TMI Blog2015 (9) TMI 1532X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The very plea of the assessee proceeds on fallacy that arm's length price adjustment can be made in respect of the transactions with the clients of the assessee. The revenues earned by the assessee are to be taken at actual figures and no adjustments are permissible in the same is to be rejected as well. The action of the authorities below is confirmed on this count as well. - Decided against assessee Reimbursement of expenses - considered as ‘income’ by the revenue - Held that:- As decided by Tribunal in AY 1995-96 we are inclined to uphold the grievance of the assessee. The 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S/Shri S. E. Dastur/Niraj Sheth, Dr. (Shri) Narendra Kumar, S/Shri S. E. Dastur/Niraj Sheth, Dr. (Shri) Narendra Kumar, S/Shri S. E. Dastur/Niraj Sheth, Dr. (Shri) Narendra Kumar For the Respondent : Dr. (Shri) Narendra Kumar, S/Shri S. E. Dastur/Niraj Sheth, Dr. (Shri) Narendra Kumar, S/Shri S. E. Dastur/Niraj Sheth, Dr. (Shri) Narendra Kumar, S/Shri S. E. Dastur/Niraj Sheth, Dr. (Shri) Narendra Kumar, S/Shri S. E. Dastur/Niraj Sheth, ORDER PER AMIT SHUKLA, AM: The aforesaid appeals have been filed by the assessee as well as by the revenue against separate impugned orders passed by CIT(A)-XXXIII, Mumbai for the quantum of assessment passed u/s 143(3) for the assessment years 1998-99, 1999-00, 2000-01 2001-02 respectively. Since the issues involved in all the appeals are common arising out of identical set of facts therefore, same were heard together and are being disposed off by way of this consolidated order. 2. For sake of convenience and understanding the issues involved we will take-up assessee s appeal for the assessment year 1998-99 being ITA No. 1355/Mum/2004 vide which, following grounds have been raised :- 1. The learned Commissioner (Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Pounds Sterling 139,924.64, being the amount assessable under the Income-tax Act. 10. The learned Deputy Commissioner erred in not examining the provisions of the Income-tax Act, to determine if the same were beneficial to the appellant. 11. The learned Deputy Commissioner erred in not considering the submissions made by the appellant vide letter dated March 27, 2001 regarding the position under the Income-tax Act. 9. The learned Commissioner (Appeals) erred in not directing the Assessing Officer alternatively to assess to tax only the fees of Pounds Sterling 139,924.64, being the amount assessable under the Income-tax Act . 3. At the outset set Ld. Senior Counsel, Shri S. E. Dastur submitted that most of the issues raised in the aforesaid grounds are either covered by the earlier orders of the Tribunal or have been rendered academic in light of such orders. In support, he filed a detailed chart of the issues raised and how they are covered by the orders of the Tribunal. Ld. DR also admitted that all the grounds raised are covered. 4. The assessee is a partnership firm in United Kingdom, which is mainly engaged in the practice of law and providing profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 107 and final conclusion are in para 106 107 which for sake of ready reference is reproduced hereunder :- 106. We are in considered agreement with this analysis in the UN Model Convention Commentary. We are thus of the considered view that, in a situation like the one that we are in seisin of, i.e. in which specific provisions for professional services or independent personal services or included services exist under art. 15, when services are rendered by the enterprise, art. 5(2)(k) will come into play, and when services are rendered by an individual, art. 15 will find application. Therefore, 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. 107. In view of the above discussions, we are unable to uphold the plea so strenuously argued by the learned counsel for the assessee, and we hold that the authorities below have rightly invoked t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged by general enterprises to its clients. It was contended that for the purpose of computing income of the P.E the value of services rendered by the PE is to be taken at market value of such services in India and not the price at which permanent establishment should be taken @ UK Pounds 100 per hour for the partners and UK Pounds 75 for assistance, which at best is the market price of such services rendered in India. It was submitted that when profits attributable to P.E. in India are to be computed, one has to take into account the revenue that the P.E in India would have earned, for rendering these services and prevalent market rates in India. These issues were decided against the assessee and thus, it was submitted by Ld. AR that the issues raised in Ground No.3 4 are also covered against the assessee by the aforementioned decision. For the sake of completeness the conclusion of the Tribunal as found in para 130 is reproduced below: 130. In view of the above discussions, in our considered view, the very plea of the assessee proceeds on fallacy that arm's length price adjustment can be made in respect of the transactions with the clients of the assessee. The reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ground no. 10 has not been pressed, therefore, the same is dismissed as not pressed. 16. Ground no. 11 relates to initiation of penalty proceedings u/s 271(1)(c) which is premature. Accordingly, the appeal of the assessee for AY 1998-99 is treated as partly allowed. ITA No. 1712/Mum/2004 : AY 1998-99 : Revenue s Appeal : 17. Now we will take-up revenue s appeal for assessment year 1998-99, being ITA No.1712/Mum/2004 vide which following grounds have been raised :- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in holding that the assessee was taxable in respect of only that portion of income that was related to the services performed in India. The Ld. CIT(A) has not appreciated the force of attraction principle in Article 7 of the Indo-UK DTAA. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that interest u/s 234B of the I.T. Act, 1961 was not chargeable in the case of the assessee on the ground that in the case of a non resident assessee, all sums chargeable to tax are liable to deduction of tax at source under section 195 of the Income-tax Act. 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of Hon ble jurisdictional High Court in the case of DIT vs NGC Networks LLc, reported in 313 ITR 87. He further pointed out that the High Court in the case of the assessee itself has also dismissed the revenue s appeal on this issue and hence the issue of chargeability of interest u/s 234B has attained finality in the case of the assessee. Accordingly, we also following the binding precedence, direct the Assessing Officer to delete the interest charged u/s 234B. 21. As regards issue raised in ground no. 3, that is, restricting the disallowance of reimbursement to the extent of 25% as against 100%, it has been pointed by Ld. Senior Counsel that the Tribunal has already held that no amount is disallowable and this ground is similar to ground no. 5 6 of the assessee s appeal. Accordingly, in view of the finding given therein that none of the reimbursement of expenses amount can be considered as income of the assessee this issue is decided in favour of the assessee and against revenue. Accordingly, ground no. 3 as raised by the revenue is dismissed. 22. So far as the issue relating to ground no. 4 that is, Ld. CIT(A) has erred in excluding receipts from Serium Institute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to adopt the gross income at 650,466, deduction for direct expenditure at 2,81,550, deduction for overheads at 32,539 and net profit at 3,36,377. 4. Without prejudice to the above, Commissioner (Appeals) erred in not directing the Assessing Officer to compute the total income at the number of hours charged at appropriate rates for an Indian lawyer viz. 130 per hour for a partner and 90 per hour for an assistant. 5. The learned Commissioner (Appeals) erred in upholding the action of the Assessing Officer in considering the reimbursement of expenditure of Pounds Sterling 4,88,255.25 as part of income of the appellant and as liable to tax in India. 6. The learned Commissioner (Appeals) erred in confirming the disallowance of disbursements to the extent of 25% of the disbursement claim proportionate to the fee relating to services rendered in India as compared to the total fees. The Commissioner (Appeals) ought to have directed the Assessing Officer to allow deduction for the entire amount of the disbursements. 7. The learned Commissioner (Appeals) erred in dismissing the following ground in appeal as infructuous: 10. The learned Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of a non resident assessee, all sums chargeable to tax are liable to deduction of tax at source under section 195 of the Income-tax Act. 1961. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in giving relief in respect of the disbursement particularly when complete details were not produced by the assessee. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was not justified in directing the AO to exclude the receipt from the Serum Institute of India Limited. The Ld. CIT(A) has not appreciate the force of attraction principle in Article 7 of the Indo-UK DTAA. 5. With prejudice to the above, the Ld. CIT(A) should have denied benefit of the Indo-UK DTAA as the assessee is a partnership firm in the UK where it is not taxed. Hence it is not a resident of UK under the said DTAA. The entire income would be, thus, liable to taxation as per the Income-tax Act, 1961 alone . 30. The aforesaid grounds are again similar to ground raised by the Department in ITA No. 1712/Mum/2004 therefore, in view of our finding given therein, all the grounds raised by the revenue are treated as dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer erred in not allowing deduction for remuneration paid by the appellant to its employees for services performed outside India. 8. The learned Commissioner (Appeals) erred in upholding the action of the Assessing Officer in applying the rate of tax of 35 per cent as against the correct rate of 30 per cent to the appellant s income. The learned Commissioner (Appeals) erred in holding that the correct rate of tax is that applicable to the partnership firm and not that applicable to an association of persons. 9. The learned Commissioner (Appeals) erred in not quashing the penalty proceedings under section 271(1)(c) of the Income-tax Act initiated by the learned Assessing Officer. 10. Learned Commissioner (Appeals) erred in not deciding the following grounds in the appeal: 8. The learned Income-tax Officer erred in holding that the appellant had not been able to produce all the invoices and that the bills did not contain any supporting. The appellant submits that all the invoices including those pertaining to reimbursement of expenditure were submitted vide letter dated February 6, 2003 and supporting in certain cases were submitted vide letter dated March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indo-UK DTAA. 5. With prejudice to the above, the Ld. CIT(A) should have denied benefit of the Indo-UK DTAA as the assessee is a partnership firm in the UK where it is not taxed. Hence it is not a resident of UK under the said DTAA. The entire income would be, thus, liable to taxation as per the Income-tax Act, 1961 alone . 35. The aforesaid grounds are again similar to ground raised by the Department in ITA No. 1712/Mum/2004 which we have followed and applied in ITA No. 1713/Mum/2004, therefore, in view of our finding given therein, all the grounds raised by the revenue are treated as dismissed. 36. In the result, appeal of the revenue stands dismissed. ITA 2812/Mum/2005 : AY 2001-02 : Assessee s Appeal : 37. In the impugned appeal, the assessee has raised exactly similar grounds (as raised by the assessee in AYs 1998-99, 1999- 2000 2000-01) has been taken by the assessee, which for the sake of ready reference are reproduced hereunder :- 1. The learned Commissioner (Appeals) erred in holding that the appellant had a permanent establishment in India under Article 5(2)(k) of the Tax Treaty between India and U.K. The learned Commissioner (Appeals) ought to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable to the partnership firm and not that applicable to an association of persons. 10. Learned Commissioner (Appeals) erred in not quashing the penalty proceedings under section 271(1)(c) of the Income Tax Act initiated by the learned Assessing Officer. 11. The Learned Commissioner (Appeals) erred in not deciding the following grounds in the appeal: 11. The learned Income-tax Officer erred in holding that the appellant had not been able to produce all the invoices and that the bills did not contain any supporting. The appellant submits that all the invoices including these pertaining to the reimbursement of expenditure were submitted vide letter dated February 26, 2004 and supporting in certain cases were submitted on March 4, 2004. 12. The learned Income-tax Officer erred in not allowing deduction for remuneration paid by the appellant to its employees for services performed outside India. 13. The learned Income-tax Officer erred in holding that the appellant was liable to tax in India under Article 15 of the tax Treaty between India and the U.K. The Income-tax Officer ought to have appreciated that Article 15 was applicable only to individuals and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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