M/S. LINKLATERS,MUMBAI vs. DDIT (I.T) - 3(2), MUMBAI

The core issue arising in the present appeal, as raised in grounds no.1 to 4, is with regard to existence or otherwise of Permanent Establishment (PE) of the assessee in India.

Brief facts are, the assessee, a partnership firm, is a tax resident of United Kingdom (UK) and is engaged in the practice of law. Apart from its Head Office in UK, the assessee has offices in various other countries around the World. It is stated that the assessee has not opened any Branch Office in India. Be that as it may, the assessee was appointed as legal advisor for some of the projects in India and provided legal consultancy services to them. In connection with rendering such legal consultancy services, the assessee received fees from the clients in India. However, the assessee filed its return of income for the impugned assessment year on 31st October 2002, declaring nil income. In the statement accompanying the return of 3 Linklaters income, it was stated by the assessee that since it had no Branch Office in India, the fee received is not chargeable to tax in India in the absence of a PE. In the course of assessment proceedings, the Assessing Officer called upon the assessee to justify its claim that the professional fee received from the clients in India is not chargeable to tax in India. In response, it was submitted by the assessee that since none of its employees or other personnel have rendered services in India exceeding a period of more than 90 days within the financial year relevant to the assessment year under dispute, there is no PE in India. Hence, the income is not taxable in India. The Assessing Officer, however, did not find merit in the submissions of the assessee. After perusing the details furnished by the assessee, he observed that the employees /other personnel of the assessee have rendered services in India for more than 90 days during the period from 1st April 2002 to 31st March 2001, hence, the assessee had a PE in India in terms of Article–5(2)(k)(i) of India–UK Double Taxation Avoidance Agreement (DTAA). In this context, the Assessing Officer relied upon certain judicial precedents and ultimately held that since the assessee had a PE in India during the relevant previous year, the income earned from rendering legal consultancy services in India is taxable in India. Accordingly, he proceeded to compute the income of the assessee at ` 20,45,02,707, after making certain disallowances. Being aggrieved

In the course of hearing before learned Commissioner (Appeals), the assessee furnished various evidences including additional evidences to justify its claim that there is no PE in terms of Article– 5(2)(k)(i) of India–UK Tax Treaty. It was specifically submitted by the assessee that the employees/personnel of the assessee have not stayed in India for rendering services exceeding the period of 90 days. In this context, the assessee also furnished a chart showing the period of stay of each employee in India. The assessee also submitted that the period of stay of employees in India have to be taken cumulatively and not individually. Further, it was submitted by the assessee that the period for which one of the employees namely Shri Narayan Iyar has availed vacation during his stay in India should not be counted for computing the period of 90 days. To prove the fact that Shri Narayan Iyar, was on vacation for the period from 2nd April 2001 to 4th May 2001, the assessee furnished certain documentary evidences. Learned Commissioner (Appeals) after admitting the additional evidences and examining them, called for a remand report from the Assessing Officer. After perusing the remand report of the Assessing Officer, he observed that the assessee failed to conclusively prove that during the period of vacation, the concerned employee has not rendered any 5 Linklaters services to the assessee. Referring to Invoice no.SN 200460/2001, dated 27th April 2001, raised on Enron International, learned Commissioner (Appeals) observed that this bill was raised for work done in India during the period from 1st April 2001 to 25th April 2001. Further, he observed, as per the material on record from 17th April 2001 to 25th April 2001, Shri Narayan Iyar was the only employee living in India. Therefore, in absence of any evidence furnished by the assessee to show that during that period no services were rendered in India, assessee’s contention that Shri Narayan Iyar has not rendered any service as he was in vacation cannot be accepted. As regards assessee’s contention that multiple counting of common days for computing the period of 90 days, is to be avoided, learned Commissioner (Appeals) rejected such contention by holding that the activities of the nature of furnishing of services by an Enterprise through its employees are to be seen employee wise and aggregated. Further, he observed, since the employees of the assessee were rendering services to different clients in India at the same time, the contention of multiple counting would not be applicable. Accordingly, he upheld the decision of the Assessing Officer that the assessee had a PE in India under Article–5(2)(k)(i) of India–U.K. Tax Treaty.

The learned Sr. Counsel, Shri J.D. Mistry, appearing for the assessee submitted, the expression “any 12 month period” as used in 6 Linklaters Article–5(2)(k)(i) of India–UK Tax Treaty is the relevant financial year has been accepted by the Assessing Officer. He submitted, the Assessing Officer has also concluded that assessee has rendered services which are not in the nature of royalty and fees for technical services in terms of Article–5(2)(k)(i) of India–UK Tax Treaty. He submitted, the only fact which requires examination is, whether the employees/partners of the assessee have rendered services in India for a period aggregating more than 90 days within the financial year relevant to the assessment year under dispute. Drawing our attention to a statement showing the total number of days the employees of the assessee stayed in India during the financial year 1st April 2001 to 31st March 2002, a copy of which is placed at Page–100 of the paper book, he submitted, if the vacation period of Shri Narayan Iyar, from 17th April 2001 to 4th May 2001 is excluded and multiple counting is avoided, the total number of days the employees of the assessee stayed in India for rendering services is 87 days. Hence, condition of Article–5(2)(k)(i) of India–UK Tax Treaty is not satisfied. To demonstrate that during the period from 17th April 2001 to 4th May 2001, Shri Narayan Iyar, was on study leave and has not rendered any services, learned Sr. Counsel drew our attention to the confirmation of the concerned employee dated 7th December 2005, a copy of which is placed at Page–66 of the paper book. The learned Sr. Counsel

As regards the issue whether multiple counting of employees staying on a particular day in India is permitted or not, learned Sr. Counsel drawing our attention to Article–5(2)(k)(i) of India–UK Tax Treaty submitted, as per the language used the employees or other personnel of the assessee must have rendered services in India for more than 90 days. Therefore, multiple counting of employee on a single day has to be avoided. In support of such contention, learned Sr. Counsel relied upon the following decisions:–

The learned Departmental Representative submitted, neither before the Assessing Officer nor before learned Commissioner (Appeals), the assessee has furnished proper documentary evidences to prove that Shri Narayan Iyar has not rendered any services in India during the alleged period of his vacation. He submitted, absence of necessary and required details relating to the concerned employee prevented the Departmental Authorities from coming to a proper

We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. From the orders of the Departmental Authorities as well as other materials on record, it is evident, the fact that the amount received by the assessee from the clients in India is not in the nature of either royalty or fees for technical services has been accepted by the Assessing Officer since he has treated it as fee for services of the nature as provided under Article–5(2)(k)(i) of India–UK Tax Treaty which defines the term of PE. Further, the Assessing Officer has held that the assessee had a PE during the assessment year 2002–03 in terms of Article–5(2)(k)(i) of India–UK Tax Treaty. Therefore, the only issue we are required to examine is, whether the employees/other personnel of the assessee have stayed and rendered services in India during the financial year 2001–02 exceeding the period of 90 days to constitute a PE in India. In this context, the contention of the learned Sr. Counsel is twofold. Firstly, if the vacation period of one of the employees Shri Narayan Iyar is excluded, the period of stay of the employees of the assessee in India would be 87 days. Secondly, he

The next issue which requires consideration is, whether multiple counting of employees on a single day is permissible. A careful reading of Article–5(2)(k)(i) of India–UK Tax Treaty makes clear that as per the expression used therein if the employees or other personnel have stayed in India for a period exceeding 90 days in any 12 month period, it will constitute a PE. In the facts of the present case, undisputedly, the Assessing Officer has reckoned any 12 month period to be the financial year beginning from 1st April 2001 to 31st March 2002.

In view of our aforesaid decision, grounds no.4 to 14 raised by the assessee on computational aspect and other issues have become academic, hence, not required to be adjudicated.

In the result, assessee’s appeal is allowed. ./2006 Revenue’s Appeal

In ground no.1, the Revenue has challenged the decision of learned Commissioner (Appeals) in holding that the income received by the assessee relating to work rendered outside India is not taxable.

As submitted by learned counsels appearing for the rival parties, this issue has been decided in favour of the assessee consistently by the Tribunal in assessee’s own case for the assessment year 1997–98 in M.A. no.392/Mum./2014, dated 20th February 2015, for assessment year 1998–99 to 2001–02 in to 1357/ Mum./2004, dated 7th September 2015 and for assessment year 2003–04 and 2007–08 in ITA no.897/Mum./2007 & Ors., dated 16th December 2015. Facts being identical, following the consistent view of the Tribunal in assessee’s own case, as referred to above, we uphold the decision of learned Commissioner (Appeals) on this issue. Ground is dismissed.

In ground no.2, the Revenue has challenged the decision of learned Commissioner (Appeals) in restricting the disallowance on account of reimbursement of expenditure to the extent of 15%.

At the time of hearing, the learned counsels appearing for the rival parties have submitted before us that this issue has also been decided in favour of the assessee by the Tribunal holding that reimbursement of expenditure cannot be treated as income of the assessee. In this context, the orders of the Tribunal for assessment year 1995–96 in ITA no.4896/Mum./2003 and ITA no. 5085/Mum./2003, date 16th July 2010, for assessment year 1996–97 in ITA no.5730/Mum./2003 and ITA no.6557/Mum./2003, dated 7th May 2014, for assessment year 1997–98 in ITA no.1711/Mum./2004 and ITA no.1354/Mum./2004, dated 8th August 2014, for assessment year 1998–99 to 2001–02 in to 1357/Mum./2004, dated 7th September 2015, and for assessment year 2003–04 and 2007–08 in ITA no.897/Mum./2007 and others date 16th December 2015. On a perusal of the aforesaid orders of the Co–ordinate Bench, we find that the Tribunal has consistently held that reimbursement of expenditure cannot be treated as income of the assessee. In any case of the matter, while deciding assessee’s appeal, we have held that the assessee does not have any PE in India during the previous year relevant to the assessment year under dispute. That being the case,

In the result, Revenue’s appeal is dismissed.

To sum up, assessee’s appeal is partly allowed and Revenue’s appeal is dismissed. Order pronounced in the open Court on 16.04.2019