Linklaters Vs Dy. DIT (ITAT Mumbai)
Though the lower authorities had rejected the claim of the assessee that it did not have any ‘PE’ during the period November, 2008 to March, 2009, and rather concluded that the assessee had a ‘PE’ in India during the year under consideration, however we find that no concrete reasoning which could justify dislodging of the claim of the assessee and support the view so arrived at by the lower authorities is discernible from the respective orders of the lower authorities. That as a matter of fact, the orders of the lower authorities are found to be more haunted by the fact that the assessee had offered its income for tax in India, rather then controverting the contentions raised by the assessee before them in support of its claim. The observations of the lower authorities in concluding that the assessee had a ‘PE’ during whole of the year, is devoid of any reasoning and is much or less a summary rejection of the claim of the assessee on the basis of misconceived and rather half hearted appreciation of the facts borne from records.
Full Text of the ITAT Order is as follows:-
The present appeal filed by the assessee is directed against the order passed by the Commissioner (Appeals)-10, Mumbai, dated 31-10-2013, which arises from the assessment order passed by the assessing officer under section 143(3) of the Income Tax Act, 1961, (for short ‘Act’), dated 28-12-2011, therein assailing the order of the Commissioner (Appeals) by raising the following grounds of appeal before us :–
“The appellant objects to the order dated 31-10-2013 passed by the Commissioner (Appeals)-10, Mumbai for the assessment year 2009-10, on the following among other grounds :–
Permanent Establishment
1. The learned Commissioner (Appeals) erred in holding that the appellant had a permanent establishment in India under Article 5(2)(k) of the India-UK Tax Treaty for the entire year.
2. The learned Commissioner (Appeals) erred in rejecting the claim of the appellant that no income can be taxed in India since the threshold of 90 days did not exceed during the 12 months period relating to November 2008 to March 2009.
3. The learned Commissioner (Appeals) ought to have appreciated that the return of income filed by the appellant declaring income at Rs. 12,543,155 was without prejudice to the claim stated in grounds no 1 and 2 above and hence the learned Commissioner (Appeals) ought to have adjudicated the plea in the course of the appellate proceedings.
Computation of Income liable to tax in India
4. The learned Commissioner (Appeals) erred in upholding the action of the assessing officer in treating the entire receipt of GBP 3,302,927 as liable to tax in India.
5. The learned Commissioner (Appeals) ought to have directed the assessing officer to exclude the income earned during the period November 2008 to March 2009 in the absence of permanent establishment in India in terms of Article 5(2)(k) of the India-UK Tax Treaty.
6. The learned Commissioner (Appeals) ought to have directed the assessing officer that only fees relatable to the services rendered in India can be taxed as attributable to the permanent establishment in India and under Article 7 of the India-UK Tax Treaty.
7. Without prejudice, the learned Commissioner (Appeals) ought to have directed the assessing officer to assess the appellant only in respect of fees of GBP 183,354 equivalent to Rs. 13,203,302 which is relatable to work performed in India.
8. Without prejudice to the above, the learned Commissioner (Appeals) ought to have directed the assessing officer to exclude fees related to non-Indian projects for services rendered outside India.
9. Without prejudice to the above, the learned Commissioner (Appeals) ought to have appreciated that as per Explanation 3 to section 9(1)(i) only income related to operations carried out in India can be brought to tax and hence no part of income related to operations carried outside India can be brought to tax in India.
10. The learned Commissioner (Appeals) erred in not applying provisions of Article 7(3) of the India-UK Tax Treaty while adjudicating the issue of attribution of income to the service permanent establishment in India.
11. The learned Commissioner (Appeals) erred in not applying decision of the Mumbai Special Bench in the case of Asstt. DIT v. Clifford Chance (2013) 143 ITD 1(Mum-Trib). The learned Commissioner (Appeals) erred in relying on the decision of the Mumbai Tribunal order dated 16-7-2010 in appellant’s own case for the assessment year 1995-96 in upholding the action of the assessing officer in taxing entire fees without appreciating the fact that the observation of the Divisional bench in the appellant’s case regarding attribution of income was not accepted by the Mumbai Special Bench of the Tribunal in the case of Clifford Chance (supra).
Fixed Base
12. The learned Commissioner (Appeals) erred in not specifically holding that the appellant did not have a fixed base in India from which the appellant was performing its activities.
13. The learned Commissioner (Appeals) erred in not specifically holding that the use of hotels or the places provided by clients to the appellant’s partners and staff cannot be considered as an office of place of work from where the appellant provides services to its client.
Disbursements
14. The Commissioner (Appeals) ought to have specifically directed the assessing officer to delete the addition made of Rs. 7,492,280 on account of disbursements.
Interest under section 234B
15. The Commissioner (Appeals) ought to have specifically directed the assessing officer to delete interest of Rs. 27,921,562 levied under section 234B.
India-UK tax treaty benefit
16. The Commissioner (Appeals) ought to have specifically held that the appellant is entitled to the benefit of India-UK tax treaty.
Penalty proceedings under section 271(1)(c)
17. The learned Commissioner (Appeals) erred in not quashing the penalty proceedings under section 271(1)(c) of the Income Tax Act initiated by the assessing officer.”
2. The brief facts of the case are that the assessee is a limited liability partnership incorporated in United Kingdom, offering legal consultancy to its various clients all over the world including India. During the year under consideration the assessee had rendered legal consultancy services in connection with different projects to various concerns, both within and outside India. The assessee filed its return of income as on 30-3-2010, declaring an income of Rs. 1,25,43,155. The assessee by way of a ‘NOTE’ forming part of the ‘Statement of Total Income’ filed alongwith its return of income, had therein categorically stated as under :–
“Notes:
1. PAN : AABF12160M
2. Address: One Sile Street, London, EC2Y S HQ, United Kingdom.
3. The assessee claims that it is entitled to the benefit of India-UK tax treaty.
4. The Commissioner (Appeals) in earlier years has held that as the 90 days threshold has been breached the assessee firm has PE in India and hence income relating to services rendered in India are taxable under article 7(3) of the India-UK tax treaty. The Tribunal in order for the assessment year 1995-96 has held that in respect of Indian client or Indian projects both services rendered in India and outside India are taxable. The assessee has preferred appeal the Bombay High Court against the Tribunal order dated 16-7-2010. The assessee has also filed a Miscellaneous Application against the aforesaid Tribunal order dated 16-7-2010. Further in view of the conflicting decisions, the Tribunal has formed a Special Bench to deal with the issue regarding portion of income attributable to the service PE in India.
5. Under the above circumstances, and relying on Commissioner (Appeals) order in the assessee’s own case for the earlier years and view of the decision of Appellate tribunal in the below cases :–
(i) DDIT v. Set Satellite (Singapore) Pte Ltd. (2007) 106 ITD 175 (Mum.)
(ii) Airlines Rotables Ltd. UK v. Jt. Director of Income Tax-International Taxation (2010) 131 TTJ 385 (Mum.)
the above return is prepared on the basis that income related to the services rendered in India are liable to tax as being directly or indirectly attributable to the permanent establishment in terms of Article 7(3). Further, under section 9(1)(i) Explanation 1 of the income tax act only income in respect of operations carried out in India is taxable in India.
6. Without prejudice to the above the assessee submits that the threshold limit of 90 days mentioned in Article 5(2)(k)(i) is not exceeded in any twelve months period between November, 2008 to March, 2009. Hence, the assessee claims that income in respect of services rendered during this period is not liable to tax in India.
Further assessee is of the view that the threshold of 30 days provided in Article 5(2)(k)(ii) applies only in the situation where the services are provided to an associated enterprise located in India.”
3. The case of the assessee was taken up for scrutiny proceeding and Notices under sections 143(2) and 142(1) of the ‘Act’ were issued to the assessee. That during the course of the assessment proceedings the assessing officer took cognizance of the fact that the assessee had in its return of income by way of a ‘Note’ therein categorically mentioned that as the threshold limit of 90 days contemplated in Article 5(2)(k)(i) of the India-U.K. Tax Treaty (for short ‘tax treaty’) was not exceeded in any twelve months period between November, 2008 to March, 2009, therefore its income in respect of services rendered during the said period were not liable to tax in India. The assessing officer however being of the view that the return of income had been prepared by the assessee presumably on the basis that it had exceeded the 30 days threshold limit provided in Article 5(2)(k)(ii) of the India-U.K Tax Treaty, and thus on its own had offered the income in respect of services rendered in India for tax, therefore concluded that by so doing the assessee had himself accepted that it had a ‘PE’ in India during the entire year under consideration. The assessing officer further being of the view that as the place of accrual of income from services is not the place where the services are rendered, but the place where the services are utilized, therefore for the said reason scrapped the claim of the assessee that only fees for work done in India amounting to 183,354 GBP was liable to be taxed in India and after taking cognizance of the following amounts :–
