Income Tax Appellate Tribunal - Mumbai
Linklaters, Mumbai vs Ddit (It) 3(1), Mumbai on 8 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "L" BENCH,
MUMBAI
BEFORE SHRI G.S. PANNU, AM AND SHRI RAVISH SOOD, JM
आयकर अपील सं./ I.T.A. No. 2297/Mum/2014
(निर्धारण वर्ा / Assessment Year: 2009-10,)
M/s. Linklaters, C/o Deloitte DDIT (IT) 3(1), SCINDIA
Haskins & Sells, Indiabulls House, 1st Floor, Ballard Estate,
बिधम/
Finance Centre, 32nd Floor, Mumbai.
Vs.
Mumbai - 400013
स्थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AABFL2160M
(अपीलार्थी /Appellant) : (प्रत्यर्थी / Respondent)
अपीलार्थी की ओर से / Appellant by : Shri J.D. Mistry and Shri Niraj Sheth
प्रत्यर्थी की ओर से /Respondent by : Shri Jasbir Chouhan
सुनवाई की तारीख /
: 03/02/2017
Date of Hearing
घोषणा की तारीख /
: 08/02/2017
Date of Pronouncement
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आदे श / O R D E R
PER BENCH :
The present appeal filed by the assessee is directed against the order
passed by the CIT(A)-10, Mumbai, dated 31.10.2013, which arises from the
assessment order passed by the A.O u/s 143(3) of the Income Tax Act, 1961,
(for short 'Act'), dated 28.12.2011, therein assailing the order of the CIT(A) by
raising the following grounds of appeal before us:-
" The appellant objects to the order dated October, 31, 2013 passed by the
Commissioner of Income Tax (Appeals)- 10, Mumbai for the assessment year
2009-10, on the following among other grounds:-
Permanent Establishment
1. The learned Commissioner (Appeals) erred in holding that the appellant
had a permanent establishment in India under
Article 5(2)(k) of the India-UK Tax Treaty for the entire year.
2. The learned Commissioner (Appeals) erred in rejecting the claim of the
appellant that no income can be taxed in India since the threshold of 90
days did not exceed during the 12 months period relating to November
2008 to March 2009.
3. The learned Commissioner (Appeals) ought to have appreciated that the
return of income filed by the appellant declaring income at Rs.
12,543,155/- was without prejudice to the claim stated in grounds no 1
and 2 above and hence the learned Commissioner (Appeals) ought to
have adjudicated the plea in the course of the appellate proceedings.
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Computation of Income liable to tax in India
4. The learned Commissioner (Appeals) erred in upholding the action of the
Assessing Officer in treating the entire receipt of GBP 3,302,927 as
liable to tax in India.
5. The learned Commissioner (Appeals) ought to have directed the
Assessing Officer to exclude the income earned during the period
November 2008 to March 2009 in the absence of permanent
establishment in India in terms of Article 5(2)(k) of the India-UK Tax
Treaty.
6. The learned Commissioner (Appeals) ought to have directed the
Assessing Officer that only fees relatable to the services rendered in
India can be taxed as attributable to the permanent establishment in
India and under Article 7 of the India-UK Tax Treaty.
7. Without prejudice, the learned Commissioner (Appeals) ought to have
directed the Assessing Officer to assess the appellant only in respect of
fees of GBP 183,354 equivalent to Rs. 13,203,302/- which is relatable to
work performed in India.
8. Without prejudice to the above, the learned Commissioner (Appeals)
ought to have directed the Assessing Officer to exclude fees related to
non-Indian projects for services rendered outside India.
9. Without prejudice to the above, the learned Commissioner (Appeals)
ought to have appreciated that as per Explanation 3 to Section 9(1)(i)
only income related to operations carried out in India can be brought to
tax and hence no part of income related to operations carried outside
India can be brought to tax in India.
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10.The learned Commissioner (Appeals) erred in not applying provisions of
Article 7(3) of the India-UK Tax Treaty while adjudicating the issue of
attribution of income to the service permanent establishment in India.
11.The learned Commissioner (Appeals) erred in not applying decision of
the Mumbai Special Bench in the case of Clifford Chance 33
Taxmann.com 200. The learned Commissioner (Appeals) erred in relying
on the decision of the Mumbai Tribunal order dated July 16, 2010 in
appellant's own case for the assessment year 1995-96 in upholding the
action of the Assessing Officer in taxing entire fees without appreciating
the fact that the observation of the Divisional bench in the appellant's
case regarding attribution of income was not accepted by the Mumbai
Special Bench of the Tribunal in the case of Clifford Chance (Supra).
Fixed Base
12.The learned Commissioner (Appeals) erred in not specifically holding
that the appellant did not have a fixed base in India from which the
appellant was performing its activities.
13.The learned Commissioner (Appeals) erred in not specifically holding
that the use of hotels or the places provided by clients to the appellant's
partners and staff cannot be considered as an office of place of work
from where the appellant provides services to its client.
Disbursements
14.The Commissioner (Appeals) ought to have specifically directed the
Assessing Officer to delete the addition made of Rs. 7,492,280 on
account of disbursements.
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Interest under section 234B
15.The Commissioner (Appeals) ought to have specifically directed the
Assessing Officer to delete interest of Rs. 27,921,562 levied under section
234B.
India - UK tax treaty benefit
16.The Commissioner (Appeals) ought to have specifically held that the
appellant is entitled to the benefit of India-UK tax treaty.
Penalty proceedings under section 271(1)(c)
17.The learned Commissioner (Appeals) erred in not quashing the penalty
proceedings under section 271(1)(c) of the Income Tax Act initiated by
the Assessing Officer."
2 The brief facts of the case are that the assessee is a limited liability
partnership incorporated in United Kingdom, offering legal consultancy to its
various clients all over the world including India. During the year under
consideration the assessee had rendered legal consultancy services in
connection with different projects to various concerns, both within and outside
India. The assessee filed its return of income as on 30.03.2010, declaring an
income of Rs. 1,25,43,155/-. The assessee by way of a 'NOTE' forming part of
the 'Statement of Total Income' filed alongwith its return of income, had
therein categorically stated as under:
"NOTES: -
1. PAN : AABF12160M
2. Address: One Sile Street, London, EC2Y S HQ, United Kingdom.
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3. The assessee claims that it is entitled to the benefit of India-UK tax
treaty.
4. The Commissioner (Appeals) in earlier years has held that as the 90
days threshold has been breached the assessee firm has PE in India
and hence income relating to services rendered in India are taxable
under article 7(3) of the India - UK tax treaty. The Tribunal in order
for the assessment year 1995-96 has held that in respect of Indian
client or Indian projects both services rendered in India and outside
India are taxable. The assessee has preferred appeal the Bombay High
Court against the Tribunal order dated July 16, 2010. The assessee
has also filed a Miscellaneous Application against the aforesaid
Tribunal order dated July 16, 2010. Further in view of the conflicting
decisions, the Tribunal has formed a Special Bench to deal with the
issue regarding portion of income attributable to the service PE in
India.
5. Under the above circumstances, and relying on Commissioner
(Appeals) order in the assessee's own case for the earlier years and
view of the decision of Appellate tribunal in the below cases:
i. DDIT Vs. Set Satellite (Singapore) Pte Ltd.- 106 ITD 175 Mum
ii. Airlines Rotables Ltd. UK Vs. Jt. Director of Income Tax -
International Taxation 131 TTJ 385 (Mum)
the above return is prepared on the basis that income related to the
services rendered in India are liable to tax as being directly or
indirectly attributable to the permanent establishment in terms of
Article 7(3). Further, u/s 9(1)(i) Explanation 1 of the income tax act
only income in respect of operations carried out in India is taxable in
India.
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6. Without prejudice to the above the assessee submits that the threshold
limit of 90 days mentioned in Article 5(2)(k)(i) is not exceeded in any
twelve months period between November, 2008 to March, 2009.
Hence, the assessee claims that income in respect of services rendered
during this period is not liable to tax in India.
Further assessee is of the view that the threshold of 30 days provided
in Article 5(2)(k)(ii) applies only in the situation where the services
are provided to an associated enterprise located in India."
3. The case of the assessee was taken up for scrutiny proceeding and
Notices u/ss. 143(2) and 142(1) of the 'Act' were issued to the assessee. That
during the course of the assessment proceedings the A.O took cognizance of the
fact that the assessee had in its return of income by way of a 'Note' therein
categorically mentioned that as the threshold limit of 90 days contemplated in
Article 5(2)(k)(i) of the India - U.K. Tax Treaty (for short 'tax treaty') was not
exceeded in any twelve months period between November, 2008 to March,
2009, therefore its income in respect of services rendered during the said period
were not liable to tax in India. The A.O however being of the view that the
return of income had been prepared by the assessee presumably on the basis
that it had exceeded the 30 days threshold limit provided in Article 5(2)(k)(ii)
of the India-U.K Tax Treaty, and thus on its own had offered the income in
respect of services rendered in India for tax, therefore concluded that by so
doing the assessee had himself accepted that it had a 'PE' in India during the
entire year under consideration. The A.O further being of the view that as the
place of accrual of income from services is not the place where the services are
rendered, but the place where the services are utilized, therefore for the said
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reason scrapped the claim of the assessee that only fees for work done in India
amounting to 183,354 GBP was liable to be taxed in India and after taking
cognizance of the following amounts :-
Particulars Amount (in GBP)
Fees for work done in India 183,354 GBP
Fees for work done outside India 31,19,573 GBP
Towards disbursements 1,04,045 GBP
Total 34,06,972 GBP
, therein proceeded with and assessed the income of the assessee at Rs.
23,30,69,251/-.
4. The assessee being aggrieved with the assessment order therein
carried the same in appeal before the CIT(A). That during the course of the
appellate proceeding it was submitted by the assessee that it had offered its
income to tax in India only pursuant to the directions of the CIT(A) in its
case for the preceding years, wherein it was held that as during the said year
as the threshold of 90 days had been breached, therefore the assessee was
held as having a Permanent establishment (for short 'PE') in India, and the
income relating to services rendered in India were liable to be taxed under
Article 7(3) of the India - U.K. Tax Treaty. The assessee further submitted
before the CIT(A) that on appeal the Tribunal vide its order passed in the
case of the assessee for A.Y. 1995-96 had held that in respect of Indian
client or Indian projects, both services rendered in India and outside India
were liable to be taxed in India, which order of the Tribubal was however
not accepted by the assessee and the same had been assailed by way of an
appeal before the Hon'ble Bombay High Court, as well as a Miscellaneous
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application against the said order was filed with the Tribunal, both of which
were pending adjudication. The assessee drawing the attention of the
CIT(A) to the 'Note' forming part of the 'Statement of total income' filed
alongwith the return of income, thus submitted that offering of the income
relating to services rendered by the assessee in India was only pursuant to
and prompted by the observations of the appellate authorities in the case of
the assessee for the earlier years. The assessee further submitted before the
CIT(A) that at Sr. No. 6 of its 'Notes' (supra) forming part of the return of
income, it was categorically stated that as during the year under
consideration the threshold limits of 90 days mentioned in Article 5(2)(k)(i)
was not exceeded in any twelve months period between November, 2008 to
March, 2009, therefore the income of the assessee in respect of services
rendered during the said period were not liable to tax in India. The assessee
averred before the CIT(A) that pursuant to a conjoint reading of Article
5(2)(k)(ii) and Article 10 of the India - U.K. Tax Treaty, as no services were
being provided by the assessee to any associated enterprise located in India,
it could thus safely be gathered that the provisions of the Article 5(2)(k)(ii)
were not applicable to the case of the assessee. The CIT(A) though took
cognizance of the claim of the assessee that during the year under
consideration as the threshold limit of 90 days in any twelve month period
mentioned in Article 5(2)(k)(i) had exceeded only during the period April,
2008 to October,2008, therefore the assessee could not be held to be having
a service 'PE' in India for the period November, 2008 to March, 2009, but
however being of the view that as the return of income was filed for whole
of the accounting year, therefore the claim of the assessee was not tenable.
The CIT(A) further observed that as the assessee had on its own offered to
tax its income, thus even on the said basis the contention of the assessee that
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it had no 'PE' in India under Article 5(2)(k)(i) for the entire year, thus
could not be accepted. The CIT(A) thus on the basis of his aforesaid
observations held that the assessee had a 'PE' in India for the entire year.
4.1 The CIT(A) after observing that the assessee had a 'PE' in India
for the entire year, therein inter alia dealt with its contentions, which to the
extent the same had been assailed by the assessee before us, are culled out as
under:-
(i). The assessee had alternatively submitted before the CIT(A) that
the scope and gamut of taxability of its income in India (which contention
was raised without prejudice to its claim that it had no 'PE' in India during
the period November, 2008 to March, 2009 ) was liable to be restricted only
to the income of 183,354 GBP pertaining to work performed by the
assessee in India, as against the entire receipt of 34,06,972 GBP that had
been assessed by the A.O. The CIT(A) however did not accept the claim of
the assessee, and taking cognizance of the fact that as the said issue had
already been decided by the Tribunal against the assessee in its own case for
A.Y. 1995-96, therefore rejected the aforesaid claim of the assessee.
(ii). That it was further averred by the assessee before the CIT(A) that
the AO had erred in not specifically holding that the assessee during the year
under consideration did not have a fixed base in India from which it was
performing its activities. The CIT(A) however being of the view that as he
had already taken a view that the asssessee had a service 'PE' in India, as
well as that Article 15 of the 'tax treaty' was not applicable to the case of
the assessee, therefore, the said contention so raised before him was
rendered infructuous, and on the said basis dismissed the same.
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(iii). The CIT(A) further dealing with the contention of the assessee as
regards levy of interest u/s 234B of the 'Act', therein referring to the
judgment of the Hon'ble High Court of Bombay in the case of: Director
of Income Tax, Bombay Vs M/s. NGC Network Asia LLC (313 ITR
187) (Bombay), which was followed by the Tribunal in the case of the
assessee for A.Y. 1995-96, therein directed the AO to do the needful as per
the directions given by the Tribunal as regards the said issue while disposing
of the appeal of the assessee for A.Y. 1995-96.
(iv). The CIT(A) lastly dealing with the challenge of the assessee to the
very initiation of penalty proceedings u/s 271(1)(c) in the body of the
assessment order, therein being of the view that as the said contention was
premature, therefore dismissed the same.
The CIT(A) thus inter alia deliberating on certain other issues, including the
aforesaid issues which are relevant for the present appeal, thus partly allowed
the appeal of the assessee.
5. That before us the assessee has assailed the very finding of the AO that
the assessee had a 'PE' in India under Article 5(2)(k) of the India - U.K. Tax
Treaty for the entire year, which order of the AO, as observed by us
hereinabove, had thereafter been sustained by the CIT(A). The learned
authorized representative for the assessee (for short 'A.R.') at the very outset
submitted that though the 'fees for work done in India' by the assessee
amounting to 183,354 GBP had been offered to tax by the assessee in its return
of income for the year under consideration, however in the 'Notes' forming part
of its 'Statement of total Income' filed with the return of income, it was duly
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clarified that the aforesaid amount was being reflected as income liable to tax in
India in light of the observations of the CIT(Appeals) in the case of the assessee
for earlier years, wherein it was held that as the 90 days threshold had been
breached by the assessee , therefore it was to be taken that it had a 'PE' in
India and income relating to services rendered in India were taxable under
Article 7(3) of the India - U.K. Tax Treaty. The Ld. AR vehemently submitted
that the fact that the income was offered for tax in the return of income only in
the backdrop of the findings of the CIT(A) in its own case for the earlier years,
was duly clarified and was mentioned beyond any scope of doubt by the
assessee at Sr. No. 5 of the 'Notes' (supra) forming part of the 'Statement of
Total Income'. It was further submitted by the Ld. A.R that the fact that during
the year under consideration the threshold limit of 90 days mentioned in Article
5(2)(k)(i) was not exceeded in any twelve months period between November,
2008 to March, 2009, as a result whereof it was claimed that the income in
respect of services rendered during this period was not liable to tax in India,
also found a categorical mention at S.No. 6 of the 'Notes' (supra). Thus in the
backdrop of the aforesaid submissions, it was averred by the Ld. A.R that the
lower authorities had gravely erred in loosing sight of the fact that though the
assessee had reflected the 'fees for work done in India' of 183,354 GBP as its
income liable for tax in the return of income, but however the reasons for so
doing, as were clearly spelt out in the very same 'Statement of total income'
along with the claim that the threshold limit of 90 days mentioned in Article
5(2)(k)(i) had not exceeded in any twelve months period between Novermber,
2008 to March, 2009, therefore the income in respect of services rendered
during the said period were not liable to tax in India, had most conveniently and
rather whimsically been ignored both by the AO as well as CIT(A), leading to
drawing of adverse inferences in the hands of the assessee. Thus to be brief and
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explicit, it was submitted by the Ld. AR that the circumstances leading to
offering of income for tax in the return of income, as well as the fact that the
assessee had no service 'PE' during the period Novermber, 2008 to March,
2009, as a result whereof the income arising from services rendered during the
said period were not liable to tax in India, was not a new fact, but rather a fact
which formed part of the return of income of the assessee. The Ld. A.R therein
in order to fortify his contention that the assessee had no service 'PE' during
the period November, 2008 to March, 2009, therein took us to Page 39 to 43 of
the 'Paper book' (for short 'APB'), which is a table reflecting the day-wise stay
of the 5 employees/partners of the assessee who had rendered their services
during the financial year 2008-09 in India, which therein revealed that the total
stay in India on 'day basis' worked out to 58 days. It was averred by the Ld.
A.R that even if the said period was to be computed on the basis of 'Man-days',
then also the same worked out at 78 days. It was thus submitted by the Ld. A.R
that in neither of the situations the stay of the employees/partners in India
during the year under consideration was more than 90 days. The Ld. A.R
further submitted that the furnishing of services by the assessee in India was not
more than 90 days within any twelve months period between November, 2008
to March, 2009. The Ld. A.R in order to fortify his interpretation of the term
"more than 90 days within any twelve months period", therein emphasized that
the purposive, conscious and intentional usage of the term 'any' used therein
could safely, logically and rather inescapably only be related to the 'Previous
year', because the same coincides with the period of which the profit of the
assessee is to be assessed. It was thus submitted by the Ld. A.R that the lower
authorities had in a whimsical and fanciful manner summarily rejected the
claim of the assessee that it had no service 'PE' under Article 5(2)(k)(i) of the
India - U.K. Tax Treaty, and had most arbitrarily drawn adverse inferences in
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the hands of the assessee. That on the other hand the Ld. Departmental
representative (for short 'D.R') submitted that as the assessee had accepted in
its return of income that it had a permanent establishment and as such offered
its income for tax, therefore it was not permissible for the assessee to now raise
a claim contrary to what has been claimed by him in the return of income itself.
It was thus further submitted by the Ld. D.R that the CIT(A) had rightly
discarded the contention of the assessee that as the threshold limits of 90 days
in any twelve month period mentioned in Article 5(2)(k)(i) had exceeded only
during the period April, 2008 to October,2008, therefore the assessee could not
be held to be having a service 'PE' in India for the period November, 2008 to
March, 2009, and thus the income from services rendered during the said latter
period could not be taxed in India. The Ld. D.R submitted that the CIT(A) had
rightly concluded that the claim so raised by the assessee was not tenable for
the reason that as the return of income was filed for whole accounting year,
therefore if the assessee is found to be satisfying the parameters for having a
service 'PE' in India at any point of time during the year, then it had to be
uniformly applied and construed as such for the whole of the year, coupled with
the very fact that as the assessee had itself offered its income for tax in the
return of income, therefore it could safely and inescapably be gathered that the
assessee had accepted that it had a 'PE' in India during the year under
consideration.
6. We have heard both the parties, perused the material available on record
and have given a thoughtful consideration to the issue before us. We are of the
considered view that though it is a matter of fact that the assessee in its return
of income for the year under consideration had voluntarily offered the 'fees for
work done in India' of 183,354 GBP for tax, which at the first blush would
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give an impression that the assessee had accepted that it had a 'PE' in India,
but then a perusal of the 'Statement of total income' so filed by the asssessee
along with its return of income therein reveals that the assessee had offered the
said income for tax in India, only pursuant to and prompted by the
observations of the CIT(A) in its case in the preceding years, which thus
cannot be taken as a voluntary acceptance on the part of the assessee that it had
a 'PE' in India for whole of the year under consideration. We further find from
a perusal of the 'Statement of total income' filed by the assessee alongwith its
return of income, placed at Page 28 of the 'APB', to which our attention was
drawn by the Ld. A.R, that the assessee had categorically and in unequivocal
terms stated therein that as the threshold limit of 90 days mentioned in Article
5(2)(k)(i) of the India - U.K. tax treaty had not exceeded in any twelve months
period between November, 2008 to March, 2009, therefore the income in
respect of services rendered during the said period were not liable to tax in
India. We are thus of the considered opinion that in the backdrop of the
aforesaid factual matrix, it can safely be concluded that the assessee had never
accepted that it had a 'PE' in India during the period November, 2008 to
March, 2009, but rather as a matter of fact had in clear and unambiguous terms
claimed that as the threshold limit of 90 days mentioned in Article 5(2)(k)(i) of
the India - U.K. tax treaty had not exceeded in any twelve months period
between November, 2008 to March, 2009, therefore the income in respect of
services rendered during the said period were not liable to tax in India. Thus
from the aforesaid facts as they so remain, we are of the considered view that
the lower authorities had failed to appreciate the facts as emerge from the
records which were very much before them, in the right perspective, and thus
erred in observing that the claim so made by the assessee during the
assessment proceedings was not found to be in conformity with the fact that
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the assessee had on its own offered its income for tax in the return of income
for the year under consideration. We are of the considered view that the
'Statement of total income' appended by the asssessee along with its return of
income, which thus forms part of the return of income filed by the assessee
and clearly reveals the state of mind of the assessee, alongwith the
circumstances leading to offering of the income for tax, had to be read in
totality and in light of the clear and specific notes as are found mentioned
therein, before drawing of any inferences in the hands of the assessee. We are
unable to persuade ourselves to accept the findings of the lower authorities that
the aforesaid claim was raised by the assessee only during the assessment
proceedings, and the same was not found to be in conformity with his conduct
of offering its income for tax in the return of income for the year under
consideration. We would not hesitate to say that a thoughtful consideration of
the 'Notes' forming part of the 'Statement of total Income' (supra), in itself
sufficiently rebuts the aforesaid observations of the lower authorities. Thus to
be brief and explicit, we are of the considered view that the assessee had
clearly stated in its return of income that it had no 'PE' in India during any
period between November, 2008 to March, 2009, and thus any income earned
from any services rendered during the said period were not taxable in India, as
well as had clearly in the 'Statement of total Income' filed alongwith its return
of income had demonstrated the reasons due to which the income was being
offered for tax in the return of income.
6.1 We are of the considered view that though the lower authorities had
rejected the claim of the assessee that it did not have any 'PE' during the
period November, 2008 to March, 2009, and rather concluded that the
assessee had a 'PE' in India during the year under consideration, however we
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find that no concrete reasoning which could justify dislodging of the claim of
the assessee and support the view so arrived at by the lower authorities is
discernible from the respective orders of the lower authorities. That as a matter
of fact, the orders of the lower authorities are found to be more haunted by the
fact that the assessee had offered its income for tax in India, rather then
controverting the contentions raised by the assessee before them in support of
its claim. The observations of the lower authorities in concluding that the
assessee had a 'PE' during whole of the year, is devoid of any reasoning and is
much or less a summary rejection of the claim of the assessee on the basis of
misconceived and rather half hearted appreciation of the facts borne from
records, which for the sake of clarity are briefly culled out as under:-
ARTICLE 5(2)(K)(i)
BEFORE A.O :
(i). The assessee as observed by us hereinabove had categorically stated in the
'Notes' forming part of the 'Statement of total Income' filed alongwith the
return of income, that as the threshold limit of 90 days in any twelve month
period mentioned in Article 5(2)(k)(i) had exceeded only during the period
April, 2008 to October,2008, therefore the assessee could not be held to be
having a service 'PE' in India for the period November, 2008 to March, 2009.
The said claim was thereafter raised by the assessee before the A.O during the
course of the assessment proceedings, who though took cognizance of the said
claim and reproduced the same in the body of the assessment order, but
thereafter instead of adjudicating the said claim of the assessee on merits, rather
justified the rejection of the same for the reason that the assessee had on its own
offered its income for tax in the return of income, which conduct of the
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assessee , as per the A.O , proved that it accepted that it had a 'PE' in India
during the year under consideration. The A.O still further is found to have
justified the existence of 'PE' by assuming that the assessee had exceeded the
30 days threshold limit provided in Article 5(2)(k)(ii) of the India-U.K tax
treaty. Thus to be brief and explicit, the contention of the assessee that as the
threshold limits of 90 days in any twelve month period mentioned in Article
5(2)(k)(i) had not exceeded during any period between November, 2008 to
March, 2009, therefore it could not be held to be having a service 'PE' in India
for the said period, had remained unadjudicated on the part of the A.O.
BEFORE CIT(A) :
(1). The CIT(A) while disposing of the appeal wrongly observed as under
(Page 7 - Para 16):-
"Even I also find that in the return of income, the appellant had offered to
tax the income on the basis that it had service PE in India under Article
5(2)(k)(i) for the entire year"
, which observation of the CIT(A) in light of the clear mention by the
assessee in the 'Statement of total income' filed with the return of income,
as under: -
"6. Without prejudice to the above the assessee submits that the threshold
limit of 90 days mentioned in Article 5(2)(k)(i) is not exceeded in any
twelve months period between November, 2008 to March, 2009.
Hence, the assessee claims that income in respect of services rendered
during this period is not liable to tax in India."
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, is thus found to be absolutely perverse and contrary to the facts emerging
from the records.
(2). The CIT(A) alike the A.O, instead of adjudicating the claim of the assessee
that it had no 'PE' during the period November, 2008 to March, 2009 on
the basis of a well reasoned and speaking order, was more prejudiced for
the reason that as the assessee had voluntarily offered its income for tax in
the return of income, thus it could be concluded that the assessee accepted
that it had a service 'PE' in India during the year under consideration.
(3). The CIT(A) discarded the aforesaid claim of the assessee that it had no
'PE' in India during the period November, 2008 to March, 2009, by
merely stating that the income tax return is to be filed for whole
accounting year, i.e 01.04.2008 to 31.03.2009 in the case of the assessee.
We are pained to observe that there is neither any clarity, nor a strong
reasoning in the observations of the CIT(A) which could go to justify
rejection of the aforesaid claim of the assessee. The contention of the
assessee that it had no 'PE' during the period Novemer, 2008 to March,
2009, which we find had been demonstrated at length by the assessee
before the CIT(A) on the basis of strong reasonings, coupled with the fact
that any interpretation to the contrary as against that adopted by the
assessee, would lead to incongruous and illogical results, we find had not
been dealt with by the CIT(A) at all. Thus to be brief and explicit, the
CIT(A) on the basis of a non-speaking and unreasoned order had rejected
the claim of the assessee that it had no 'PE' for the period November, 2008
to March, 2009, and as such no income earned by it from services rendered
during the said period was liable to be taxed in India.
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ARTICLE 5(2)(K)(ii)
BEFORE A.O :
(i). Though the assessee had categorically claimed in the 'Statement of total
income' filed alongwith the return of income, as under:
"Further assessee is of the view that the threshold of 30 days
provided in Article 5(2)(k)(ii) applies only in the situation where the
services are provided to an associated enterprise located in India."
, however the A.O on its own assumed that the assessee had prepared the
return of income on the basis that it had exceeded the 30 days threshold
limit provided in Article 5(2)(k)(ii). Thus, the A.O on the basis of perverse
observations, which as a matter of fact are contrary to the claim raised by
the assessee in its return of income that Article 5(2)(k)(ii) was not
applicable in its case, had thus in a whimsical and fanciful manner therein
most arbitrarily concluded that the assessee was having a 'PE' in India as
per Article 5(2)(k)(ii) of the India-U.K tax treaty.
BEFORE CIT(A) :
(i). The assessee had averred before the CIT(A) that on the basis of a
conjoint reading of the provisions of Article 5(2)(k)(ii) r.w Article 10 and
Article 3(h), it could inescapably be gathered beyond any scope of doubt
that Article 5(2)(k)(ii) would come into play only where the enterprise of a
contracting state or the persons involved therein participate directly or
indirectly in the management, control or capital of an enterprise of the
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other contracting state. It was thus submitted before the CIT(A) that as
Article 10 does not refer to related parties resident of same contracting
state or a related party resident of a third contracting state, i.e other than
India and U.K, therefore it could safely be discerned that the provisions of
Article 5(2)(k)(ii) were not applicable to the case of the assesseee. We
however find that despite drawing of adverse inferences on the part of the
A.O, who on the basis of findings arrived at the back of the assessee had
most arbitrarily assumed that the return must have been prepared by the
assessee on the basis that it had a 'PE' in India as per Article 5(2)(k)(ii),
without affording any opportunity of being heard to the assessee on the
said issue, despite clear and categorical averment by the assessee in the
'Statement of total income' filed with the return of income that Article
5(2)(k)(ii) was not applicable in its case, as well as clear rebuttal of the
applicability of the same on the basis of exhaustive submissions filed
before the CIT(A), the same had however not been adverted to and
adjudicated by the latter.
6.2 We are of the considered view that in light of our aforesaid
observations, on the one hand the contentions of the Ld. A.R in support of
his specific claim that the provisions of Article 5(2)(k)(i) of the tax treaty
were not applicable in its case, was not at all adverted to and adjudicated
by the A.O, while for the CIT(A) also falling short of words had chosen to
reject the said claim of the assessee on the basis of his findings which are
not found to be happily worded and can safely be characterized as nothing
short of vague observations which had culminated into an unreasoned and
a non-speaking order. We find that the contentions raised by the assessee
at length before the CIT(A) in support of its claim under consideration had
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been put to rest by the CIT(A) on the basis of vague observations and a
non-speaking order. We are sad to observe that the CIT(A) instead of
meeting out the contentions of the assessee as were raised before him, on
merits, had rather characterized the same as 'absurd', and shirked from the
statutory obligation of disposing of the same on the basis of a well
reasoned and speaking order. Thus the modus operandi so adopted by the
CIT(A) in dealing with and disposing of the claim of the assessee and the
contentions raised in support thereof, thus does not inspire much
confidence. That we are afraid to say that the claim of the assessee that it
did not had any 'PE' in India during the period November, 2008 to March,
2009 and the contentions raised in support thereof, on account of a vague
and non-speaking order passed by the CIT(A), did neither see the light of
the day, nor had been brought to a logical end. We would further for the
sake of clarity herein dispel the observations of the lower authorities, who
we find instead of adjudicating the claim of the assessee that it was not
having a 'PE' in India as per Article 5(2)(k) of the India-U.K tax treaty, on
the basis of a well reasoned and speaking order, had rather emphasized
more on the fact that from the very offering by the assessee of its income
for tax in the return of income for the year under consideration, it could
safely be inferred that the assessee had accepted that it had a 'PE' during
whole of the year under consideration, we may herein clarify is a self
suiting misconception adopted by the lower authorities. We are of the
considered view that the lower authorities had gravely erred by failing to
appreciate that though the assessee had offered its income for tax in the
return of income for the year under consideration, however the same as
observed by us at length hereinabove, was required to be considered in the
backdrop of the 'Notes' as were found mentioned in the 'Statement of total
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income' filed by the assessee alongwith its return of income, from where it
could safely be gathered that the income had been offered for tax by the
assessee in light of the observations of the CIT(A) arrived at in its case for
the preceding years and certain other judicial pronouncements as did hold
the ground at the relevant point of time. We find that though interestingly
the fact that the assessee had offered its income for tax has been taken
cognizance of by the lower authorities for supporting or rather arriving at
adverse inferences in the hands of the assesseee, however most
conveniently the fact that the assessee had categorically stated that it had
no 'PE' in India for the period November, 2008 to March, 2009 as per
Article 5(2)(k)(i), read in light of the reasons on the basis of which such a
conclusion was arrived at, as well as the categorical averment of the
assessee that the provisions of Article 5(2)(k)(ii) were not applicable in its
case, all of which facts were clearly discernible from the 'Statement of
total income' filed by the assessee alongwith its return of income, had
most conveniently been ignored by the lower authorities in order to
facilitate drawing of self suiting adverse inferences in the hands of the
assessee. Thus in the backdrop of the aforesaid facts as they so remain,
specifically the fact that the assessee had raised exhaustive averments
before the lower authorities in support of its contention that it had no 'PE'
u/s 5(2)(k) of the India-U.K tax treaty for the period November, 2008 to
March, 2009, specifically when such a claim as observed by us
hereinabove, was clearly discernible from a perusal of the 'Statement of
total income', wherein the assessee had categorically claimed that it was
not having a 'PE' for the aforesaid period, either under Article 5(2)(k)(i) or
Article 5(2)(k)(ii), and had substantially at length during the course of
proceedings before the A.O as well as the CIT(A) therein fortified his
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contention, which interpretation and explanation of the assessee to our
understanding could not have been summarily rejected and scrapped on the
basis of a vague, unreasoned and non-speaking order, which we are sad to
observe had as a matter of fact happened in the present case. We have
given a thoughtful consideration to the facts of he case and in light of the
very fact that the lower authorities had failed to address the exhaustive
submissions raised by the assessee before them and pass a well reasoned
and speaking order, thus are unable to persuade ourselves to subscribe to
such non-speaking orders of the lower authorities. We are of the
considered view that in the backdrop of the fact that the lower authorities
had failed to address and adjudicate the contentions raised by the assessee
before them, and had rather most arbitrarily hushed through the matter,
and also not being oblivious of the fact that the claim raised by the
assessee that it had no 'PE' in India as per Article 5(2)(k) in itself would
require adjudication after perusing and verifying the facts as averred by
the Ld. A.R before us, we therefore in all fairness and in the very interest
of justice restore the matter to the file of A.O for fresh adjudication. The
A.O shall during the course of the set aside proceedings therein adjudicate
upon the issue as regards the existence of a 'PE' in India of the assessee
during the period November, 2008 to March, 2009, after taking due
cognizance of and dealing with the submissions which were raised by the
assessee during the course of the original assessment proceedings, as well
as during the course of the appellate proceedings. We will mince no words
in directing the A.O to adjudicate the issue under consideration after
addressing and dealing with all the contentions of the assessee on the basis
of a well reasoned and a speaking order. Needless to say, the A.O shall
afford reasonable opportunity of being heard to the assessee during the
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course of the set aside proceedings, and the assessee shall remain at a
liberty to furnish submissions or lead fresh documentary evidence in
support of his contentions during the course of the set aside proceedings.
The 'Grounds of appeal No(s). 1 to 3' so raised by the assessee are thus
allowed for statistical purposes.
7. That as regards the other grounds of appeal, i.e 'Ground of appeal
No(s). 4 to 19' so raised by the assessee before us, we are of the
considered view that as the substantive issue involved in the present case,
i.e as to whether the assessee as per Article 5(2)(k) of the India - U.K. Tax
Treaty was having a 'PE' in India during the period November, 2008 to
March, 2009, or not, has been restored by us to the file of the A.O for
fresh adjudication and the fate of the same will have a substantial bearing
on the other grounds of appeal so assailed by the assessee before us, we
therefore refrain from adjudicating the said respective grounds of appeal at
this stage, and in all fairness and in the very interest of justice restore the
same for fresh adjudication to the file of the A.O. The A.O is herein
directed that after adjudicating the issue as to whether the assessee had a
'PE' in India, or not, during the aforesaid period, he shall
thereafter proceed with and adjudicate the remaining issues emerging from
the 'Ground of appeal No(s). 4 to 19' as had been restored by us for the
purpose of fresh adjudication to his file. We thus in all fairness, and in the
very interest of justice restore the matter to the file of A.O for fresh
adjudication of the issues pertaining to and emerging from the 'Ground of
appeal No.(s). 4 to 19' so assailed by the assessee before us. The A.O is
herein directed to pass a speaking order as regards the issue under
consideration, after duly considering all the contentions of the assessee.
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Needless to say, the A.O shall afford reasonable opportunity of being
heard to the assessee during the course of the set aside proceedings and the
assessee shall remain at a liberty to furnish submissions or lead fresh
documentary evidence in support of his contentions in support of the
aforesaid issues during the course of the set aside proceedings. The
'Grounds of appeal No(s). 4 to 19 so raised by the assessee are thus
allowed for statistical purposes.
8. The appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 08/02/2017
Sd/- Sd/-
(G.S Pannu) (Ravish Sood)
ले खा सदस्य / Accountant Member न्याययक सदस्य / Judicial Member
मुंबई Mumbai; यदनां क Dated : 08.02.2017
आदे श की प्रनिनिनि अग्रे नर्ि/Copy of the Order forwarded to :
1. अपीलार्थी / The Appellant
2. प्रत्यर्थी / The Respondent
3. आयकर आयुक्त(अपील) / The CIT(A)
4. आयकर आयुक्त / CIT - concerned
5. यवभागीय प्रयतयनयि, आयकर अपीलीय अयिकरण, मुंबई / DR, ITAT, Mumbai
6. गार्ड फाईल / Guard File
आदे शधिुसधर/ BY ORDER
उि/सहधयक िं जीकधर (Dy./Asstt. Registrar) आयकर अिीिीय अनर्करण, मुंबई / ITAT, Mumbai