Treaty interpretation under the India-U.K. treaty: PE test tied to the previous year, treaty benefit upheld, Article 15 inapplicable.

Article 5(2)(k)(i) of the India-U.K. Tax Treaty was interpreted to mean that the 90-day test is applied with reference to the relevant previous year for the assessment year, read harmoniously with the Income-tax Act; PE existence therefore depends on factual verification of days spent in India during that period. Treaty protection under Section 90(2) was stated to prevail where treaty conditions are satisfied, and benefit was accepted where the partnership's profits were taxed in the U.K. Article 15 was held inapplicable because it governs independent personal services of an individual, not a partnership entity.

---

---

Issues: (i) whether the assessee had a Permanent Establishment in India under Article 5(2)(k)(i) of the India-U.K. Tax Treaty; (ii) whether the assessee was entitled to the benefit of the India-U.K. Tax Treaty; and (iii) whether the receipts could be taxed under Article 15 of the India-U.K. Tax Treaty.

Issue (i): whether the assessee had a Permanent Establishment in India under Article 5(2)(k)(i) of the India-U.K. Tax Treaty.

Analysis: The expression "any twelve months period" in Article 5(2)(k)(i) was read harmoniously with the Income-tax Act, 1961, particularly the concept of previous year under Sections 3, 4, 5 and 6. The Tribunal followed its earlier view that the relevant period for testing the 90-day threshold is the previous year relevant to the assessment year. The issue was therefore one of factual verification as to the number of days spent in India by the assessee's employees or personnel during that previous year.

Conclusion: The assessee would have no Permanent Establishment in India if the factual verification shows that the threshold of 90 days was not crossed during the relevant previous year.

Issue (ii): whether the assessee was entitled to the benefit of the India-U.K. Tax Treaty.

Analysis: The Tribunal followed the coordinate bench ruling in the assessee's own case and accepted that treaty benefit is available where the partnership's profits are taxed in the U.K. The denial of treaty protection merely because the income was said not to be taxable in the U.K. was rejected. By applying Section 90(2) of the Income-tax Act, 1961, the Tribunal held that once treaty benefit is available, domestic taxability cannot override the treaty position.

Conclusion: The assessee was held entitled to the benefit of the India-U.K. Tax Treaty.

Issue (iii): whether the receipts could be taxed under Article 15 of the India-U.K. Tax Treaty.

Analysis: Article 15 was held to govern independent personal services rendered by an individual. As the assessee was a partnership entity and not an individual, the article was found inapplicable. The Tribunal followed its earlier decision in the assessee's own case and held that the receipts could not be brought to tax under that article.

Conclusion: Article 15 was held not applicable to the assessee.

Final Conclusion: The assessment was interfered with on the core treaty issues, the assessee succeeding on treaty entitlement and on the inapplicability of Article 15, while the Permanent Establishment issue was left to factual verification under the Tribunal's interpretation of the treaty period.

Ratio Decidendi: For Article 5(2)(k)(i) of the India-U.K. Tax Treaty, "any twelve months period" means the relevant previous year, treaty protection under Section 90(2) prevails where the conditions are satisfied, and Article 15 applies only to an individual.

---