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2017 (2) TMI 779 - AT - Income TaxEligible for the benefits of India-UK DTAA - Held that - There is no dispute on facts that ultimately tax has been paid either by the said firm or by its partners in UK. No distinction has been pointed out by the Ld. CIT-DR on facts or law. Under these circumstances respectfully following the orders of the Tribunal in Linklaters s case for earlier years we hold that the assessee is entitled to claim benefits of India UK- DTAA. Taxability of income (fee) received by the assessee in terms of Articles of DTAA - income of the assessee is in the nature of Fee for Technical Services - Held that - None of the transactions the Ld. CIT-DR was able to point out as to how there was transfer of technical knowledge skill experience or know-how etc. in such a manner that these recipients were able to utilise and perform these tasks again on their own without falling back upon the assessee for its assistance. If any of these recipients would come up with a new project next time in future whether identical to the previous projects or not it would again need the services of assessee or any other legal advisor for availing advisory on new issues. The Revenue has taken help of few judgments which are not applicable on the facts of the case before us. We are not in a position to agree with the view taken by the Revenue and thus hold that the income of the assessee would not fall in the category of Fee for Technical Services as envisaged in Article 13 of India-UK DTAA. Further since this amount is not taxable under DTAA as FTS it cannot be brought to tax as FTS as per provisions of section 9 of the Income Tax Act 1961 in view of section 90(2) of the Act. Liability to tax in India under Article 15 of India-UK DTAA - Held that - Article 15 of DTAA deals with taxability of independent personal services. This Article starts with the words Income derived by an individual..in respect of professional services or other independent activities of similar character. It is noted by us that Article 15 shall be applicable for determining taxable income in the hands of individual and not other persons. The assessee is certainly not an Individual. Thus this Article cannot be made applicable on the assessee being not an individual. Similar issue had come up before the Tribunal in the aforesaid case of M/s Linklaters (for AY 1995-96) wherein the Tribunal held that Article 15 shall be applicable only when services are rendered by an individual. Thus respectfully following the order of the Tribunal it is held that impugned amount of fee received by the assessee would not be liable to be taxed under Article 15 of India-UK DTAA Reimbursement of expenditure - AO treated the same as part of gross receipts and therefore included the same as part of taxable income - Held that - The perusal of chart containing details of the expenses clearly shows that all these items are in the nature of expenses. These are apparently not items of revenue. These are mostly expenses of routine nature incurred by the assessee in the normal course of business. It is noted from the perusal of orders passed by the lower authorities that AO did not bring anything on record to show that whether any element of mark-up was involved in the expenses which have been reimbursed to the assessee. However that is even not the case of the Revenue. Under these circumstances it cannot just be presumed that income element was involved in the reimbursement of expenses. Therefore respectfully following the orders of the Tribunal of earlier years these grounds are allowed and decided in favour of the assessee. Change of assessee s status to Limited Liability Partnership by AO as against the status of Company as was stated by the AO in the draft assessment order and was not disputed by the DRP - Held that - Nothing is coming out as to how contradictions emerged in the orders passed by lower authorities. No reasoning has been given by the AO. Thus this issue is remitted back to the file of AO to decide this issue after providing adequate opportunity of hearing to the assessee to file requisite details and documentary evidences and to raise any legal or factual issue in this regard. Non granting 5% deduction of expenses u/s 44C - It is noted that the AO has denied the benefit of deduction in the final assessment order without giving any reason. It is also noted that in the draft order such deduction was allowed but in the final order the same was not granted without giving any reasoning whatsoever. Therefore we send this issue back to the file of the AO who shall after verifying the facts grant the deduction u/s 44C as per law. Levy of interest u/s 234B - Held that - It is noted that this issue has already been decided by the Hon ble Bombay High Court in the case of NGC Network (2009 (1) TMI 174 - BOMBAY HIGH COURT ). The Tribunal has consistently followed the said judgment and held that interest u/s 234B is not leviable in the case of Linklaters on the facts and circumstances of the case.
Issues Involved:
1. Deletion of the description of services provided by the appellant. 2. Observation of services provided to concerns inside India. 3. Computation of total income. 4. Taxation of gross fees without allowing expenditure deduction. 5. Classification of fees as "fees for technical services" under the Income Tax Act, 1961. 6. Denial of India-UK DTAA benefits. 7. Classification of fees under the India-UK DTAA. 8. Taxability under Article 15 of the India-UK DTAA. 9. Treatment of disbursements as part of gross receipts. 10. Change in status of the appellant from a company to LLP. 11. Withdrawal of deduction under section 44C. 12. Application of tax rate. 13. Levy of interest under section 234B. 14. Initiation of penalty under section 271(1)(c). Detailed Analysis: 1. Deletion of Description of Services Provided: The appellant objected to the deletion of service descriptions, arguing it indicated the services were not technical and utilized outside India. The tribunal did not make a specific ruling on this issue. 2. Observation of Services Provided to Concerns Inside India: The appellant contested the AO's observation that services were provided to Indian concerns, which was not in the draft order. The tribunal did not specifically address this issue in isolation. 3. Computation of Total Income: The appellant challenged the AO's computation of total income at Rs. 50,16,03,621 against the appellant's figure of Rs. 3,42,48,138. The tribunal focused on the primary issues affecting the computation, particularly the classification of income and the applicability of the DTAA. 4. Taxation of Gross Fees Without Allowing Expenditure Deduction: The appellant argued against taxing gross fees without expenditure deduction. The tribunal addressed this under the broader issue of classification and taxability of income. 5. Classification of Fees as "Fees for Technical Services" Under the Income Tax Act, 1961: The AO classified the fees as "fees for technical services" under section 9(1)(vii) of the Act. The tribunal, however, held that the services did not make available technical knowledge, skill, or experience to the clients, thus not falling under "fees for technical services" as per the DTAA. 6. Denial of India-UK DTAA Benefits: The AO denied DTAA benefits, arguing the appellant was a fiscally transparent entity not liable to tax in the UK. The tribunal, following earlier rulings in similar cases, held that the appellant was entitled to DTAA benefits as the entire profits were taxed in the UK, either in the hands of the firm or the partners. 7. Classification of Fees Under the India-UK DTAA: The AO held that the fees were "fees for technical services" under Article 13(4)(c) of the DTAA. The tribunal disagreed, stating the services did not "make available" technical knowledge, experience, skill, or processes to the clients, thus not taxable under Article 13 of the DTAA. 8. Taxability Under Article 15 of the India-UK DTAA: The AO applied Article 15, which deals with independent personal services, to tax the appellant. The tribunal held that Article 15 applies only to individuals, not entities like the appellant, thus rejecting the AO's application of Article 15. 9. Treatment of Disbursements as Part of Gross Receipts: The AO included reimbursements of Rs. 2,79,48,906 in gross receipts. The tribunal, following earlier rulings, held that reimbursements without any markup should not be treated as income and directed the AO to exclude them from taxable income. 10. Change in Status of the Appellant from a Company to LLP: The AO changed the status to LLP in the final order, despite accepting it as a company in the draft order. The tribunal remitted this issue back to the AO for clarification and correction. 11. Withdrawal of Deduction Under Section 44C: The AO withdrew the 5% deduction allowed in the draft order without explanation. The tribunal remitted this issue back to the AO for reconsideration and appropriate action. 12. Application of Tax Rate: The appellant contested the application of a 42.23% tax rate. The tribunal did not specifically address this issue separately, focusing on the broader issues affecting tax computation. 13. Levy of Interest Under Section 234B: The tribunal, following the Bombay High Court's ruling in NGC Network, held that interest under section 234B was not leviable in this case, thus ruling in favor of the appellant. 14. Initiation of Penalty Under Section 271(1)(c): The tribunal did not specifically address the initiation of penalty proceedings, focusing on the primary issues affecting the overall tax liability. Conclusion: The tribunal allowed the appeal partly, ruling in favor of the appellant on key issues like the applicability of the DTAA, classification of fees, and exclusion of reimbursements from taxable income. Other issues were either remitted back to the AO for reconsideration or deemed infructuous.
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