TMI Blog2012 (8) TMI 745X X X X Extracts X X X X X X X X Extracts X X X X ..... p/Partners - Held that:- As the income received for rendering professional services by the partnership to the Indian company is in India and not elsewhere. The partnership sends its invoices to the Indian company, its client and the payment is remitted from India. The fact that the major part of the services are rendered outside India in respect of a dispute arising in India cannot alter the source of income. On the facts of this case it can be concluded that the source of income is in India, the legal fees received by the Swiss Partnership will be taxable in India. - A.A.R. NO. 1029 OF 2010 - - - Dated:- 27-8-2012 - JUSTICE P.K. BALASUBRAMANYAN, J. RULING 1. The applicants are a partnership and its partners. The partnership is said to be in terms of the Swiss Code of Obligations. The partnership claims to be a Switzerland based law firm and all its partners are residents of Switzerland. It is submitted that the partnership and all its partners are tax residents of Switzerland. 2. Siemens India Limited, a company incorporated in India and Shapoorji Pallonji Co. Ltd., another company incorporated in India had a dispute which was referred for adjudication in terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Fees earned by the Swiss Partnership/Partners is not taxable in India under the terms of the Treaty, would be payer be required to withhold any tax under section 195 of the Indian Income-tax Act, 1961 ("ITA") while making remittances? 6. In support of its claim that the income of the firm and its partners is not chargeable to tax in India, the applicant claimed the benefit of India-Switzerland Double Taxation Avoidance Convention (DTAC). According to the applicant, the partnership is a person under Article 530 of the Swiss Code of Obligations. Under Swiss law, the partnership is not considered to be a separate entity vis-a-vis its partners. The income of the partnership is assessed only in the hands of the partners. In view of Article 1 of the DTAC, the applicants can claim the benefit of the DTAC. The partnership should be considered as a body of persons under Article 3(d) of the DTAC. The applicants satisfy the requirements of Article 4 of the DTAC and the professional income derived by the applicants was not taxable in India in view of the Article 14 of the DTAC. Since no part of the income was chargeable to tax in India, no withholding of tax under Section 195 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' or under the expression 'body of persons'. Hence, it is argued that a Swiss partnership would qualify as a body of persons under the DTAC. It is further contended that the requirement under Article 4 of the person being 'liable to tax' in Switzerland would also be satisfied since actual taxation in Switzerland is not necessary and it need only be shown that Switzerland has the right to tax the partnership. The fiscal domicile of the partnership lay in Switzerland. The much cited decision in UOI v. Azadi Bachao Andolan (263 ITR 706) is relied on in support. Here, the partnership should be considered to be a person liable to be taxed in Switzerland. 10. The Revenue meets this argument by submitting that since the partnership is neither taxed nor is liable to be taxed in Switzerland, it is not a resident within the meaning of Article 4 of the DTAC. If so, it cannot claim to rely on the DTAC to avoid payment of tax in India. The partners do not receive any income from Siemens India and hence though they may be taxed on their share of profits in Switzerland, the income in the present case cannot be said to be derived by them. 11. Two facts are clear. The first is that the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In that case, there would be no occasion to apply Article 14 of the DTAC on the basis that it is a professional income. 13. The OECD commentary on Article 3 is relied on to contend that partnerships will also be considered to be persons either because they fall within the definition of 'company' or where this is not the case, because they constitute other body of persons. As pointed out by the Revenue, India has not accepted this part of the OECD view and not being a member of the OECD has expressed its reservation. That apart, it appears to me that it is also necessary to enquire whether that body of individuals is taxable in Switzerland. I have found that it is not taxable in Switzerland. If so, it cannot be said that the partnership can be deemed to be a person in this case. The argument that an entity need not actually be taxed but need only be liable to taxation for claiming the benefit of DTAC cannot come to the rescue of the partnership in this case. The partnership is not shown to be a person liable to taxation in Switzerland. 14. As far as the partners are concerned, they are not the recipients of the income. Their right is only to share the profits of the partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. 17. When the dispute is between two residents and it arises out of a contract between two Indian residents and it relates to disputes arising out of that contract for construction of a structure or project in India and the payments are made by an Indian company for representing it in an adjudication proceeding regarding that dispute, can it be said that the income does not arise in India or cannot be deemed to arise in India merely because, as per the agreement, the site of adjudication is outside India? In addition are the facts that there was a site visit and adjudication hearing within India? It appears to me that merely because the Adjudication proceedings are held outside India, India does not lose its nexus with the professional charges paid. 18. I am, therefore, satisfied that the source of the income received for rendering professional services by the partnership to the Indian company on the facts noticed above, is in India and not elsewhere. The partnership sends its invoices to the Indian company, its client and the payment is remitted from India. The fact that the major part of the services are rendered outside India in respect of a dispute arising in India ..... X X X X Extracts X X X X X X X X Extracts X X X X
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