2020 (11) TMI 733 - AT - Income Tax

India-UK Tax Agreement: LLP Legal Fees Not FTS, PE Matter Remanded

Linklaters LLP, C/o. Delloite Haskins 7 Sells LLP Versus Dy. Commissioner of Income Tax (International Taxation) 3 (1) (2), Mumbai

The Tribunal held that the provisions of the India-UK Double Taxation Avoidance Agreement (DTAA) override the Income Tax Act, 1961. The remuneration ... Income accrued in India - Benefit of India-UK Tax Treaty - remunerations received by the assessee for rendering legal services - Whether assessee is having PE in India within the meaning of Article-5 of India – UK DTAA? - o that the income of the assessee is taxable under Article-15 of India – UK DTAA - HELD THAT:- Tribunal in a very categoric manner has held that the provisions of section -9 relating to ‘Fee for Technical Services’ does not apply to the case of assesse, hence, the assessee is entitled to the benefit of DTAA. The Revenue has not been able to place on record any contrary material. No material has been placed before us to show that the nature of transaction in the assessment year under appeal is different from the transactions in assessment year 2013-14. Respectfully following the decision of the Co-ordinate Bench, we hold that the provisions of India-UK DTAA would override the provisions of the Act in the instant case and the remuneration received by the assessee for providing legal services do not fall within the ambit of ‘Fee for Technical Services’ as defined in DTAA. Thus, ground No.13 to 15 and 19 to 25 read with ground nos. 8 to 12 of the grounds of appeal are decided in favour of the assessee. Whether the assessee has PE in India and the receipts are liable to be taxed as ‘Business Profits’? - HELD THAT:- A perusal of the draft assessment order and the assessment order shows that the assessee had furnished the details before the AO. However, the same were not examined by the Assessing Officer. The Co-ordinate Bench in assessment year 2013-14 in principle has accepted the contention of the assessee that if the employees/personnel of the assessee have not rendered services in India for a period exceeding 90 days during the relevant period then it has to be held that the assessee did not have a PE in India during the year under consideration. In principle we are inclined to decide the issue in favour of the assessee. However, for the purpose of factual verification of the employees stay in India during the relevant period, the matter is remanded to the Assessing Officer. The Assessing Officer after asserting the same shall decide the issue, accordingly. Applicability of Article 15 of India-UK DTAA - Provisions of Article 15 of India-UK DTAA would not apply to the assessee. Since, the facts in the assessment year under appeal are similar, we see no reason to take a divergent view. Following the order of Tribunal in assessee’s own case in the preceding assessment years, grounds of the appeal are allowed. Issues Involved:1. Applicability of DTAA vs. Income Tax Act, 1961.2. Nature of remuneration as 'Fee for Technical Services' (FTS).3. Taxability under Article 15 of India-UK DTAA.4. Existence of Permanent Establishment (PE) in India.Detailed Analysis:1. Applicability of DTAA vs. Income Tax Act, 1961:The Tribunal had to decide whether the provisions of the India-UK Double Taxation Avoidance Agreement (DTAA) or the Income Tax Act, 1961 would apply to the case. The assessee, a Limited Liability Partnership (LLP) firm from the UK, argued that it should benefit from the DTAA. The Tribunal noted that in previous years, similar issues had been adjudicated in favor of the assessee, confirming that the DTAA provisions override the Income Tax Act in this context. The Tribunal held that the assessee is entitled to claim benefits under the India-UK DTAA.2. Nature of Remuneration as 'Fee for Technical Services' (FTS):The authorities initially treated the remuneration received by the assessee for legal services as FTS under Article 13 of the India-UK DTAA. The assessee contended that its income does not fall within the ambit of FTS as defined in the DTAA. The Tribunal referred to its earlier decisions, which consistently held that the income from legal services provided by the assessee does not qualify as FTS. Consequently, the Tribunal reaffirmed that the remuneration received by the assessee for providing legal services is not FTS and thus, not taxable under the provisions of the Income Tax Act, 1961, in light of the DTAA.3. Taxability under Article 15 of India-UK DTAA:The Tribunal examined whether the income could be taxed under Article 15 of the DTAA, which pertains to independent personal services. The assessee argued that Article 15 applies only to individuals, not to LLPs. The Tribunal had previously ruled in favor of the assessee on this matter, stating that Article 15 is not applicable to LLPs. The Tribunal reiterated that since the assessee is not an individual, its income cannot be taxed under Article 15 of the DTAA.4. Existence of Permanent Establishment (PE) in India:The determination of whether the assessee had a PE in India was crucial for taxability under Article 7 of the DTAA. The assessee maintained that its personnel were in India for only six days, far less than the 90-day threshold required to establish a PE. The Tribunal noted that this factual aspect had not been thoroughly examined by the Assessing Officer. The Tribunal remanded the matter back to the Assessing Officer for verification of the duration of stay of the assessee's employees in India. If the stay was indeed less than 90 days, the assessee would not have a PE in India, and thus, its income would not be taxable as 'Business Profits' under Article 7 of the DTAA.Conclusion:The Tribunal concluded that the provisions of the India-UK DTAA would override the Income Tax Act, 1961, and the remuneration received by the assessee for legal services does not qualify as FTS. The assessee does not have a PE in India if the stay of its personnel is less than 90 days, and its income cannot be taxed under Article 15 of the DTAA. The appeal was partly allowed, with certain issues remanded for factual verification.