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TMI Blog2017 (3) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... jecting the claim of the appellant that no income can be taxed in India since the threshold of 90 days did not exceed during the 12 months period relating to November 2008 to March 2009. 3. The learned Commissioner (Appeals) ought to have appreciated that the return of income filed by the appellant declaring income at Rs. 12,543,155/- was without prejudice to the claim stated in grounds no 1 and 2 above and hence the learned Commissioner (Appeals) ought to have adjudicated the plea in the course of the appellate proceedings. Computation of Income liable to tax in India 4. The learned Commissioner (Appeals) erred in upholding the action of the Assessing Officer in treating the entire receipt of GBP 3,302,927 as liable to tax in India. 5. The learned Commissioner (Appeals) ought to have directed the Assessing Officer to exclude the income earned during the period November 2008 to March 2009 in the absence of permanent establishment in India in terms of Article 5(2)(k) of the India-UK Tax Treaty. 6. The learned Commissioner (Appeals) ought to have directed the Assessing Officer that only fees relatable to the services rendered in India can be taxed as attributable to the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner (Appeals) ought to have specifically directed the Assessing Officer to delete interest of Rs. 27,921,562 levied under section 234B. India - UK tax treaty benefit 16. The Commissioner (Appeals) ought to have specifically held that the appellant is entitled to the benefit of India-UK tax treaty. Penalty proceedings under section 271(1)(c) 17. The learned Commissioner (Appeals) erred in not quashing the penalty proceedings under section 271(1)(c) of the Income Tax Act initiated by the Assessing Officer." 2 The brief facts of the case are that the assessee is a limited liability partnership incorporated in United Kingdom, offering legal consultancy to its various clients all over the world including India. During the year under consideration the assessee had rendered legal consultancy services in connection with different projects to various concerns, both within and outside India. The assessee filed its return of income as on 30.03.2010, declaring an income of Rs. 1,25,43,155/-. The assessee by way of a 'NOTE' forming part of the 'Statement of Total Income' filed alongwith its return of income, had therein categorically stated as under: "NOTES: - 1. PAN : AABF12160M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of the assessment proceedings the A.O took cognizance of the fact that the assessee had in its return of income by way of a 'Note' therein categorically mentioned that as the threshold limit of 90 days contemplated in Article 5(2)(k)(i) of the India - U.K. Tax Treaty (for short 'tax treaty') was not exceeded in any twelve months period between November, 2008 to March, 2009, therefore its income in respect of services rendered during the said period were not liable to tax in India. The A.O however being of the view that the return of income had been prepared by the assessee presumably on the basis that it had exceeded the 30 days threshold limit provided in Article 5(2)(k)(ii) of the India-U.K Tax Treaty, and thus on its own had offered the income in respect of services rendered in India for tax, therefore concluded that by so doing the assessee had himself accepted that it had a 'PE' in India during the entire year under consideration. The A.O further being of the view that as the place of accrual of income from services is not the place where the services are rendered, but the place where the services are utilized, therefore for the said reason scrapped the claim of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income of the assessee in respect of services rendered during the said period were not liable to tax in India. The assessee averred before the CIT(A) that pursuant to a conjoint reading of Article 5(2)(k)(ii) and Article 10 of the India - U.K. Tax Treaty, as no services were being provided by the assessee to any associated enterprise located in India, it could thus safely be gathered that the provisions of the Article 5(2)(k)(ii) were not applicable to the case of the assessee. The CIT(A) though took cognizance of the claim of the assessee that during the year under consideration as the threshold limit of 90 days in any twelve month period mentioned in Article 5(2)(k)(i) had exceeded only during the period April, 2008 to October,2008, therefore the assessee could not be held to be having a service 'PE' in India for the period November, 2008 to March, 2009, but however being of the view that as the return of income was filed for whole of the accounting year, therefore the claim of the assessee was not tenable. The CIT(A) further observed that as the assessee had on its own offered to tax its income, thus even on the said basis the contention of the assessee that it had no 'PE' in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of penalty proceedings u/s 271(1)(c) in the body of the assessment order, therein being of the view that as the said contention was premature, therefore dismissed the same. The CIT(A) thus inter alia deliberating on certain other issues, including the aforesaid issues which are relevant for the present appeal, thus partly allowed the appeal of the assessee. 5. That before us the assessee has assailed the very finding of the AO that the assessee had a 'PE' in India under Article 5(2)(k) of the India - U.K. Tax Treaty for the entire year, which order of the AO, as observed by us hereinabove, had thereafter been sustained by the CIT(A). The learned authorized representative for the assessee (for short 'A.R.') at the very outset submitted that though the 'fees for work done in India' by the assessee amounting to 183,354 GBP had been offered to tax by the assessee in its return of income for the year under consideration, however in the 'Notes' forming part of its 'Statement of total Income' filed with the return of income, it was duly clarified that the aforesaid amount was being reflected as income liable to tax in India in light of the observations of the CIT(Appeals) in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of the assessee. The Ld. A.R therein in order to fortify his contention that the assessee had no service 'PE' during the period November, 2008 to March, 2009, therein took us to Page 39 to 43 of the 'Paper book' (for short 'APB'), which is a table reflecting the day-wise stay of the 5 employees/partners of the assessee who had rendered their services during the financial year 2008-09 in India, which therein revealed that the total stay in India on 'day basis' worked out to 58 days. It was averred by the Ld. A.R that even if the said period was to be computed on the basis of 'Man-days', then also the same worked out at 78 days. It was thus submitted by the Ld. A.R that in neither of the situations the stay of the employees/partners in India during the year under consideration was more than 90 days. The Ld. A.R further submitted that the furnishing of services by the assessee in India was not more than 90 days within any twelve months period between November, 2008 to March, 2009. The Ld. A.R in order to fortify his interpretation of the term "more than 90 days within any twelve months period", therein emphasized that the purposive, conscious and intentional usage of the term 'a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India' of 183,354 GBP for tax, which at the first blush would give an impression that the assessee had accepted that it had a 'PE' in India, but then a perusal of the 'Statement of total income' so filed by the asssessee along with its return of income therein reveals that the assessee had offered the said income for tax in India, only pursuant to and prompted by the observations of the CIT(A) in its case in the preceding years, which thus cannot be taken as a voluntary acceptance on the part of the assessee that it had a 'PE' in India for whole of the year under consideration. We further find from a perusal of the 'Statement of total income' filed by the assessee alongwith its return of income, placed at Page 28 of the 'APB', to which our attention was drawn by the Ld. A.R, that the assessee had categorically and in unequivocal terms stated therein that as the threshold limit of 90 days mentioned in Article 5(2)(k)(i) of the India - U.K. tax treaty had not exceeded in any twelve months period between November, 2008 to March, 2009, therefore the income in respect of services rendered during the said period were not liable to tax in India. We are thus of the considered opinion t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as well as had clearly in the 'Statement of total Income' filed alongwith its return of income had demonstrated the reasons due to which the income was being offered for tax in the return of income. 6.1 We are of the considered view that though the lower authorities had rejected the claim of the assessee that it did not have any 'PE' during the period November, 2008 to March, 2009, and rather concluded that the assessee had a 'PE' in India during the year under consideration, however we find that no concrete reasoning which could justify dislodging of the claim of the assessee and support the view so arrived at by the lower authorities is discernible from the respective orders of the lower authorities. That as a matter of fact, the orders of the lower authorities are found to be more haunted by the fact that the assessee had offered its income for tax in India, rather then controverting the contentions raised by the assessee before them in support of its claim. The observations of the lower authorities in concluding that the assessee had a 'PE' during whole of the year, is devoid of any reasoning and is much or less a summary rejection of the claim of the assessee on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exceeded in any twelve months period between November, 2008 to March, 2009. Hence, the assessee claims that income in respect of services rendered during this period is not liable to tax in India." , is thus found to be absolutely perverse and contrary to the facts emerging from the records. (2). The CIT(A) alike the A.O, instead of adjudicating the claim of the assessee that it had no 'PE' during the period November, 2008 to March, 2009 on the basis of a well reasoned and speaking order, was more prejudiced for the reason that as the assessee had voluntarily offered its income for tax in the return of income, thus it could be concluded that the assessee accepted that it had a service 'PE' in India during the year under consideration. (3). The CIT(A) discarded the aforesaid claim of the assessee that it had no 'PE' in India during the period November, 2008 to March, 2009, by merely stating that the income tax return is to be filed for whole accounting year, i.e 01.04.2008 to 31.03.2009 in the case of the assessee. We are pained to observe that there is neither any clarity, nor a strong reasoning in the observations of the CIT(A) which could go to justify rejection of the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an India and U.K, therefore it could safely be discerned that the provisions of Article 5(2)(k)(ii) were not applicable to the case of the assesseee. We however find that despite drawing of adverse inferences on the part of the A.O, who on the basis of findings arrived at the back of the assessee had most arbitrarily assumed that the return must have been prepared by the assessee on the basis that it had a 'PE' in India as per Article 5(2)(k)(ii), without affording any opportunity of being heard to the assessee on the said issue, despite clear and categorical averment by the assessee in the 'Statement of total income' filed with the return of income that Article 5(2)(k)(ii) was not applicable in its case, as well as clear rebuttal of the applicability of the same on the basis of exhaustive submissions filed before the CIT(A), the same had however not been adverted to and adjudicated by the latter. 6.2 We are of the considered view that in light of our aforesaid observations, on the one hand the contentions of the Ld. A.R in support of his specific claim that the provisions of Article 5(2)(k)(i) of the tax treaty were not applicable in its case, was not at all adverted to and adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned in the 'Statement of total income' filed by the assessee alongwith its return of income, from where it could safely be gathered that the income had been offered for tax by the assessee in light of the observations of the CIT(A) arrived at in its case for the preceding years and certain other judicial pronouncements as did hold the ground at the relevant point of time. We find that though interestingly the fact that the assessee had offered its income for tax has been taken cognizance of by the lower authorities for supporting or rather arriving at adverse inferences in the hands of the assesseee, however most conveniently the fact that the assessee had categorically stated that it had no 'PE' in India for the period November, 2008 to March, 2009 as per Article 5(2)(k)(i), read in light of the reasons on the basis of which such a conclusion was arrived at, as well as the categorical averment of the assessee that the provisions of Article 5(2)(k)(ii) were not applicable in its case, all of which facts were clearly discernible from the 'Statement of total income' filed by the assessee alongwith its return of income, had most conveniently been ignored by the lower authorities in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings, as well as during the course of the appellate proceedings. We will mince no words in directing the A.O to adjudicate the issue under consideration after addressing and dealing with all the contentions of the assessee on the basis of a well reasoned and a speaking order. Needless to say, the A.O shall afford reasonable opportunity of being heard to the assessee during the course of the set aside proceedings, and the assessee shall remain at a liberty to furnish submissions or lead fresh documentary evidence in support of his contentions during the course of the set aside proceedings. The 'Grounds of appeal No(s). 1 to 3' so raised by the assessee are thus allowed for statistical purposes. 7. That as regards the other grounds of appeal, i.e 'Ground of appeal No(s). 4 to 19' so raised by the assessee before us, we are of the considered view that as the substantive issue involved in the present case, i.e as to whether the assessee as per Article 5(2)(k) of the India - U.K. Tax Treaty was having a 'PE' in India during the period November, 2008 to March, 2009, or not, has been restored by us to the file of the A.O for fresh adjudication and the fate of the same will ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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