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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
Date of Hearing – 05.04.2019 Date of Order – 21.06.2019
O R D E R PER SAKTIJIT DEY. J.M.
Aforesaid appeal by the assessee is directed against the final assessment order dated 9th December 2016, passed under section 143(3) r/w section 144C(13) of the Act pertaining to the assessment year 2013–14, in pursuance to the directions of the Dispute Resolution Panel (DRP)–I (WZ), Mumbai.
2 Linklaters LLP 2. Ground no.1 being general in nature does not require adjudication.
At the outset, Shri Soli E. Dastur, learned Sr. Counsel appearing for the assessee requested to take up grounds no.2, 13 to 15 and 24 which, according to him, are otherwise covered in favour of the assessee by the decisions of the Tribunal in assessee’s own case. He submitted, once these grounds are decided, rest of the grounds will become redundant.
In view of the aforesaid submissions of learned Sr. Counsel for the assessee, we proceed to deal with the aforesaid grounds.
Ground no.2, is on the issue of existence of Permanent Establishment (PE) of the assessee in India.
The assessee is a Limited Liability Partnership and is a tax resident of United Kingdom (UK). The assessee offers legal consultancy services to its clients all over the world including India. For the impugned assessment year, the assessee filed its return of income on 30th September 2013, declaring total income of ` 25,77,672. During the assessment proceedings, the Assessing Officer called upon the assessee to furnish the details of professional fees earned during the year. After perusing the details, the Assessing
3 Linklaters LLP Officer noticed that the assessee has received the following receipts during the year.
Income in respect of services 1. ` 2,10,00,443 rendered in India Income in respect of services 2. ` 1,62,22,410 rendered outside India 3. Towards Disbursement ` 4,60,624 ` 3,76,83,477 Total:–
After verifying the details, the Assessing Officer was of the view that the entire amount received by the assessee would be deemed to be the income which accrued or arose in India, since, such income is on account of India Specific Projects. The Assessing Officer observed, even the income in respect of services rendered outside India would also be taxable since the services though rendered outside India but were utilized in India. Thus, the Assessing Officer concluded that the income received is taxable as fees for technical services both under the provisions of the Act as well as the India UK Double Taxation Avoidance Agreement (DTAA). Further, the Assessing Officer also held that the assessee had PE in India through which it rendered services. Accordingly, he treated the receipt of ` 3,76,83,477, as income of the assessee and after allowing expenditure estimated @ 5%, he determined the net income at ` 3,57,99,303. Though, the assessee raised objections against the draft assessment order, however, learned
4 Linklaters LLP DRP rejected the objections of the assessee and in terms of the directions of learned DRP, the draft assessment order was finalized.
The learned Sr. Counsel for the assessee submitted, during the previous year relevant to the assessment year under dispute, the assessee did not have a PE in India in terms of Article–5(2)(k)(i) of the India–UK Tax Treaty, as its employees/personnel did not stay in India exceeding a period of 90 days during the relevant previous year. The learned Sr. Counsel submitted, though, the aforesaid fact was brought to the notice of the Assessing Officer and the DRP through supporting evidences, however, they did not allow assessee’s claim. The learned Sr. Counsel submitted, the expression “any twelve months period” as used in Article–5(2)(k)(i) of the India–UK Tax Treaty has to be construed as previous year relevant to the assessment year under consideration. He submitted, the aforesaid ratio has been laid down by the Tribunal while deciding assessee’s appeal for the assessment year 2012–13 in ITA no.1540/Mum./2016. The learned Sr. Counsel submitted, during the previous year, the total number of days spent by assessee’s employees in India was 42 days. Therefore, in terms of Article–5(2)(k)(i) of the India–UK Tax Treaty, the assessee did not have any PE in India during the year.
9. Shri Jasbir Chauhan, the learned Departmental Representative submitted, the expression “any twelve month period” as used in 5 Linklaters LLP Article–5(2)(k)(i) of the India–UK Tax Treaty would not mean the previous year as defined in section 3 of the Act. The learned Departmental Representative submitted, had it been the case, then, like Article–15 of the India–UK Tax Treaty, fiscal year which has been defined to be the previous year would have been used in Article– 5(2)(k)(i) of the India–UK Tax Treaty. Thus, he submitted, the meaning ascribed to fiscal year cannot be ascribed to the term “any twelve months period’’.
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 6 Linklaters LLP 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.”
7 Linklaters LLP 11. 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 grounds no.13 to 15, the assessee has challenged the denial of India–U.K. Tax Treaty benefit.
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.
8 Linklaters LLP 15. 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 ofapplicability 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 andheld that M/s. Linklaters is eligible for the benefits of India-UK DTAA solong as entire profits of the partnership firm are taxed in UK, whether inthe taxable income is determined in relation to personal characteristics ofthe 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 thesaid firm or by its partners in UK. No distinction has been pointed out bythe Ld. CIT-DR on facts or law. Under these circumstances, respectfullyfollowing 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.
Thus, in view of the aforesaid decision of the Co–ordinate Bench in assessee’s own case, we hold that the assessee is 9 Linklaters LLP 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 legalposition as explained in many judgements as discussed above, we are notin a position to agree with the view taken by the Revenue and thus holdthat the income of the assessee would not fall in the category of “Fee forTechnical Services” as envisaged in Article 13 of India-UK DTAA. Further,since this amount is not taxable under DTAA as FTS, it cannot be broughtto tax as FTS as per provisions of section 9 of the Income Tax Act, 1961, inview of section 90(2) of the Act, as discussed above. Thus, with theseobservations, 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.”
Facts being identical, following the aforesaid decision of the Co– ordinate Bench, we decide the issue in favour of the assessee.
Ground no.24, the assessee has challenged the applicability of Article–15 of the India–U.K. Tax Treaty.
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
10 Linklaters LLP 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 11 Linklaters LLP 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.”
24. 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.
In any case of the matter, in the foregoing paragraphs, we have held that the amount received by the assessee cannot be treated as fee for technical services. That being the case, it can only be treated as business profit of the assessee. However, since we have held that the assessee did not have any PE in India during the year under consideration, the business profit cannot be brought to tax in India. In view of our decision hereinabove, the other grounds raised by the assessee have become redundant, hence, dismissed as not pressed.
12 Linklaters LLP
In the result, appeal is partly allowed. Order pronounced in the open Court on 21.06.2019