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Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI N.K.PRADHAN
अपीलाथ� �वारा/ Appellant by : Shri S.E. Dastur Sr. Advocate with Shri Niraj Sheth ��तवाद� �वारा/Respondent by : Shri Sanjay Singh सुनवाई क� �त�थ/ Date of hearing : 16/03/2020 घोषणा क� �त�थ/ Date of pronouncement : 12/06/2020 आदेश/ ORDER
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against assessment order dated 01/10/2018 passed under section 143(3) r.w.s. 144C (13) of the Income Tax Act, 1961 (in short ‘the Act’) for the assessment year 2015-16.
Shri S.E. Dastur, appearing on behalf of the assessee submitted that assessee is a Limited Liability Partnership firm incorporated in United Kingdom. The assessee is engaged in providing legal services. The assessee is a tax resident of United Kingdom and is not having any Permanent Establishment (PE) in India. Being a non-resident, the assessee is entitled to the benefits under India – UK Double Taxation Avoidance Treaty (DTAA). The ld. Counsel for the assessee submitted that the authorities below have erred in applying the provisions of the Act as if the assessee is an individual resident. Since, the assessee is a Limited Liability Partnership firm it has a distinct identity. The authorities below have further erred in coming to the conclusion that the remuneration received by the assessee from provision of legal services is in nature of ‘Fee for Technical Services’ (FTS) within the meaning of Clause 13(4)(c) of India – UK DTAA.
2.1. The ld. Counsel for the assessee submitted that though in the grounds of appeal the assesse has raised multiple grounds, however, the primary issues that would emerge from the grounds raised in the present appeal for adjudication are:-
(i) Whether the provisions of DTAA or the provisions of Income Tax Act, 1961 would apply in the facts of present case? (ii) Whether the remuneration received by assessee for providing legal Services is in the nature of ‘Fee for Technical Services’? (iii) Whether the income received by the assessee is taxable under Article-15 of India – UK DTAA? (iv) Whether the assesse has permanent establishment (PE) in India?
2.2. The ld. Counsel submitted that the issue whether the assesse would be eligible to claim the benefit of India-UK DTAA was considered by the Tribunal in AY 2011-12 in decided on 31-01-2017. The Tribunal held that the assesse is entitled to claim benefit under DTAA.
2.3. The ld. Counsel for the assessee submitted that in the assessment years 2011-12, 2012-13 and 2013-14 additions for similar reasons were made in the hands of the assesse. The revenue has been consistently holding legal fees charged by assesse as ‘FTS’. The assessee carried the issue in appeal before the Tribunal in (supra). The Tribunal held that the income of the assesse does not fall within the ambit of ‘FTS’ as defined in Article 13 of India-UK DTAA. Thereafter, in subsequent AYs the Tribunal has been consistently taking same view.
2.4. The ld. Counsel asserted that the income of assessee is neither taxable under the head ‘Business Income’, as the conditions set out in Article-7 of the DTAA are not satisfied. The assesse has no PE in India. Article 5 of the DTAA defines PE. The assesse does not fall in any of the specified conditions that would brings the establishment within the realm of PE. As per clause (2) sub- clause (k)(i) of Article 5, to have PE in India, the minimum period of stay of personnel/employees in India should exceed 90 days in the period of 12 months. The assessee vide letter dated 10/11/2017 had informed the Assessing Officer that the stay of personnel/employees of assessee during 12 months period relevant to the financial year 2014-15 is less than 90 days. The ld. Counsel further submitted that vide same communication, the assessee had furnished the names of the personnel, their period of stay and the cumulative number of days they stayed in India during financial year 2014-15. The total duration of stay of personnel/employees of the assessee in India during the relevant period is only six days. This fact has not been disputed by the Assessing Officer.
2.5. The ld. Counsel further submitted that as regards application of Article 15 of DTAA, the Tribunal in (supra) held that since assesse is not an individual, the provisions of Article 15 are not attracted.
2.6. The ld. Counsel pointed that all the issues raised in the present appeal have already been considered by the Tribunal in preceding assessment years in assessee’s own case. The Tribunal after examining the facts and legal position has decided all primary issues in favour of the assesse in appeals before the Tribunal i.e. for assessment year 2012-13 decided on 29-8-2018 and ITA No. 969/Mum/2017 for assessment year No.2013-14 decided on 21-6-2019. The ld. Counsel for the assessee placed on record copy of the orders of Tribunal in ITA No.1690/Mum/2015, ITA No.1540/Mum/2016 and ITA No.969/Mum/2017 (supra).
Shri Sanjay Singh, representing the Department vehemently defended the assessment order. However, the ld. Departmental Representative fairly admitted that the issues raised in the present appeal by the assessee were subject matter of appeal by the assessee in the preceding assessment years. The ld. Departmental Representative further contended that in so far as the issue of treating income of the assessee as ‘Business Income’ under Article-7 of the DTAA, to examine assessee’s PE status, it would be necessary to verify duration of total period of stay of the assessee’s employees/personnel in India. The issue can be restored to Assessing Officer for verification.
We have heard the submissions made by rival sides and have perused the orders of authorities below. The assessee in appeal has raised as many as 39 grounds of appeal. The ld. Counsel for the assessee stated at the Bar that the effective grounds for the purpose of adjudication of the appeal would be 8 to 25 and 30 to 33 of the grounds of appeal. The other grounds i.e. ground No.1 to7, 26 to 29 and 34 to 39 are either general in nature or are in support of the main grounds mentioned above.
5. The effective grounds argued by the ld. Counsel for the assessee are concised and grouped together as under:
A. In ground No.13 to 15 the assessee has assailed assessment order in denying the benefit of India- UK Tax Treaty to the assessee.
B. In ground No.16 to 18 the assessee has assailed the finding of Assessing Officer in holding that the assessee is having PE in India within the meaning of Article-5 of India – UK DTAA.
C. In ground of appeal No.19 to 25 read along with ground No.8 to 12 of grounds of appeal, the assessee has assailed the findings of Assessing Officer in treating the remunerations received by the assessee for rendering legal services as ‘Fee for Technical Services’ under India – UK DTAA.
D. In ground No.30 to 33, the assessee has assailed the findings of Assessing Officer in holding that the income of the assessee is taxable under Article-15 of India – UK DTAA.
The assesse is engaged in providing legal services. The summary of receipts for services rendered in India and outside India during the relevant period are as under:
Income in respect of services rendered in India: Rs.79,11886/- Income in respect of services rendered outside India: Rs. 7,19,455/- Towards Reimbursements: Rs. 4,98,494/- TOTAL Rs.91,29,836/- The Revenue held that the receipts of the assesse are in the nature of ‘Fee for Technical Services’ and the assesse is having PE in India therefore, the aforesaid receipts are taxable in India. Whereas, plea of the assesse is that, the above receipts are not chargeable to tax in India, as the assesse is protected by India- UK DTAA. Further, the assesse has no PE in India. We find that the issues raised by the assessee in the present appeal are recurring in nature and were subject matter of adjudication before the Tribunal in assessee’s own case in for assessment year 2011-12, in ITA No. 1540/Mum/2016 for assessment year 2012-13 and ITA No.969/Mum/2017 for assessment year 2013-14.
On applicability of India-UK DTAA & Whether the remuneration for services rendered by the assesse are in the nature of FTS:
In the immediately preceding assessment year i.e. A.Y. 2013-14, the Tribunal decided the issue regarding applicability of the provisions of the Act vs DTAA in the case of assessee and also whether the remuneration received by the assessee is in the nature of ‘Fee for Technical Services’ or not. The relevant extract of the findings of the Tribunal on this issue are as under:-
“12. In grounds no.13 to 15, the assessee has challenged the denial of India–U.K. Tax Treaty benefit.
13. The Assessing Officer denied benefit to the assessee under the India–UK Tax Treaty on the ground that income of the assessee is not taxable in UK, hence, it cannot be treated as a resident of UK under Article–4(1) of the India–UK Tax Treaty.
The learned Sr. Counsel for the assessee submitted, identical issue arose in assessee’s own case for the assessment year 2012–13 and the Tribunal while deciding the issue has held that benefit under India–UK Tax Treaty is available to the assessee.
The learned Departmental Representative, though, agreed that the issue has been decided in favour of the assessee by the Tribunal in assessment year 2012–13, however, he relied upon the observations of the Assessing Officer and learned DRP.
Having considered rival submissions it is noticed that identical issue came up for consideration before the Tribunal in assessee’s own case for the assessment year 2012–13 in the order cited supra. While deciding the issue, the Tribunal has held as under:– “8. We have considered rival submissions and perused materials on record. Undisputedly, the Assessing Officer relying upon his observations in the preceding assessment year held that the assessee is not entitled to the benefit of India–UK DTAA as it is not required to pay tax in UK. Further, the Assessing Officer also held that the income received by the assessee is otherwise taxable as FTS both under section 9(1)(vii) of the Act as well as under the DTAA. However, the Tribunal, while deciding the issue of applicability of India–UK DTAA to the assessee in assessee’s own case for assessment year 2011–12, has held in the following manner:– “10. Similarly, in other years, the Tribunal has followed its earlier order and held that M/s. Linklaters is eligible for the benefits of India-UK DTAA so long as entire profits of the partnership firm are taxed in UK, whether in the taxable income is determined in relation to personal characteristics of the partners or in the hands of the firm directly. In the year before us, there is no dispute on facts that ultimately tax has been paid either by the said firm or by its partners in UK. No distinction has been pointed out by the Ld. CIT-DR on facts or law. Under these circumstances, respectfully following the orders of the Tribunal in Linklaters’s case for earlier years, we hold that the assessee is entitled to claim benefits of India UK- DTAA. Therefore, Grounds 8 to 8.4 are allowed.”
9. Thus, in view of the aforesaid decision of the Co–ordinate Bench in assessee’s own case, we hold that the assessee is entitled to claim benefit under India–UK DTAA. As regards the nature of income received by the assessee, whether is FTS? and its taxability under the Act in India, the Co– ordinate Bench while deciding the issue in assessee’s own case for assessment year 2011–12 in the order referred to above, has ultimately concluded as under:– “32. Thus, in view of the facts brought before us, and in view of the legal position as explained in many judgements as discussed above, we are not in a position to agree with the view taken by the Revenue and thus hold that the income of the assessee would not fall in the category of “Fee for Technical Services” as envisaged in Article 13 of India-UK DTAA. Further, since this amount is not taxable under DTAA as FTS, it cannot be brought to tax as FTS as per provisions of section 9 of the Income Tax Act, 1961, in view of section 90(2) of the Act, as discussed above. Thus, with these observations, Grounds 9 to 9.6 are allowed.”
10. Facts being identical, following the aforesaid decision of the Co– ordinate Bench, we hold that the income received by the assessee not being in the nature of FTS as envisaged under Article–13 of the India– UK DTAA, cannot be brought to tax by applying the provisions of section 9(1)(vii) of the Act, since, the assessee is entitled to claim the benefit of India–UK DTAA. In view of the aforesaid, grounds no.6 and 7 are allowed and the issues raised in ground no.5 having become redundant will not require adjudication.” 17. Facts being identical, following the aforesaid decision of the Co– ordinate Bench, we decide the issue in favour of the assessee.” 7.1. Thus, the Tribunal in a very categoric manner has held that the provisions of section -9 relating to ‘Fee for Technical Services’ does not apply to the case of assesse, hence, the assessee is entitled to the benefit of DTAA. The Revenue has not been able to place on record any contrary material. Further, no material has been placed before us to show that the nature of transaction in the assessment year under appeal is different from the transactions in assessment year 2013-14. Respectfully following the decision of the Co-ordinate Bench, we hold that the provisions of India-UK DTAA would override the provisions of the Act in the instant case and the remuneration received by the assesse for providing legal services do not fall within the ambit of ‘Fee for Technical Services’ as defined in DTAA. Thus, ground No.13 to 15 and 19 to 25 read with ground nos. 8 to 12 of the grounds of appeal are decided in favour of the assessee.
Whether the assesse has PE in India and the receipts are liable to be taxed as ‘Business Profits’:
As regards the taxability of income of the assessee under Article – 7, as ‘Business Profit’ is concerned, it would be imperative that first the status of the assessee whether it has PE in India has to be established in accordance with Article – 5 of the DTAA. If it is held that the assesse has no PE in India, the provision of Article 7 would not get attracted. The contention of the ld. Counsel for the assessee is that during the relevant period the personnel/employees of the assessee were in India for a period of six days only. The assessee had filed a chart along with his submissions before the authorities below giving details viz. name of the personnel, period of stay in India and the total duration of stay, to substantiate that the aggregate period of stay of the personnel/employees in India is less than 90 days within 12 months period. A perusal of the draft assessment order and the assessment order shows that the assessee had furnished the details before the Assessing Officer. However, the same were not examined by the Assessing Officer. The Co-ordinate Bench in assessment year 2013-14 in principle has accepted the contention of the assessee that if the employees/personnel of the assessee have not rendered services in India for a period exceeding 90 days during the relevant period then it has to be held that the assessee did not have a PE in India during the year under consideration. For the sake of completeness the relevant extract of the Tribunal order in AY 2013-14 is reproduced herein below:
“10. We have considered rival submissions and perused the material on record. Though, the learned Departmental Representative has made an attempt to make out a case by interpreting the expression “any twelve months period” as used in Article– 5(2)(k)(i) of the India– U.K. Tax Treaty in a different manner, however, we are not impressed with the same. In our considered opinion, the issue is squarely covered by the decision of the Co–ordinate Bench in assessee’s own case for the assessment year 2012–13 in ITA no.1540/Mum./2016, dated 29th August 2018. While dealing with the aforesaid issue, the Tribunal has held as under:– “14. We have considered rival submissions and perused materials on record. Undisputedly, the issue raised in this ground was never agitated by the assessee either before the Assessing Officer or before the DRP. Thus, this ground raised by the assessee has to be treated as an additional ground. However, considering the fact that the issue raised in this ground is a purely legal issue, since, it involves interpretation of Article 5(2)(k)(i) of the India–UK DTAA, we are inclined to admit this ground. Reverting back to the issue raised in this ground, it is observed that the Assessing Officer referring to Article 5(2)(k)(i)of the India–UK DTAA has concluded that the assessee had a PE in India, since, its employees or personnel have rendered services in India for a period of 90 days or more within any 12 month period. Notably, the expression “any 12 month period” as used in Article 5(2)(k)(i) of the India–UK DTAA has not been defined anywhere in the DTAA. Therefore, we have to find the meaning of the said expression by taking aid of the provisions of the Income Tax Act, 1961, since, the income is sought to be taxed in India. Section 5 of the Act which defines scope of total income refers to the total income of any previous year of a person who is a resident. Similarly, section 6 of the Act postulates that an individual or a HUF or a company or any other person can be considered to be a resident in India in any previous year if it satisfies the condition mentioned therein. Thus, for the purpose of being considered as a resident in India a reference has been made to the previous year. Section 4 of the Act, which is the charging section, mandates that a person shall be charged to income tax in respect of the total income of the previous year. The expression “previous year” has been defined under section 3 of the Act to mean the financial year immediately preceding the assessment year. Thus, as per the provisions of domestic law, the 12 month period would mean the previous year or the financial year which is the unit for which the income of a person is taxable. If the provisions of Article 5(2)(k)(i)of the India–UK DTAA is read harmoniously with the provisions of the Act referred to above, it will be fair and reasonable to conclude that the expression “any 12 month period” mentioned in Article 5(2)(k)(i)of the India–U.K. DTAA has to be construed to mean the previous year or financial year as per section 3 of the Act, since, the income is sought to be taxed in India. Therefore, it has to be seen whether the employees or personnel of the assessee have rendered services in India for a period aggregating to 90 days or more in financial year 2011–12 to constitute a PE. As per the chart submitted by the assessee at Page–37 of the paper book, it is claimed that the employees and personnel of the assessee were situated in India for rendering services for a period aggregating to 77 days. Since, the aforesaid factual aspect has not been verified by the Departmental Authorities as the assessee did not raise this issue before them, we are inclined to restore the issue to the Assessing Officer for adjudication keeping in view of our observations herein above and only after due opportunity of being heard to the assessee. This ground is allowed for statistical purposes.”
Facts being identical, we do not find any reason to deviate from the aforesaid decision of the Co–ordinate Bench. Therefore, respectfully following the decision cited supra, we direct the Assessing Officer to verify as to whether the employees/personnel of the assessee were situated in India for rendering services for a period not exceeding ninety days during the previous year relevant to the assessment year under dispute and if it is found to be so, then, it has to be held that the assessee did not have a PE in India during the year under consideration. This ground is allowed subject to factual verification as indicated above.
In the light of above, in principle we are inclined to decide the issue in favour of the assesse. However, for the purpose of factual verification of the employees stay in India during the relevant period, the matter is remanded to the Assessing Officer. The Assessing Officer after asserting the same shall decide the issue, accordingly. The ground No.16 to 18 of the appeal are allowed for statistical purpose in the terms aforesaid.
Applicability of Article 15 of India-UK DTAA:
The assesse has challenged the findings of the Assessing Officer in holding that the assesse being partnership firm does not have separate legal entity and hence, its income can be brought to tax under Article-15 of the India – UK DTAA. We find that this issue was also subject matter of appeal before the Tribunal in assessment year 2013-14. The findings of the Tribunal on this issue are as under:-
“18. Ground no.24, the assessee has challenged the applicability of Article–15 of the India–U.K. Tax Treaty. 19. The learned Sr. Counsel for the assessee submitted, the Departmental Authorities are completely wrong in applying Article–15 of the India–UK Tax Treaty to the present assessee as it is applicable only to services rendered by an individual. The learned Sr. Counsel for the assessee submitted, this view has been expressed by the Tribunal while deciding identical issue in assessee’s own case in assessment year 2011–12. Thus, he submitted, the issue is covered by the decision of the Tribunal.
The learned Departmental Representative, though, agreed that the issue is covered by the decision of the Tribunal in assessee’s own case, however, he relied upon the observations of the Assessing Officer and learned DRP.
We have considered rival submissions and perused the material on record. As could be seen, identical issue arose in assessee’s own case in assessment year 2011– 12. While deciding the issue in ITA no. 1540/Mum./2016, dated 29th August 2018, the Tribunal, following it’s earlier order held that assessee’s income would not be taxable under Article–15 of India–UK Tax Treaty as it is applicable to the service rendered by an individual. The observations of the Co–ordinate Bench in this regard are extracted hereunder for better appreciation. “23. Having considered rival submissions, we find that while deciding identical issue in assessee’s own case for assessment year 2011–12, the Tribunal has held as under:– “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 to10.5 are allowed in favour of the assessee.”
Facts being identical, respectfully following the aforesaid decision of the Co– ordinate Bench, we hold that the income received by the assessee will not be taxable under Article–15 of India–UK DTAA. This ground is allowed.”
Facts being identical, respectfully following the aforesaid decision of the Tribunal, we hold that income received by the assessee will not be taxable under Article–15 of the India–UK Tax Treaty. This ground is allowed.” The Tribunal after following the orders of earlier years held that the provisions of Article 15 of India-UK DTAA would not apply to the assesse. Since, the facts in the assessment year under appeal are similar, we see no reason to take a divergent view. Following the order of Tribunal in assessee’s own case in the preceding assessment years, grounds of appeal No.30 to 33 of the appeal are allowed.
The other grounds raised in the appeal are either general in nature or are in support of the primary grounds of appeal. Since, we have adjudicated primary issues raised in the appeal, the other grounds have become academic and as such we do not consider it necessary to travel to the other grounds raised in the appeal.
11. Accordingly, the appeal by the assessee is partly allowed in the terms aforesaid.
This appeal was heard on 16/03/2020. As per Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963, (ITAT Rules, 1963), the order was required to be “ordinarily” pronounced within a period of 90 days from the date of conclusion of the hearing of appeal. The instant appeal was heard prior to the lockdown declared by the Hon’ble Prime Minister on 24-03-2020 in view of COVID-19 pandemic. The lockdown was forced due to extra ordinary circumstances caused by world wide spread of COVID-19. Thereafter, the lockdown was extended from time to time. Therefore, the pronouncement of order beyond the period of 90 days from the date of hearing is not under “ordinary” circumstances. The Co-ordinate Bench of the Tribunal in the case of DCIT vs. JSW Ltd., for A.Y 2013-14 decided on 14/05/2020, under identical circumstances, after considering the provisions of Rule 34(5) of the ITAT Rules, 1963, judgements rendered By Hon’ble Apex Court and the Hon’ble Bombay High Court on the issue of time limit for pronouncement of orders by the Tribunal and the circumstances leading to lockdown held:- “10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only inconsonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon’ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon’ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed “while calculating the time for disposal of matters made time- bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suo motu by Hon’ble jurisdictional High Court and Hon’ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”, in the light of the above analysis of the legal position, the period during which and lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case.”
Thus, in light of above facts and the decision of coordinate Bench, the present order is pronounced beyond the period of 90 days.
The appeal of the assessee is partly allowed. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board.
Order pronounced on Friday the 12th day of June, 2020.