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TMI Blog2012 (12) TMI 788X X X X Extracts X X X X X X X X Extracts X X X X ..... projects, majority of which was done in U.K. and some of the work was done in India by persons who visited for short period of time. He submitted that the main issue involved in the assessee's case was whether the assessee had a permanent establishment in India and the Tribunal vide its order dated 16th July, 2010 (supra) decided the same against the assessee by upholding the decision of the AO that the assessee had a service PE in India.. He submitted that the AO had brought to tax in India the entire income earned by the assessee from Indian projects although only a part of the services in relation to the said projects was performed in India. He submitted that the learned CIT(Appeals), however, agreed with the stand of the assessee that the income in respect of services rendered in India only was taxable in India being attributable to the PE in India relying inter alia on Article 7(3) of the India-UK DTAA. He submitted that the Tribunal, however, has accepted the stand of the Revenue on this issue that the entire income earned by the assessee from Indian projects is taxable in India in view of the force of attraction principle embedded in Article 7 of the India-UK DTAA and allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iple in the case of the assessee, has given rise to a mistake apparent from record in the order of the Tribunal. In support of his contention that the failure to consider the relevant statutory provision gives rise to a mistake apparent from record, the learned counsel for the assessee has relied on the following judicial pronouncements : 1. A.H. Wheeler and Co. P. Ltd. v. ITO [1973] 88 ITR 231 (All). The ITO omitted to apply the relevant provisions of the Finance Acts of 1958 and 1959 due to which, having regard to the dividend distributed by the assessee in the respective previous years, the super-tax rebate should have been reduced. This omission resulted in super-tax being undercharged. The High Court affirmed the Single Judge at page 233 and held that the omission to take into account the relevant statutory provisions of the Finance Acts constituted a mistake apparent from the record. 2. Indian Carbon Ltd. v. CIT [1989] 175 ITR 27 (Gau) The assessee claimed deduction of managerial remuneration of Rs. 2,07,783, out of which Rs. 54,000 was allowed by the AO and the balance was disallowed by applying the provisions of section 40(c). The Tribunal held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court that the order suffered from a mistake apparent from the record. 7. CIT v. Carbon & Chemicals India Ltd. [2012] 344 ITR 252 (Ker). The officer allowed excess deduction for unabsorbed depreciation contrary to clause (b) of Explanation (iii) to section 115JA in determining the assessee's book profits. He passed a subsequent order under section 154 rectifying the mistake. It was held that overlooking the provisions of clause (b) of Explanation (iii) to section 115JA resulted in a mistake apparent from the record. It is submitted that the provisions of section 154 are identical to section 254(2). 8. The ITO v. Chekka Sriramachandra Murthy [1984] 10 ITD (Hyd) 902 The ITO recognized a partial partition of HUF disregarding the prohibition in section 171(9) of the Act in this behalf. It was held that overlooking the provisions of section 171(9) resulted in a mistake apparent from the record. The Tribunal held in para 5 that the issue was not debatable as there was a clear contravention of the Act. It observed that neither the duration of the argument before it nor the other facts urged would automatically lead to a conclusion that the issue was a debatable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from the Indian projects is to be regarded as income attributable to the PE irrespective of whether the PE was involved in execution of the said projects or not. He contended that this conclusion drawn by the Tribunal is contrary to the decision of Hon'ble Supreme Court in the case of Ishikawajima-harima Heavy Industries Ltd. vs.. Director of Income-tax, Mumbai 288 ITR 408 wherein it was held in para No. 73 that for the profits to be attributable directly or indirectly, the PE must be involved in the activity giving rise to such profits. He contended that the conclusion drawn by the Tribunal thus is contrary to the decision of Hon'ble Supreme court in the case of Ishikawajima-harima Heavy Industries Ltd. (supra) which by itself constitutes a mistake apparent from record as held by the Hon'ble Supreme Court in the case of ACIT v. Saurashtra Kutch Stock Exchange Ltd. 305 ITR 227. 6. The learned counsel for the assessee submitted that even as per Article 7(1)(c) of UN Model Convention, the scope is limited to activities carried on in India and not to the activities carried on by the assessee in London. He submitted that the Tribunal has held the provisions of Article 7(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Tribunal on this issue before the Hon'ble Bombay High Court. He invited our attention to the copy of the said appeal along with relevant annexures placed in the paper book and submitted that the submissions made therein clearly show that a view has been taken by the Tribunal on this issue after interpreting the relevant provisions of the Treaty. He contended that when the decision of the Tribunal on this issue has given rise to substantial question of law as claimed by the assessee himself, the present application filed by the assessee seeking rectification of the order of the Tribunal on the very same issue u/s 254(2) is not justified. In support of this contention, he relied on the decision of Hon'ble Patna High Court in the case of Income-tax Officer v. Income-tax Appellate Tribunal (Pat) 229 ITR 651. He also relied on the decision of Hon'ble Bombay High Court in the case of Commissioner of Income-tax v. Ramesh Electric and Trading Co. 203 ITR 497 wherein it was held that error of judgment cannot be rectified u/s 254(2). He also relied on the decision of Hon'ble Supreme Court in the case of Assistant Commissioner of Income-tax v. Saurashtra Kutch Stock Exchange Ltd. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rival submissions and also perused the relevant material on record. As submitted by the assessee in the present miscellaneous application and further reiterated by the learned counsel for the assessee at the time of hearing before us, the main mistake that has allegedly crept in the order of the Tribunal is that the decision on the issue of profit attributable to the PE of the assessee in India has been decided by the Tribunal ignoring or overlooking Article 7(3) of India UK DTAA which is relevant to decide the said issue. In our opinion, there can not be any quarrel with the proposition, which is also supported by various judicial pronouncements cited by the learned counsel for the assessee, that non-consideration of relevant statutory provision constitutes a mistake apparent from record. The question, however, is whether the Tribunal in the present case can be said to have rendered its decision on the issue of computation of profit attributable to the PE of the assessee in India without considering Article 7(3) of the India UK DTAA as alleged by the assessee. In this regard, it is observed that the entire income earned by the assessee from projects in India was brought to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the assessee was taxable in respect of only that portion of income that was related to services performed in India, and did not appreciate the scope of "force of attraction" principle embedded in Article 7(1) of the India-UK tax treaty The Tribunal also took note of the reasons or basis given by the learned CIT(Appeals) to give relief to the assessee on this issue in paragraph No. 140 which is reproduced hereunder: "As we have seen earlier in this order, the impugned relief given by the CIT(A) was for three reasons reasons - first, the twin factors that the "income earned by the appellant were not in the nature of fees for technical services as defined in section 9(1)(vii) and therefore the AAR Ruling in the case of Steffen, Roberstson & Kirsten Consulting Engineers (supra) will not apply to the facts of the appellant" and that "as per Explanation (a) to Section 9(1)(i), even if there is a business connection in India, only income related to operations carried out in India is taxable in India"; - second, that "in the case of Clifford chance (82 ITD 106) the Hon'ble Mumbai Bench of ITAT has held that the income relating to services rendered outside India is not taxable in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is attributable to the permanent establishment in India, can be taxed in India", and that, "..........only that portion of income relating to rendering of such services in India can be attributed to the services PE of the appellant in India". This approach of the CIT(A) is clearly the force of attraction rule embedded in Article 7(2) of India UK tax treaty. In this view of the matter, We cannot, and do not, approve the action of the CIT(A) in this respect. 146. The extension of taxability of profits of PE by including profits directly or indirectly attributable, is akin to the provisions of Article 7(1)(b) and 7(1)(c) of the UN Model Convention which provides that in addition to the "profits attributable to the permanent establishment" the taxability of PE profits will also extend to "(b) sales in that other State of goods or merchandise of the same or similar kind as those sold through that permanent establishment; or (c) other business carried on in that other State of the same or similar kind as those effected through that permanent establishment". In our considered view, the connotations of "profits indirectly attributable to permanent establishment" will extend to these two c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without any connection with the permanent establishment. (Emphasis supplied by us) 148. In our considered view, therefore, the connotations of "profits indirectly attributable to permanent establishment" do indeed extend to incorporation of the force of attraction rule being embedded in Article 7(1). The way it needs to be implemented, on the facts of the present case, is like this. In addition to taxability of income in respect of services rendered by the PE in India, any income in respect of the services rendered to an Indian project, which is similar to the services rendered by the permanent establishment, is also to be taxed in India in the hands of the assessee - irrespective of the fact whether such services are rendered through the permanent establishment, or directly by the general enterprise. There cannot be any professional services rendered in India which are not, at least indirectly, attributable to carrying out professional work in India. This indirect attribution, in view of the specific provisions of India UK tax treaty, is enough to bring the income from such services within ambit of taxability in India. The twin conditions to be thus satisfied for taxability of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Keeping in view this text and context of the order of the Tribunal, we are of the view that it cannot be said that the Tribunal has ignored or overlooked Article 7(3) of India-UK treaty while rendering its decision on this issue and that there is any mistake apparent from record in the order of the Tribunal on account of non-consideration of the said article as alleged by the assessee. 12. As regards the decision of Hon'ble Supreme Court in the case of Ishikawajima-harima Heavy Industries Ltd. v. Director of Income-tax, Mumbai (supra), it is observed that the decision rendered therein regarding determination of income that can be taxed in India only to the extent as attributable to part played by the permanent establishment in the relevant transaction was based on the facts and circumstances of that case as well as Article 7 of DTAA between India and Japan as well as para 6 of protocol to the said treaty whereas the decision in the present case has been rendered by the Tribunal as per Article 7 of Indo-UK treaty which as found by the Tribunal is akin to Article 7(1)(b) and 7(1)(c) of the UN Model Convention. The decision in the present case, thus has been rendered by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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