Herbert Smith Freehills LLP Vs CIT (ITAT Delhi)
The appeals concerned the taxability of income earned by a UK-based partnership firm providing legal services in relation to Indian engagements for Assessment Years (AYs) 2015-16, 2018-19 and 2021-22. Since identical issues arose in all three appeals, the Tribunal treated AY 2015-16 as the lead case and applied its findings to the remaining years.
The assessee was a firm of solicitors registered in the United Kingdom, engaged in providing legal services worldwide. The firm was a fiscally transparent entity under UK tax law, with its income distributed among partners according to their respective profit-sharing ratios. The partners were tax residents of the UK, Australia, France, Belgium, China, Japan and Germany. The assessee filed its return claiming exemption under the India-UK DTAA for the income attributable to UK-resident partners and also claimed that income attributable to non-UK resident partners was not taxable in India under the DTAAs between India and the respective countries of residence of those partners. However, income attributable to German partners was voluntarily offered to tax under the India-Germany DTAA.
The Assessing Officer accepted that the share of income attributable to UK-resident partners was exempt under the India-UK DTAA and also accepted the income offered to tax relating to German partners. However, the Assessing Officer held that the income attributable to partners resident in Australia, France, Belgium, China and Japan was taxable in India as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income-tax Act, 1961, on the ground that the assessee could not claim DTAA benefits under the India-UK treaty for non-UK resident partners. Accordingly, an addition of ₹3.59 crore representing the share attributable to those non-UK partners was made. The CIT(A) upheld the assessment, leading to the present appeals.
