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TMI Blog2018 (9) TMI 1741X X X X Extracts X X X X X X X X Extracts X X X X ..... a tax resident of United Kingdom (UK). As stated by the Assessing Officer, the assessee offers legal consultancy through its clients all over the world including India. For the assessment year under dispute, the assessee filed its return of income on 28th November 2011, declaring total income of Rs. 2,22,49,504. During the assessment proceedings, the Assessing Officer after verifying the return of income and other information called for, found that in the relevant previous year the assessee has provided legal services to various clients and the work relating to such services was partly performed in India and partly outside India. He also noted that the assessee has provided services to M/s. Linklaters Allen and Gledhil Pte. Ltd. which in turn provided services to their client which has Indian connection. In course of the assessment proceedings, though, the assessee contended that it does not have a fixed place Permanent Establishment (PE) in India, however, the Assessing Officer rejected such contention of the assessee on the reasoning that assessee's employees / personnel were located and rendered services in India for more than 90 days in aggregate during any 12 month period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, the Tribunal held that since the income is not taxable under the DTAA, it cannot be brought to tax as FTS under section 9(1)(vii) of the Act. Thus, he submitted, in view of the aforesaid decision of the Tribunal the disputed amount is not taxable in India. 7. The learned Departmental Representative, though, relied upon the observations of the Assessing Officer and the DRP, however, he fairly submitted that the issues raised in ground Nos. 6 and 7, have been decided in favour of the assessee by the Tribunal in assessment year 2011-12, and in view of such decision the Tribunal did not decide the issue raised in ground no. 5. 8. We have considered rival submissions and perused materials on record. Undisputedly, the Assessing Officer relying upon his observations in the preceding assessment year held that the assessee is not entitled to the benefit of India-UK DTAA as it is not required to pay tax in UK. Further, the Assessing Officer also held that the income received by the assessee is otherwise taxable as FTS both under section 9(1)(vii) of the Act as well as under the DTAA. However, the Tribunal, while deciding the issue of applicability of India-UK DTAA to the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6 and 7 are allowed and the issues raised in ground no.5 having become redundant will not require adjudication. 11. In ground No.8.1, the assessee has challenged the decision of the Departmental Authorities in holding that the assessee has a PE in India as per Article-5(2)(k)(i) of the India-UK DTAA. As could be seen, the Assessing Officer while framing the draft assessment order held that, since, the assessee through its employees or other personnel has rendered services in India for a period aggregating more than 90 days within the period beginning from 1st April, 2011 to 31st January, 2012, it has to be considered that it has PE in India. 12. The learned Sr. Counsel for the assessee, at the outset, fairly submitted that this issue was not raised either before the Assessing Officer or the DRP and is being raised for the first time before the Tribunal. Hence, he submitted, the ground may be treated as an additional ground. Proceeding further, the learned Sr. Counsel submitted, the term "any 12 month period" as mentioned in Article- 5(2)(k)(i) of the India-UK DTAA has not been defined therein. He submitted, the 12 month period has different connotation in different countries, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in India. Section 5 of the Act which defines scope of total income refers to the total income of any previous year of a person who is a resident. Similarly, section 6 of the Act postulates that an individual or a HUF or a company or any other person can be considered to be a resident in India in any previous year if it satisfies the condition mentioned therein. Thus, for the purpose of being considered as a resident in India a reference has been made to the previous year. Section 4 of the Act, which is the charging section, mandates that a person shall be charged to income tax in respect of the total income of the previous year. The expression "previous year" has been defined under section 3 of the Act to mean the financial year immediately preceding the assessment year. Thus, as per the provisions of domestic law, the 12 month period would mean the previous year or the financial year which is the unit for which the income of a person is taxable. If the provisions of Article 5(2)(k)(i) of the India-UK DTAA is read harmoniously with the provisions of the Act referred to above, it will be fair and reasonable to conclude that the expression "any 12 month period" mentioned in Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own case for assessment year 2011-12, Linklaters LLP (supra), the Tribunal has restored the issue to the Assessing Officer for fresh adjudication. However, subsequently, the Tribunal in M.A. no. 238/Mum./2017, dated 12th March 2018, has modified the appeal order by directing the Assessing Officer to delete the addition made towards income received from services rendered outside India. In view of the aforesaid, we hold that the income derived by the assessee from services rendered outside India is not taxable in India. This ground is allowed. 19. In view of our decision in ground Nos.8.1 and 8.2, ground Nos. 8.3, 8.4 and 8.5 are not required to be adjudicated upon. 20. In ground No. 9, the assessee has challenged the decision of the Departmental Authorities in holding that the income earned by the assessee is taxable under Article-15 of the India-UK DTAA. 21. The learned Sr. Counsel, at the outset, submitted that the issue is covered by the decision of the Tribunal in assessee's own case for assessment year 2011-12 (supra). 22. The learned Departmental Representative fairly agreed with the aforesaid submissions of the learned Sr. Counsel. 23. Having considered rival submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are in the nature of expenses. These are apparently not items of revenue. These are mostly expenses of routine nature incurred by the assessee in the normal course of business. It is also noted that this issue has already been decided by the Tribunal in case of Linklaters in the aforesaid judgments. It is noted that Tribunal in AY. 1995-96 held as under:- "131. We have noted that while Assessing Officer noted assessee's claim that the reimbursements of expenses are in respect of actual expenditure incurred by the assessee, on behalf of clients, and have no element of mark up or income, he treated 50 per cent of such reimbursements of expenditure as income on the ground that "the assessee has not been able to produce all such bills/invoices and considering the facts these bills do not, in any case, have any supporting evidences" and thus brought to tax an amount of Rs. 2,12,23,219, the CIT(A) upheld the action of the Assessing Officer to the extent of 15 per cent of the total amount of reimbursement. The CIT(A) also held that the reimbursements of expenses received by the assessee constitute income of the assessee. It is also important to bear in mind the fact that the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onjectures. In view of the above discussions, we direct the Assessing Officer to delete the disallowance of expenses as sustained by, the CIT(A) and hold that no part of reimbursements of expenses received by the assessee on the facts of this case, be treated as income of the assessee. The assessee gets the relief accordingly. 41. It is noted from the perusal of orders passed by the lower authorities that AO did not bring anything on record to show that whether any element of mark-up was involved in the expenses, which have been reimbursed to the assessee. However, that is even not the case of the Revenue. Under these circumstances, it cannot just be presumed that income element was involved in the reimbursement of expenses. Therefore, respectfully following the orders of the Tribunal of earlier years, these grounds are allowed and decided in favour of the assessee. The AO is directed to delete the disallowance made in this regard. As a result, these grounds are allowed." 28. Facts being identical, respectfully following the aforesaid decision of the Co-ordinate Bench, we delete the disallowance made by the Assessing Officer. Ground raised is allowed. 29. Ground No. 11 is on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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