IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORIGINAL SIDE
INCOME TAX APPEAL NO.181 OF 2002
WITH
INCOME TAX APPEAL No. 182 OF 2002
Clifford Chance, a )
partnership firm having its )
office at 200 Aldersgate )
Street, London ECIA 4JJ, The) Appellant
United Kingdom. .. (Org. Appellant)
.. Versus ..
The Deputy Commissioner of )
Income Tax, Circle 2(6), )
Mumbai, having his office at)
Aayakar Bhavan, Maharshi ) Respodent
Karve Road, Mumbai 400 020 ) (Orig. Respondent)
Mr. Harish Salve, Senior Advocate with Mr. F.
V. Irani with Mr. N. Sahu i/b S. K. Srivastav
& Co. for the appellant.
Mr. Parag Vyas a/w P. S. Sahadevan, for the
respondent.
CORAM : DR. S. RADHAKRISHNAN AND
V.C. DAGA, JJ.
JJ
DATED : 19TH DECEMBER, 2008
JUDGMENT : [ Per : V.C. DAGA, J.]
1. These appeals are filed by the assessee under
Section 260A of the Income-tax Act, 1961
(hereinafter referred to as “the Act” for short)
against the orders of the Income Tax Appellate
Tribunal(“ITAT” for short) both dated 27th
September, 2001 in I.T.A.Nos. 1327 and
1328/Mum/2001, whereby the appeals filed by the
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assessee against the orders of the C.I.T.(A) both
dated 19.12.2000 which were dismissed, were admitted
for final hearing on the following substantial
questions of law.
(A) Whether the ITAT’s conclusion that the
Appellant had not proved that it had
rendered services outside India is
vitiated in law on account of –
(i) it being contrary to the
evidence and the material which
was admittedly on record and
ig which had been accepted, after
enquiry, by the respondent and
the CIT (A)?
(ii) that ITAT’s ignoring the
material and the evidence which
was admittedly on record and
which had been accepted, after
enquiry, by the respondent and
the CIT (A)?
(iii) the ITAT ignoring relevant
facts, particularly (but not
limited to) the fact that 6 out
of 7 of the Appellant’s clients
were Non-residents?
(B) On the facts and circumstances of the
case, the Appellant being a law firm
providing legal advice and being
remunerated on an hourly rate basis,
whether the ITAT erred in law in not
ascertaining the income of the Appellant
in India on the basis of the services
rendered in India as measured by the
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billed hours of work done in India ?
FACTUAL SCENRAIO:
—————-
2. The factual scenario common to both appeals
arising out of the orders relating to the Assessment
Years 1996-97 and 1996-97, lies in narrow campass.
The facts are drawn from Appeal No. 1327/Mum/2001
relating to the Assessment Year 1996-97 for the sake
of clarity. Both the appeals are being disposed of
by this ig common order. The appellant is an
international firm of solicitors resident in the
United Kingdom (UK). It has no office or fixed base
in India.
3. The appellant, during the previous year ended
on March 31, 1996 (relevant to the Assessment Year
1996-97), was appointed as English law legal
advisers for three projects in India, namely :
1. Bhdravati Power Project
2. Vizag Power Project; and
3. Ravva Oil and Gas Fields
Project.
4. The Bhadravati Power Project was a three-way
joint venture for the construction of a power plant
between three participants : Ispat Industries Ltd.,
GEC Alsthom Group and Electricite de France, GEC
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Alsthom Group and Electricite de France were not
resident in India. Only one of them, Ispat
Industries Ltd., was a resident in India.
5. The Vizag Power Project was a two-way joint
venture project for the construction of a power
plant between two non-resident participants, namely,
National Power PLC and Machen Development
Corporation.
6.
only client
The Ravva Oil and Gas Fields Project, was the
of the assessee, who was a non-resident
Australian company called Chase Manhattan
(Australia) Limited.
7. The Appellant, during the previous year ended
on March 31, 1997 (relevant to the Assessment Year
1997-98), was appointed as English law legal
advisers additionally for the Vemagiri Power
Project.
8. In the case of the Vemagiri Power Project,
assessee’s client, Avondale Ltd. was also not
resident in India.
9. The position in regard to the Four Projects
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has been summarized in tabular form given below :
:———–:———————:—————-:
: Project : Appellant’s : Whether :
: : Client : Resident :
: : : in India. :
:———–:———————:—————-:
: (1) : (2) : (3) :
: :
:———–:———————:—————-:
: : : :
: Bhadravati: Electric De : Non-resident. :
: Power : France : :
: Project : : :
: : GEC Alsthom : Non-resident. :
: : Group : :
: : : :
: : Ispat Industries : Resident. :
: ig : Limited. : :
:———–:———————:—————-:
: : : :
:Vizag Power: Machen Development : Non-resident. :
: Project : Corporation : :
: : : :
: : National Power plc : Non-resident. :
: : : :
————:———————:—————-:
: : : :
Ravva Oil and Chase Manhattan : Non-resident. :
: Gas : Bank : :
: Fields : : :
: Project : (Australia) Limited : :
:_________________________________________________ :
: :
: Vemagiri : Avondale Ltd. : Non-resident. :
: Power : : :
: project : : :
———————————-:—————–
10. The Appellant’s method of billing the Clients
for the services rendered by the Appellant to them
was, briefly, as follows :
(i) each partner and employee
of the Appellant who was
involved in doing work
for the clients was
required to maintain
detailed time sheets
recording the time spent
by them on such work;
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the said time sheets
separately showed the
time spent on doing such
work in India and outside
India;
(ii) the time so spent was
multiplied by the hourly
billing rates applicable
to each respective
partner / employee as
specified in the terms of
appointment between the
Appellant and the
Clients;
(iii) in the case of the
Bhadravati Power Project
ig and Vizag Power Project,
the amounts arrived at
under (ii) above were
appointed among the
different participants of
the joint venture in
proportion to their
respective shares therein
and bills were accord
ingly raised by the
Appellant upon such
participants; and
(iv) the bills so raised were
paid to the Appellant by
the Clients outside
India.
ASSESSMENT OF INCOME:
--------------------
11. During the previous year relevant to the
assessment year 1997-98, the number of days the
Appellant’s partners were present in India during
the previous year, relevant to the Assessment Year
1997-98, exceeded 90 days. The appellant filed a
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taxation, of Rs.5,08,87,950/-. The said figure of
Rs.5,08,87,950/- was arrived at on the basis of the
income of the Appellant, which was attributable to
its operations in India in respect of the above Four
Projects.
12. The Assessing Officer, took up the Appellant’s
above Return of Income for scrutiny and proceeded to
assess the quantum of the Appellant’s income, which,
according to the respondent, Assessing Officer was
liable to Indian Taxation.
13. The Assessing Officer, however, by his order
dated 29th March 2000 held that the entire fees
received by the Appellant from the Clients engaged
in the above Four Projects was taxable in India.
The relevant portion of the assessment order is
extracted hereinbelow-
“As against the $ 31,11,727 the
assessee has returned a sum of
$£ 8,71,369 which is considered
as taxable and is attributableto services performed in India.
It is also stated that income
attributable to services
performed outside India is not
taxable in India. This
contention of the assessee
cannot be accepted.
. For the earlier
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Assessment Year 1996-97, the
total fees received, whether
the work was done in India or
outside India but for the
Indian Project as a whole was
taken together and total fees
received were taxed, for
detailed reasons mentioned in
that year. Since there is no
change in this year also, the
total fees received for these
projects taken together are
taxed”.
14. On this basis of the total fees received by
the Appellant from all clients engaged in the above
Four Projects,
ig assessed the Appellant on an income
of Rs.17,26,38,634/- as against the figure of
Rs.5,08,87,950/- shown by the Appellant on the basis
of the income as attributable to the services
rendered by it in India.
15. Being aggrieved by the above order dated 29th
March, 2000 passed by the Assessing Officer, the
Appellant preferred an appeal to the CIT (A) and
reiterated its contentions to the effect that the
quantum of its income which could be subjected to
Indian taxation was only that portion of its income
which was attributable to the services performed by
it in India.
16. The CIT (A) vide its order dated 20-12-2000
held that the entire fees received by the Appellant
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from the Clients in respect of the Four Projects
were taxable in India, irrespective of the fact that
such fees were received for services rendered by the
Appellant outside India, as, according to the CIT
(A), the determining factor was the place where the
Appellant’s services were utilised by the Clients
and not the place where the Appellant’s services
were performed for, or rendered to, the Clients.
17. Being aggrieved by the above order of the CIT
(A),
The
the
Appellant
Appellant preferred
reiterated its
an
stand
appeal
to
to
the
the ITAT.
effect
that both, under the provisions of the Act as well
as under the provisions of the Double taxation
avoidance agreement executed between India and
United Kingdom (UK) (“DTA” for short). Only that
portion of its income from the Clients which was
attributable to the services performed by the
Appellant in India could be subjected to Indian
taxation. In support of this contention, the
Appellant explained, in detail, the method followed
by it for billing of Clients and, in this
connection, drew a pointed reference to the
time-sheets which showed the services rendered by
partners and employees, in India and outside India.
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18. The ITAT, by its order dated 27th September,
2001 accepted that Article 15 of the DTA was
applicable to the Appellant case and the Appellant’s
income which was attributable to the services
rendered by the Appellant outside India has to be
excluded while computing the Appellant’s income
chargeable to tax in India. The ITAT then went on
to hold that “the work of the assessee related to
(a) the general advice in relation to the entire
projects, (b) the projects were to be executed in
India,
details
(c)
of
ig the
three
assessee
out of
had
four projects,
not provided
and (d)
full
in
the absence of details as to the projects and the
nature of the work done, it was not possible to find
fault with the findings of the AO that income could
not be limited to the billed hours in India. In
principle, the Tribunal accepted the view that it is
the nature of the work that will decide the
tax-liability in India would have to be
ascertained.” In view of this finding, the ITAT held
that the entire income received by the Appellant
from the clients engaged in the Four Projects was
taxable in India.
19. Being aggrieved by the aforesaid order of the
ITAT dated 27th September, 2001 the Appellant has
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invoked the appellate jurisdiction of this court.
Rival Submissions :
—————–
20. Mr. Harish Salve learned senior counsel
appearing for the appellant, urged that the finding
of the Tribunal that the assessee did not place
material it has to be understood in the context in
which it was rendered. It is submitted that
complete details of the presence of each of the
“members” ig of Clifford Chance (partners and
associates) and their billing hours on the basis of
which clients were invoiced were have seen placed in
full before the assessing authorities all along. It
is further submitted that if (as contended by the
assessee) the fees generated in India is the correct
basis, then the requisite material to ascertain
income was and is very much on record.
21. It is further urged that in the case of a
legal professional rendering advisory services, the
services are only rendered at a place where the
professional is personally present. In the
submission of Mr. Salve, any other rule would
create chaos and uncertainty.
22. Mr. Salve submits that the tax on
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professionals who has crossed the 90 day rule would
be chargeable to tax under Section 9(1)(i) of the
Income Tax Act. In his submission in order to be
taxed in India, the income must accrue or arise in
India. According to him, Explanation 1 makes it
clear that only such income as is “reasonably
attributable to the operations carried out in India”
is taxable in India. Applying this to a legal
professional rendering advisory services, and where
such advice is billed on the basis of billing hours,
his
be the
presence
ig basis
at the
for
time of
determining
rendering
where
advice
income
would
is
taxable. He submits that the billing hours are an
accurate reflection of the service rendered by a
legal professional to a client.
23. Mr. Salve submitted that applying the project
rule for ascertaining whether the advisory services
are taxable in India, undermines the very foundation
on which the nature of the legal profession rests.
A legal professional has no stake or interest in the
project- he is available at any time to the client
for advice on all legal issues. It would be a
conflict of interest if the professionals giving the
advice were to have any kind of interest in the
project.
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24. In the submission of Mr. Salve, the Tribunal
has accepted (and is not contested for this year by
the Department) that income has to be ascertained by
applying Article 15 of the Treaty. which provides
that “income derived by an individual …. in
respect of professional services … may also be
taxed in the other contracting state if such
services are performed in that other State and
…..”. He submits that the income of an individual
from
first
professional
instance taxable
services,
in
therefore,
the State
is
of
in the
residence.
It is additionally taxable in the other contracting
State if the services are performed in that other
State.
25. Mr. Salve urged that professional such as a
solicitor performs services which are advisory in
character by being present in that other State at
the time when the client needs his services. Any
services performed by a professional from his home
State for a client who is overseas cannot be taxed
in a state other than the state of residence.
26. In the submission of Mr. Salve, it is
significant to note that the test of residence is a
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test that excludes, as it were, the application of
the Treaty and makes the income then taxable under
Section 9(1)(i). The treaty does not-as it
cannot-levy tax where no tax would be leviable under
the domestic law-i.e. the Income Tax Act 1961.
27. According to Mr. Salve, two independent
conditions need to be satisfied to bring income to
tax in the “other” State, viz. (a) the services
have to be performed in that other State and (b) the
individual
According
has
ig to
to be
him,
present
these
in that
conditions
other
are
State.
cumulative
.
for the reasons that the presence in the other State
for 90 days does not make the income of such person
taxable in that other State in its entirety. It is
only such income from “services performed in that
other State” which is taxable.
28. Mr. Salve submits that the test of residence
obviously is not directly correlated to the
rendition of service. In other words, it is not
necessary that where the services are rendered by a
person to a client then for rendering service to
that client, the residence should exceed 90 days. A
professional who is generally present for
professional work in the other State for 90 days
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becomes taxable in respect of the income earned by
him in the other state. He, thus, submits that the
key question is as to when are such services
performed in that State.
29. It is submitted that it is clear from the
language of the Treaty that the place of utilization
of service is not relevant but the place of
performance of service is what would be
determinative of the matter. Reliance is placed on
the Apex Court Judgment in the case of Ishkawajima
Harima Heavy Industries Vs. Director of Income Tax,
Mumbai (2007) 288 ITR, 408.
408
30. According to Mr. Salve, the legal system on
which advice given is equally irrelevant. An advice
given on Indian law, in England by a professional
resident in England, is not taxable in India.
Conversely, advice given in English law by a
professional in India and present in India would be
taxable in India (subject to the test of number of
days residence were applicable). It is, therefore,
submitted that the presence in India is the criteria
in ascertaining the situs and the performance of the
service by legal professional. It is further
submitted that in fact it has been clearly stated by
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the assessee that being English lawyers there was no
question of their rendering advice on Indian law
looking to the engagement letters with the clients
produced on record. He submits that the assessees
being the members of the legal profession, they
would identify Indian issues that may arise in
particular transaction but wherever necessary advice
on Indian Legal issues would be obtained from a
professional who is entitled to practice Indian Law
and vice versa. Mr. Salve, thus, submits that the
impugned order is unsustainable and the appeal is
liable to be allowed.
31. Per contra, the learned counsel appearing for
the Revenue, urged that the term “attributable to”
is wider in meaning than the term “derived from”
and, therefore, on the facts of the present case the
whole of the consideration received on account of
services rendered relating to projects in India is
taxable in India. Reliance is placed on the Apex
Court judgment in the case of Cambay Electric Supply
Industrial Co. Ltd. Vs. Commissioner of
Income-tax, [1978] 113 ITR 84 (SC). He further
submits that the Apex Court judgment in the case of
Ishikawajima-Harima Heavy Industries Ltd. (Supra)
cannot be applied in their favour in this case for
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two reasons namely viz.
(a) the decision is in respect of Technical
services. The nature of the appellant’s
services as admitted by the assessee is not in
the nature of technical services;
(b) There has been a retrospective amendment in
section 9 of the Income-Tax Act 1961
reading as under:
. “Explanation- For the removal of doubts, it is
hereby declared that for the purposes of this
section, where income is deemed to accrue or
arise in India under clause (v), (vi) and
(vii) of sub-section (1), such income shall be
included in to income of the non-resident,
whether or not the non-resident has a
residence or place of business or business
connection in India.”
32. Lastly he submits that ITAT has recorded a
clear finding of fact that there is no indication in
the agreement or any documentary proof that services
has been rendered outside India. This being a
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finding of fact the appellant cannot at this stage,
be permitted to produce any additional evidence. He
submits that Tribunal has considered the submissions
made on behalf of the appellant on the “attribution”
with which no fault can be found. He, thus, prayed
for dismissal of the appeal and confirmation of the
order of the ITAT.
Statutory provision :
——————-
33. Before
ig embarking upon the rival submissions, it
is necessary to turn to the statutory provisions
relevant to decide the issues raised in this appeal:
. Section 5(2), section 9(1)(i), section
9(1)(vii) of the Act, which are relevant for our
purpose, read as under :
“Section 5(2) Subject to the provisions of this
Court, the total income of any
previous year of a person who is a
non-resident includes all income
from whatever source derived which –
(a) is received or is deemed to be
received in India in such year by or
on behalf of such person; or
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(b) accrues or arises or is deemed to
accrue or arise to him in India
during such year.
Section 9(1) The following incomes shall be
deemed to accrue or arise in India-
(i) all income accruing or arising,
whether directly or indirectly,
ig through or from any business
connection in India, or through or
from any property in India, or
through or from any asset or source
of income in India, or through the
transfer of a capital asset situate
in India
[Explanation 1] -For the purposes
of this clause-
(a) in the case of a business of which
all the operations are not carried
out in India, the income of the
business deemed under this clause to
accrue or arise in India shall be
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only such part of the income as is
reasonably attributable to the
operations carried out in India;
(vii) income by way of fees for technical services
payable by –
(a) the Government; or
(b) a person who is a resident, except
where the fees are payable in
respect of services utilized in a
ig business or profession carried on by
such person outside India or for the
purposes of making or earning any
income from any source outside
India; or
(c) a person who is a non-resident,
where the fees are payable in
respect of services utilized in a
business or profession carried on by
such person in India or for the
purposes of making or earning any
income from any source in India :
Provided that nothing contained in this clause shall
apply in relation to any income by way of fees for
technical services payable in pursuance of an
agreement made before the 1st day of April, 1976,
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and approved by the Central Government.
[Explanation 1.-
1. For the purposes of the foregoing
proviso, an agreement made on or after the 1st day
of April 1976, shall be deemed to have been made
before that date if the agreement is made in
accordance with proposals approved by the Central
Government before that date.]
Explanation [2].- For the purposes of this clauses
“fees for technical services” means any
consideration
for the
ig (including
rendering
any
of any
lump
managerial,
sum
technical
consideration)
or
consultancy services (including the provision of
services of technical or other personnel) but does
not include consideration for any construction,
assembly, mining or like project undertaken by the
recipient or consideration which would be income of
the recipient chargeable under the head “Salaries”.
Treaty : Double Taxation Avoidance Agreement
(DTAA) :
Article 15 : Independent personal services :
1. Income derived by an individual, whether in his
own capacity or as a member of a partnership, who is
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a resident of a Contracting State in respect of
professional services or other independent
activities of a similar character may be taxed in
that State . Such income may also be taxed in the
other Contracting State if such services are
performed in that other State and if:
(a) he is present in that other state for a
periods aggregating to 90 days in the relevant
fiscal year; or
ig (b) he, or the partnership, has a fixed baseregularly available to him, or it, in that
other State for the purpose of performing his
activities;
but in each case only so much of the income as
is attributable to those services.
2. For the purposes of paragraph 1 of this Article
an individual, who is a member of a partnership
shall be regarded as being present in the other
State during days on which although he is not
present, another individual member of the
partnership is so prsent and performs services or
other independent activities of a similar character
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in that State.
3. The term “professional services” includes
independent scientific, literary, artistic,
educational or teaching activities as well as the
independent activities of physicians, surgeons,
lawyers, engineers, architects, dentists and
accountants.
Consideration :
—————
34. For the purpose of taxation the authorities
under the Act have proceeded on the basis that the
fees received by the Appellant was for the entire
Indian Project as such chargeable to tax.
35. Two basic questions which, thus, arise for our
consideration are : (A) Whether fees charged for
composite activity is chargeable to tax? and (B)
Whether the income attributable to the services
rendered by the Assessee/Appellant outside India
required to be excluded while computing the tax in
India?
36. The resolution of the above question would
depend upon the interpretation of Clause 15 of DTA
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read with of Section 9 of the Income Tax Act which
clearly lays down that income derived by an
individual whether in his own capacity or as a
member of partnership, who is resident of
contracting State in respect of professional
Services or independent activities of similar
character may be taxed in that State. Such income
may also be taxed in the other Contracting State, if
such services are performed in that State, and if he
is present in that State for a period aggregating to
90
question
days
is
in
how
the
much
relevant
income
fiscal
is
year.
taxable.
Now,
The
the
answer
is : only so much of the income as is attributable
to those services.
37. Article 15 provides for the residence rule in
relation to taxation of income of an individual,
including members of a partnership, the exception
being where such individual is present in the
“other” state for a period aggregating 90 days or
more in the relevant previous year. In the case of
a partnership, where “an individual is a member of a
partnership even if he is not present” but “another
individual member of the partnership is so present
and performs professional services”, then the
presence of all such members is aggregated to
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ascertain their presence for 90 days.
38. If the test of 90 days is satisfied, the
effect is to virtuallly take the assessee out of the
treaty, the taxability of the income being
determined under section 9(1)(i) of the Act.
39. The interpretation of this section 9(1)(i), is
no longer res-integra. It has been construed by the
Hon’ble Supreme Court in the following three cases,
viz :
(i) Carborandum and Co. v/s Commissioner of Income
Tax, 108 ITR 335.
(ii) Commissioner of Income Tax v/s Toshuku Ltd, 125
ITR 525.
(iii) Ishikawajima-Harima Heavy Industries Ltd
v/s Director of Income Tax, 288 ITR 408.
40. Section 9 raises a legal fiction, but having
regard to the contextual interpretation and
furthermore in view of the fact that we are dealing
with a taxation statue the legal fiction must be
construed having regard to the object it seeks to
achieve. The legal fiction created under section 9
of the Act must also be read having regard to the
other provisions thereof, as held by the Apex Court
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in the case of Maruti Udyog Ltd. Vs. Ram Lal
[2005] 2 SCC 638.
41. The provisions of section 42 of the Indian
Income-tax Act, 1922 provided that only such part of
income as was attributable to the operations carried
out in India would be taxable in India.
42. The territorial nexus doctrine, thus, plays an
important part in assessment of tax. Tax is levied
on
give
one
rise
ig to
transaction
income
where
may take
the operations
place partly
which
in
may
one
territory and partly in another. The question which
falls for our consideration is : whether the income
that arises out of the said transaction would be
required to be apportioned to each of the
territories or not.
43. Income arising out of operations in more than
one jurisdiction would have territorial nexus with
each of the jurisdictions on actual basis. If that
be so, it may not be correct to contend that the
entire income “accrues or arises” in each of the
jurisdictions.
44. The Apex Court had occasioned to consider the
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– 27 –
above question in the case of Ishikawama Harima
(cited supra), wherein while interpreting the
provisions of Section 9(1)(vii)(c) of the Act, the
Supreme Court held as under :
Section 9(1)(vii)(c) of the Act states that “a
person who is a non-resident, where the fees
are payable in respect of services utilized in
a business or profession carried on by such
person in India, or for the purposes of making
or
India.”
ig earning any income from any source of
Reading the provision in its plain sense, as per
Apex Court it requires two conditions to be met –
the services which are the source of the income that
is sought to be taxed, has to be rendered in India,
as well as utilized in India, to be taxable in
India. Both the above conditions have to be
satisfied simultaneously. Thus, for a non-resident
to be taxed on income for services, such a service
needs to be rendered within India, and has to be
part of a business or profession carried on by such
person in India.
45. In the above judgment, Apex Court observed
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– 28 –
that “Section 9(1)(vii) of the Act must be read with
section 5 thereof, which takes within its purview
the territorial nexus on the basis whereof tax is
required to be levied, namely, (a) resident; and
(b) receipt of accrual of income. According to the
Apex Court, the global income of a resident although
is subjected to tax, the global income of a
non-resident may not be. The answer to the question
would depend upon the nature of the contract and the
provisions of the DTA. What is relevant is receipt
or accrual
ig of income,
plain reading of section 5(2) of the Act subject to
as would be evident from a
the compliance of 90 days rule.
46. As per the above Judgment of the Apex Court
the interpretation with reference to the nexus to
tax territories also assumes significance.
Territorial nexus for the purpose of determining the
tax liability is an internationaly accepted
principle. An endeavour should, thus, be made to
construe the tax-ability of a non-resident in
respect of income derived by it. Having regard to
the internationally accepted principle and DTA, no
extended meaning can be given to the words “income
deemed to accrue or arise in India” as expressed in
section 9 of the Act. The Section 9 incorporates
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– 29 –
various heads of income on which tax is sought to be
levied by the Republic of India. Whatever is
payable by a resident to a on-resident by way of
fees for services, thus, would not always come
within the purview of section 9(1)(vii) of the Act.
It must have sufficient territorial nexus with India
so as to furnish a basis for imposition of tax.
Whereas a resident would come within the purview of
section 9(1)(vii) of the Act, a non-resident would
not, as services of a non-resident to a resident
utilized
determining
in
ig India
whether
may
the
not
income
have much
of the
relevance
non-resident
in
accrues or arises in India. It must have a direct
link between the services rendered in India. When
such a link is established, the same may again be
subjected to any relief under the DTA. A
distinction may also be made between rendition of
services and utilization thereof.
47. With the above understanding of Law laid down
by the Apex Court, if one turns to the facts of the
case in hand and examines them on the touchstone,
Section 9(1)(vii)(c) which clearly states ………
where the fees are payable in respect of services
utilized in a business or profession carried on by
such person in India or for the purposes of making
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– 30 –
or earning any income from any source in India” It
is thus, evident that section 9(1)(vii)(c), read in
its plain, envisages the fulfilment of two
conditions : services, which are source of income
sought to be taxed in India must be (i) utilized in
India and (ii) rendered in India. In the present
case, both these conditions have not been satisfied
simultaneously.
48. The provisions of section 9(1)(vii)(c) of the
Act are plain and capable of being given a meaning,
is no reason not to give full effect thereto.
49. In the above view of the matter, contentions
raised by the assessee/appellants need to be
accepted. Thus, the income of the assessee is
charged on hourly basis in India and utilised in
India shall only be chargeable to Income-Tax Act as
disclosed in the return of Income. The substantial
questions of law framed are, thus, answered in
favour of the assessee and against the Revenue. In
the result, appeals are allowed with no order as to
costs.
Sd/- Sd/-
[ V. C. DAGA, J.] [ Dr. S. RADHAKRISHNAN, J.]
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