TaxTMI 
TaxTMI 
2026 (6) TMI 1186
X X X X Extracts X X X X
X X X X Extracts X X X X
....No. 2281/Del/2019 for A.Y. 2015-16 is taken up as a lead case, hence, facts are narrated from said appeal. ITA No.2281/Del/2019 AY 2015-16 2. This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-43, New Delhi (hereinafter referred to as 'the CIT(A)') dated 17.12.2018, for AY 2015-16. 3. The assessee assailing impugned order has raised following grounds of appeal:- "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 confirming the learned AO's position that the Appellant is not eligible to avail benefit of the Double Tax Avoidance Agreement between India and the following countries (being the country of tax residence of the partners of the Appellant): * Australia; * France; * Belgium; * China; * Japan; and * Germany. 3. The learned CIT(A) has also erred in affirming learned AO's allegation that the income received by the Appellant from Indian engagements (amounting to INR 4,50,40,292) as relatab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hare of partners based in Germany i.e. 3.627%. 6. The Assessing Officer (AO) accepted that in so far as share of profit of the partners resident of the UK are concerned, i.e., profit share to the extent of 82.121%, the same is not taxable in India. With regard to share of profit of non-UK resident partners, i.e., to the extent of 14.253%, the AO held that the profits attributable to such partners are taxable in India as Fees for Technical Services (FTS) under the provisions of section 9(1)(vii) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') as the benefit of DTAA is not available to the assessee firm in respect of such non-UK resident partners. As regards the partners from Germany having share of 3.627% in the revenue of the firm, the same was offered to tax by the assessee in terms of the India- Germany DTAA. The same was accepted by the AO. The AO made addition of Rs. 3,59,02,752/- in respect of profits attributable to the non-UK resident partners of the assessee firm. Aggrieved by the assessment order dated 26.12.2017 passed u/s. 143(3) of the Act, the assessee filed appeal before the CIT(A). The First Appellate Authority after considering submissions of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in the hands of the UK resident partners. To interpret the words 'to the extent' as barring relief available to the residents under the DTAAs with non-UK countries would be contrary to the international tax treaty law and the interpretation rule requires DTAAs to be interpreted holistically as laid down in the ruling of the Hon'ble Supreme Court of India in the case of Azadi Bachao Andolan (263 ITR 706). The relevant extracts of the ruling are as follows: "120. xxxx 121. xxxx 7. Provisions of a treaty should be interpreted having regard to object of the treaty as a whole. Any interpretation which is made without considering the object of the treaty, will defeat the purpose of the treaty. Reference can be made to Article 31 of the Vienna Convention of the Law of Treaties which provides that "treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose ". A treaty between 2 contracting states can never bar relief or grant relief to residents of other states is a basic principle of International treaty law 8. Mumbai Tribunal in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... one or both of the contracting states (i.e., India and the respective non-UK countries). These provisions are similar to those outlined in Article 1 of the India-UK DTAA i.e., "This Convention shall apply to persons who are residents of one or both of the Contracting States.'. 13. India's DTAA with each of the above countries cover a 'company', or a 'body of persons' within the meaning of the term' person', and therefore, the Appellant, qua the partners, shall be covered as a 'person' as provided under the respective DTAAs. Relevant extracts of the respective DTAAs between India and the following jurisdictions have been tabulated as below: UK Australia China Belgium Japan Germany France "the term "person" includes an individual, a company, a body of persons and any other entity which is treated as a taxable unit under the taxation laws in force in the respective Contracting States" "the term "person" includes an individual, a company, any other Body of persons and any other entity which is treated as a taxable unit for tax purposes" "the term "person" includes an individual, a company and any other entity which is treated as a taxable uni....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the hands of the partnership or partner), and concluded that if income, whether received directly or indirectly, is subject to taxation in a particular jurisdiction, it will meet the criteria of taxability. The relevant extracts of the decision are reproduced below: "56. xxxx 71. xxxx 75. xxxx" 16. The decision has been upheld in subsequent judgements, including Linklaters LLP (150 taxmann.com 222). The decision of Linklaters LLP (40 SOT 51) has also been followed in the Appellant's own case for AY 2012-13, 2013-14 and 2014-15. 17. Where the partnership is treated as fiscally transparent, such partnership (quo the partners resident in that country) is entitled to the provisions of the DTAA. In this regard, in the case of P & O Nedlloyd Ltd & Ors. (TS-682-HC-2014-CAL), involving a UK partnership firm having two partners being entities tax resident of UK and Netherlands respectively, the Hon'ble Calcutta High Court considered section 2(31) of the Act, which defines a 'person' to include a 'firm'. As the UK partnership was a firm, it would qualify as a 'person' under Article 3 of the treaty. Accordingly, a UK firm is eligible for DTAA bene....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to be carefully considered: -The Appellant does not have a fixed base in India or presence of its personnel is under/ within the threshold limit as specified in the Article on Independent Personal Services ("IPS") in the DTAAs of India with respective non-UK countries; and -Services provided by the Appellant do not make available inter-alia any technical knowledge, experience, skills, know-how or processes or consist of the development and transfer of a technical plan or technical design and accordingly, not taxable as fees for technical services ('FTS"); and -The Appellant does not have any form of Permanent Establishment ('PE') in India, and thereby, the business income of the Appellant is not taxable in India as per DTAAs of India with respective non-UK countries. For instance, the Article 14 of the India-Australia DTAA, which governs taxability of income from IPS, has been reproduced below: 1) Income derived by an individual or a firm of individuals (other than a company) who is a resident of one of the Contracting States in respect of professional services or other independent activities of a similar character shall be taxable only ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot satisfy any of the cumulative conditions required for the purpose of taxability of income under the IPS clause i.e., it does not have a fixed base regularly available in India for the purpose of its professional services and the stay of its personnel in India during both the AYs (AY 2015-16 & AY 2018-19) is under/ within the specified threshold limit of the IPS clause of respective DTAAs of India with non-UK countries being Australia, China, Japan, France. Accordingly, the income of the Appellant is not taxable in India as per the IPS Article of respective DTAAs. Without prejudice and in addition to the above, the services provided by the Appellant also do not satisfy the condition/ test of 'make available' as required for the purpose of the service fee to qualify as FTS (as may be applicable). In view of the above, the income earned by the Appellant being in the nature of business income, shall not be liable to tax in India under the provisions of Article 5 read with Article 7 of the respective DTAAs of India with non-UK countries, in the absence of a PE of the Appellant in India. Under Indian domestic law, both the partnership and its partners are jointly and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....laters (supra), as long as the said income is liable to tax in the treaty partner jurisdiction, whether in the hands of the assessee or in the hands of its constituents when it's a tax transparent entity in the treaty partner jurisdiction, the said income cannot be declined treaty protection in India. 26. Accordingly, in the case of the Appellant, the same income should not be taxed twice in the hands of the partnership/firm or the hands of the partner. Therefore, the Appellant should be granted relief from double taxation of income." 7.1. Without prejudice to the aforesaid submissions, the ld. Counsel for the assessee submits that the payments received by non-resident attorneys/law firms for rendering professional services in India are not taxable as FTS u/s 9(1)(vii) of the Act. In support of his submissions, the ld. Counsel placed reliance on the decisions in the cases of Chander Mohan Lall vs. ACIT reported in 134 taxmann.com 292 (Delhi-Trib.) and ACIT vs. Subramanium Hariharan in ITA No. 600/Del/2020 for A.Y. 2013-14 decided on 20.08.2025. The ld. Counsel submits that professional services, i.e., legal services, constitute a separate category of services distin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y DTAA is concerned, the "make available" clause is absent, therefore, the share of profit of partners from Germany was offered to tax. Whereas, the DTAAs between India with countries such as Australia, China, Japan and Belgium contain "make available" clause. 10. The ld. Counsel further submits that in the factual matrix of the case it is important to refer to Article 15 of India-UK DTAA which provides for Independent Personal Services. As per Article 15 income derived by individual whether in his own capacity or as member of partnership who is resident of Contracting State in respect of professional services would not be taxable in India unless mandatory conditions as stated in Article 15(1) are satisfied i.e. presence in India for a period aggregating to 90 days in the relevant fiscal year or having a fixed base regularly for the partnership or the individual partner in India for the purpose of performing his activities. In the instant case, both the conditions are not satisfied, neither any partner or any employee of the partnership firm was present in India for a period of 90 days nor there is any fixed base regularly available to the partner or the partnership firm for the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ms or Limited Liability Partnerships (LLPs) in the UK. Partnership firms or LLPs in the UK are "tax transparent", which means that each member of the partnership firm is assessed to tax on his share of the partnership income or gains. Though there is an obligation on partners firm to file tax return but there is no tax liability on the partnership firm. Any non-UK source profits or gains made by a partnership firm are subject to tax in the UK in hands of the partners resident in the UK. There is no restriction on non-residents of the UK or nationals of other countries becoming partners in a partnership firm based in the UK. The share of profit of non-UK partners in the partnership firm is not subject to taxation in the UK. UK based partnership firm being tax transparent, non-UK resident partners cannot avail benefit of the India-UK DTAA. 13. The India-UK DTAA, as amended by Notification No. 10/2014 (supra), defines the term "person", which, inter alia, includes a "body of persons". Thus, a partnership firm is included within the meaning of the term "person". Further, Article 4 of the DTAA defines 'resident of a contracting state. The relevant extract thereof is reproduced herein....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by treating such receipts as FTS under the provisions of section 9(1)(vii) of the Act. The Tribunal in the case of ACIT vs. Subramanium Hariharan (supra), where the AO held that payments made to foreign legal professionals for services rendered to Indian clients is in the nature of FTS, and on account of non-deduction of tax at source the AO made disallowance u/s 40(a)(ia) of the Act, the Tribunal held that payments to non-resident foreign law firms for professional services do not fall within the meaning of FTS under section 9(1)(vii) of the Act. For the sake of completeness, the relevant findings of the Tribunal are extracted herein under: "11. Elaborating it further, our attention was invited to section 194J of the Act which provides for tax deduction at source in respect of "Fees for professional or technical services". It is submitted that the distinction between "Fee for professional services" and "FTS" is statutorily recognised, in as much as, under the aforesaid section, Legislature in its wisdom has created two separate classes of income, viz., "Fees for professional services" and "Fees for technical services". The said expressions have also been separately define....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome regulatory bodies to oversee the conduct of practitioner of the those skills and the same, very much distinguishes it, with generic term 'technical services', read ejusdem generis with managerial or consultancy services (including the provision of services of technical or other personnel), falling in category of FTS. Thus these afore-reproduced provisions of the Act, make it crystal clear that "professional services", which includes legal services, is a separate category of services, recognized as distinct from FTS, which is primarily "managerial, technical or consultancy" services as referred to in section 9(1)(vii) of the Act, by the Legislature itself. If "FTS" as defined in Explanation 2 to section 9(1)(vii) were to include "professional services" as referred to in section 44AA, it would not have been necessary to refer to the latter specifically in Explanation (a) to section 194J of the Act, and Explanation (b) to that section would have been sufficient. xxxx 15.2 However, it is pertinent to note that section 40(a)(i) only provides for tax deduction in respect of payments made to non-resident of "fees for technical services or other sum chargeable under t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n which requires special, advanced education, knowledge or skill etc. A person professing any kind of profession requires extensive training and study and mastery of specialized knowledge. A professional person has to conduct himself within specified code of conduct or ethical conduct which is required from his field of profession like legal, medical, accountancy etc. In the case of rendering of technical services, the emphasis is more on giving services which are technical in nature and alludes to some kind of giving advice or consultancy in the field of technology or imparting of technical skills, knowledge, experience, know- how etc. Here 'consultancy' also means some kind of technical consultancy because it is preceded by the word 'technical'. The term 'managerial' is indicative of management of business or something like which is distinct from profession or rendering of professional services. Here in this case, professional services were rendered by DTT Canada in respect of providing information of the Global environment in dairy sector in respect of the markets, competition, regulations and other best practices followed by global players. Thus, the imp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sidence of such professional service provider. It is supported by the contention of ld. Sr. Counsel that it is for that reason, under the Income-tax Act, 1961, while, payment made for professional services to residents is subjected to deduction of tax at source under section 194J of the Act, in case of non-residents, such payments are not regarded as income accruing or arising in India under section 9(1)(vii) of the Act and therefore, not subjected to tax withholding under section 195 of the Act." 16. The Tribunal after examining the provision of the Act with specific reference to section 194J of the Act, came to the conclusion that professional services and technical consultancy services are distinct. Similar view has been taken in the case of Chander Mohan Lall vs. ACIT (supra). In the said case the Tribunal held that payments for providing legal/professional services to non-residence are distinct from FTS as defined u/s. 9(1)(vii) of the Act and the payments made to non-resident attorneys are not in the nature of FTS, hence, there was no obligation on the assessee to deduct tax at source on payment of legal professional service charges. 17. Here it would be relevant to ref....