Treaty entitlement for partnership receipts and professional services held outside fees for technical services

Receipts attributable to non-UK resident partners of a UK partnership had to be tested under the relevant DTAA of each partner's country of residence, because the firm was treated as tax transparent in the UK and partner-level treaty entitlement depended on residence. Legal services rendered by the firm were held to be professional services, not fees for technical services under section 9(1)(vii), so the addition on that basis was deleted. The treaty position of the UK, German and other non-UK partners was to be examined separately under the India-UK, India-Germany and other applicable DTAAs, and the matter was remitted for that limited purpose.

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Issues: Whether the receipts attributable to non-UK resident partners of a UK partnership firm were taxable in India, and whether such legal/professional services could be treated as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961.

Analysis: The partnership firm was treated as tax transparent in the UK, and the income of the firm had to be examined in the hands of the partners according to their country of residence. The income attributable to UK resident partners was accepted as not taxable in India under the India-UK DTAA, and the income attributable to the German partners was also accepted on the basis of the India-Germany DTAA. The remaining dispute concerned partners resident in Australia, France, Belgium, China and Japan. The Tribunal held that legal services rendered by the firm were professional services and not fees for technical services within the meaning of section 9(1)(vii). It also held that the treaty position of each non-UK resident partner had to be examined with reference to the relevant DTAA of the country of residence, and that the India-UK DTAA did not bar examination of treaty entitlement under those other agreements.

Conclusion: The addition made on the footing of section 9(1)(vii) was unsustainable and was deleted, but the matter was remitted to the Assessing Officer to examine the taxability of the non-UK resident partners under their respective DTAAs.

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