TaxTMI 
TaxTMI 
2022 (10) TMI 903
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....assessee on certain additions made by the learned assessing officer ('AO') in the assessment order passed under section 143(3) of the Act by passing his order under section 250(6) of the Income-tax Act, 1961 ('the Act'). That on the facts and circumstances of the case and in law: 1. The order passed by the learned CIT (A) confirming the additions to the Appellant's taxable income made by the learned AO is erroneous and bad in law and liable to be quashed. 2. The learned CIT (A) erred in upholding the taxation of entire revenue received by the Appellant from provision of legal services on Indian engagements (amounting to GBP 2,777,511) as 'Fees for Technical Services' under the provisions of section 9(1)(vii) of the Act for the subject assessment year. 3. The learned CIT (A) erred in affirming the learned AO's position that the Appellant is not eligible to be governed by the beneficial provisions of the Double Taxation Avoidance Agreement between India and the UK ("India-UK tax treaty". 4. The Learned CLT (A) erred in not quashing the penalty proceedings initiated by the learned AO under section 271 (1)(c) of the Act. All the above grounds....
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....e 1993 India-UK DTAA. That the protocol was concluded on 30.10.2012, and the effective date was 27.12.2013. That prior to this Amendment coming into force the position was that where a partnership is registered as fiscally transparent in its country of location, the entity as such, is not liable to tax in that country and so it cannot be a resident of purposes of the Tax Treaty. That consequently, the availability of Treaty benefits was to be denied unless a specific declaration covering such partnership was included. That the same was accomplished by means of the protocol concluded on 30.12.2012. Thereafter, ld. CIT (A) referred to pre-protocol Article 4 of India-UK DTAA and according to him, the effect of the protocol is that it modifies Article 4 of the India-UK DTAA which specifically deals with partnerships. That under the modified Article, the tax treaty benefits begin to apply to income derived by a partnership firm to the extent such income is taxed in the UK in the hands of its partners. That it is therefore clear that this benefit is available to a UK entity (in this case the fiscally transparent LLP, as is the assessee) only after the amendments consequent to protocol co....
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....chnical Services ('FTS') (as defined in Article 13 of the India-UK DTAA) since the subject services do not make available inter-alia any technical knowledge, experience, skills, know-how or process. Therefore, the income received by HSF from the provision of legal services, being in the nature of business income for HSF, is not taxable in India in the absence of a Permanent Establishment ('PE') of HSF in India as per the provisions of Article 5 read with Article 7 of the UK-India Convention. 9.4 The balance portion of the income from Indian engagements (i.e., income to the extent of profit share relating to partners who are tax residents of countries other than the UK, i.e., non-UK tax resident partners) has been offered to tax under the provisions of section 9(l)(vii) of the Income Tax Act, 1961 ('the Act') as FTS in India. 10. Thereafter, ld. Counsel of the assessee submitted that aforesaid issue is squarely covered by the ruling of ITAT in the case of Linklaters LLP (2010) 40 SOT 51 (Mum.). He further submitted that the assessee was a UK Partnership (similar to the Appellant), a fiscally transparent entity in the UK. The Hon'ble Mumbai ITAT has held....
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....ncome of the partnership firm has been taxed in the foreign state in the hands of its partners: (i) DDIT vs A. P Moller 67 SOT 147 (Page 197 of the Paperbook) (ii) P & O Nedlloyd Ltd & Ors vs ADIT-IT 369 ITR 282 (Page 190 of the Paperbook) (iii) Maersk Line U.K. Ltd vs DDIT 68 taxmann.com 173 (Page 237 of the Paperbook) (iv) T D Securities (20 I 0 TCC 186; Decision dated April 8, 2010), the Tax Court of Canada (Page 263 of the Paperbook) 12.1 Further, the Hon'ble Mumbai Tribunal, in the case of Linklaters LLP, on the same issue of tax treaty eligibility, was dealing with AYs 2011-12, 2012-13 and 2013-14. The Hon'ble Tribunal pronounced the rulings in the year 2017 (79 taxmann.com 12), 2018 (97 taxmann.com 464) and 20 I 9 (111 taxmann.com 198), respectively, clearly after the protocol amendment came into effect. Hence, the Department Representative's submissions that the Protocol, which provides for an extension of India-UK DTAA applicability to a UK-based partnership, is effective only from AY 2015-16 and onwards and shall not apply to the year under consideration is entirely incorrect, erroneous and contrary to the judicial precedents. 13. Per contra, ld. DR ....
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....otocol there was no intention in the India -UK DTAA to allow benefit to such fiscally Transparent entities. It is clear that before the Protocol having come into force, an Indian entity placed similarly would have also not been allowed Treaty benefit by UK Tax Authorities. In the circumstances, the interpretations laid down by various courts in the decisions cited by the Ld AR during the course of arguments, was not correct and therefore, the decisions rendered by various courts and relied upon by the appellant in so far as they relate to the period prior to the amendment of DTAA between India and UK are decisions in Personam and not decisions in rem and therefore have no binding force and cannot be applied to the facts of the case of the assessee which evidently relate to the period prior to the amendment of DTAA between India and UK." 13.2 Thereafter, ld. CIT DR referred to the interpretation of clauses of DTAA on the basis of observation of Hon'ble Supreme Court in the case of Union of India & Anr. Vs. Azadi Bachao Andolan and Anr. (2003) 263 ITR 706 (SC). 13.3 She further referred to the decision of K.P. Varghese vs. ITO about the imposition of CBDT's circulars and also ref....
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....SA Treaty) In the status, CBDT clarified that Circular No.02/2016 dated 25th February 2016 has been issued on the lines as recommended by the HLC. The Circular issued by the CBDT reads as under: CBDT Circular No 2 of 2016 "Benefits of the India United Kingdom (UK) Double Taxation Avoidance Agreement to UK Partnership firms An Amending Protocol to the India UK Double Taxation A voidance Agreement (DTAA) was notified vide Notification No 10/2014 dated 10TH February 2014 with effect from 2th December 2013. As a result of the aforesaid protocol, interalia, the earlier definition of the term person in article 3(1)(f) of the DTAA was amended to delete the exclusion of UK partnership firms and in addition, it has been provided in Article 4 of the DTAA that in case of a partnership, estate or trust the term "resident of contracting state" applies only to the extent that the income derived by such partnership, estate or trust is subject to tax in that state as the income of a resident, either in its hands or in the hands of its partners or beneficiaries. 2 Apprehensions that the term "person" in the DT AA does not specifically include "partnerships" have been brought to the notice ....
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...., is effective only from AY 2015-16 and onwards and shall not apply to the year under consideration, is entirely incorrect and not in accordance with the judicial precedents. We find ourselves in agreement with the submission of the ld. Counsel of the assessee. We note that ld. CIT DR has distinguished the decisions cited by suggesting that the decision was rendered prior to the protocol amendment and ld. CIT DR is also suggesting that these decisions are not applicable. However, we find that no contrary decision has been produced by the Revenue. Hence, the canons of judicial discipline comes into play and the decision of ITAT on this issue cannot be ignored by mere claim of the Departmental Authorities and Representatives that these decisions are not applicable inasmuch as they have been rendered without considering the implication of the protocol amendment. 15. We may recap that the assessee is a firm of solicitors having office in the United Kingdom and providing legal services to its clients worldwide i.e. non-residents and residents of India. The assessee is a UK based Limited Liability Partnership with a majority of its partners being tax residents of the UK. During the prev....