The taxpayer in a recent case (a partnership law firm) was a tax resident of the United Kingdom. It had offices in various other countries, but not India.(1) The taxpayer received fees from clients in India in exchange for legal consultancy services. In its tax return, the taxpayer stated that in the absence of a permanent establishment in India, the fees that it had received were not subject to tax in India.
The tax officer observed that during the relevant fiscal year, employees of the taxpayer had rendered services in India for more than 90 days. The tax officer thus concluded that the taxpayer had a service permanent establishment in India under Article 5(2) of the India-UK tax treaty.
On further appeal to the Mumbai Tax Tribunal, the taxpayer contended that:
- if its employees' leave periods were excluded, the number of days over which it had rendered services in India was below the 90-day threshold; and
- the multiple counting of employees in India on a particular day is prohibited.
The tax tribunal – relying on its earlier decision referred to by the taxpayer – held that the multiple counting of employees on a particular day is prohibited under Article 5(2) of the India-UK tax treaty. Further, the tribunal held that since the employee in question had been on leave and no other employee of the taxpayer had rendered services in India, the period of leave had to be excluded from the calculation. As such, the tribunal held that:
- the taxpayer had not had a permanent establishment in India during the relevant fiscal year; and
- the fees received by the taxpayer were not taxable in India.
Endnotes
(1) M/s Linklaters v DDIT ITA, 3250/Mum/2006 (Mumbai Tax Tribunal).
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