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Issues: (i) whether the assessee had a permanent establishment in India under Article 5(2)(k) of the India-UK DTAA; (ii) whether only income attributable to services rendered in India and the related reimbursement/disbursement component were taxable in India; (iii) whether interest under section 234B of the Income-tax Act, 1961 was leviable; and (iv) whether Article 15 of the India-UK DTAA applied to the assessee.
Issue (i): whether the assessee had a permanent establishment in India under Article 5(2)(k) of the India-UK DTAA.
Analysis: Article 5(2)(k) was treated as a deeming provision covering the furnishing of services through employees or other personnel for the stipulated duration. The reasoning proceeded on the basis that the India-UK DTAA does not require Article 5(2)(k) to be read down by importing the fixed-place test in Article 5(1) so as to negate the special service-PE clause. The distinction sought to be drawn between furnishing and rendering of services was rejected as overly technical. On the facts, the duration condition stood satisfied and the assessee was held to have a PE in India.
Conclusion: the issue was decided against the assessee.
Issue (ii): whether only income attributable to services rendered in India and the related reimbursement/disbursement component were taxable in India.
Analysis: The Tribunal followed its earlier decisions and the binding Special Bench view that, once PE attribution is attracted, only the profits attributable to services rendered in India are assessable in India. The same approach was applied to reimbursements, which were held not to constitute income where they represented actual expenses without markup. The disbursement addition sustained by the lower authority was therefore not approved.
Conclusion: the issue was decided in favour of the assessee.
Issue (iii): whether interest under section 234B of the Income-tax Act, 1961 was leviable.
Analysis: The Tribunal followed the jurisdictional precedent that where tax was deductible at source on the payments in question, interest under section 234B could not be charged in the hands of the non-resident recipient. The levy was therefore not sustainable on the facts of the case.
Conclusion: the issue was decided in favour of the assessee.
Issue (iv): whether Article 15 of the India-UK DTAA applied to the assessee.
Analysis: Article 15 was held to govern services rendered by individuals and not the assessee-firm. However, this finding did not alter the taxability outcome because the assessee was already held to have a PE under Article 5(2)(k), with profits taxable under Article 7.
Conclusion: the issue was decided in favour of the assessee on the limited question of Article 15 applicability, but it did not change the overall tax result.
Final Conclusion: the assessee's appeal succeeded on attribution, reimbursements, interest, and Article 15, but failed on the PE issue; the Revenue's appeal was dismissed, resulting in a partly allowed assessee appeal and dismissal of the Revenue appeal.
Ratio Decidendi: Under Article 5(2)(k) of the India-UK DTAA, furnishing of services through personnel for the prescribed period creates a deemed permanent establishment, and the provision is not defeated by a narrow distinction between furnishing and rendering of services.
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