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2015 (9) TMI 1532 - AT - Income TaxPermanent Establishment in India under Article 5(2)(k) of India UK DTAA - Held that - This matter has been decided against assessee by the Tribunal in assessment year 1995- 96 again been followed by the Tribunal in AYs 1996-97 & 1997-98 wherein held specific provisions for professional services or independent personal services or included services exist under art. 15 when services are rendered by the enterprise art. 5(2)(k) will come into play and when services are rendered by an individual art. 15 will find application. Therefore while we agree with the learned counsel that art. 15 will not be applicable on the facts of the present case this finding does not really come to the rescue of the assessee since as we have already held the assessee did have a PE in India under art. 5(2)(k) of the India-UK tax treaty and accordingly profits attributable to the PE are taxable under art. 7 of the India-UK tax treaty. The very plea of the assessee proceeds on fallacy that arm s length price adjustment can be made in respect of the transactions with the clients of the assessee. The revenues earned by the assessee are to be taken at actual figures and no adjustments are permissible in the same is to be rejected as well. The action of the authorities below is confirmed on this count as well. - Decided against assessee Reimbursement of expenses - considered as income by the revenue - Held that - As decided by Tribunal in AY 1995-96 we are inclined to uphold the grievance of the assessee. The reimbursements received by the assessee are in respect of specific and actual expenses incurred by the assessee and do not involve any markup there is reasonable control mechanism in place to ensure that these claims are not inflated and the assessee has furnished sufficient evidence to demonstrate the incurring of expenses. There is thus no good reason to make any addition to income in respect of these reimbursements of expenses.- Decided in favour of assessee Taxability of income related to work performed in India - Held that - The Tribunal though in AY 1995-96 had decided this issue against the assessee after invoking the principle of force of attraction however later on the Special Bench of the Tribunal in the case of ADIT vs Clifford Chance reported in 2013 (2013 (6) TMI 544 - ITAT MUMBAI ) has decided the issue in favour of the assessee and against the revenue whereby the specific finding of the Tribunal on this issue has been reversed. Accordingly following the binding precedence of Special Bench in the case of ADIT vs Clifford Chance (supra). We hold that the profits which are attributable to the PE can only be assessed in India and thus ground no.1 raised by the revenue stands dismissed. CIT(A) excluding receipts from Serium Institute of India Ltd - Held that - As it has been admitted by both the parties that this issue is not arising in this year and therefore no adjudication is required. Accordingly the issue raised is treated as dismissed as there is no receipt of this kind in this year. Denial of benefit under Indo-UK DTAA - Held that - It has been admitted that the treaty benefit of Indo-UK DTAA has been allowed by the Tribunal in the earlier years therefore in AY 1995-96 this issue has been concluded in favour of the assessee as held that the assessee was indeed eligible to the benefits of India-UK tax treaty as long as entire profits and the partnership firm are taxed in UK whether in the hands of the partnership firm though the taxable income is determined in relation to the personal characteristics of the partners or in the hands of the partners directly. Charging of interest u/s 234D as introduced from 1st June 2003 will have retrospective effect. Accordingly following the binding judicial precedence we hold that interest u/s 234D will be leviable in case of the assessee for this year also. See case of Indian Oil Corporation Ltd 2012 (9) TMI 517 - BOMBAY HIGH COURT
Issues Involved:
1. Determination of total income at Rs. Nil. 2. Permanent Establishment (PE) in India under Article 5(2)(k) of India-UK DTAA. 3. Computation of income attributable to the PE. 4. Reimbursement of expenses as part of income. 5. Disallowance of disbursements. 6. Tax rate applicability. 7. Penalty proceedings under section 271(1)(c). 8. Taxability under Article 15 of the India-UK DTAA. 9. Benefit of Indo-UK DTAA. 10. Interest under section 234B and 234D. Detailed Analysis: 1. Determination of Total Income at Rs. Nil: The assessee appealed for the total income to be determined at Rs. Nil. The Tribunal did not specifically address this issue, implying it was not a primary point of contention. 2. Permanent Establishment (PE) in India under Article 5(2)(k) of India-UK DTAA: The assessee argued that it had no PE in India. The Tribunal, following its earlier decisions, held that the assessee did have a PE in India under Article 5(2)(k) of the India-UK DTAA. Consequently, profits attributable to the PE were taxable under Article 7 of the treaty. 3. Computation of Income Attributable to the PE: The assessee contended that the computation provided in the Income and Expenditure Account should be accepted. The Tribunal upheld the previous decisions, stating that the actual profits, not hypothetical profits, should be considered, and no adjustments to the bills raised by the general enterprise were permissible. 4. Reimbursement of Expenses as Part of Income: The Tribunal ruled in favor of the assessee, stating that reimbursements for specific and actual expenses incurred without any markup should not be treated as income. This was consistent with earlier decisions in the assessee's favor. 5. Disallowance of Disbursements: The Tribunal decided that the entire amount of disbursements should be allowed as deductions, rejecting the revenue's claim of disallowing 25% of the disbursements. 6. Tax Rate Applicability: The Tribunal did not specifically address the issue of the applicable tax rate, as it was not a primary point of contention in the appeals. 7. Penalty Proceedings under Section 271(1)(c): The Tribunal deemed the initiation of penalty proceedings under section 271(1)(c) as premature and did not address it substantively. 8. Taxability under Article 15 of the India-UK DTAA: The Tribunal confirmed that Article 15, which applies to individuals, was not applicable to the assessee, a partnership firm. 9. Benefit of Indo-UK DTAA: The Tribunal upheld the assessee's eligibility for the benefits of the India-UK tax treaty, provided the entire profits of the partnership firm were taxed in the UK, either in the hands of the firm or the partners. 10. Interest under Section 234B and 234D: The Tribunal followed the decision of the Hon'ble Bombay High Court, ruling that interest under section 234B was not chargeable in the case of a non-resident assessee. However, interest under section 234D was applicable retrospectively from 1st June 2003, as per the binding judicial precedence. Conclusion: The Tribunal's consolidated order addressed multiple assessment years (1998-99 to 2001-02), consistently applying earlier decisions and judicial precedents. The appeals were partly allowed for the assessee and dismissed for the revenue, except for the interest under section 234D, which was allowed for the revenue. The Tribunal emphasized adherence to the India-UK DTAA and relevant judicial interpretations, ensuring that only the income attributable to the PE in India was taxable and that reimbursements for actual expenses were not considered income.
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