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TMI Blog2008 (12) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... the material which was admittedly on record and which had been accepted, after enquiry, by the respondent and the CIT(A)? (ii) that ITAT's ignoring the material and the evidence which was admittedly on record and which had been accepted, after enquiry, by the respondent and the CIT(A)? (iii) the ITAT ignoring relevant facts, particularly (but not limited to) the fact that 6 out of 7 of the Appellant's clients were Non-residents? (B) On the facts and circumstances of the case, the Appellant being a law firm providing legal advice and being remunerated on an hourly rate basis, whether the ITAT erred in law in not ascertaining the income of the Appellant in India on the basis of the services rendered in India as measured by the billed hours of work done in India? 2. The factual scenario common to both appeals arising out of the orders relating to the Assessment Years 1996-97 and 1996-97, lies in narrow campass. The facts are drawn from Appeal No. 1327/Mum/2001 relating to the Assessment Year 1996-97 for the sake of clarity. Both the appeals are being disposed of by this common order. The appellant is an international firm of solicitors resident in the United Kingdom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) the time so spent was multiplied by the hourly billing rates applicable to each respective partner/employee as specified in the terms of appointment between the Appellant and the Clients; (iii) in the case of the Bhadravati Power Project and Vizag Power Project, the amounts arrived at under (ii) above were appointed among the different participants of the joint venture in proportion to their respective shares therein and bills were accordingly raised by the Appellant upon such participants; and (iv) the bills so raised were paid to the Appellant by the Clients outside India. ASSESSMENT OF INCOME: 11. During the previous year relevant to the assessment year 1997-98, the number of days the Appellant's partners were present in India during the previous year, relevant to the Assessment Year 1997-98, exceeded 90 days. The appellant filed a Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant outside India, as, according to the CIT (A), the determining factor was the place where the Appellant's services were utilised by the Clients and not the place where the Appellant's services were performed for, or rendered to, the Clients. 17. Being aggrieved by the above order of the CIT(A), the Appellant preferred an appeal to the ITAT. The Appellant reiterated its stand to the effect that both, under the provisions of the Act as well as under the provisions of the Double taxation avoidance agreement executed between India and United Kingdom (UK) ("DTA" for short). Only that portion of its income from the Clients which was attributable to the services performed by the Appellant in India could be subjected to Indian taxation. In support of this contention, the Appellant explained, in detail, the method followed by it for billing of Clients and, in this connection, drew a pointed reference to the time-sheets which showed the services rendered by partners and employees, in India and outside India. 18. The ITAT, by its order dated 27th September, 2001 accepted that Article 15 of the DTA was applicable to the Appellant case and the Appellant's income which was attributabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s carried out in India" is taxable in India. Applying this to a legal professional rendering advisory services, and where such advice is billed on the basis of billing hours, his presence at the time of rendering advice would be the basis for determining where income is taxable. He submits that the billing hours are an accurate reflection of the service rendered by a legal professional to a client. 23. Mr. Salve submitted that applying the project rule for ascertaining whether the advisory services are taxable in India, undermines the very foundation on which the nature of the legal profession rests. A legal professional has no stake or interest in the project-he is available at any time to the client for advice on all legal issues. It would be a conflict of interest if the professionals giving the advice were to have any kind of interest in the project. 24. In the submission of Mr. Salve, the Tribunal has accepted (and is not contested for this year by the Department) that income has to be ascertained by applying Article 15 of the Treaty. which provides that "income derived by an individual .... in respect of professional services ... may also be taxed in the other contracting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avy Industries Vs. Director of Income Tax, Mumbai (2007) 288 ITR, 408. 30. According to Mr. Salve, the legal system on which advice given is equally irrelevant. An advice given on Indian law, in England by a professional resident in England, is not taxable in India. Conversely, advice given in English law by a professional in India and present in India would be taxable in India (subject to the test of number of days residence were applicable). It is, therefore, submitted that the presence in India is the criteria in ascertaining the situs and the performance of the service by legal professional. It is further submitted that in fact it has been clearly stated by the assessee that being English lawyers there was no question of their rendering advice on Indian law looking to the engagement letters with the clients produced on record. He submits that the assessees being the members of the legal profession, they would identify Indian issues that may arise in particular transaction but wherever necessary advice on Indian Legal issues would be obtained from a professional who is entitled to practice Indian Law and vice versa. Mr. Salve, thus, submits that the impugned order is unsustaina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Section 9(1) The following incomes shall be deemed to accrue or arise in India- (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India [Explanation 1] - For the purposes of this clause- (a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India; (vii) income by way of fees for technical services payable by- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip is so present and performs services or other independent activities of a similar character in that State. 3. The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants. Consideration: 34. For the purpose of taxation the authorities under the Act have proceeded on the basis that the fees received by the Appellant was for the entire Indian Project as such chargeable to tax. 35. Two basic questions which, thus, arise for our consideration are : (A) Whether fees charged for composite activity is chargeable to tax? and (B) Whether the income attributable to the services rendered by the Assessee/Appellant outside India required to be excluded while computing the tax in India? 36. The resolution of the above question would depend upon the interpretation of Clause 15 of DTA read with of Section 9 of the Income Tax Act which clearly lays down that income derived by an individual whether in his own capacity or as a member of partnership, who is resident of contracting State in respect of professional Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y take place partly in one territory and partly in another. The question which falls for our consideration is : whether the income that arises out of the said transaction would be required to be apportioned to each of the territories or not. 43. Income arising out of operations in more than one jurisdiction would have territorial nexus with each of the jurisdictions on actual basis. If that be so, it may not be correct to contend that the entire income "accrues or arises" in each of the jurisdictions. 44. The Apex Court had occasioned to consider the above question in the case of (cited supra), wherein while interpreting the provisions of Section 9(1)(vii)(c) of the Act, the Supreme Court held as under: Section 9(1)(vii)(c) of the Act states that "a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India, or for the purposes of making or earning any income from any source of India." Reading the provision in its plain sense, as per Apex Court it requires two conditions to be met the services which are the source of the income that is sought to be taxed, has to be rendered in India, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e between rendition of services and utilization thereof. 47. With the above understanding of Law laid down by the Apex Court, if one turns to the facts of the case in hand and examines them on the touchstone, Section 9(1)(vii)(c) which clearly states ......... where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purpose of making or earning any income from any source in India" It is thus, evident that section 9(1)(vii)(c), read in its plain, envisages the fulfilment of two conditions : services, which are source of income sought to be taxed in India must be (i) utilized in India and (ii) rendered in India. In the present case, both these conditions have not been satisfied simultaneously. 48. The provisions of section 9(1)(vii)(c) of the Act are plain and capable of being given a meaning, is no reason not to give full effect thereto. 49. In the above view of the matter, contentions raised by the assessee/appellants need to be accepted. Thus, the income of the assessee is charged on hourly basis in India and utilised in India shall only be chargeable to Income-Tax Act as disclosed in the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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