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2024 (4) TMI 388 - AT - Income TaxIncome deemed to accrue or arise in India - taxation of entire revenue received by the Appellant from provision of legal services on Indian engagements - Fees for Technical Services under the provisions of section 9(1)(vii) of the Act for the subject assessment year - entitlment to benefit of Article 4(1) of India-UK DTAA - assessee, a Non-Resident LLP, is a firm of Solicitors registered in UK and is engaged in providing legal services to its clients worldwide - HELD THAT - The order of the ITAT has been reported as ( 2022 (10) TMI 903 - ITAT DELHI wherein it is held that the assessee LLP, tax resident of UK provided legal services to its clients worldwide. It was entitled to benefit of Article 4(1) of India-UK DTAA on portion of its income from Indian engagements which had been taxed in UK in hands of its UK tax resident partner. Eligibility of a fiscally transparent partnership firm to avail of the tax treaty benefits is affirmed on the basis that the income of the partnership firm has been taxed in the foreign state in the hands of its partners. Thus benefit of Article 4.1 is to be granted to the assessee in identical facts and circumstances of the case. Accordingly, we set aside the orders of the authorities below and decide the issue in favour of the assessee.
Issues Involved:
1. Confirmation of additions to the assessee's taxable income. 2. Taxation of revenue received from legal services as 'Fees for Technical Services' (FTS). 3. Eligibility for benefits under the India-UK Double Taxation Avoidance Agreement (DTAA). 4. Penalty proceedings u/s 271(1)(c) of the Income Tax Act. Summary of Judgment: Issue 1: Confirmation of Additions to Taxable Income The ITAT addressed the appeal against the confirmation of additions to the assessee's taxable income by the CIT(A). The Tribunal found that the CIT(A) had relied on previous observations and findings from the assessee's appeal for AY 2012-13, which upheld the AO's action. The Tribunal, however, referred to its own decisions for AYs 2012-13 and 2013-14, where it had ruled in favor of the assessee, and thus decided this issue in favor of the assessee. Issue 2: Taxation of Revenue as 'Fees for Technical Services' The CIT(A) upheld the AO's classification of the entire revenue received by the assessee from Indian engagements as 'Fees for Technical Services' u/s 9(1)(vii) of the Act. The Tribunal, however, referred to its earlier decision, which clarified that the income received from legal services does not fall within the meaning of FTS as defined in Article 13 of the India-UK DTAA. The Tribunal concluded that the income was in the nature of business income and not taxable in India in the absence of a Permanent Establishment (PE) in India. Issue 3: Eligibility for Benefits under India-UK DTAA The CIT(A) denied the assessee the benefits of the India-UK DTAA, arguing that the assessee, being a fiscally transparent LLP, was not a resident of the UK as per Article 4.1 of the India-UK DTAA. The Tribunal, however, cited its previous rulings and other judicial precedents, including the case of Linklaters LLP, which established that a UK LLP is entitled to DTAA benefits as long as its income is taxed in the UK, either in the hands of the LLP or its partners. The Tribunal thus ruled in favor of the assessee, granting the DTAA benefits. Issue 4: Penalty Proceedings u/s 271(1)(c) The Tribunal noted that the issue of penalty u/s 271(1)(c) cannot be considered in the quantum appeal and should be addressed in separate penalty proceedings. Conclusion: The Tribunal allowed the appeal of the assessee, ruling in favor of the assessee on all issues except for the penalty proceedings, which were to be considered separately. The order was pronounced in the open court on 8th April 2024.
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