By GEETA JANI | DHISHAT B. MEHTA
Chartered Accountants
8
TS-210-ITAT-2019(Mum)
Linklaters vs. DDIT
ITA No. 3250/Mum/2006
A.Y.: 2002-03
Dated: 16th April, 2014
Article 5(2)(k)(i) of
India–UK DTAA – multiple counting of employee in a single day is impermissible
for computing service PE threshold; period of stay during which employee is on
vacation in India is also to be excluded for determination of service PE
FACTS
The
assessee, a UK resident partnership firm, was engaged in the business of
practising law. During the year under consideration, the assessee was appointed
to provide legal consultancy services to Indian clients, in respect of which it
received consultancy fees. The assessee contended that the fee received was in
the nature of business income and, in the absence of PE, such income was not
taxable in India.
The AO,
however, was of the view that the employees / other personnel of the assessee
rendered services in India for a period of more than 90 days and, hence, the
assessee had a service PE in India under Article 5(2)(k)(i) of the India–UK
DTAA. He, therefore, held that the income earned from rendering legal
consultancy services was taxable in India.
However, the assessee argued that one of its
employees present in India was on a vacation here and during such stay the
employee did not render any services in India. Consequently, such period has to
be excluded for the purpose of computing the threshold of 90 days for
determination of service PE. Further, the assessee argued that the period of
stay of employees in India has to be taken cumulatively and not individually.
On the above basis, the total presence of employees in India was only for 87
days. Hence, service PE in India was not triggered.
On appeal,
the CIT (A) held that the assessee had a service PE in India. Aggrieved, the
assessee appealed before the tribunal.
HELD
- As per
Article 5(2)(k)(i) of the India-UK DTAA, the assessee shall constitute a
service PE in India only if the presence of its employees for rendering
services in India exceeds 90 days in any 12-month period.
- Various
documentary evidences furnished by the assessee, such as leave register of the
employer, the log of work maintained by the employee and invoice raised on the
client, etc., indicated that one of the employees of the assessee was on a
vacation to India and had not rendered any services in India during such leave
period. Further, during such period, no other employee of the assessee was
rendering services in India. Hence, such leave period had to be excluded for
computing the period of 90 days.
- Further, for
computation of the 90-day threshold, stay of employees in India on a particular
day has to be taken cumulatively and not independently. Thus, multiple counting
of an employee in a single day is impermissible under Article 5(2)(k)(i) of the
India–UK DTAA. Reliance in this regard was placed on the ruling of Mumbai ITAT
in the case of Clifford Chance (82 ITD 106).
- Since the
aggregate period of stay of the assessee’s employees in India accounted to only
87 days, there was no service PE of the assessee in India.
