2019 (6) TMI 1502 - AT - Income Tax

Permanent Establishment (PE) of the assessee in India - assessee is a Limited Liability Partnership and is a tax resident of United Kingdom (UK) and offers legal consultancy services to its clients all over the world including India - India-U.K. Tax Treaty - HELD THAT - 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 Linklaters LLP s case 2018 (9) TMI 1741 - ITAT MUMBAI 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. 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 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 hereinabove and only after due opportunity of being heard to the assessee. This ground is allowed for statistical purposes. Denial of India-U.K. Tax Treaty benefit - denial on the ground that income of the assessee is not taxable in U.K. hence it cannot be treated as a resident of U.K. under Article-4(1) of the India-UK Tax Treaty - HELD THAT - As relying on assessee s own case for the assessment year 2012-13 in Linklaters LLP s case 2018 (9) TMI 1741 - ITAT MUMBAI we hold that the income received by the assessee not being in the nature of FTS as envisaged under Article-13 of the India-U.K. 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-U.K. DTAA. Applicability of Article-15 of the India-U.K. Tax Treaty - HELD THAT - As relying on own case we hold that income received by the assessee will not be taxable under Article-15 of the India-U.K. Tax Treaty. This ground is allowed. As 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.

Summary

Issues Involved:
1. Existence of Permanent Establishment (PE) in India.
2. Denial of India-U.K. Tax Treaty benefits.
3. Applicability of Article-15 of the India-U.K. Tax Treaty.

Detailed Analysis:

1. Existence of Permanent Establishment (PE) in India:
The assessee, a Limited Liability Partnership and tax resident of the UK, filed its return for the assessment year 2013-14. The Assessing Officer (AO) deemed the entire income received by the assessee, including income from services rendered outside India, as taxable in India under the India-UK Double Taxation Avoidance Agreement (DTAA) and the Income Tax Act. The AO also concluded that the assessee had a PE in India through which it rendered services. However, the assessee contended that its employees did not stay in India for more than 90 days during the relevant year, thereby not constituting a PE under Article-5(2)(k)(i) of the India-UK Tax Treaty. This argument was supported by the Tribunal's decision in the assessee's case for the assessment year 2012-13. The Tribunal agreed with the assessee, directing the AO to verify the number of days the employees were in India. If found to be less than 90 days, it should be concluded that the assessee did not have a PE in India.

2. Denial of India-U.K. Tax Treaty Benefits:
The AO denied the benefits of the India-U.K. Tax Treaty, arguing that the assessee's income was not taxable in the UK, thus not qualifying as a UK resident under Article-4(1) of the Treaty. The Tribunal, referring to its decision for the assessment year 2012-13, held that the assessee was entitled to the benefits of the India-U.K. DTAA. The Tribunal reiterated that the income received by the assessee was not "Fees for Technical Services" (FTS) under Article-13 of the DTAA and thus could not be taxed under section 9(1)(vii) of the Income Tax Act.

3. Applicability of Article-15 of the India-U.K. Tax Treaty:
The Departmental Authorities applied Article-15 of the India-U.K. Tax Treaty to the assessee. The assessee argued that Article-15 pertains only to services rendered by individuals, not entities like itself. The Tribunal, referencing its earlier decision for the assessment year 2011-12, agreed with the assessee, stating that Article-15 is applicable only to individuals and not to entities like the assessee. Consequently, the income received by the assessee could not be taxed under Article-15 of the DTAA.

Conclusion:
The Tribunal concluded that the income received by the assessee could not be treated as FTS and should be considered as business profit. Since the assessee did not have a PE in India, the business profit could not be taxed in India. The appeal was partly allowed, with other grounds raised by the assessee dismissed as redundant.