TaxTMI 
TaxTMI 
2016 (4) TMI 526
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....essment order dated 10th November, 2008 relating to the noticee's assessment year 2006-07. In paragraph 5 of the said order the department was of the view that as per the provisions of the Double Taxation Avoidance Agreement (DTAA), income from operation of ships in international traffic is not liable to tax in India in the hands of either of the two corporate partners. However the department went on to say further that which the petitioners contend, cannot be sustained. "...PONP being a partnership firm based in U.K., it is fiscally transparent entity in U.K. and hence outside the ambit of the treaty between India and U.K. Its income is therefore, exigible to tax as per the provisions domestic law. On the other hand the income of a partner in firm is exempt u/s.10(2A) of the Income-tax Act 1961." Mr. Kaka submitted, distinction between a partnership and its partners regarding the same income cannot be drawn for the purpose of taxing the partnership in India. He submitted, the DTAA had everything to do with income and avoidance of double taxation on it. The income sought to be made the subject matter of the assessment proposed by the impugned notices, was already accepted as ....
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....xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx ......To the extent that an exemption is agreed to, its effect is in principle independent of both whether the other contracting State imposes a tax in the situation to which the exemption applies, and of whether that State actually levies the tax. Commenting particularly on the German Double Taxation Convention with the United States, Vogel comments: "Thus it is said that the treaty prevents not only 'current', but also merely 'potential' double taxation". Further, according to Vogel, "only in exceptional cases, and only when expressly agreed to by the parties, is exemption in one Contracting State dependent upon whether the income or capital is taxable in the other Contracting State, or upon whether it is actually taxed there." (see in this connection Klaus Vogel, Double Taxation Convention, pages 26-29, third edition). It is, therefore, not possible for us to accept the contentions so strenuously urged on behalf of the respondents that avoidance of double taxation can arise only when tax is actually paid in one of the Contracting States." He thus submitted th....
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....id that the noticee had fiscal domicile there. The partners having fiscal domicile elsewhere could not be taken to mean that the partnership though based in the UK also had fiscal domicile there. He submitted, furthermore the noticee was not a person under the convention to be able to resist the issuance of the impugned notices to it. Mr. Kaka, in reply reiterated that the argument of the Revenue stood negated by the decision in P & O Nedlloyd Ltd. & Ors. (supra). He submitted, another better interpretation of Article 3 of the said convention than the one given in P & O Nedlloyd Ltd. & Ors. (supra) was possible. According to him, the better interpretation of paragraph 2 of the said Article was that thereby, Indian partnerships were brought within the meaning of the term "person" defined by the treaty, to be covered by it, who, in the event did business in the UK, would be able to resist demands of income tax by that State under the treaty as having fiscal domicile in India. He added, the interpretation of Article 3, paragraph 1(f), according to him, was that partnerships per se were not persons thereunder and, therefore the said partnership not being an Indian partnership could ....
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....UK tax law, a partnership established in the UK is required to file a partnership return which includes a partnership statement disclosing the income received by the partnership from the partners' joint business operations. The trading profit of the enterprise is then calculated in the hands of the partnership. However, once calculated, the trading profits are allocated to the partners according to their agreed shares and the partners are then subject to corporation tax on their share as if it derived from a trade carried on alone by that partner. It is the partners that are subject to UK tax on the partnership profits." Common contentions of the parties appear to be that:- i) the noticee is a partnership firm based in the UK; and ii) the noticee is not a person under the treaty. The relevant clauses of the treaty in this regard are reproduced below: "ARTICLE 3-General Definitions 1....... (a)...... (b)...... (c)...... (d)....... (e) the term "a Contracting State" and "the other Contracting State" mean India or the United Kingdom as the context requires: (f) the term "person" includes an individual, a company and any other entity which is treated....