9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (6) TMI 544 - AT - Income TaxRoyalty / Fee for technical services - Insertion of Explanation to section 9 by way of amendment by Finance Act, 2010 with retrospective effect from 01-06-1976 - whether it changes the position of law as far as the assessee is concerned? - Held that - Keeping in view the decision of Carborandum Co. (1977 (4) TMI 2 - SUPREME Court) which was in the context of section 42 which corresponds to section 9(1)(i) and in the case of Toshoku Ltd. (1980 (8) TMI 2 - SUPREME Court) which was in the context of section 9(1)(i) itself, the Hon ble Bombay High Court, in assessee s case 2008 (12) TMI 30 - HIGH COURT OF BOMBAY held that the provisions of section 9(1)(i) having been construed by the Hon ble Supreme Court, the interpretation thereof was no longer res-integra and the issue was decided by applying such interpretation of section 9(1)(i) which was held to be applicable in the case of the assessee for the determination of its taxable income in India. It is no doubt true that reference was also made to the decision Ishikawajima Harima Heavy Industries Ltd. ( 2007 (1) TMI 91 - SUPREME COURT) which was in the context of section 9(1)(vii)(c) however their Lordships were conscious of the fact that the said decision was rendered in the context of section 9(1)(vii)(c) as is evident from para 44 of the order. It was also observed by that with the understanding of law laid down by the Hon ble Apex Court in the case of Ishikawajima Harima Heavy Industries Ltd. (supra), if one turns to the facts of the case in hand and examines them on the touchstone of section 9(1)(vii)(c), services, which are source of income sought to be taxed in India, must be utilised in India and rendered in India. Therefore find it difficult to concur with the view expressed by the division bench of this Tribunal in the case of Linklaters LLP (2010 (7) TMI 535 - ITAT, MUMBAI ) that the judgment of Hon ble Bombay High Court in assessee s case for A.Y. 1996-97 is based on the legal premise of interpretation of section 9(1)(vii) and the said premise no longer holds good in view of amendment made by the Finance Act, 2010 in section 9 with retrospective effect from 1st June, 1976. Thus the amendment made by the Finance Act 2010 in section 9 with retrospective effect from Ist June, 1976, which is applicable only in the cases covered under clause (v), (vi) or clause (vii) of section 9(1) and not clause (i) of section 9(1), thus has not negated the decision of Hon ble Bombay High Court in the case of the assessee for A.Y. 1996-97 and the said decision rendered in the context of section 9(1)(i) still holds good even after the said amendment in so far as the assessee s case is concerned. Therefore answer the question No. 1 in favour of the assessee. True and correct interpretation of the term Directly or indirectly attributable to Permanent Establishment in Article 7(1) of the India-UK DTAA - whether it is correct in law to hold that the consideration attributable to the services rendered in the State of residence is taxable in the source State ? - Held that - As provided in Article 7(1)& 7(3) where a permanent establishment takes an active part in negotiating, concluding or fulfilling contracts entered into by the enterprise, then, notwithstanding that other parts of the enterprise have also participated in those transactions, profits of the enterprise arising out of those contracts shall be apportioned in the ratio of the contribution of the PE to those transactions and the contribution of the enterprise as a whole and such profits as apportioned to the contribution of the PE shall be treated for the purposes of Article 7(1) as being the profits indirectly attributable to that PE. Consequently the profits apportioned to the contribution of other parts of the enterprise to the transactions cannot be treated as profits indirectly attributable to the PE for the purpose of Article 7(1) so as to bring the same to tax in the source country - answer the question No. 2 in favour of the assessee.
Issues Involved:
1. Retrospective amendment to section 9 by Finance Act, 2010. 2. Interpretation of "Directly or indirectly attributable to Permanent Establishment" in Article 7(1) of the India-UK DTAA. Detailed Analysis: 1. Retrospective Amendment to Section 9 by Finance Act, 2010: The core issue was whether the retrospective amendment to section 9 by the Finance Act, 2010, which added an Explanation applicable from 01-06-1976, altered the legal position for the assessee. The Tribunal examined the facts, noting that the assessee, a UK partnership firm, rendered legal consultancy services in India without having a fixed office in the country. The A.O. had determined that the income was taxable in India under Article 7 of the India-UK DTAA, considering the assessee had a PE in India. The Tribunal referred to the Hon'ble Bombay High Court's decision in the assessee's own case for A.Y. 1996-97, which held that the income was taxable under section 9(1)(i) and not under section 9(1)(vii). The Tribunal concluded that the amendment by Finance Act, 2010, did not affect the applicability of section 9(1)(i) to the assessee's case, as the amendment was relevant only to clauses (v), (vi), and (vii) of section 9(1). Thus, the Tribunal held that the legal position as established by the Bombay High Court in the assessee's case still held good. 2. Interpretation of "Directly or indirectly attributable to Permanent Establishment" in Article 7(1) of the India-UK DTAA: The Tribunal also addressed whether the consideration attributable to services rendered in the state of residence (UK) was taxable in the source state (India) under Article 7(1) of the India-UK DTAA. The Tribunal analyzed Article 7(1) alongside Articles 7(2) and 7(3) of the India-UK DTAA. It was noted that Article 7(3) specifically defines what constitutes profits indirectly attributable to a PE, indicating that only the proportion of profits arising from contracts where the PE took an active part in negotiating, concluding, or fulfilling should be considered. The Tribunal disagreed with the interpretation in the case of Linklaters LLP, which suggested a broader "force of attraction" rule. The Tribunal concluded that the profits attributable to services rendered outside India could not be taxed in India merely because they were related to projects in India, as per the specific provisions of the India-UK DTAA. Conclusion: The Tribunal ruled in favor of the assessee on both issues. It held that the retrospective amendment to section 9 by the Finance Act, 2010, did not alter the legal position regarding the applicability of section 9(1)(i) to the assessee's case. Additionally, it concluded that only the profits directly or indirectly attributable to the PE in India, as defined by Article 7(3) of the India-UK DTAA, could be taxed in India, and not the entire consideration for services rendered outside India. The Tribunal's decision reaffirmed the principles laid down by the Hon'ble Bombay High Court in the assessee's case for A.Y. 1996-97.
|
