LINKLATERS LLP,LONDON vs. ASSISTANT COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), CIRCLE (3)(1)(2), MUMBAI, MUMBAI

Without prejudice to the above, the learned AO ought to have allowed deduction for expenditure incurred for such disbursements.

Without prejudice ought to have allowed deduction for entre expenses instead of restricting to 5% of the income Income taxable under Article 15 of the India-UK DTAA 33. The leamed AD erred in holding that the appellant was liable to tax in India under Article 15 of the india UK DTAA The learned AD ought to have appreciated that Article 15 was applicable only to individuals and was not applicable to the case of the appellant 34. Without prejudice to the above, in terms of Article 15(1) the learned AD ought to have taxed income only in respect of services rendered in India 35 The learned AD erred in holding that the appellant had a fixed base in India from which the appellant was performing its activities 36. The learned AO erred in holding that appellant's partners and staff, use the hotels or the places provided by clients as an office or place of work and from such premises the appellant provides services to its client Rate of tax 37. The learned AO erred in applying tax rate of 42. 43% on the gross fees including disbursement earned by the appellant. 38. Without prejudice to the claim that no income is liable to tax in India, since the learned AD has held the appellant's income as technical services taxable under the Act, the learned AO ought to have considered tax rate at 10% (plus surcharge and cess) being beneficial rate provided under section 115A of the Act for fees for technical services. Interest under section 234B 39. The learned AO has erred in levying interest under section 2348 of the Act at Rs. 18,20,907. The appellant denies liability for the interest levied under section 2348 Initiation of Penalty under section 270A 40. The learned AO erred in initiating penalty proceedings under section 270A.

Brief facts of the case are that assessee filed its return of income on 03.10.2022 reporting total income at nil. From the submissions made by the assessee in the course of assessment proceedings, it is noted that assessee is a limited liability partnership incorporated under the laws of United Kingdom. According to it, as per section 2(17) of the Act, the status claimed by it that of a company. assessee provides legal services to various clients all over the world, including India. assessee is registered with the Registrar of Companies for England and Wales under the Limited Partnership Act, 2000 of the United Kingdom. During the year under consideration, assessee provided services to certain clients and also worked on various projects for which work was done in India and partly work was done outside India. Details of services provided by the assessee during the year under consideration is tabulated below: S. No. Name of the Indian Client Fees in INR 1 BOFA SECURITIES INDIA LIMITED 6,67,080 2 KESORAM INDUSTRIES LIMITED 62,68,976 3 STANDARD CHARTERED BANK, 2,30,025 INDIA 4 RELIANCE INDUSTRIES LIMITED 65,22,544 Total 1,36,88,625 3.1. Nature of services provided to each of its clients tabulated above is extracted below from the submissions made by the assessee: “(a) BofA Securities India Limited - Linklaters LLP provided UK regulatory advice to BofA Securities India Limited for their operations outside India. Linklaters LLP did not attend any meetings in India. (b) Kesoram Industries Limited - Linklaters LLP provided advice to Deutsche Bank Trust Company Americas in relation to technical changes necessary to the GDR programme of Kesoram Industries Ltd to reflect the demerger of its Birla Tyres

In the present appeal before us, assessee has raised as many as 36 grounds which can be bucketed into four broader issues which have been dealt by the Coordinate Bench in past several assessment years. The four major issues are listed below which covers ground numbers from 6 to 36. Ground nos. 1 to 5 are general in nature and therefore their adjudication gets covered while dealing with the four broader issues and hence are not dealt separately. The four issues listed below are:

Before us, ld. Counsel for the assessee has placed on record decisions of the Coordinate Bench in assessee's own case for Assessment Years 2011-12, 2012-13, 2013-14, 2014-15, 2015-16 and 2016-17 which have been perused in detail. On a specific query by the Bench in respect of status of years subsequent to Assessment Year 2016-17, it was submitted that these years until the year under consideration were not picked up for scrutiny and hence no assessment was done and therefore no appeal arose out of that. We thus, take up the decision of the Coordinate Bench in assessee's own case for Assessment Year 2016-17 in dated 22.02.2023 to deal with the four issues listed above. Ld. Counsel for the assessee having taken the Bench through all the preceding orders of the Coordinate Bench in assessee's own case, demonstrated evidently that the factual matrix in all these case vis-a-vis the present appeal remains the same. He further demonstrated that the position of law both, under the Act and the India-UK Tax Treaty remains the same and hence, the four broader issues raised through several grounds are squarely covered in assessee's favour by the preceding decisions of the Coordinate Bench in assessee's own case. We thus, respectfully following the decisions in the preceding years, deal with the issues before us by reproducing the relevant extract on each of the issue for ready reference to adjudicate on the same.

On the first issue relating to entitlement to claim the benefit under India-UK Tax Treaty covering ground Nos. 6 to 8, the relevant extract from the decision of Coordinate Bench for AY 2016-17 in is extracted below: 10. We have heard the rival submissions and perused the materials on record on this issue. It is observed that the assessee's case for A.Y. 2011-12, the co- ordinate bench has held that the assessee is entitled to the benefits of India - UK DTAA by following the previous year's decision of the Tribunal in the case of Linklaters LLP v. Dy. CIT (International Taxation) [2017] 79 taxmann.com 12 (Mum.-Trib.). The relevant extract of the said decision is cited hereunder for ease of reference: 9. We have gone through the orders passed by the AO as well as DRP and also the submissions made before us and also the orders passed by the Tribunal in case of M/s. Linklaters for earlier years. With the assistance of both the parties, it was noted that this issue has cropped up in various earlier years in case of M/s. Linklaters Le. A.Ys 1995-96, 1997-98, 1998- 99, 1999-2000 and 2001-02 wherein, the Tribunal has decided this issue in favour of Linklaters by holding that it is eligible for the benefits of India - UK DTAA. Our attention has been drawn upon the orders passed by the Tribunal for all these years. In A.Y. 1995-96, the Tribunal vide its order reported in 132 TTJ 20 made elaborate discussion at paras 21 to 28 before arriving at the conclusion at paragraph 79 as under:-

From the above observation, it is evident that this issue being a recurring one, has been dealt with by the Tribunal since A.Ys. 1995-1996 in various years and has held that the assessee is entitled to the benefit of India-UK tax treaty. The AO has rejected the assessee's contention for the reason that the provisions of Article 4(1) read with Article 1(1) which states that unless the assessee can be said to be a resident of UK, the assessee cannot claim treaty benefits and unless the assessee is liable to tax in UK, the assessee cannot fulfill the requirement of being the resident in UK. The AO also stated that the assessee is not taxable unit with regard to the income of the LLP and the term 'liable to tax' cannot include a person who is not taxable in the home country. The AO further denied the assessee's claim by stating that since the assessee was not taxed, the assessee will not be covered under the expression 'liable to tax', thereby not treating the assessee as a resident of UK and denied the benefits of the said treaty.

The A.O. has held that as per UK laws, LLP is not a taxable entity and since the assessee is not liable to tax and only its partners are assessed to tax, the assessee cannot be given the benefit of the Tax Treaty. We are not in agreement with the view taken by the A.O. No doubt that the firm consists of Partners and the income of the firm are taxed in the hands of the partners, the assessee is also said to be incorporated and registered under the laws of UK. Other than the fact that the assessee has not paid tax, we have observed from the orders of the DRP and the A.O. that there is no detailed analysis as to why the said benefit is to be denied to the assessee. There has been no discussion neither in the DRP's order nor in the assessment order explaining why the income of the assessee is to be taxed in India. In the absence of such analysis, we are inclined to follow the decision of the Tribunal in assessee's case for earlier years which has held that the assessee was entitled to India - UK tax treaty benefits. In holding so, we allow ground nos. 12 to 14 raised by the assessee.”

Second issue is in respect of taxability of income as FTS under the India-UK Tax Treaty which covers ground nos. 19 to 28. In this respect, the relevant extract from the said decision for Assessment Year 2016- 17 (supra) is reproduced below: “14. The AO had taxed the above income as 'fee for technical services' by holding that the services rendered fall under the category of 'fees for technical services' as per the IT Act and as per the India - UK DTAA. Having denied the benefit of India - UK DTAA, the AO held that the impugned receipt was taxable in India. The AO relied on the decision of the Hon'ble Apex Court in the case of Continental Construction Ltd. v. CIT [1992] 60 Taxman 429/195 ITR 81, wherein it was held that the expression technical service' has a very broad connotation and it also includes Professional Services and also relied on the decision of the Hon'ble Apex Court in the case of CBDT v. Oberoi Hotels (India) (P.) Lal. [1998] 97 Taxman 453/231 ITR 148 which held that technical services include 'professional services. The A.O. also relied on various other decisions and held that the services rendered by the assessee to be technical in nature and the fees for included services are within the meaning of article 13 of the India-UK DTAA and taxed the whole income in India as per the Explanation 1 to section 9 of the IT Act which is suffice to say that if the services are utilized in India then the same amount to taxability in India. The AO also held that since the services are provided by professionals which requires expertise, the same are to be termed as technical and consultancy services', which services are made use by the recipient in different areas such as management, finance, risk management analysis and transaction services, etc. The assessee contended that the said services requires no technology and are provided by highly skilled professional not related to any specific industry. The assessee further submitted that the said services pertain to specific laws of the country performed by specific legal professionals. The assessee further contended that the said services rendered cannot be utilized by assessee's clients in future for their businesses in the area of management, financial and risk management analysis. The assessee reiterated that these are not 'make available' technical services. The contention of the assessee was not considered by the lower authorities, thereby making an addition of the impugned amount.

The Id. AR for the assessee contended that these are not 'make available technologies, which are utilized by the assessee's clients for future purposes. The Id. AR also stated that stated that the impugned services are provided to non- Indian parties in connection with the activities outside India and, therefore, cannot be deemed to arise in India. The Id. AR for the assessee relied on the decision of the Tribunal in assessee's case, wherein the same was held not to be 'fee for technical services and are not taxable under article 13. The Id. AR also relied on the decision of the tribunal in assessee's case for A.Ys. 2011-12 and 2015-16.

The Id.DR, on the other hand, controverted the same and stated that the said decision of the tribunal in assessee's case for previous years was challenged before the Hon'ble Jurisdictional High Court, thereby relied on the orders of the lower authorities.

Having heard the rival submissions and perused the materials on record. It is observed that the Tribunal in A.Y. 2013-14 and 2015-16 have dealt with this issue and has held that section 9 of the Act does not apply in the case of the assessee relating to 'fees for technical services' and that the assessee was entitled to the benefit of DTAA. The Tribunal also held that the Revenue has failed to prove otherwise that the same pertain to 'fees for technical services. The Tribunal also held that the provisions of India-UK DTAA would override the provisions of the Act, thereby holding the remuneration received by the assessee for providing legal services as not amounting to 'fees for technical services', where the provisions of section 9(1)(vii) of the Act is not applicable. The tribunal has also held that the revenue has failed to prove that the same would fall under the category of 'fee for technical services' as envisaged in article 13 of the India-UK DTAA and thereby holding that the same cannot be brought to tax as 'FTS' as per section 90(2) of the Act. 18. From the above observation, we are inclined to follow the said decisions, as the Revenue even during the impugned year has failed to controvert the contention of the assessee. Therefore, ground no. 20 along with the related grounds on this issue raised by the assessee are allowed.”

Third issue is in respect of non-existence of permanent establishment which covers ground nos. 14 to 18. In this respect, the relevant extract from the order for Assessment Year 2016-17 (supra) is reproduced below:

The Id. DR, on the other hand, controverted the same by stating that in all these years, the tribunal has remanded back this issue to the A.O. for verifying the fact as to whether the assessee's employees had stayed in India for less than 90 days or not to establish the fact that the assessee had a permanent establishment in India. The Id. DR prayed that the same may be remanded back to the A.O. for the impugned year also for the factual verification.

Having heard the rival submissions and perused the material available on record. It is observed that in the earlier years, the co-ordinate bench has remanded this issue back to the A.O. for verifying the number of days of stay in India by the employees of the assessee who had rendered services in order to ascertain whether the assessee had a permanent establishment in India during the impugned year. The Id. AR has placed reliance on the submissions dated 13- 12-2019 made by the assessee before the A.O. stating that the personnel/employee of the assessee had stayed in India for rendering services for a total cumulative number of days amounting to 17 days. This fact has not been controverted by the Revenue. The AO has also not denied the said fact in the assessment order.

From the above observation, we are of the considered view that the assessee do not have a permanent establishment in India during the impugned year. As the period of stay of the employees of the assessee for rendering the services in India was only for 17 days and only when it amounts to 90 days or more, the assessee is said to have a permanent establishment in India as mandated by law. We hereby allow ground nos. 27 and 28 along with the related grounds raised by the assessee on this issue.”

Fourth issue is in respect of taxability of income under Article 15 of India-UK Tax Treaty which covers ground number 33 to 36. In this respect, the relevant extract from the aforesaid order for Assessment Year 2016-17 is reproduced below:

The Id. DR, on the other hand, stated that the decision of the tribunal has not reached finality, as the same have been appealed before the Hon'ble Jurisdictional High Court.

Having heard the rival submissions and perused the materials on record. This issue has been squarely covered by the decision of the tribunal in assessee's case for A.Ys. 2011-12, 2012-13 and 2015-16, wherein it was decided in favour of the assessee. The relevant extract of the decision in the assessee's case in Linklaters LLP v. Dy. CIT (International Taxation) [2018] 97 taxmann.com 464/172 ITD 459 (Mum. Tib.) for A.Y. 2011-12 is cited hereunder: 35. We have gone through the orders passed by the lower authorities and also article 15 of India-UK DTAA. It is noted by us that article 15 of DTAA deals with taxability of independent personal services. This article starts with the words "Income derived by an individual.in respect of professional services or other independent activities of similar character. It is noted by us that article 15 shall be applicable for determining taxable income in the hands of individual and not other persons. The assessee is certainly not an Individual. Thus this Article cannot be made applicable on the assessee being not an individual. Similar issue had come up before the Tribunal in the aforesaid case of M/s Linklaters (for AY 1995-96) wherein the Tribunal held at para 106 of the order that article 15 shall be applicable only when services are rendered by an individual. Thus, respectfully following the order of the Tribunal it is held that impugned amount of fee received by the assessee would not be liable to be taxed under Article 15 of India-UK DTAA. Thus, Grounds 10 to 10.5 are allowed in favour of the assessor.

From the above observations, we are of the view that as this issue has already been dealt with by the Tribunal extensively in the previous years, the same is also applicable for the impugned year as there is no change in facts for this year. The Tribunal has reiterated that Article 15 of India-UK DTAA is dealt with only for taxability of independent personnel services or independent activity of similar character and not for the assessee which is a partnership firm. On this context, ground nos. 38 and its related grounds raised by the assessee on this issue are allowed.

In the result, appeal of the assessee is allowed.