), mere rendering of services for the stated period is not sufficient and a PE comes into existence only if the requirement of article 5(1), namely, a fixed place of business, is satisfied. In other words, article 5(1) has to be read along with article 5(2) and article 5(2) cannot be read in isolation. To hold otherwise would be to read an artificial distinction between various illustrations given in article 5(2). It is submitted that a plain reading of the clauses of the India-UK DTAA extracted above clearly indicate that the only exceptions to the requirement that the conditions in article 5(1) [as illustrated by all the examples in article 5(2)] must be fulfilled when considering the scope of the term "permanent establishment" are set out in article 5(3) of the DTAA.

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters This issue came up for consideration by the Hon'ble Tribunal in the assessee's case for AY 1995-96. Dealing with the question of existence of permanent establishment, the Hon'ble Bench held as under: "On existence of assessee's permanent establishment in India under article 5(2)(k) 80. The next issue that we have to decide is whether or not the assessee had a permanent establishment in India. 81. The case of the assessee is that the assessee did not have any permanent establishment in India. The attack against the findings of the authorities below rests on two major planks-first, that since the conditions under article 5(1) are not fulfilled, there cannot be any question of existence of permanent establishment even under article 5(2)(k); and second, that even if article 5(2)(k) is to be viewed on standalone basis, since there is no 'furnishing' of services by the assessee, and the assessee has merely rendered' services, which has connotations materially distinct from that of furnishing services, even the conditions of article 5(2)(k) are not fulfilled. 82. Learned senior counsel's basic argument is that article 5(2)(k) of the India-UK tax treaty is not to be construed on standalone basis, and it can only be viewed in conjunction with article 5(1). Learned counsel's case is the sub-clauses in article 5(2) are no more than illustrations of the situations in which article 5(1) can apply but such examples are to be seen against the background of general definition given in article 5(1) in such a way that examples listed in article 5(2) are PE only if they meet the requirements of article 5(1) of tax treaty. It was thus argued that in order that the assessee can be said to have a PE in India, the basic conditions of article 5(1) are to be necessarily satisfied, and merely satisfying the requirements of any of the sub-clauses in article 5(2), even if that be so, would not suffice. It was also contended that there was no continuity of activities in India, and the partners and staff members of the assessee firm visited India only on as and when required basis. The activities of the assessee were claimed to be sporadic or isolated. The stand of the assessee thus was that there was no framework or infrastructure, no continuity and no stability so as to result in a permanent establishment. Learned senior counsel has also filed extracts from Prof. Klaus Vogel's oft quoted treatise 'Klaus Vogel on Double Taxation

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters Conventions, and referred to his observations at page 295 to the effect that '[article 5(2) gives substance to the general permanent establishment concept, that '[w]hat must be particularly examined in each case is whether the place of business satisfies the permanence criterion' and that [t]he opening sentence of article 5(2) shows that the list that follows is one of the examples and not exhaustive ('specially). Our attention is then invited to paragraph 12 of OECD Model Convention Commentary which, inter alia, observes that, article 5(2) "contains a list, by no means exhaustive, of examples, each of which can be regarded, prima facie, constituting a permanent establishment" and that "[a]s these examples are to be seen against the background of general definition given in paragraph 1, it is assumed that the Contracting States interpret the items listed, a place of management, a branch, an office' etc. in such a way that such places constitute permanent establishment only if they meet the requirement of paragraph 1". We are thus urged to interpret article 5(2) of India-UK tax treaty in the light of the above analysis contained in Prof. Klaus Vogel's book and OECD Commentary. 83. Learned senior counsel further contends that, in any event, the activities of assessee do not involve furnishing of services as envisaged in article 5(2)(k) of the Indo-UK tax treaty as the assessee is an international professional enterprises rendering services directly to its clients. We are taken through dictionary meanings of expressions furnishing' and 'rendering' and efforts are made to demonstrate that these expressions cannot be used interchangeably, since these expressions have significantly different connotations. Learned counsel further submits that the professional services, like that of the lawyers, are dealt with article 15 of India-UK tax treaty. He, however, hastens to add that article 15 cannot be invoked on the facts of this case anyway, since this provision can only be invoked when professional services are rendered by individuals. It is submitted that the wordings of article 15 are clear, unambiguous and incapable of any other interpretation. He thus submits that the Assessing Officer is in error in giving a 'without prejudice' finding to the effect that, even if provisions of article 5(2)(k) are held to be inapplicable, the assessee will still have taxability in India in terms of the provisions of article 15. Learned counsel concludes by submitting that since the provisions of article 5 or article 15 do not apply to the situation before us, and since income of the assessee is not

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters taxable in India under any other provisions of the India-UK tax treaty either, the income of the assessee, in terms of the provisions of India-UK tax treaty, is not taxable in India at all. 84. Learned Commissioner - Departmental Representative, on the other hand, contends that article 5(2)(k) is a deeming fiction and it has to be, therefore, construed on standalone basis in the sense once the conditions laid down in article 5(2)(k) are satisfied, nothing further is needed to hold that permanent establishment exists Learned Commissioner contends that the provisions of article 5(2) and article 5(1) are not be read together, nor does article 5(1) restrict the application of article 5(2)In case, one is to proceed on the basis that a permanent establishment under article 5(2)(k) can come into existence only when conditions of article 5(1) are also to be satisfied, article 5(2)(k) will be rendered redundant. Under article 5(2)(k) if services to an associated enterprise are rendered even for 30 days it will result in existence of the deemed PE. However, article 5(1) can come into play only when the assessee has a fixed place of business but once assessee has a fixed place of business, it is wholly irrelevant whether or not services are rendered for one day or for all the three hundred and sixty five days. It is thus submitted that in the case of article 5(2)(k) permanence test of the PE has been substituted by the duration test for services rendered. Once the duration test is satisfied, according to the learned Commissioner, permanence test visualized in article 5(1) does not come into play at all. We are thus urged to hold that section 5(2)(k) is to be decided on standalone basis, and that as long as conditions set out in article 5(2)(k) are satisfied and, irrespective of fulfilment or non-fulfilment of conditions under article 5(1), permanent establishment comes into existence. As regards the connotations of expressions furnishing and rendering it is submitted that distinction sought to be made out is without any material difference. The difference between furnishing of services' and 'rendering of services, even if any, does not have any effect on the question as to whether there is any permanent establishment. We are thus urged to confirm the findings of the authorities below and decline to interfere in the matter 85. In rejoinder, learned counsel for the assessee reiterates his submissions on the same line He submits that article 5(2)(k) is more of an elaboration on the scope of and restriction on the applicability of article 5(1)rather than an

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters extension of article 5(2)(k) He submits that article 5(2)(k) will not be rendered infructuous in case we are to proceed on the basis that satisfaction of conditions of article 5(1) is a sine qua non for holding existence of PE, because in any event article 5(2)(k) is no more than an example or illustration of a PE. He once again highlighted the difference between rendering of and furnishing of services and submitted that these differences cannot be simply wished away or held to be of no consequence. On the basis of all these arguments and relying upon the stand taken by the assessee before the authorities below he once again urges us to hold that the assessee did not have any permanent establishment in India, and since the assessee did not have any permanent establishment in India, no part of its business income can be taxed in India 86. We have given our careful consideration to the rival submissions, perused the material on record and duly considered the applicable legal position 87. We consider it appropriate to reproduce below the provision contained in article India- UK tax treaty which is subject-matter of our consideration: …. 88. Article 5(1) of the India UK tax treaty refers to the requirements of what is often termed as, basic rule PE This refers to a fixed place of business through which business of the enterprise is wholly or partly carried out. Elaborating upon the scope of this provision, a co- ordinate Bench of this Tribunal, in the case of Airline Rotables Ltd. UK v. Joint Director of Income-tax 40 DTR 226 and after analysis of earlier decisions of this Tribunal in the cases of Western Union Financial Services Inc. v. Asstt. DIT [2007] 104 ITD 34(Delhi) and Motorola Inc. v. Dy. CIT [2005] 95 ITD 269 (Delhi) (SB), has observed that, "There are three criterions embedded in this definition - physical criterion i.e., existence of physical location, subjective criterion, i.e., right to use that place, functionality criterion, i.e., carrying out of business though that place. It is only when these three conditions are satisfied, a PE under the basic rule can be said to have come into existence" 89. Article 5(2), however, consists of two heterogeneous categories of permanent establishments. The first category consists of illustrations of what would constitute a PE, even

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters under the basic rule, and the second category consists of, what can be termed as, extensions of the basic rule and deemed permanent establishments. While clauses (a) to (i) of article 5(2), in our humble understanding, form part of the former category, ie, illustrative of the basic rule, clauses (j) and (k), as we understand, form part of the second category, i.e.. extensions of the basic rule. The descriptions in these two categories are listed under separate sub-articles in OECD Model Conventions, UN Model Convention and even under US Model Conventions. The very fact that these two categories have been segregated in these model conventions also shows that these two categories belong to different genus. To appreciate this point, it may be useful to take a look at the relevant clauses of OECD, UN and US Model Conventions, which are reproduced below: "UN Model Convention Article 5-Permanent Establishment (1) For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. (2) The term "permanent establishment" includes especially: (a) A place of management; (b) A branch; (c) An office; (d) A factory; (e) A workshop, and (A mine, an oil or gas well, a quarry or any other place of extraction of natural resources. (3) The term "permanent establishment" also encompasses: (a)A building site, a construction, assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last more than six months; (b) The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters only if activities of that nature continue (for the same or a connected project) within a Contracting State for a period or periods aggregating more than six months within any twelve-month period. OECD Model Convention Article 5-Permanent Establishment (1) For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. (2) The term "permanent establishment" includes especially:- (a)a place of management; (b)a branch; (c)an office; (d)a factory: (e)a workshop; and (a mine, an oil or gas well, a quarry or any other place of extraction of natural resources. (3) A building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months. US Model Convention Article 5-Permanent Establishment. (1) For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. (2) The term "permanent establishment" includes especially- (a)a place of management; (b)a branch: (c)an office; (d)a factory:

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters (e)a workshop; and (famine, an oil or gas well, a quarry, or any other place of extraction of natural resources. (3) A building site or construction or installation project, or an installation or drilling rig or ship used for the exploration of natural resources, constitutes a permanent establishment only if it lasts, or the exploration activity continues for more than twelve months." 90. A plain reading of article 5(2) of India-UK tax treaty, in the light of the above discussions, clearly shows article 5(2) of India-UK tax treaty is a mixture of what is usually contained in article 5(2) and article 5(3) in all major model conventions i.e.. UN Model Convention, OECD Model Convention an US Model Convention. The clauses consisting in article 5(2) of India- UK tax treaty are, therefore, not homogeneous and these clauses do not belong to the same genus. One cannot therefore proceed on the basis, as has been urged by the learned senior counsel for the assessee, that some degree of uniformity in treatment of all these sub- clauses is warranted. What applies to clauses (a) to (i) of this article does not necessarily also apply to articles () and (k) of this article 5. As regards the first category of permanent establishments, I.e., under clauses (a) to (1), OECD Model Convention Commentary, which is also adopted by the UN Model Convention Commentary, does state that the second paragraph of model conventions, "it contains a list, by no means exhaustive, of examples, each of which can be regarded, prima facie, constituting a permanent establishment", and that "as these examples are to be seen against the background of general definition given in paragraph 1, it is assumed that the Contracting States interpret the items listed, a place of management', 'a branch, an office etc., in such a way that such places constitute permanent establishment only if they meet the requirement of paragraph 1". Even by the OECD Model Convention Commentaries, however, this theory is not extended to the items in second category i... (j) and (k). So far as paragraph 3 of the OECD Model Conventions dealing with these items are concerned, OCED Model Convention Commentary states as follows: "This paragraph provides expressly that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months. Any

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters of those items which does not meet this condition does not of itself constitute a permanent establishment, even if there is within it an installation, for instance an office or a workshop within the meaning of paragraph 2, associated with the construction activity. Where, however, such an office or workshop is used for a number of construction projects and the activities performed therein go beyond those mentioned in paragraph, it will be considered a permanent establishment if the conditions of the article are otherwise met even if one of the projects involved lasts for more than 12 months." [Emphasis supplied] 91. It is thus clear that, even as per the OECD Model Convention, one of the items included in article 5(2), i.e., 5(2)(), of India-UK tax treaty is such that it would not constitute permanent establishment under the basic rule of article 5(1), and it is only on account of deeming fiction provided by the provision of article 5(2)(). It can be treated as a permanent establishment. We are in considered agreement with this analysis in OECD Model Convention Commentary, and for this reason, we are unable to approve learned counsel's argument that article 5(2) of India- UK tax treaty only provides examples of situations covered by article 5 (1). 92. UN Model Convention Commentary, dealing with article 5(3) which is in parimateria with article 5(2)(j) and (k) of India-UK tax treaty, makes the position even more clear by observing, inter alia, as follows. "Article 5. paragraph 3. sub- paragraph (b), deals with the furnishing of services, including consultancy services, which are not covered specifically in the OECD Model Convention in connection with the concept of permanent establishment." [Emphasis supplied] 93. According to this analysis in the UN Model Convention Commentary, and with which we are in considered agreement, article 5(3)(b) of UN Model Convention, which is materially similar to the provisions of article 5(2)(k) of India- UK tax treaty, extends to the areas not covered by the OECD Model Convention. Obviously, a permanent establishment under basic rule cannot be said to be not covered by the OECD Model Convention According to the UN Model Convention Commentary, the scope of this provision extends beyond the scope of permanent establishment under the haste rule. For this reason, also, we are unable to accept learned counsel's suggestion that article 5(2) of India-UK tax

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters treaty should only be read as a bunch of illustration of permanent establishments under the basis rule set out in article 5(1). 94. Learned senior counsel is perhaps quite right to the extent that article 5(2), as in most standard model conventions, is no more than an illustration or examples of application of permanent establishment under basic rule i.e., under article 5(1). However, so far as the provisions of India-UK tax treaty are concerned, for the detailed reasons set out above, these arguments do not hold good in respect of clauses (j) and (k) of article 5(2), which are on the lines of provisions in article 5(3) in all most standard model conventions. For this reason, we also reject learned counsel's reliance on the OECD Model Convention Commentary and Prof. Klaus Vogel's analysis. His reliance on these commentaries are misplaced as the provisions these commentaries have dealt with are not in parimateria with the tax treaty provisions that we are in seisin of 95. We may also add that similar argument, materially similar to the argument raised by the assessee before us and in respect of materially similar treaty provision, also came up for consideration before Hon'ble Authority for Advance Ruling in the case of P. No. 28 of 1999 (supra). Rejecting this plea, Hon'ble Justice Ranganathan, Chairman - AAR, observed as follows:- "23. The learned counsel also submitted that the definition of PE is only what is formulated in article 5(1) and that article 5(2) is only illustrative of the cases that fulfil the requirement of paragraph 1 of article 5. In other words, XYZ cannot be said to have a PE even if the requirements of sub-clause (1) are satisfied, unless it has a fixed place of business in India. He relies on paragraph 11 of the Commentary on OECD Model Convention which reads thus: 11. [General Remarks] This paragraph contains a list, by no means exhaustive, of examples, each of which can be regarded, prima facie, constituting a permanent establishment. As these examples are to be seen against the background of general definition given in paragraph 1, it is assumed that the Contracting States interpret the items listed, a place of management, a branch', 'an office' etc., in such a way that such places constitute permanent

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters establishment only if they meet the requirement of paragraph 1. This argument may run contrary to the well-established principle of statutory interpretation that an inclusive definition is intended to add to primary meaning so as to bring within its scope items which may or may not fall within the scope of the primary definition. That apart, even assuming, at best, that the inclusion clause is to be interpreted 'against the background of the general definition contained in paragraph 1 and bear some analogy to it, all that can be said is that sporadic and isolated activities, referred to in clause (1), will not be sufficient to constitute PE and that there should be some degree of 'continuity or 'durability and a framework against which the services are rendered. That kind of framework and degree of stability is present here. It must, therefore, be held that XYZ has a PE in India." [Emphasis supplied] 96. We are in considered and respectful agreement with the legal proposition so laid down by the Hon'ble Authority for Advance Ruling. Interestingly, in this case, even as it was not brought to the notice of the Hon'ble Authority of Advance Ruling that the OECD Commentary is in respect of the provisions which are not in pari materia with the respective tax treaty provisions [the provisions of article 5(2) of OECD Model Convention, in respect of which commentary was written and as we have seen earlier in this order, are materially distinct from the tax treaty provisions of article 5(2) which came up for consideration before the AAR and before us). Hon'ble Authority for Advance Ruling reached the same conclusions. On the basis of the line of reasoning adopted by the AAR also, we reject the contention of the assessee," A review of paras 89-96 shows that the Hon'ble ITAT took the view that there are two categories of PE; the first category consisting of PE enumerated in clauses (a) to (i) of article 5(2) and the other category consisting of clause (j) and (k). The Tribunal took the view that while the illustrations of PE given in clauses (a) to (i) have to be read in conjunction with article 5(1), the illustrations referred in clauses (j) and (k) were to be read independent of article 5(1) of the DTAA for determining whether a PE existed or not. The Tribunal on an independent application of article 5(2) without reference to article 5(1) came to the conclusion that a PE existed under Article 5(2)(k).

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters It is respectfully submitted that this cannot be regarded as the correct view. The reliance by the Tribunal on OECD, UN and US models for the purposes of segregation into two categories is not apposite. The said models specifically carve out service PE and installation PE and provide a different treatment for the same. However, insofar as article 5 of India-UK DTAA is concerned, no such differentiation is made. Notwithstanding this material difference between the OECD, US and UN Models vis-à-vis India-UK DTAA, the same were relied upon by the Tribunal for holding that article 5(2) of India-UK DTAA is a mixture of article 5(2) and article 5(3) in model conventions and that the clauses consisting in article 5(2) of India-UK DTAA are, therefore, not homogeneous and these clauses do not belong to the same genus. No such differentiation is warranted between various clauses of article 5(2), which is clearly brought out in the decision of the Hon'ble Supreme Court in the case of Formula One World Championship Ltd. vs. CIT(IT)-3, Delhi [2017] 394 ITR 80. The Hon'ble Supreme Court, while dealing with the provisions of article 5 of the India-UK DTAA, has been pleased to hold as under: "66. As per Article 5 of the DTAA, the PE has to be a fixed place of business 'through' which business of an enterprise is wholly or partly carried on. Some examples of fixed place are given in Article 5(2), by way of an inclusion. Article 5(3), on the other hand, excludes certain places which would not be treated as PE, i.e, what is mentioned in clauses (a) to (f) as the 'negative list. A combined reading of sub-articles (1), (2) and (3) of Article 5 would clearly show that only certain forms of establishment are excluded as mentioned in Article 5(3), which would not be PEs. Otherwise, sub-article (2) uses the word 'include' which means that not only the places specified therein are to be treated as PEs, the list of such PEs is not exhaustive. In order to bring any other establishment which is not specifically mentioned, the requirements laid down in sub-article (1) are to be satisfied. Twin conditions which need to be satisfied are: (1) existence of a fixed place of business; and (b) through that place business of an enterprise is wholly or partly carried out." Thus, the Hon'ble Supreme Court was pleased to hold that in order to bring any other establishment which is not specifically mentioned in article 5(2), the requirements laid down in Article 5(1) are to be satisfied, namely, (i) existence of a fixed place of business; and (b) through that place business of an enterprise is wholly or partly carried out. Thus, the clear import of the decision is that the requirement that conditions in article 5(1) have to be met in order

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters to constitute permanent establishment applies not only for examples set out in article 5(2) but also in respect of similar cases not specifically set out. It is submitted that the use of the word "other" by the Hon'ble Supreme Court shows that the requirement to also satisfy article 5(1) when considering whether a permanent establishment exists is not restricted to cases that are not set out as examples in article 5(2) but applies to the examples set out as well. Therefore, the differentiation sought to be made by the Hon'ble ITAT cannot be considered as good law in view of the above exposition of law by the Hon'ble Supreme Court. Therefore, it is submitted that article 5(1) and 5(2) have to be read together and, unless the requirements of article 5(1) are met, a permanent establishment cannot be said to exist. Similar view is taken by the Hon'ble Tribunal in R&B Falcon Offshore Ltd. vs. Addl CIT [2010] 42 SOT 432 (Del), wherein, while interpreting the scope of article 5(2)(j) of India-USA DTAA, i.e., installation PE, it was held as under: "9. Then, there is a question-whether, the assessee had PE under any provision other than Article 5(2)(j). The case of the ld DR is based solely on the Mumbai address of the assessee mentioned in agreement with Petrom SA. It has been mentioned earlier that the assessee has been described as a "contractor", a body corporate established under the laws of USA, having its office at 1101, Phil Tower Building. City of Tulsa, Oklahoma, USA, and also having its India office at 501, Balaram, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. It is submitted that the agreement had been concluded from this office and all business activities in pursuance of the agreement and the other agreement have been managed and controlled from this office. Therefore, this office constitutes PE in terms of article 5(1), 5(2)(a) and 5(2)(c). On the other hand, the submission of the ld. counsel is that there is no fact on record to show that the business of the assessee was wholly or partly carried on from this office. Further, there is no evidence that the activities of the rig were managed from this office. There is also no evidence to show as to whether it was only an address given in the agreement for correspondence with Saipem SA or an office from which business activities were carried on. In this connection, our attention has been drawn towards paragraph numbers 11, 12, 36 and 37 of the OECD commentary. According to paragraph No. 11, activities to prepare the fixed place for

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters conducting business is to be excluded. According to paragraph 12, various illustrations given in paragraph 5(2) have to be seen in the background of general definition given in paragraph 1. This means that it is to be examined whether the business of the assessee was partly or wholly carried on from the place of management or the office, Paragraph 36 excludes preparatory and auxiliary activities from the main activity of carrying on the business. The fixed place of business or the PE ceases to exist so when the business carried on therefrom comes to an end. Thus, the nature of activities carried out from Mumbai office has to be examined before coming to the conclusion that this office constitutes permanent establishment in terms of paragraph 5(1), 5(2)(a) or 5(2)(b). The lower authorities have not mentioned about any fact in this regard. The Ld DR proceeded to invoke these provisions on the ground that no new fact is required to be ascertained. She has also not moved any application for admission of any additional evidence in pursuance of her plea so that it could be ascertained whether the assessee had a PE in terms of aforesaid provisions. From the OECD commentary in the matter, which is of persuasive value, and reading of paragraphs (1) and (2) of Article 5, it is clear that it has to be shown that the business of the assessee had been wholly or partly carried on from this office. There is no evidence to show that any business was carried on except that the address has been mentioned in the agreement. That by itself does not lead to inference of PE under these provisions. Therefore, the matter is decided accordingly." The underlined portion shows that the Hon'ble ITAT has held that illustrations given in para 5(2) have to be seen in the background of the general definition given in article 5(1). Thus, the artificial distinction sought to be made out by the Hon'ble ITAT in assessee's case for AY 1995-96 does not have any legal support and is contrary to the decision of the Hon'ble Supreme Court and the coordinate bench. In view of the subsequent decision of the Hon'ble Supreme Court, the decision of the Hon'ble ITAT in AY 1995-96, or the decisions which follow it, would no longer be good law or a binding precedent. The ITAT in AY 1995-96 has also not taken note of the proviso below article 5(2) of the India- UK DTAA, which reads as under: "Provided that for the purposes of this paragraph an enterprise shall be deemed to have a permanent

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters establishment in a Contracting State and to carry on business through that permanent establishment if it provides services or facilities in connection with, or supplies plant and machinery on hire used or to be used in, the prospecting for, or extraction or production of, mineral oils in that State." Therefore, wherever it was desired that the provisions of article 5(2) would apply independent of article 5(1), a specific provision has been made in the DTAA itself. Except in such cases, the general rule that article 5(2) has to be read with article 5(1) would apply. During the hearing, the Hon'ble Bench was pleased to point out that other clauses of article 5(2) allude to the presence of a physical place, whereas article 5(2)(k) refers to furnishing of services. It is respectfully submitted that this cannot mean that the satisfaction of requirements of article 5(1) have been done away with in article 5(2)(k). It is submitted that wherever income from rendering of services was sought to be brought to tax without the existence of a fixed place of business, specific provisions have been made in the DTAA. For instance, articles 15 to 23 of the India-UK DTAA. Without prejudice, in the event it is held that the assessee has a PE in India, the other grounds raised in the assessee's appeal as well as Revenue's appeals would have to be decided. During the course of the hearing, charts summarising the said grounds was tendered, which show that all grounds of appeal are concluded by earlier orders of the Tribunal. If, however, if it is held that there is no PE, then, the only further issue which has to be decided is whether article 15 of the DTAA applies, which is covered by the earlier orders of the ITAT holding that article 15 does not apply, as indicated in the charts.”

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters Article 5 is not applicable and he vehemently argued that section 91(7) of the Income-tax Act is applicable in this case. Further, in reference to Article 5(1) and 5(2) he relied on the decision of the ITAT, in assessee’s own case, wherein the Hon’ble bench has considered the elaborate submissions from the assessee and decided the issues in favor of the revenue.

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters 12. With regard to reimbursement, he submitted that it is part of service charges. Therefore, it is also applicable as held in assessee’s own case.

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters rule are in consonance with the illustrations contained in Article 5(2)(a) to (i) and even the clauses (j) and (k) has to pass the test of basic rule. However, now Ld.AR made elaborate further submissions by relying on Hon’ble Supreme court decision and coordinate bench decisions in the case of Formula One World Championship Ltd (supra) and R & B Falcon Offshore Ltd (supra). We considered their elaborate arguments and submissions. Ld.AR argued before us that the clause (k) applied in the case of the assessee by the Assessing Officer wherein, it indicates that it is applicable only for furnishing of services not for providing services, in this case, the lawyers provided services through employees or other personnel. Further, he brought to our notice that the proviso to this clause used the word provides services. After careful consideration, we observe that the “meaning of furnishing” emphasizes the idea of providing necessary or other services. It provides general meaning to emphasize to carry out certain services, which may include provision of services. It is fact on record that legal interpretation or technical interpretation of treaty will leads to nowhere. It is also a fact on record that the assessee provides various services to the clients in the contracting state, i.e., in India. When the other conditions contained in the clause (k) exists like the employees or other personnel are in India

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters for more than 90 days in the twelve months, the deeming provisions get attracted. The coordinate bench has elaborately discussed this issue in assessee’s own case for the A.Y. 1995-96 in the Para Nos. 90 to 102 of the Order passed by them. For the sake of clarity, it is reproduced below: - “90. A plain reading of Article 5(2) of India UK tax treaty, in the light of the above discussions, clearly shows Article 5(2) of India UK tax treaty is a mixture of what is usually contained in Article 5(2) and Article 5(3) in all major model conventions i.e. UN Model Convention, OECD Model Convention an UN Model Convention. The clauses consisting in Article 5(2) of India UK tax treaty are, therefore, not homogenous and these clauses do not belong to the same genus. One cannot therefore proceed on the basis, as has been urged by the learned senior counsel for the assessee, that some degree of uniformity in treatment of all these sub clauses is warranted. What applies to clause (a) to (i) of this Article does not necessarily also apply to article (j) and (k) of this Article 5. As regards the first category of permanent establishments, i.e. under clause (a) to (i), OECD Model Convention Commentary, which is also adopted by the UN Model Convention Commentary, does state that the second paragraph of model conventions, “ it contains a list, by no means exhaustive, of examples, each of which can be regarded, prima facie, constituting a permanent establishment”, and that “as these examples are to be seen against the background of general definition given in paragraph 1, it is assumed that the contracting states interpret the items listed, ‘a place of management’, ‘a branch’, ‘an office’ etc in such a way that such places constitute permanent establishment only if they meet the requirement of paragraph 1”. Even by the OECD Model Convention Commentaries, however, this theory is not extended to the items in second category i.e. (j) and (k). So far as paragraph 3 of the OECD Model Conventions dealing with these items are concerned, OCED Model Convention Commentary states as follows: “This paragraph provides expressly that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months. Any of those items which does not meet this condition does not of itself constitute a permanent establishment, even if there is within it an installation, for instance an office or a

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters workshop within the meaning of paragraph 2, associated with the construction activity. Where, however, such an office or workshop is used for a number of construction projects and the activities performed therein go beyond those mentioned in paragraph, it will be considered a permanent establishment if the conditions of the Article are otherwise met even if one of the projects involved…….lasts for more than 12 months” (Emphasis supplied by us) 91. It is thus clear that, even as per the OECD Model Convention, one of the items included in Article 5(2), i.e. 5(2)(j), of India UK tax treaty is such that it would not constitute permanent establishment under the basic rule of Article 5(1), and it is only on account of deeming fiction provided by the provision of Article 5(2)(j), it can be treated as a permanent establishment. We are in considered agreement with this analysis in OECD Model Convention Commentary, and, for this reason, we are unable to approve learned counsel’s argument that Article 5(2) of India UK tax treaty only provides examples of situations covered by Article 5 (1). 92. UN Model Convention Commentary, dealing with Article 5(3) which is in pari materia with Article 5(2)(j) and (k) of India UK tax treaty, makes the position even more clear by observing, inter alia, as follows: Article 5, paragraph 3, subparagraph (b), deals with the furnishing of services, including consultancy services, which are not covered specifically in the OECD Model Convention in connection with the concept of permanent establishment. (Emphasis supplied by us) 93. According to this analysis in the UN Model Convention Commentary, and with which we are in considered agreement, Article 5(3)(b) of UN Model Convention, which is materially similar to the provisions of Article 5(2)(k) of India UK tax treaty, extends to the areas not covered by the OECD Model Convention. Obviously, a permanent establishment under basic rule cannot be said to be not covered by the OECD Model Convention. According to the UN Model Convention Commentary, the scope of this provision extends beyond the scope of permanent establishment under the basic rule. For this reason also, we are unable to accept learned counsel’s suggestion that Article 5(2) of India UK tax treaty should only be read as a bunch of illustration of permanent establishments under the basis rule set out in Article 5(1).

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters 94. Learned senior counsel is perhaps quite right to the extent that Article 5(2), as in most standard model conventions, is no more than an illustration or examples of application of permanent establishment under basic rule i.e. under Article 5(1). However, so far as the provisions of India UK tax treaty are concerned, for the detailed reasons set out above, these arguments do not hold good in respect of clause (j) and (k) of Article 5(2), which are on the lines of provisions in Article 5(3) in all most standard model conventions. For this reason, we also reject learned counsel’s reliance on the OECD Model Convention Commentary and Prof Klaus Vogel’s analysis. His reliance on these commentaries are misplaced as the provisions these commentaries have dealt with are not in pari materia with the tax treaty provisions that we are in seisin of. 95. We may also add that similar argument, materially similar to the argument raised by the assessee before us and in respect of materially similar treaty provision, also came up for consideration before Hon’ble Authority for Advance Ruling in the case of XYZ In Re (242 ITR 208). Rejecting this plea, Hon’ble Justice Ranganathan, Chairman ‐ AAR, observed as follows: 23. The learned counsel also submitted that the definition of PE is only what is formulated in Article 5(1) and that Article 5(2) is only illustrative of the cases that fulfill the requirement of paragraph 1 of Article 5. In other words, XYZ cannot be said to have a PE even if the requirements of sub clause (1) are satisfied, unless it has a fixed place of business in India. He relies on paragraph 11 of the Commentary on OECD Model Convention which reads thus : 11.[General Remarks] This paragraph contains a list, by no means exhaustive, of examples, each of which can be regarded, prima facie, constituting a permanent establishment. As these examples are to be seen against the background of general definition given in paragraph 1, it is assumed that the contracting states interpret the items listed, ‘a place of management’, ‘a branch’, ‘an office’ etc in such a way that such places constitute permanent establishment only if they meet the requirement of paragraph 1. This argument may run contrary to the well established principle of statutory interpretation that an inclusive definition is intended to add to primary meaning so as to bring within its scope items which may or may not fall

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters within the scope of the primary definition. That apart, even assuming, at best, that the inclusion clause is to be interpreted ‘against the background’ of the general definition contained in paragraph 1 and bear some analogy to it, all that can be said is that sporadic and isolated activities, referred to in clause (1), will not be sufficient to constitute PE and that there should be some degree of ‘continuity’ or ‘durability’ and a framework against which the services are rendered. That kind of framework and degree of stability is present here. It must, therefore, be held that XYZ has a PE in India. (Emphasis supplied by us) 96. We are in considered and respectful agreement with the legal proposition so laid down by the Hon’ble Authority for Advance Ruling. Interestingly, in this case, even as it was not brought to the notice of the Hon’ble Authority of Advance Ruling that the OECD Commentary is in respect of the provisions which are not in pari materia with the respective tax treaty provisions [the provisions of Article 5(2) of OECD Model Convention, in respect of which commentary was written and as we have seen earlier in this order, are materially distinct from the tax treaty provisions of Article 5(2) which came up for consideration before the AAR and before us], Hon’ble Authority for Advance Ruling reached the same conclusions. On the basis of the line of reasoning adopted by the AAR also, we reject the contention of the assessee. 97. Let us once again take a look at Article 5(2)(k) and further analyze its scope and purpose. It provides that the term ‘permanent establishment’ shall include specially the furnishing of services including managerial services within Contracting State by an enterprise through employees or other personnel, where such activities are rendered for more than 90 days for any enterprises, or for more than 30 days for an associated enterprise, within any twelve month period. The only exclusion clause envisaged from the services so furnished is when the consideration for such services is taxable in the source jurisdiction under Article 13. In order to invoke this provision, all that is needed is that (a) a resident of other contracting state furnishes services - for more than 90 days, within any twelve month period, for any enterprises [excluding an associated enterprises within the meanings of that expression under Article 10(1)], or

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters ‐ for more than 30 days, within any twelve month period, for an associated enterprises within the meanings of that expression under Article 10(1); (b) consideration for services so furnished are not taxable in the source jurisdiction under Article 13 of the India UK tax treaty. 98. There is no dispute about the fact that the assessee has fulfilled the 90 days duration test, envisaged in Article 5(2)(k) analyzed above, and the fact that consideration for services rendered by the assessee are not taxable in India under Article 13 of the India UK tax treaty. 99. The unresolved dispute on the question of existence of permanent establishment thus narrows down to the connotations of ‘furnishing of services’, which, according to the learned counsel, can not be so construed as to cover ‘rendering of services’ by such professionals as lawyers. 100. Learned senior counsel has mainly invited our attention to the dictionary meanings of the expression ‘furnish’, and pointed out that one of these meanings, as per Oxford English Dictionary and on which learned counsel has laid great emphasis, is “to provide or supply with”. It is primarily on this basis that it is contended that expression ‘furnishing’ refers to providing for or arranging or supplying the services, rather than rendering the services oneself as is done by the professionals like lawyers. 101. We are, however, unable to see legally sustainable merits in this plea. As for the hyper technical suggestion that professional services can only be ‘rendered’ and not ‘furnished’, and the connotations of furnishing of services cannot be extended to rendering of services, we may mention that connotation of ‘rendering’ also extend to “to give or make available; provide” (www. thefreedictionary. com/ render) and “ to furnish; to state; to deliver; as to render an account; to render judgment (http://www. webster‐dictionary.org/definition/render). Similarly, one of the usage of expression ‘furnish’ also refers to ‘to furnish one with knowledge or principles” (www.webster‐dictionary.org /definition/ furnish). The expression ‘rendering’ and ‘furnishing’ are somewhat interchangeable in normal course of business, and it will be too pedantic and hyper technical an approach to narrow down the meaning of the expression ‘furnishing’ to exclude rendering of professional services. A treaty, as we have see in detailed analysis of principles of interpretation of tax treaties earlier in this order, is to be interpreted in good faith on the basis of general expectations

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters of the parties and in accordance with the ordinary meaning given to the treaty in the context and in the light of its objects and purpose. The interpretation canvassed by the learned counsel does not fit into this approach to treaty interpretation. 102. In any event, one cannot interpret a tax treaty, or for that purpose even a tax legislation, with dictionary in one hand and tax treaty in another. As Justice Hand has observed in the context of interpreting tax law, which is even more relevant in the context of interpreting a tax treaty, "it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning". And object and purpose of Article 5(2)(k) is unambiguously set out in UN Model Convention Commentary which, dealing with Article 5(3)(b), which is in pari materia with Article 5(2)(k) of India UK tax treaty, states that, “[i]t is believed that management and consultancy services should be covered because the provision of such services in developing countries by corporations of industrialized countries often involves very large sums of money”. This objective, by no stretch of logic, supports the interpretation canvassed by the learned counsel.

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters (a) to (f) as the 'negative list. A combined reading of sub-articles (1), (2) and (3) of Article 5 would clearly show that only certain forms of establishment are excluded as mentioned in Article 5(3), which would not be permanent establishments. Otherwise, sub-article (2) uses the word 'include' which means that not only the places specified therein are to be treated as permanent establishments, the list of such permanent establishments is not exhaustive. Further, they held that in order to bring any other establishment which is not specifically mentioned, the requirements laid down in sub-article (1) are to be satisfied. Therefore, they clearly held that the list of inclusion mentioned in sub-article (2) has to be considered as permanent establishment and whatever any other establishment which is not specifically mentioned, the requirements laid down in Sub-article (1) are to be satisfied. In the given case the Coordinate Bench has dealt with the issue of attracting sub-clause(k) in the case of the assessee and are dealt in detail as well as gave a clear finding. The same is discussed in the above paragraphs clearly establishes that assessee is having a PE in India as per Clause (k) of the Article 5(2). Therefore, clause (k) is attracted, it is not necessary to go through Article 5(1). Hence, the case law relied by the assessee are in a way not applicable to the present case.

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters 15. Coming to the another decision relied by the assessee in the case of R&B Falcon Offshore Ltd. v. Addl CIT (supra), the ITAT Delhi bench has dealt with the issue of Article 5(2)(j) of the Indo – US DTAA, wherein the issue was that a Non-resident company which owned a rig arrived in India, due to some repairs to be undertaken before such rig was to be used in India. The issue was whether the period used to repair the rig before installation to be considered for the limitation period of more than 120 days or not, was the issue. It was not the issue whether the placement of the rig in India for which Article 5(2)(j) are applicable or not. Further, the issue dealt by the ITAT Delhi bench relating to Indo – US DTAA whereas the application of Article 5(2)(k) in the case of assessee is Indo – UK DTAA, and it is dealt elaborately in the case of assessee’s own case by the Coordinate Bench. Therefore, it is distinguishable to the facts of the present case.

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters 17. With regard to, Ground No. 2 which is in respect of without prejudice, Ld.CIT(A) ought to have specifically directed the Assessing Officer to assess only fees relatable to work performed in India. Ld. AR of the assessee brought to our notice that the issue in appeal has been considered by the Co-ordinate Bench of this Tribunal and decided the issue in favour of the assessee and against the department. He brought to notice Miscellaneous application order dated 20.02.2015 in assessee’s own case in M.A. No. 392/Mum/2014 copy of the order is placed on record.

“3. We have heard Ld D.R and also perused the record. Admittedly, the Ld A.R had placed reliance on the decision rendered by the Special bench in the case of Clifford Chance (supra) at the time of hearing. There should not be any dispute that the decision rendered by the Special bench should be preferred over to the decision of the Division bench. Hence, the impugned order of the

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters Tribunal suffers from the mistake apparent from record in not following the decision of Special bench and hence the same requires to be corrected. The issue regarding the quantum of income attributable to Permanent Establishment is discussed in paragraph 12 of the order. In view of the discussions made supra, we order the existing paragraph 12 of the order of the Tribunal dated 8.8.2004 passed in ITA No.1711/Mum/2004 relating to AY 1997-98 shall be deleted and in that place following paragraph shall be inserted. “12. We shall now take up the appeal filed by the revenue. The grounds numbered as 1 & 4 relate to the assessment or Professional receipts. Though the assessing officer has assessed the entire professional receipts as the income of the assessee, we notice that the Ld CIT(A) has held that, only that portion of the income relating to the services performed in India alone is assessable under the Act. Both the parties admitted that the Tribunal has considered identical issue in AY 1995-96 and has held that the entire profits directly or indirectly attributable to the Permanent Establishment is assessable and accordingly upheld the order of the assessing officer in that year. However, the Ld A.R submitted that the Special bench of Tribunal has considered an identical issue in the case of CIT Vs. Clifford Chance (143 ITD 1), wherein the issue has been decided in favour of the assessee. Accordingly he submitted that the order of the Ld CIT(A) on this issue should be upheld. We agree with the contentions of Ld A.R. Since the decision of Special bench is binding on us, we direct the assessing officer to assess the income in accordance with the decision rendered by the Special Bench in the above cited case. Accordingly, we reject the ground urged by the revenue on this issue” 4. In the result, the miscellaneous application filed by the assessee is allowed.”

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters orders of the Tribunal passed in the case of the assessee for A.Y. 1997-98 M.A.No.392/M/2004 order dated 20.02.2015 and order dated 7.9.2014 (for A.Y. 1998-99 and 2001-02), wherein it was held that only income related to services rendered in India, is liable to tax in India. Further, reliance was also placed by him upon the judgment of Hon’ble Mumbai Special Bench of the Tribunal in the case of Clifford Chance, 143 ITD 1 (SB) wherein it was held that only income related to services rendered in India was liable to be taxed rendered in India. 13.1. On the other hand, Ld. DR has supported the orders of the AO. 13.2. We have gone through the facts of the case before us as well as order passed by the Tribunal in assessee’s own case in earlier years and find that this issue is squarely covered in favour of the assessee. We find that in assessee’s own case for A.Y.1998-99 to 2001-02 vide order dated 7.9.2015, the Tribunal has held that the profit which is attributable to the PE, can only be assessed in India. Relevant para of the Tribunal’s orders is reproduced below: “19. In ground no. 1, the Revenue has challenged the taxability of income related to work performed in India. Assessing Officer has taken a view that even where only part of services was performed in India, entire income was taxable in India. Whereas, the Ld. CIT(A) has held that only income in respect of services rendered in India which are attributable to the PE only that income would be taxable in India. The Tribunal though in AY 1995-96 had decided this issue against the assessee after invoking the principle of “force of attraction”, however, later on, the Special Bench of the Tribunal in the case of ADIT vs Clifford Chance reported in [2013], (143 ITD 1) has decided the issue in favour of the assessee and against the Revenue, whereby the specific finding of the Tribunal on this issue has been reversed. Accordingly, following the binding precedence of Special Bench in the case of ADIT vs Clifford Chance (supra). We hold that the profits, which are attributable to the PE can only be assessed in India and thus Ground no.1 raised by the Revenue stands dismissed. 13.2. Respectfully following the aforesaid order and order of the Hon’ble Special Bench in the case of Clifford Chance, (supra), It is held that the only income in respect of services rendered in India, which are attributable to PE only, would be taxable in India. Thus, ground no. raised by the Revenue stands dismissed.”

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters 21. Respectfully following the above decision and following the principle of consistency, the view taken by the Coordinate Bench in A.Y.1997-98 and A.Y. 2003-04 is respectfully followed, ground raised by the assessee is accordingly allowed.

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters 24. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the preceding Assessment Years. The Coordinate Bench of the Tribunal in assessee’s own case for the A.Y. 1998-99 to 2001-2002 in 1355/Mum/2004 dated 07.09.2015 following the decision for the A.Y.1995-96 held as under: -

“12. As regards the issues raised in ground no. 5 & 6 to ‘reimbursement of expenses’ which has been considered as ‘income’, by the revenue authorities, it has been submitted by the Ld. Senior Counsel that, this issue has been decided in favour of the assessee from the AYs 1995-96 to 1997-98, the relevant observation by the Tribunal in AY 1995-96 are as under :- “133. Having heard the rival submissions and having perused the material on record, we are inclined to uphold the grievance of the assessee. The reimbursements received by the assessee are in respect of specific and actual expenses incurred by the assessee and do not involve any markup, there is reasonable control mechanism in place to ensure that these claims are not inflated, and the assessee has furnished sufficient evidence to demonstrate the incurring of expenses. There is thus no good reason to make any addition to income in respect of these reimbursements of expenses. The action of the CIT(A), as learned counsel rightly contends, on pure surmises and conjectures. In view of the above discussions, we direct the AO delete the disallowance of expenses as sustained by the CIT(A) and hold that no part of reimbursements of expenses received by the assessee, on the facts of this case, be treated as income of the assessee. The assessee gets the relief accordingly. On quashing the initiation of penalty proceedings”. 13. Thus, respectfully following the same, we allow these grounds in favour of the assessee and against the revenue that the entire reimbursement of expenses here in the facts of the assessee’s case cannot be treated as income.”

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters 25. Further, the Coordinate Bench in assessee’s own case for the A.Y.2003-04 in ITA.No. 897/Mum/2007 held as under: - “5. Ground Nos. 3 & 4: In these grounds, the assessee has challenged the action of Ld. CIT(A) in holding the action of the AO in treating reimbursement of the expenses as part of the income of the assessee. During the course of hearing, Ld. Counsel has submitted that identical issue was involved in the earlier years and the same has been decided in favour of the assessee in the various orders passed by the Tribunal, particulars of which have already been given in ground no.1 above. 5.1. On the other hand, Ld. DR has supported the orders of the lower authorities. 5.2. We have gone through the submissions made by both the sides and lower authorities and order passed by the Tribunal in earlier years. We find it appropriate to produce relevant para from the order of the Tribunal dated 7th September 2015. 12. As regards the issues raised in ground no. 5 & 6 to ‘reimbursement of expenses’ which has been considered as ‘income’, by the revenue authorities, it has been submitted by the Ld. Senior Counsel that, this issue has been decided in favour of the assessee from the AYs 1995-96 to 1997-98, the relevant observation by the Tribunal in AY 1995-96 are as under :- “133. Having heard the rival submissions and having perused the material on record, we are inclined to uphold the grievance of the assessee. The reimbursements received by the assessee are in respect of specific and actual expenses incurred by the assessee and do not involve any markup, there is reasonable control mechanism in place to ensure that these claims are not inflated, and the assessee has furnished sufficient evidence to demonstrate the incurring of expenses. There is thus no good reason to make any addition to income in respect of these reimbursements of expenses. The action of the CIT(A), as learned counsel rightly contends, on pure surmises and conjectures. In view of the above discussions, we direct the AO delete the disallowance of expenses as sustained by the CIT(A) and hold that no part of reimbursements of expenses received by

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters the assessee, on the facts of this case, be treated as income of the assessee. The assessee gets the relief accordingly. On quashing the initiation of penalty proceedings”. 13. Thus, respectfully following the same, we allow these grounds in favour of the assessee and against the revenue that the entire reimbursement of expenses here in the facts of the assessee’s case cannot be treated as income. 14. So far as issues raised in ground no. 7, 8 & 9, the Ld. Senior Counsel for the assessee submitted that, as of now, the issues raised in these grounds have become purely academic. Accordingly, ground no. 7, 8 & 9 are treated as infructuous, being purely academic in view of the issues decided in the foregoing grounds.” 5.3. We have gone through the facts of the case and find that the facts are similar and issued decided by the Tribunal is identical and therefore, we allow these grounds in favour of the assessee and against the Revenue and direct the AO to follow the aforesaid order of the Tribunal.”

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters ITA.No.1711/Mum/2004 dated 08.08.2014 copy of the order is placed on record.

“136. In the appeal filed by the Assessing Officer, a grievance has been raised against CIT(A)’s holding that, interest u/s 234B of the Act was not chargeable in the case of assessee, as all sums chargeable to tax in the hands of the assessee are liable to deduction of tax at source u/s 195 of the Act. 137. Learned representatives fairly agree that the issue is now covered in favour of the assessee by a large number of decisions of the Tribunal, including Special Bench decision in the case of Motorola Inc Vs DCIT (95 ITD SB 269) which has since been approved by the Hon'ble jurisdictional High Court in the case of DIT Vs NGC Network LLC (313 ITR 137). Learned Departmental Representative, nevertheless, dutifully relies upon the order of the Assessing Officer. 138. Respectfully following the esteemed views of Hon’ble jurisdictional High Curt in the case of NGC Network LLC (supra), we approve the conclusions arrived at by the CIT(A) and decline to interfere on the matter on this count as well. Ground No. 1 of the Assessing Officer is thus rejected.

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters 30. Further, the Coordinate Bench in assessee’s own case for the A.Y.1997-98 in ITA.No. 1711/Mum/2004 held as under: -

“13 Ground No.2 relates to the charging of interest u/s 234B of the Act. The interest charged by the AO u/s 234B of the Act was deleted by the Ld CIT(A) by holding that the assessee is not liable to pay advance tax, since the Tax is deductible at source on the entire amount received by the assessee. The Ld D.R placed reliance on the decision rendered by Hon’ble Delhi High Court in the case of Director of Income tax Vs. Alcatel LUCENT USA Inc. (2014)(264 CTR (Del) 240), wherein the Hon’ble Delhi High Court has expressed the view that the assessee, having denied its liability to pay income tax right from the beginning, should not take the plea that the Indian payers should have deducted tax at source from the remittances made to it. Accordingly the Hon’ble Delhi High Court has held that, where the revenue has been deprived of use of monies and thereby put to loss for no fault on its part and where loss arose as a result of vacillating stands taken by the assessee, it is not expected of assessee to shift responsibility to Indian Payers. Accordingly, the Hon’ble Delhi High Court has upheld levy of interest u/s 234B of the Act. 14. On the contrary, the Ld A.R placed strong reliance on the decision rendered by the Hon’ble Bombay High Court in the case of DIT Vs. Ngc Network Asia LLC (313 ITR 187)(Bom), wherein the Hon’ble jurisdictional High Court has held that when a duty is cast on the payer to pay tax at source, on failure, no interest can be imposed on the payee. 15. We have heard the rival contentions on this issue. Though the reasoning given by the Hon’ble Delhi High Court (referred supra) is appealing, yet we are unable to follow the said decision in view of the binding decision rendered by the Jurisdictional High Court in the case of Ngc Network Asia LLC (referred above). Accordingly, we uphold the order of Ld CIT(A) on this issue.”

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters A.Y.1995-96 and A.Y. 1997-98 is respectfully followed, ground raised by the assessee is accordingly allowed.

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters 34. On the other hand, Ld. DR relied on the orders of Assessing Officer.

“106. We are in considered agreement with this analysis in the UN Model Convention Commentary. We are thus of the considered view that, in a situation like the one that we are in seisin of, i.e. in which specific provisions for professional services or independent personal services or included services exist under Article 15, when services are rendered by the enterprise, Article 5(2)(k) will come into play, and when services are rendered by an individual, Article 15 will find application. Therefore, while we agree with the learned counsel that Article 15 will not be applicable on the facts of the present case, this finding does not really come to the rescue of the assessee since, as we have already held, the assessee did have a PE in India under Article 5(2)(k) of the India UK tax treaty, and, accordingly, profits attributable to the PE are taxable under Article 7 of the India UK tax treaty.”

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters ITA.NO. 3039/MUM/2008 (REVENUE APPEAL)

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters decision taken therein shall apply mutatis-mutandis. Accordingly, ground No.2 raised by the revenue is dismissed.

Order pronounced in the open court on 11th October, 2023.

Sd/- Sd/- (ABY T. VARKEY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 11/10/2023 Giridhar, Sr.PS

ITA NO. 3280/MUM/2008 (A.Y: 2005-06) ITA NO. 3039/MUM/2008 (A.Y: 2005-06) Linklaters Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

//True Copy// BY ORDER

(Asstt. Registrar) ITAT, Mum