9911796707
TMI Blog2017 (2) TMI 779X X X X Extracts X X X X X X X X Extracts X X X X ..... : General The learned AO has erred in deleting the description of services provided by the appellant to the client as mentioned in the draft order. This narration is indicative that the services provided by the appellant are not in the nature of fees for technical services and that the services were utilised outside India. 2 The AO erred in observing that the appellant had provided services to concerns inside India. This observation was not present in the draft order and is contrary to the fact. 3 The learned AO erred in computing the total income of the appellant at Rs. 50,16,03,621 as against Rs. 342,48,138 considered by the appellant. 4 Without prejudice to the other grounds, the learned AO erred in computing the total income at Rs. 50,16,03,621 as against Rs. 47,65,23,440 computed in the draft assessment order. 5 Without prejudice to the above, the learned AO erred in taxing gross fees received by the appellant without allowing any deduction for the expenditure. The learned AO erred in observing the below in the order without any basis/evidence: Page 12 of the order: Admittedly, the services rendered by the assessee are made use by the recipient in different d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant were not utilised by the clients in India, the appellants income cannot be considered as deemed to accrue or arise in India. 7.4 The learned AO out to have appreciated that the retrospective amendment to Section 9 of the Act introduced by the Finance Act, 2010 is only applicable in respect of income covered under clauses (v), (vi) and (vii) of Section 9(1) of the Act and not to income covered under clause (i) of Section 9(1). 7.5 The learned AO at page 17 of the order erred in observing that the services of the appellant were utilised by the Indian companies. The appellant submits that during the relevant previous year the entire services were rendered to non-Indian entities i.e. foreign entities. 7.6 The learned AO erred in holding that every services which has an Indian connection is liable to tax in India. 8 Denial of India-UK Tax Treaty benefit 8.1 The learned AO erred in denying benefit of India-UK Double Taxation Avoidance Agreement (DTAA') to the appellant. 8.2 The learned AO erred in observing at para 5.1 of the order that the appellant is a firm as against a Limited Liability Partnership incorporated and registered with the Registrar of Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia-UK Double Taxation Avoidance Agreement (DTAA'). The learned AC ought to have appreciated that Article 15 was applicable only to individuals and was not applicable to the case of the appellant 10.3 Without prejudice to the above, in terms of Article 15(1) the learned AO ought to have taxed income only in respect of services rendered in India 10.4 The learned AO erred in holding that the appellant had a fixed base in India from which the appellant was performing its activities. 10.5 The learned AO erred in holding that appellant's partners and staff, use the hotels or the places provided by clients as an office or place of work and from such premises the appellant provides services to its client. 11 Disbursement treated as part of gross receipts 11.1 The learned AO erred in taxing an amount of Rs. 2,79,48,906 being reimbursement of expenditure The appellant submits that reimbursement of expenditure is not income and therefore the same cannot be brought to tax. 11.2 The learned AO erred in not providing an opportunity of being heard before taxing the disbursements 12 Change in status of the appellant The learned AO erred changing appellant's status to Limited L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 273/- as income attributable to work performed in India by the Permanent Establishment (PE) of the assessee in India which was created on account of its personnel (employees and other executives) staying in India for more than 90 days. However, during the course of assessment proceedings, the amount of income attributable to work performed in India was revised by the assessee itself to Rs. 3,42,48,138 on the ground that when further details were received by the assessee regarding time spent in India by the assessee's employees and other personnel, then it was found that some more amount of fee was attributable to work performed in India, accordingly, an amount of Rs. 48,05,865/- (Rs.3,42,48,138 - 2,94,42,273) was added to the returned income by the AO. During the course of assessment proceedings, the assessee provided all its income, income of fee received in respect of services rendered in India and services rendered outside India. Following break up was provided by the assessee:- Income in respect of services rendered in India- Rs. 3,42,48,138 Income in respect of services rendered outside India- Rs. 43,94,06,577 Towards disbursements - Rs. 2,79,48,9076 Rs. 50,16,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with grounds relating to these issues. 6. Grounds 8 to 8.4 deal with action of AO in denying benefit of India- UK DTAA to the assessee. It is noted from the perusal of the assessment order that AO has held vide paragraph 5 of the assessment order that assessee is not entitled for the benefits under India-UK Tax Treaty, wherein the AO has observed as under:- "5. Benefit of Treaty not available to the assessee. 5.1 During the course of hearing, it was noticed that the assessee firm was a fiscally transparent entity and was not liable to tax in UK in its own right. The assessee is a fiscally transparent entity which is not a taxable entity under the laws of the treaty partner country i.e. United Kingdom. In United Kingdom, L.L.P. is not a taxable entity. The assessee is not assessed to tax in UK but only its partners are assessed to tax. The assessee firm has not paid any tax in UK. 5.2 The definition of 'resident of a contracting state', as set out in Article 4(1), states that resident of a Contracting State means "any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. Sr. Counsel that this issue has already been decided by the Tribunal in favour of the M/s. Linklaters in earlier years, but the AO did not follow the same for the reason that department had filed appeal against the order of the Tribunal which was pending before the Hon'ble Bombay High Court. 9. We have gone through the orders passed by the AO as well as DRP and also the submissions made before us and also the orders passed by the Tribunal in case of M/s. Linklaters for earlier years. With the assistance of both the parties, it was noted that this issue has cropped up in various earlier years in case of M/s. Linklaters i.e. A.Ys 1995-96, 1997- 98, 1998-99, 1999-2000 and 2001-02 wherein, the Tribunal has decided this issue in favour of Linklaters by holding that it is eligible for the benefits of India -UK DTAA. Our attention has been drawn upon the orders passed by the Tribunal for all these years. In A.Y.1995-96, the Tribunal vide its order reported in 132 TTJ 20 made elaborate discussion at paras 21 to 28 before arriving at the conclusion at paragraph 79 as under:- "In view of the above discussions, as also bearing in mind the entirety of the case, we hold that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uished by the AO on the ground that technology provided by the assessee therein was utilised by the Dutch company in order to provide the services to the assessee therein and he compared the same with the case of assessee before us with the reasoning that in assessee's case also expertise of the assessee was used by its clients in making decisions and, therefore, expertise was made available to the clients. Further, he did not follow the case of Raymonds Ltd 86 ITD 791 (Mum) with the reasoning that marketing services were not technical services. Rather, he relied upon the judgements of AAR in the case of Perfetti 342 ITR 200 (AAR). 13. During the course of hearing before us, Ld. Senior Counsel made detailed arguments and explained that the AO has grossly misunderstood the concept of term 'make available' as has been used in Article 13 of DTAA and misapplied the same on the facts of the case before us. It was submitted that the foremost condition for bringing an item within the scope of this Article is that the service in question should 'make available' technical knowledge, experience, skill, etc. and to explain the meaning of term 'make available', reliance was placed by the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. It was further elaborated in detail by Ld. Sr. Counsel that in the said case training was given by the US company to the Indian employees which is not so in the present case. A person who is not qualified to practice as an advocate cannot provide legal services. Since the clients to whom the assessee has rendered services are not lawyers, there is no question of the assessee's services making available any knowledge, experience, etc. to the clients. In the case of assessee (i.e. Linklaters LLP), partners are all lawyers qualified in various jurisdictions. The partners practice law under the relevant professional regulations of local Bars (such as England and Wales, New York and Germany) and the Law Society of England and Wales as assessee (Linklaters LLP) is registered in the UK. Linklaters LLP partners do not practice Indian law so no legal services under Indian laws can be rendered by Linklaters LLP in India that can make available technical knowledge, skill or experience tec. 16. Ld. Sr. Counsel also drew our attention upon the brief note appended in the paper book containing detailed description of services provided by the assessee to its clients to impress upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment and transfer of a technical plan or technical design." 19. Thus, only those services may fall under this Article, which 'make available' to the recipient any technical knowledge, experience, skill, know-how or processes, etc. as a result of rendering of services by the assessee to the recipient of services from whom fee has been received. Therefore, we need to first of all find out whether this condition is complied with in the facts of the case before us. For deciding this issue, we need to first of all understand the true meaning and scope of the expression 'make available', as has been used in this Article. It has been contended before us on behalf of the Revenue that the clients of the assessee have made use of the advice / consultancy given by the assessee, which was not possible unless technical knowledge, experience, skill, know-how or processes, etc was not provided by the assessee to its clients. Ld. CIT-DR elaborated that the services were rendered by the assessee to its clients in most exhaustive manner which also involved rendering of consultancy on various complex issues. Therefore, the assessee parted with its reservoir of rich knowledge, skill and experi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available." 21. Few illustrations have also been given in the aforesaid MOU. From perusal of the illustrations so provided we understand that mere rendition of services does not fall within the gamut of the expression 'make available' unless following conditions are also fulfilled:- * The technical knowledge, skills, etc. remain with the person receiving the services even after the agreement comes to an end. * The technical knowledge or skills of the provider are imparted to the recipient. * The recipient is in a position to deploy similar skills or technology or techniques in future without the aid or assistance of the service provider. 22. Our view is duly supported by many judgements wherein this term has been analysed exhaustively on many occasions. In the case of Raymond Ltd vs DCIT 86 ITD 791 similar issue came up before the Mumbai Bench of the Tribunal wherein t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re acquired during the course of geo physical survey would not amount to 'make available' technical knowledge, experience, skill, know-how or processes, etc. Relevant part of observations of the Hon'ble High Court containing the reasoning given in this regard is reproduced below:- "22. What is the meaning of 'make available'. The technical or consultancy service rendered should be of such a nature that it 'makes available' to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could deriveand utilize the knowledge or know - how on it sown in future without the aid of the service provider. In other words, to fit into the terminology 'making available', the technical knowledge, skill etc. must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t those were not 'made available' to the assessee. 'Rendering of any technical or consultancy services' is followed by 'which make available technical knowledge, experience, skill, know-how'. In this context, it becomes imperative to understand the meaning of the expression 'make available' as used in this article. 'Make available' means to provide something to one which is capable of use by the other. Such use may be for once only or on a continuous basis. In present context, to 'make available' the technical services means that such technical information or advice is transmitted by the nonresident to the assessee, which remains at its disposal for taking the benefit therefrom by use. Even the use of such technical services by the recipient for once only will satisfy the test of making available the technical services to the assessee. If the nonresident uses all the technical services at its own end, albeit the benefit of that directly and solely flows to the payer of the services, that cannot be characterized as the making available of the technical services to the recipient. It, therefore, follows that making available the technical services to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same would not fall within the ambit of fees for technical service. These payments also cannot be taxed under Article 7 as none of them were having any P.E. or fixed base in India and the duration of their visit in India was also for a very less period." 26. Similarly in the case of Xansa India Ltd vs DCIT (ITA 2577/Del/2011) order dated 26-09-2016, the Delhi Bench of the Tribunal held that if fee paid by the said company to M/s Erns & Young, Singapore on account of professional services rendered by them were not in the nature of fee for technical services, but on account of professional services rendered by the said professional firm for the reason that these services did not make available to the assessee any technical knowledge, skill or experience. 27. Thus, in the light of aforesaid legal discussion made by us for understanding the meaning and scope of the term 'make available', we have further analysed the facts of the case to find out the nature of services rendered by the assessee company to its clients so as to ascertain whether any technical knowledge, skill, experience or process etc. was made available as a result of rendering of the services by the assessee to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * Voluntary cash general offer of a public listed company in Singapore Exchange. II. Advising on foreign laws and other non-Indian matters to non-Indian clients, viz. * On EU Law to Geneva based company * US based corporate in relation to complain submitted to European Commission * America distressed debt investor in relation to German Metal processing company * On bid documentation in Bahrain * Suspected fraud due diligence * Potential takeover bid of Swiss Corporate listed on Swiss Stock Exchange III. Documentation / advising services provided in connection with M&A activities of non-Indian clients, viz. * Acquisition of stake by UK entity in Indian entity / blocks * Drafting of English law document in relation to exist form Indian business by German entity. * Sale of stake in a Germany entity by German companies * Group reorganization of a German multinational group - no nexus with India * Litigation matter arising from M&A done in past - Litigation on environment contamination of site in Germany * Reviewing documents relating to exist from Indian JV by UK company * Due Diligence for suspected fraud undertaken for UK company * Advising National Grid of UK for po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, as per the facts brought before us. Thus, it cannot be said that by way of rendition of these services, the assessee 'made available' to its clients the technical knowledge, skill, experience, know-how or process, etc. 31. Further, in none of the aforesaid 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. The case of the assessee is covered by the judgements which have been discussed by us above in earlier part of our order. 32. Thus, in view of the facts brought before us, and in view of the legal position as explained in many judgements as discussed above, we are not in a position to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of fee received by the assessee would not be liable to be taxed under Article 15 of India-UK DTAA. Thus, Grounds 10 to 10.5 are allowed in favour of the assessee. 36. Now we shall take up grounds No. 11 to 11.2. In these Grounds, the assessee has agitated the action of AO in taxing an amount of Rs. 2,79,48,906 being reimbursement of expenditure. The AO treated the same as part of gross receipts and therefore, included the same as part of taxable income. 37. The AO treated reimbursements as part of income on the ground that these reimbursements were received in connection with the services rendered by the assessee. The DRP upheld the action of the AO by making discussion at para 9.17 on page 31 of order passed by it. 38. During the course of hearing it was submitted by the Ld. Senior Counsel that receipt on account of reimbursement is not in the nature of a consideration for rendering of any services. Our attention was drawn on details provided about the nature of the expenditure reimbursed available at pages 10 and 29 of the paper book. It was further submitted that in identical facts and circumstances it has already been held by the Tribunal in case of Linklaters that reimbu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot satisfied by the part relief given by the CIT(A) and is in second appeal before us. 132. Learned counsel has taken us through meticulous documentation in respect of reimbursements of expenses, and also produced before us samples of supporting evidences in respect of each claim of reimbursement of expenses. He has also extensively referred to the prevailing regulation in the United Kingdom which ensure strict control over possible inflation of such reimbursement claims, as also to the internal control mechanism in respect of these claims. He submits that all requisitions of the authorities below, in respect of supporting evidences for such claims, have been duly complied with, and the CIT(A) has confirmed the partial disallowance only on surmises and conjectures. He urges us to delete the disallowance confirmed by the CIT (A) and hold that the reimbursements of expenses received by the assessee, particularly on the facts of the case, cannot be treated as income in the hands of the assessee. Learned Departmental Representative, on the other hand, relies upon the orders of the authorities below and submits that the onus is on the assessee to produce all the evidences of expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability, the AO applied tax rate as applicable on the "Company" and not as LLP. 44. We have gone through the orders passed by the lower authorities and submissions made before us. 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. Thus, ground 12 may be treated as allowed for statistical purposes. 45. Grounds 1 to 4: In these grounds, the assessee has challenged the action of lower authorities wherein it was held by the AO that a sum of Rs. 43,94,06,577 was also taxable in India since services for earning this income were rendered by the assessee in India. In this regard, it was submitted on behalf of the assessee that in case fees are held as not taxable as 'Fee for Technical Services', but as 'business income', then only that income which has been earned in respect of services rendered in India can be taxed in India, i.e. a sum of Rs. 3,42,48,138 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been done by the AO in this regard. The assessee has contended that services in regard to impugned amount of fee were not rendered in India. But nothing concrete and tangible has been brought on record in this regard. Therefore, we send this issue back to the AO for the purpose of examination of facts with regard to rendering of services. The AO shall give adequate opportunity of hearing to the assessee to furnish requisite details and documentary evidence in this regard and shall decide this issue after considering the entire material brought on record by the assessee as well as judgements, as may be placed by the assessee in support of its claim including the decisions given by the Tribunal in case of Linklaters. It is reiterated that on legal principle, the AO shall follow the order of the Tribunal for AY 1998-99, as is reproduced above. Thus, with these directions these grounds may be treated as allowed, for statistical purposes. 49. Ground 13: In this ground, the assessee has agitated the action of the AO in not granting 5% deduction of expenses u/s 44C. 50. It was submitted that in the draft order the AO held that the entire receipt of the assessee of Rs. 50,16,03,621 was t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
