2015 (12) TMI 1894 - AT - Income Tax

PE in India - Scope of Article 5(2)(k) of DTAA between India and the UK - HELD THAT - As in latest order passed by the Tribunal in 2015 (9) TMI 1532 - ITAT MUMBAI in which identical issue has been decided while we agree with the learned counsel that art. 15 will not be applicable on the facts of the present case this finding does not really come to the rescue of the assessee since as we have already held the assessee did have a PE in India under art. 5(2)(k) of the India-UK tax treaty and accordingly profits attributable to the PE are taxable under art. 7 of the India-UK tax treaty. Decided against assessee. Reimbursement of the expenses as part of the income of the assessee - As decided in assessee own case 2015 (9) TMI 1532 - ITAT MUMBAI as held reimbursements received by the assessee are in respect of specific and actual expenses incurred by the assessee and do not involve any markup there is reasonable control mechanism in place to ensure that these claims are not inflated and the assessee has furnished sufficient evidence to demonstrate the incurring of expenses. There is thus no good reason to make any addition to income in respect of these reimbursements of expenses - Decided in favour of assessee. Interest charged u/s 234B is to be deleted. Income relatable to work performed in India in liable for taxation in India - HELD THAT - We find that in assessee s own case for A.Y.1998-99 to 2001-02 2015 (9) TMI 1532 - ITAT MUMBAI the Tribunal has held that the profit which is attributable to the PE can only be assessed in India. Respectfully following the aforesaid order and order of the Hon ble Special Bench in the case of Clifford Chance 2013 (6) TMI 544 - ITAT MUMBAI It is held that the only income in respect of services rendered in India which are attributable to PE only would be taxable in India. Thus ground no. raised by the Revenue stands dismissed. Allow 85% of disbursement claim proportionate to the fee related to the services rendered in India as compared to total fees - We direct the AO to follow the aforesaid order of the Tribunal 2015 (9) TMI 1532 - ITAT MUMBAI and hold that no amount should be disallowed.

Summary

Issues Involved:
1. Permanent establishment (PE) in India under Article 5(2)(k) of the India-UK DTAA.
2. Taxation of income related to work performed in India.
3. Treatment of disbursements as part of income.
4. Deduction for bad debts.
5. Application of tax rate for a firm versus association of persons.
6. Deletion of interest levied under section 234B.
7. Initiation of penalty proceedings under section 271(1)(c).
8. Deduction for remuneration paid to employees for services performed outside India.
9. Applicability of Article 15 of the India-UK DTAA.
10. Existence of a fixed base in India.

Detailed Analysis:

1. Permanent Establishment (PE) in India:
The assessee challenged the CIT(A)'s decision that it had a PE in India under Article 5(2)(k) of the India-UK DTAA. The Tribunal noted that this issue had been consistently decided against the assessee in previous years, including AY 1995-96, 1996-97, 1997-98, and 1998-99 to 2001-02. The Tribunal reiterated that the assessee did have a PE in India, and profits attributable to the PE were taxable under Article 7 of the India-UK tax treaty. Therefore, this ground was dismissed.

2. Taxation of Income Related to Work Performed in India:
The CIT(A) had held that only income related to services rendered in India was taxable in India. The Revenue appealed this decision. The Tribunal upheld the CIT(A)'s view, referencing previous Tribunal orders and the Special Bench decision in Clifford Chance, which established that only income attributable to the PE in India was taxable. Thus, the Revenue's ground was dismissed.

3. Treatment of Disbursements as Part of Income:
The assessee contested the inclusion of disbursements as income. The Tribunal referred to earlier decisions where it was held that reimbursements of expenses incurred by the assessee, without any markup, should not be treated as income. Following this precedent, the Tribunal directed the AO to exclude such reimbursements from the assessee's income.

4. Deduction for Bad Debts:
The assessee's grounds regarding bad debts were dismissed as infructuous since the AO had already given effect to the CIT(A)'s order, leaving no grievance for the assessee.

5. Application of Tax Rate:
The ground concerning the applicable tax rate (firm vs. association of persons) was not pressed by the assessee and was dismissed.

6. Deletion of Interest Levied Under Section 234B:
The assessee argued against the interest levied under section 234B. The Tribunal, following its previous decisions and the jurisdictional High Court's ruling in DIT vs. NGC Networks LLC, directed the AO to delete the interest charged under section 234B.

7. Initiation of Penalty Proceedings Under Section 271(1)(c):
The Tribunal deemed the ground regarding the initiation of penalty proceedings under section 271(1)(c) as premature and dismissed it.

8. Deduction for Remuneration Paid to Employees for Services Performed Outside India:
The Tribunal directed the AO to follow the directions given in the order for AY 1998-99, which addressed similar grounds, thereby providing appropriate relief to the assessee.

9. Applicability of Article 15 of the India-UK DTAA:
The Tribunal upheld that Article 15, which pertains to independent personal services, was not applicable to the assessee, as the services were rendered by the enterprise and not by individuals.

10. Existence of a Fixed Base in India:
The Tribunal found that the issue of a fixed base in India had been consistently decided against the assessee in previous years. Therefore, this ground was dismissed.

Conclusion:
The appeals filed by the assessee were partly allowed, providing relief on certain grounds, while the appeals filed by the Revenue were dismissed, upholding the CIT(A)'s decisions. The Tribunal's order was pronounced on 16th December 2015.