Article 5, 13 of India-UK DTAA; section 9 of the Act – if the entire profits of a UK partnership are taxed in UK, the partnership would qualify for benefits under India-UK DTAA; as the expression “any twelve-month period” in Article 5(2)(k)(i) is not defined in India-UK DTAA, it should be read as ‘previous year’ as defined in section 3 of the Act

5.  [2018] 97 taxmann.com
464 (Mumbai – Trib.)

Linklaters LLP vs. DCIT

ITA No.: 1540 (Mum) of 2016

Date of Order: 29^th August, 2018

A.Y.: 2012-13

Article 5, 13 of India-UK DTAA; section 9 of the Act – if the
entire profits of a UK partnership are taxed in UK, the partnership would
qualify for benefits under India-UK DTAA; as the expression “any twelve-month
period” in Article 5(2)(k)(i) is not defined in India-UK DTAA, it should be
read as ‘previous year’ as defined in section 3 of the Act

Facts

The Taxpayer was a UK LLP. The
Taxpayer provided legal consultancy globally to its clients, including clients
from India.

The Taxpayer contended that such
income was not taxable in India in absence of a Permanent establishment (PE) in
India.

The AO sought
further information from the Taxpayer and found that the Taxpayer had provided
legal services to several clients and the work relating to such services was
performed partly in India and partly outside India. Thus, AO held that Taxpayer
had a PE in India because its employees and other executives had stayed in
India for more than ninety days. The AO also held that the Taxpayer was not
liable to tax in UK and hence, it was not entitled to the benefits under
India-UK DTAA. Thus, the AO held that the income received by LLP was taxable as
FTS in terms of section 9(1)(vii) of the Act. Without prejudice, the AO also
held that such income also qualified as FTS under the DTAA.

The DRP rejected the objections of
the Taxpayer and directed the AO to finalise the assessment.

Held

•   Following its ruling in
  the Taxpayer’s own case for the earlier years, the Tribunal held as follows.

•    If
the entire profits of the partnership are taxed in UK, irrespective of whether
in the hands of the firm or in the hands of the partners, the LLP would be
entitled to benefits under India-UK DTAA.

•    Income
of the Taxpayer from legal advisory services was not FTS as contemplated under
Article 13 of India-UK DTAA. Further, having regard to section 90(2), such
income cannot be brought to tax as FTS in terms of section 9(1)(vii) of the
Act.

•    Interpretation of the
  expression “any twelve-month period” in Article 5(2)(k)(i)

•    Article
5(2)(k)(i) of India-UK DTAA uses the expression “any twelve-month period”¹.  This expression has not been defined in
India-UK DTAA.

•    Under
the Act, a twelve-month period would mean ‘previous year’ or financial year in
terms of section 3 of the Act. Harmonious reading of Article 5(2)(k)(i) with
the Act would lead to the conclusion that “any twelve-month period”
would mean previous year or financial year in terms of section 3 of the Act.

•    As
contended by the Taxpayer, during the relevant previous year or financial year,
the personnel of the Taxpayer had rendered services in India for a period
aggregating to seventy-seven days.

•    This
factual aspect was not verified by AO as Taxpayer had not raised this issue
before the lower authorities. Hence, the Tribunal restored the issue to the AO
directing him to verify the facts.  

__________________________________________

1   In
terms of Article 5(2)(k)(i), a PE is constituted if: the enterprise furnishes
services (including managerial services) other than services taxable as
Royalties and FTS through its personnel; and if such activities continue for a
period or periods aggregating to more than 90 days within “any twelve-month
period’.