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TMI Blog2003 (8) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... s we have mentioned earlier in this order, will even apply to other entities as well, in addition to 'individuals', as the aforesaid article refers to income derived, by a 'resident of contracting state in respect of professional services' which has clearly much broader connotations than the 'individual who is resident of contracting state in respect of professional services' i.e., the expression used in the new India-UK DTAA. There is also no dispute about the factum of services rendered being in the nature of legal consultancy services. We may also mention that Hon'ble Supreme Court has, in the case of V. Sasidharan v. Peter Karunakar [ 1984 (8) TMI 353 - SUPREME COURT] observed that ...Whatever may be the popular conception or misconception regarding the role of today's lawyers and the alleged narrowing of gap between a profession on one hand and a trade or business on the other, it is trite that, traditionally, lawyers do not carry on trade or business nor do they render services to the 'customers'. Keeping all these factors in mind, as also the observations of Hon'ble Supreme Court, we are of the considered view that the services ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. - Member(s) : I. P. BANSAL., PRAMOD KUMAR. ORDER Per Pramod Kumar, Accountant Member. - This is an appeal by the assessee and is directed against CIT(A)'s order dated 26th March, 1996, for the assessment year 1994-95. Solitary issue requiring our adjudication is whether or not the assessee had any liability to withhold tax from the payments made by the assessee to M/s. Freshfields, a UK-based firm of solicitors, in consideration of services rendered by the aforesaid firm of solicitors. 2. The issue in appeal lies in a narrow compass of material facts. The assessee tax deductor Maharashtra State Electricity Board (MSEB, in short), on 21st June 1993, entered into an agreement with one M/s. Freshfields, a London-based firm of solicitors for availing certain 'legal advisory services'. These services were required by MSEB as it intended to enter into a power purchase agreement to purchase power from, what was popularly known as, Enron Project. MSEB was a beneficiary of the proceeds of a loan granted by the International Bank for Reconstruction Development (IBRD, in short) to Government of India. It appears that under the terms of this loan arrangement, a part of this loan was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30th April 1993 to 26th January 1994, details of which are on record in Annexure to the impugned order passed by the Assessing Officer. While seeking Assessing Officer's permission to make remittance in settlement of these bills for legal consultancy services, the assessee took the stand that the payments being covered by Article 15 of applicable India United Kingdom Double Taxation Avoidance Agreement and the recipient firm having spent less than 90 days in India, these payments of legal fees are not exigible to tax in India. The Assessing Officer was, however, of the view that Article 15 has application only in the cases of individuals, and observed that 'when a lawyer as an Individual gives personnel services and M/s MSEB remits the money in the name of individual, then only Article 15 will come to play otherwise Article 13 of DTAA between UK and India alone would be applicable'. In an earlier communication, i.e., letter dated 16th June 1994, the Assessing Officer had also observed that in any event the MSEB cannot derive any benefit from Article 15 of the DTAA because man days spent by the Freshfields are more than '90' i.e., in excess of the time limit set out in Article 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by dictionary meaning) care has to be taken not to confuse it with the words 'technological' or 'scientific'" and that "the meaning of the word 'technical' would take in its sweep intricacies of 'art' and 'law' as well". It was then observed that the fact that Freshfields acted as a consultant could not be over emphasized. It was then concluded that the services rendered by the Freshfields were technical services as well as consultancy services in nature. It was also observed that there was no water tight partitioning between the services of 'managerial, technical or consultancy services' under Article 13 and 'independent personal services' under Article 15 of the India-UK DTAA. However, CIT(A) ruled out application of Article by observing as follows: "16. Of course, it cannot be denied that the services rendered by Freshfields were such as are normally rendered by lawyers in their consulting chambers. So, the services rendered by Freshfields, by their very nature, may also be viewed as 'independent personal services'. But the payments made to Freshfields would be covered by Article 15 only if it can be treated as individual." 8. The CIT(A) thus concluded that the payments to Fres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individual for independent personal services mentioned in Article 15 (independent personal services), in consideration for services of a managerial, technical or consultancy nature, including the provision of services or technical or other personnel. (5) The provisions of paragraphs (1) and (2) of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 (business profits) or Article 15 (independent personal services), as the case may be, shall apply. (6) Royalties and fees for technical services shall be deemed to arise in a Contracting State where the payer is that State itself, a political subdivision, a local author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the provisions of paragraph (1) of this Article an individual is a resident of both Contracting States, then his status shall be determined in accordance with the following rules: (a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both the Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests); (b) if the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either contracting State, he shall be deemed to be a resident of the Contracting State in which he has a habitual abode; (c) if he has a habitual abode in both the Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national; (d) if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement. (3) Where by reason of the provisions of paragraph (1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provision is applicable for 'resident individuals' and will not extend to 'entities other than individuals'. 14. It is also interesting to note that the new Double Taxation Avoidance Agreement (which has replaced the old India UK DTAA, applicable at the relevant point of time, vide Notification No. GSR 91(E) dated 11th February 1994; 206 ITR St 235) has a modified form of Article 15 which is reproduced below for ready reference: Article 15. Independent personal services. -(1) Income derived by an individual, whether in his own capacity or as a member of a partnership, who is a resident of a contracting State in respect of professional services or other independent activities of a similar character may be taxed in that State, Such income may also be taxed in the other contracting State if such services are performed in that other State and if: (a) he is present in that other State for a period or periods aggregating to 90 days in the relevant fiscal year; or (b) he, or the partnership, has a fixed base regularly available to him, or it, in that other State for the purpose of performing his activities; but in each case only so much of the income as is attributable to those services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e India Ltd. v. Dy. CIT [2003] 86 ITD 384 (Kol.) a coordinate bench of this Tribunal, to which one of us was a party, has interpreted the scope of expression 'professional services' as follows: "The definition of 'professional services', which are termed as 'independent personal services' in the phraseology employed in tax treaties is, however, not defined in tax treaties or even official commentaries on UN and OECD Model Conventions. The meaning of this term is illustrated by some examples of typical liberal professions, and this enumeration of professions has only an explanatory character. 'The Law Lexicon' edited by Justice Y.V. Chandrachud (1997 Edition) defines 'profession', inter alia, as involving' the idea of an occupation requiring either purely intellectual skill or if any manual skill, as in painting and sculpture or surgery, skill controlled by the intellectual skill of the operator, as distinguished from an occupation which is substantially the production or sale of arrangements for the production or sale of commodities'. This definition, barring the words "as distinguished from an occupation which is substantially the production or sale or arrangements for the product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in dispute that the services that Freshfields was required to deliver under the contract also involved, to use the phraseology of Lord Justice Scrutton, "either purely intellectual skills or if any manual skill, as in painting or sculpture or surgery, skill controlled by the intellectual skill of the operator". Any services in the nature of legal consultancy services inherently involve either purely intellectual skills of the person(s) rendering these services or if any manual skill, as in painting or sculpture or surgery, skill controlled by the intellectual skill of the person(s). There is also no dispute about the factum of services rendered being in the nature of legal consultancy services. We may also mention that Hon'ble Supreme Court has, in the case of V. Sasidharan v. Peter Karunakar AIR 1984 SC 1700 observed that "...Whatever may be the popular conception or misconception regarding the role of today's lawyers and the alleged narrowing of gap between a profession on one hand and a trade or business on the other, it is trite that, traditionally, lawyers do not carry on trade or business nor do they render services to the 'customers'. Keeping all these factors in mind, as al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n derogant, that is general things will not derogate from special things. The maxim is also otherwise expressed as generalia specialibus derogant. A special provision normally excludes the operation of the general provision... It can be resorted to for deciding the competing claims of two provisions in the same enactment, one specific and other general with some overlapping between the two. The requisite conditions to attract this principle are: Firstly both the general enactment and the particular enactment must be simultaneously operative, the general enactment covering larger-field and particular enactment covering a limited field out of the larger field covered by the general enactment and, secondly, there must be nothing contained in the general provisions indicating the legislative intent to overrule or set aside the particular provision". This principle has also been dealt with by Kolkata SMC Bench, in the case of Asstt. CIT v. Executors of the Estate of Bhagwan Devi Sarogi [2001] 79 ITD 539, wherein Hon'ble Vice President Shri Garg has inter alia observed that "To sole such a conflict (or competing claims of sections), one has to resort to interpretations of law and the fam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... United Kingdom DTAA, whether multiple counting of common days where more than one person from the solicitor firm was present is permissible i.e., whether solar days are required to be taken into account or man-days are to be taken into account. We may, in this regard, refer to following observations of a co-ordinate bench of this Tribunal, in the case of Clifford Chance, United Kingdom v. Dy. CIT [2002] 82 ITD 106 (Mum.): In our opinion multiple counting of the common days is to be avoided so that the days when two or more partners were present in India, together, are to be counted only once. Multiple counting would lead to absurd results. For example, if 20 partners were present in India together for 20 days in one fiscal year, multiple counting would result in 400 days. There cannot be more than 365 days in a year. Therefore this system of multiple counting leads to absurdity. Therefore it should be avoided. Suffice to say that we are in considered agreement with the above views and that we see no reasons to take any other view of the matter than the view so taken by our esteemed colleagues. In our considered view, multiple counting of days would indeed go against the object of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eating the same as income. However, in our considered view and for the reasons we shall now state such an interpretation will be fallacious. 25. While elaborating upon the ratio of the aforesaid judgment, a coordinate bench of this Tribunal in the case of Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791, relevant portion at page 168 has observed as follows: "A first reading of the judgment of the Supreme Court in the case of Transmission Corporation no doubt gives the impression that if no application is filed by the assessee under section 195(2) seeking a determination of the appropriate portion of the sum remitted, income-tax on the gross sum has to be deducted and paid. However, penultimate paragraph of the judgment the Supreme Court has upheld as correct the answer given by the Andhra Pradesh High Court that the obligation of the assessee to deduct tax at source 195 limited only to the appropriate portion of income chargeable under the Act. In our humble understanding of the section in the light of the judgment, the position appears to be like this. The sum paid to the non-resident may be either fully or partly chargeable to income-tax. It is fully chargeable (pure income) undoubtedly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld come within the purview of the section, but if it was an amount of a kind exempt (under the Indian Income-tax Act) from tax, such as agricultural income, it would be outside its purview". It is thus a settled position that when an income is outside the scope of income taxable under the Indian Income-tax Act, the question of application of section 195, which is in material respects pari materia with section 18(3B) of the 1922 Act that the High Court was in seisin of, does not arise. A fortiorari, when an income is not exigible to tax in India, by the virtue of the provisions of the applicable DTAA, the deduction of tax under section 195 of the Act does not come to play at all. It leads us to the conclusion that the expression 'chargeable under the provisions of this Act' cannot include an income, which in terms of the specific provisions of the applicable Double Taxation Avoidance Agreement, is not exigible to tax in India. 28. While deliberating upon the impact of Hon'ble Supreme Court's certain observations in Transmission Corpn. of A.P. Ltd. 's case we are also reminded of the observations of Justice Bhat in the case of SRF Finance Ltd. v. CBDT [1995] 211 ITR 861 (Delhi) that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the decision, exalting the doctrine of precedents into prison house of bigotry, regardless of varying circumstances and myriad developments, Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting those matters which may lurk in the dark". 31. When examined in this perspective also, it is clear that the facts directly presented for consideration of Hon'ble Supreme Court in the case of Transmission Corpn. of A.P. Ltd. were not in pari materia with the facts of this case inasmuch as it was not the case of the assessee before Hon'ble Supreme Court that the payments in question were not at all exigible to tax in India but the only case of the assessee was that the payments to non-resident did not constitute 'pure income' or 'income simpliciter'. The observations made by the Hon'ble Supreme Court, therefore, cannot have any application is a case where the income is claimed to be not included in total income exigible to tax in India which admittedly was not the case before the Hon'ble Supreme Court. In any event, in our considered view, Hon'ble Supreme Court's observations should not be used as a blind man's walking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... designed", observed Lord Dunedin in Whitney v. Commissioners of Inland Revenue, "to be workable, the interpretation thereof by a court should be to secure that object unless crucial omission or clear direction makes that end unattainable." 34. We are thus unable to uphold the revenue's contention that no prejudice is caused to the assessee tax deductor by deducting the tax at source by way of abundant caution, and even when the income embedded therein may not be exigible to tax in India, for that such an interpretation will render the assessee's right of appeal under section 248 obliterated from the statute. 35. We have given a categorical finding that impugned payments made to M/s Freshfields are not exigible to tax in India, we are of the considered view that the assessee tax deductor was not under any obligation to deduct tax at source from such payments. In support of this proposition, we may also place our reliance on following observations by a co-ordinate bench in the case of Dy. CIT v. ITC Ltd [2002] 82 ITD 239 (Kol.) wherein the co-ordinate bench has inter alia observed as follows: 20. Under section 195(1) of the Act, any person making payment in the form of income to a n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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