ASSTT DIT (IT) - 1(2) Vs M/s CLIFFORD CHANCE 2013-TII-81-ITAT-MUM-SB-INTL Dated : May 13, 2013

 

Facts:

• The assessee is a firm of solicitors which is a tax resident of UK. During the years under consideration, it rendered legal consultancy services in connection with different projects in India, some part of which was performed in India. Income attributable to the services so performed in India was offered to tax by the assessee in India in the return of income filed for A.Y. 1998-99 as per Article 15 of the India-UK Treaty since the aggregate period of its presence in India through partners and employees exceeded 90 days in that year. In the returns of income filed for other years, the assessee declared ‘Nil’ income on the ground that the aggregate period of its presence in India did not exceed 90 days and its income was not taxable in India as per Article 15 of the India-UK Treaty

• The A.O. held that the profits of the assessee to the extent they were directly or indirectly attributable to PE in India were taxable in India as per Article 7. Accordingly, the entire fees received by the assessee from its clients for the services utilised in relation to the projects in India was brought to tax by the A.O. in India in the hands of the assessee.

• In appeal, the CIT (A) who ruled in favour the assessee and the issue was finally taken to the Tribunal.

Issues:

• Whether the amendment made by the Finance Act 2010 in section 9 with retrospective effect from 1st June, 1976, is applicable only in the cases covered under clause (v), (vi) or clause (vii) of section 9(1) and not clause (i) of section 9(1)?

• Whether the Bombay High Court decision in the assessee's own case holds good notwithstanding the retrospective amendment in the Explanation to Sec 9 vide Finance Act, 2010?

• Whether Article 7(1) of the India-UK DTAA read with Article 7(3) thereof, are akin to the provisions of section 7(1)(b) and 7(1)(c) of the UN Model Convention?

• When the connotations of “profits indirectly attributable to permanent establishment” are defined specifically in Article 7(3) of the India-UK there is any need to refer to the UN Model Convention?

Held:

• The tribunal held that, the amendment made by the Finance Act 2010 in section 9 with retrospective effect from Ist June, 1976, which is applicable only in the cases covered under clause (v), (vi) or clause (vii) of section 9(1) and not clause (i) of section 9(1), thus has not negated the decision of Bombay High Court in the case of the assessee for A.Y. 1996-97 and the said decision rendered in the context of section 9(1)(i) still holds good even after the said amendment in so far as the assessee’s case is concerned.

• Article 7(1) of the India-UK DTAA is read with Article 7(3) thereof, we are of the considered view that the provisions thereof are not at all akin to the provisions of section 7(1)(b) and 7(1)(c) of the UN Model Convention and it would not be correct to say that the connotations of “profits indirectly attributable to permanent establishment” extend to the two categories of income as specified in clause (b) and clause (c) of Article 7(1) of the UN Model Convention and incorporate a force of attraction rule as held by the Division bench of this Tribunal in the case of Linklaters LLP;

• In our opinion, when the connotations of “profits indirectly attributable to permanent establishment” are defined specifically in Article 7(3) of the India-UK DTAA which clearly explains the scope and ambit of the profits indirectly attributable to the PE and the provisions of said article being unambiguous and capable of giving a definite meaning, there is really no need to refer to the provisions of Article 7(1) of UN Model Convention which are materially different from the provisions of Article 7(1) of the India-UK DTAA read with Article 7(3) thereof.