TMI Blog2012 (12) TMI 788X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(Appeals) and after taking the same into consideration, it was held by the Tribunal that the provisions of Article 7(1) in India-UK treaty included the same results as sought to be achieved by Article 7(1)(c) of the UN Model Convention. Accordingly, relying on the UN Model Convention commentary on this issue, a considered view was taken by the Tribunal that the connotation of "profits indirectly attributable to permanent establishments" did extend to incorporation of the force of attraction rule being embedded in Article 7(1). Keeping in view this text and context of the order of the Tribunal, 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. Contention raised on behalf of the assessee that the scope of Article 7(1)(c) of U.N. Model Convention is limited to activities carried on in India only, it is observed that the Tribunal has taken a considered view on interpretation of the said Article that the entire profit relating to services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 allowed ground No. 2 of the appeal of the Revenue. He invited our attention to the relevant portion of the Tribunal's order as contained in paragraph No. 139 to 149 on this issue and contended that the Tribunal has referred to the provisions of Article 7(1) and 7(2) of the India-UK DTAA while deciding this issue ignoring entirely the provisions of Article 7(3) of the said treaty. He submitted that the Tribunal has relied on Article 7(1)(b) and 7(1)(c) of the UN Model Convention to decide the issue of attribution of profit holding that the said provisions are akin to the provisions of Article 7(1) and 7(2) of the India-UK DTAA. In this regard, he invited our attention to the comparative chart prepared and furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh 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 that the entire remuneration was allowable as it was reasonable. On a miscellaneous application, the Tribunal noted that it had overlooked the amendment to section 40(c), which limited the maximum allowance of remuneration to Rs.72,000. Accordingly, the Tribunal passed a rectification order restricting the allowance to Rs.72,000. The High Court held that section 40(c) was capable of interpretation only as done by the Tribunal and accordingly upheld the Tribunal's rectification order. 3. CIT v. Kesaria Tea Co. Ltd. [1998] 233 ITR 700 (Ker) The assessee, an exporter of goods, was granted weighted deduction under section 35B of the Act. As per 35B(1A), weighted deduction was not to be allowed unless the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 one. The Tribunal held that since the language of the statutory provision was clear, an action in contravention thereof constituted a mistake apparent from the record. 9. Asstt. CIT v. Electrical Transformer Co. [1999] 70 ITD 48 (Indore) The return of loss was not filed within the due date prescribed under section 139(1) but the loss was allowed contrary to the provisions of section 80. The Tribunal held that ignorance of section 80 resulted in a mistake apparent from the record. 4. The learned counsel for the assessee further submitted that the force of attraction principle contained in the UN Model Convention is completely different from the "direct and indirect attribution" principle contained in India-UK DTAA and the conclusion reached by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 India-UK DTAA and the provisions of Article 7(1)(c) of UN Model Convention to be para materia overlooking the vital and relevant provisions of Article 7(3) of India-UK DTAA which has given rise to a mistake apparent from record as the relevant statutory provisions applicable in the case have been ignored. He submitted that Article 7(1) of India-UK DTAA has to be read with Article 7(2) and 7(3) and the decision rendered by the Tribunal reading Article 7(1) in isolation has resulted in a mistake apparent from record as the relevant provision of Article 7(3) has been overlooked. 7. The learned DR, on the other hand, submitted that Article 7(3) of India-UK DTAA was reproduced by the learned CIT(Appeals) in paragraph No. 6.5 of his order impugned before the Tribunal and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-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. - 305 ITR 227 to contend that any error which is required to be explained by long drawn out process of reasoning on points where there may conceivably be two views is not a mistake apparent from record rectifiable u/s 254(2). He submitted that the attempt that is now being made by the learned counsel for the assessee to analyze comparatively the Articles of India-UK DTAA and UN Model Convention at this stage during the proceedings for rectification u/s 254(2) is not permissible. He contended that there is thus no mistake apparent from record in the order of the Tribunal as alleged by the assessee in the present application calling for any rectification u/s 254(2). 9. In the rejoinder, the learned counsel for the assessee submitted that there is nothing in the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stake 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 by the AO in the hands of the assessee being attributable to the PE in India. This action of the AO was disputed by the assessee in an appeal filed before the learned CIT(Appeals) wherein the grievance projected by the assessee in ground No.5 was that the AO erred in including in the total income the amounts invoiced by the assessee that were relatable to the services rendered outside India. As claimed by the assessee in the said ground, the AO ought to have assessed the assessee only in respect of fees which were relatable to work performed in India. In support of this ground, reliance, inter alia, was placed on behalf of the assessee before the learned CIT(Appeals) on Article 7(3) which was reproduced by him in his appellate order in paragraph No. 6.5. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 India"; and - third, that "as per Article 7, only that portion of income, which is attributable to the permanent establishment in India, can be taxed in India". The Tribunal then proceeded to deal with the correctness of the reasons/basis given by the learned CIT(Appeals) in paragraph No. 141 to 148 of its order. In paragraph No. 141, the Tribunal observed categorically that after having heard the rival submissions and having carefully considered the factual matrix of the case as also the applicable legal position, none of the three reasons given by the learned CIT(Appeals) to give relief to the assessee on this issue was found to be sustainable in law. The Tribunal then proceeded further to give its reasons for the said decision and after dealing with the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 categories. These categories clearly incorporates a force of attraction rule. The basic philosophy underlying the force of attraction rule is that when an enterprise sets up a permanent establishment in another country, it brings itself within the jurisdiction of that another country to such a degree that such another country can properly tax all profits that the enterprise derives from that country ‐ whether the transactions are routed and performed through the PE or not. 147. The provisions of Article 7(1) in India UK tax treaty include the same results as sought to be achieved by Article 7(1)(c) of the UN Model Convention. As to the scope of this provision, we find guidance from the UN Model Convention Commentary in this regard. On this issue, the UN Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly 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 related profits are (i) the services should be similar or relatable to the services rendered by the PE in India; and (ii) the services should be 'directly or indirectly attributable to the Indian PE' i.e. rendered to a project or client in India. In effect thus, entire profits relating to services rendered by the assessee, whether rendered in India or outside India, in respect of Indian projects is taxable in India. That is precisely what the Assessing Officer had done. The grievance of the Assessing Officer is indeed justified and we uphold the same. We, therefore, vacate the relief granted by the Commissioner (Appeals) and restore the order of the Assessing Officer in this regard." 11. Keeping in view the relevant portion of the order of the Tribunal on this issue which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on its own facts and by applying the provisions of different Treaty. In our opinion, it therefore, cannot be straightway inferred that the same is contrary to the decision of the Hon'ble Supreme Court in the case of Ishikawajima-harima Heavy Industries Ltd. (supra) giving rise to a mistake apparent from record. As regards the contention raised on behalf of the assessee that the scope of Article 7(1)(c) of U.N. Model Convention is limited to activities carried on in India only, it is observed that the Tribunal has taken a considered view on interpretation of the said Article that the entire profit relating to services rendered by the assessee whether rendered in India or outside India, in respect of Indian Project is taxable in India and it is not permissible to review t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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