Foreign partnership's legal service fees earned in India under India-UK DTAA: taxable if lawyers' India stay exceeds 90 days

The dominant issue was whether professional fees earned by a foreign partnership from legal services rendered in India were taxable in India under s.90 read with the India-UK DTAA. The Tribunal held that even if the receipts were "fees for technical services," Article 13(5)(e) routed taxation to Article 15 (independent personal services), and the term "member" in Article 15 is of widest import, covering employee-lawyers representing the firm; since such presence in India exceeded 90 days, the income was taxable in India, rendering other treaty arguments largely academic. On deductibility, salary costs of staff were held allowable, subject to AO verification, and the appeal was partly allowed.

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Issues Involved:

1. Taxability under Article 15 of the Indo-UK Tax Treaty.
2. Period of presence in India for tax purposes.
3. Inclusion of employees' presence in the computation of days.
4. Attribution of income to services rendered in India.
5. Reimbursement of expenses.
6. Allowability of salary expenses.

Summary:

1. Taxability under Article 15 of the Indo-UK Tax Treaty:
The assessee, a UK-based partnership firm, claimed that its income was not exigible to tax in India as per Article 15 of the Double Taxation Avoidance Agreement (DTA) between India and the UK. The firm argued that it did not have a "fixed base" in India and the partners' presence was less than 90 days in the relevant fiscal year. The Tribunal held that the term "member" in Article 15 includes both partners and employees. Thus, the presence of the firm's employees in India should be considered, making the firm's income taxable in India.

2. Period of presence in India for tax purposes:
The Tribunal agreed that multiple counting of common days should be avoided to prevent absurd results. However, the assessee failed to prove that certain visits were for non-professional purposes. Consequently, all days of presence were considered for tax purposes.

3. Inclusion of employees' presence in the computation of days:
The Tribunal held that the term "member" in Article 15 includes employees. Therefore, the presence of the firm's employees in India should be counted, leading to the conclusion that the firm was present in India for more than 90 days, making its income taxable.

4. Attribution of income to services rendered in India:
The Tribunal found that the assessee did not provide sufficient evidence to show that services were rendered outside India. The services were related to projects located in India, and the income was deemed attributable to services performed in India. Thus, the entire income from the projects was taxable in India.

5. Reimbursement of expenses:
The Tribunal agreed that reimbursement of expenses should not be treated as income. The Assessing Officer was directed to verify and allow the reimbursement claims if they were purely of the character of reimbursement.

6. Allowability of salary expenses:
The Tribunal directed the Assessing Officer to verify and allow the salary expenses incurred by the assessee outside India, related to the professional services rendered for the projects in India.

Conclusion:
The appeal of the assessee was partly allowed, with specific directions for verification and allowance of reimbursement and salary expenses.

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