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TMI Blog2022 (10) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013-14 and the ITAT pronounced the rulings in the year 2017and 2019 respectively. Hence it is the submission of the assessee s counsel that Departmental authorities as well as the Departmental Representative s submission that the Protocol, which provides for an extension of India-UK DTAA applicability to a UK based partnership, is effective only from AY 2015-16 and onwards and shall not apply to the year under consideration, is entirely incorrect and not in accordance with the judicial precedents. We find ourselves in agreement with the submission of assessee. We note that CIT DR has distinguished the decisions cited by suggesting that the decision was rendered prior to the protocol amendment and CIT DR is also suggesting that these decisions are not applicable. However, we find that no contrary decision has been produced by the Revenue. Hence, the canons of judicial discipline comes into play and the decision of ITAT on this issue cannot be ignored by mere claim of the Departmental Authorities and Representatives that these decisions are not applicable inasmuch as they have been rendered without considering the implication of the protocol amendment. We may recap that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment years 2012-13 2013-14 respectively. Since the issues are common and connected and the appeals were heard together, these are being disposed off by this common order. 2. For the sake of convenience, the ground of appeal taken by the Revenue for AY 2012-13 reads as under :- On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) - 43, New Delhi ['CIT (A)'] has erred in dismissing the appeal filed by the assessee on certain additions made by the learned assessing officer ('AO') in the assessment order passed under section 143(3) of the Act by passing his order under section 250(6) of the Income-tax Act, 1961 ('the Act'). That on the facts and circumstances of the case and in law: 1. The order passed by the learned CIT (A) confirming the additions to the Appellant's taxable income made by the learned AO is erroneous and bad in law and liable to be quashed. 2. The learned CIT (A) erred in upholding the taxation of entire revenue received by the Appellant from provision of legal services on Indian engagements (amounting to GBP 2,777,511) as 'Fees for Technical Services' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DTAA. 5. He further noted that the case of a Partnership Firm (which includes a Limited Liability Partnership) is opposite in India, it is the entity i.e. the Partnership Firm of the LLP which is taxed as an entity on a standalone basis. The partners themselves are not taxed with regard to their share of income in the partnership Firm in the LLP. 6. Upon assessee s appeal, ld. CIT (A) noted assessee s submissions. He held that there was a protocol entered into between India and UK, amending the 1993 India-UK DTAA. That the protocol was concluded on 30.10.2012, and the effective date was 27.12.2013. That prior to this Amendment coming into force the position was that where a partnership is registered as fiscally transparent in its country of location, the entity as such, is not liable to tax in that country and so it cannot be a resident of purposes of the Tax Treaty. That consequently, the availability of Treaty benefits was to be denied unless a specific declaration covering such partnership was included. That the same was accomplished by means of the protocol concluded on 30.12.2012. Thereafter, ld. CIT (A) referred to pre-protocol Article 4 of India-UK DTAA and according t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rns for A Y s 2012-13 and 2013-14, wherein, for the purpose of determining its taxable income in India, HSF has claimed the benefits of the India-UK Double Taxation Avoidance Agreement (,India-UK DTAA') on the portion of its income from Indian engagements, which has been taxed in the UK in the hands of its UK tax resident partners. 9.3 Accordingly, as per the India-UK DTAA, income received by HSF from the provision of legal services under Indian engagements does not fall within the meaning of Fees for Technical Services ('FTS') (as defined in Article 13 of the India-UK DTAA) since the subject services do not make available inter-alia any technical knowledge, experience, skills, know-how or process. Therefore, the income received by HSF from the provision of legal services, being in the nature of business income for HSF, is not taxable in India in the absence of a Permanent Establishment ('PE') of HSF in India as per the provisions of Article 5 read with Article 7 of the UK-India Convention. 9.4 The balance portion of the income from Indian engagements (i.e., income to the extent of profit share relating to partners who are tax residents of countries other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal Taxation)-3 (I) vs Linklaters Paines 49 taxmann.com 66 (Mumbai - Trib.) (Page 183 of the legal paperbook) 12. Thereafter, he referred and drew support from the interpretation to term liable to tax from the decision of Hon ble Supreme Court in the case of Azadi Bachao Andolan 263 ITR 706. He further submitted that in addition to the above, in the following judicial pronouncements, the eligibility of a fiscally transparent partnership firm to avail of the tax treaty benefits has been affirmed on the basis that the income of the partnership firm has been taxed in the foreign state in the hands of its partners: (i) DDIT vs A. P Moller 67 SOT 147 (Page 197 of the Paperbook) (ii) P O Nedlloyd Ltd Ors vs ADIT-IT 369 ITR 282 (Page 190 of the Paperbook) (iii) Maersk Line U.K. Ltd vs DDIT 68 taxmann.com 173 (Page 237 of the Paperbook) (iv) T D Securities (20 I 0 TCC 186; Decision dated April 8, 2010), the Tax Court of Canada (Page 263 of the Paperbook) 12.1 Further, the Hon'ble Mumbai Tribunal, in the case of Linklaters LLP, on the same issue of tax treaty eligibility, was dealing with AYs 2011-12, 2012-13 and 2013-14. The Hon'ble Tribunal pronounced th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2013, having been brought for discussion. The amendments introduced by the protocol are not retrospective or even clarificatory The amendments introduced by the protocol are clearly prospective. Prior to the entering into of the Protocol by the competent authorities of the respective states, the benefit of DTAA between India and the UK was not available to the persons, more specifically the fiscally transparent entities which do not fall under the definition of the tem persons under the DT AA. Thus, it is evident that prior to the Protocol there was no intention in the India -UK DTAA to allow benefit to such fiscally Transparent entities. It is clear that before the Protocol having come into force, an Indian entity placed similarly would have also not been allowed Treaty benefit by UK Tax Authorities. In the circumstances, the interpretations laid down by various courts in the decisions cited by the Ld AR during the course of arguments, was not correct and therefore, the decisions rendered by various courts and relied upon by the appellant in so far as they relate to the period prior to the amendment of DTAA between India and UK are decisions in Personam and not decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2014 dated February 10, 2014, with retrospective effect from December 27, 2013), the definition of person under Article 3(1)(f) still does not specifically include partnership firms. Therefore, i) a circular may be issued by CBDT to clarify that UK partnership firms, including LLPs, are eligible for the treaty benefits to the extent that the partners are taxable in UK; or ii) another protocol may be entered into with UK to specifically include partnership firms and LLPs within the term 'person' as defined in Article 3 (similar to the India-USA Treaty) In the status, CBDT clarified that Circular No.02/2016 dated 25th February 2016 has been issued on the lines as recommended by the HLC. The Circular issued by the CBDT reads as under: CBDT Circular No 2 of 2016 Benefits of the India United Kingdom (UK) Double Taxation Avoidance Agreement to UK Partnership firms An Amending Protocol to the India UK Double Taxation A voidance Agreement (DTAA) was notified vide Notification No 10/2014 dated 10TH February 2014 with effect from 2th December 2013. As a result of the aforesaid protocol, interalia, the earlier definition of the term person in article 3(1)(f) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue is not correct inasmuch as ITAT Mumbai Bench in the case of Linklaters LLP on the same issue of tax treaty eligibility was dealing with AYs 2011-12, 2012-13 2013-14 and the ITAT pronounced the rulings in the year 2017 (79 taxmann.com 12), 2018 (97 taxmann.com 464) and 2019 (111 taxmann.com 198) respectively. Hence it is the submission of the assessee s counsel that Departmental authorities as well as the Departmental Representative s submission that the Protocol, which provides for an extension of India-UK DTAA applicability to a UK based partnership, is effective only from AY 2015-16 and onwards and shall not apply to the year under consideration, is entirely incorrect and not in accordance with the judicial precedents. We find ourselves in agreement with the submission of the ld. Counsel of the assessee. We note that ld. CIT DR has distinguished the decisions cited by suggesting that the decision was rendered prior to the protocol amendment and ld. CIT DR is also suggesting that these decisions are not applicable. However, we find that no contrary decision has been produced by the Revenue. Hence, the canons of judicial discipline comes into play and the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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