{"id":110302,"date":"2008-12-19T00:00:00","date_gmt":"2008-12-18T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/clifford-chance-vs-aayakar-bhavan-on-19-december-2008"},"modified":"2017-03-16T14:06:04","modified_gmt":"2017-03-16T08:36:04","slug":"clifford-chance-vs-aayakar-bhavan-on-19-december-2008","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/clifford-chance-vs-aayakar-bhavan-on-19-december-2008","title":{"rendered":"Clifford Chance vs Aayakar Bhavan on 19 December, 2008"},"content":{"rendered":"
Bombay High Court<\/div>\n
Clifford Chance vs Aayakar Bhavan on 19 December, 2008<\/div>\n
Bench: S. Radhakrishnan, V.C. Daga<\/div>\n
               IN THE HIGH COURT OF JUDICATURE AT BOMBAY\n                                   ORIGINAL SIDE\n\n                          INCOME TAX APPEAL NO.181 OF 2002\n                                               WITH\n\n\n\n\n                                                                                                    \n                        INCOME TAX APPEAL No. 182 OF 2002\n\n\n\n\n                                                                        \n      Clifford Chance, a                                                 )\n      partnership firm having its )\n      office at 200 Aldersgate )\n      Street, London ECIA 4JJ, The)                                                  Appellant\n      United Kingdom. ..                                                       (Org. Appellant)\n\n\n\n\n                                                                       \n                    .. Versus ..\n\n      The Deputy Commissioner of )\n      Income Tax, Circle 2(6), )\n      Mumbai, having his office at)\n\n\n\n\n                                                \n      Aayakar Bhavan, Maharshi )                                                       Respodent\n      Karve Road, Mumbai 400 020 ) (Orig. Respondent)\n                          \n      Mr. Harish Salve, Senior Advocate with Mr. F.\n      V. Irani with Mr. N. Sahu i\/b S. K. Srivastav\n      & Co. for the appellant.\n                         \n      Mr. Parag Vyas a\/w P. S. Sahadevan, for the\n      respondent.\n      \n\n      CORAM :                  DR. S. RADHAKRISHNAN AND\n                               V.C. DAGA, JJ.\n<\/pre>\n
                                          JJ<\/p>\n
      DATED : 19TH DECEMBER, 2008<\/p>\n
      JUDGMENT : [ Per : V.C. DAGA, J.]<\/p>\n
     1.                 These appeals are filed by the assessee under<\/p>\n
     Section             260A               of        the                     Income-tax             Act,           1961<\/p>\n
     (hereinafter             referred            to          as        “the        Act”             for           short)<\/p>\n
     against           the           orders           of          the           Income             Tax          Appellate<\/p>\n
     Tribunal(“ITAT”                  for              short)                   both               dated            27th<\/p>\n
     September,                    2001          in                          I.T.A.Nos.                  1327        and<\/p>\n
     1328\/Mum\/2001,                  whereby                the              appeals       filed           by         the<\/p>\n
                                                                        ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>
\n                                                             -2-<\/span><\/p>\n
     assessee            against                the          orders         of        the            C.I.T.(A)                  both<\/p>\n
     dated         19.12.2000           which                were             dismissed,                  were              admitted<\/p>\n
     for final hearing on the following substantial<\/p>\n
     questions of law.\n<\/p>\n
             (A)                 Whether the ITAT’s conclusion that the<\/p>\n
                          Appellant           had         not   proved                          that              it             had
\n                          rendered services outside India is
\n                          vitiated in law on account of –\n<\/p>\n
                                (i)       it          being       contrary              to                                        the\n\n\n\n\n                                                \n                                          evidence              and       the     material                                     which\n                                          was          admittedly         on        record                                       and\n                          ig              which             had      been     accepted,                                         after\n<\/pre>\n
                                          enquiry, by the respondent and
\n                                          the CIT (A)?\n<\/p>\n
                                (ii)      that           ITAT’s                                        ignoring                   the<\/p>\n
                                          material              and       the                           evidence               which
\n                                          was          admittedly          on                             record                 and
\n                                          which             had      been                           accepted,                   after
\n                                          enquiry, by the respondent and
\n                                          the CIT (A)?\n<\/p>\n
                                (iii)    the              ITAT                                   ignoring                    relevant
\n                                          facts,          particularly                                   (but                     not<\/p>\n
                                          limited           to)       the                      fact     that               6      out
\n                                          of 7 of the Appellant’s clients
\n                                          were Non-residents?\n<\/p>\n
             (B)                   On the facts and circumstances of the<\/p>\n
                          case,           the                 Appellant          being          a               law             firm<\/p>\n
                          providing                    legal             advice                           and                  being<\/p>\n
                          remunerated                   on               an        hourly                  rate                basis,<\/p>\n
                          whether            the                  ITAT        erred       in        law               in         not<\/p>\n
                          ascertaining                the           income                of              the              Appellant<\/p>\n
                          in            India                on       the         basis         of        the               services<\/p>\n
                          rendered in India as measured by the<\/p>\n
                                                                         ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>
\n                                                                -3-<\/span><\/p>\n
                                billed hours of work done in India ?\n<\/p>\n
     FACTUAL SCENRAIO:\n<\/p>\n
     —————-\n<\/p>\n
     2.                     The factual scenario common to both appeals<\/p>\n
     arising          out          of           the          orders           relating               to           the             Assessment<\/p>\n
     Years                  1996-97            and          1996-97,             lies      in             narrow                    campass.\n<\/p>\n
     The              facts        are         drawn          from         Appeal          No.                          1327\/Mum\/2001<\/p>\n
     relating         to           the          Assessment                Year          1996-97                 for          the        sake<\/p>\n
     of              clarity.                  Both          the          appeals         are             being         disposed          of<\/p>\n
     by              this      ig  common               order.                      The              appellant               is           an<\/p>\n
     international                    firm               of           solicitors          resident                      in               the<\/p>\n
     United Kingdom (UK). It has no office or fixed base<\/p>\n
     in India.\n<\/p>\n
     3.                     The appellant, during the previous year ended<\/p>\n
     on              March            31,        1996         (relevant            to      the            Assessment                   Year<\/p>\n
     1996-97), was appointed as English law legal<\/p>\n
     advisers for three projects in India, namely :\n<\/p>\n
                 1.                Bhdravati Power Project<\/p>\n<\/blockquote>\n
                 2.                Vizag Power Project; and<\/p>\n<\/blockquote>\n
                 3.                Ravva Oil and Gas Fields<\/p>\n
                                   Project.\n<\/p><\/blockquote>\n
     4.                     The Bhadravati Power Project was a three-way<\/p>\n
     joint                  venture           for       the           construction              of          a           power          plant<\/p>\n
     between               three             participants             :                    Ispat                Industries              Ltd.,<\/p>\n
     GEC              Alsthom                   Group         and         Electricite        de                   France,              GEC<\/p>\n
                                                                                 ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>
\n                                                             -4-<\/span><\/p>\n
     Alsthom               Group                  and      Electricite       de        France                were           not<\/p>\n
     resident in India. Only one of them, Ispat<\/p>\n
     Industries Ltd., was a resident in India.\n<\/p>\n
     5.                   The Vizag Power Project was a two-way joint<\/p>\n
     venture              project                 for         the        construction         of             a            power<\/p>\n
     plant           between                     two           non-resident                  participants,              namely,<\/p>\n
     National Power PLC              and Machen Development<\/p>\n
     Corporation.\n<\/p>\n
     6.<\/p>\n
     only             client<\/p>\n
                          The Ravva Oil and Gas Fields Project, was the<\/p>\n
                                          of        the      assessee,           who         was        a           non-resident<\/p>\n
     Australian     company         called       Chase Manhattan<\/p>\n
     (Australia) Limited.\n<\/p>\n
     7.                   The Appellant, during the previous year ended<\/p>\n
     on             March           31,          1997      (relevant        to         the      Assessment                 Year<\/p>\n
     1997-98),             was                 appointed        as                 English            law                  legal<\/p>\n
     advisers additionally for the Vemagiri Power<\/p>\n
     Project.\n<\/p>\n
     8.                   In the case of the Vemagiri Power Project,<\/p>\n
     assessee’s client, Avondale Ltd. was also not<\/p>\n
     resident in India.\n<\/p>\n
     9.                     The position in regard to the Four Projects<\/p>\n
                                                                          ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>
\n                                                         -5-<\/span><\/p>\n
     has been summarized in tabular form given below :\n<\/p>\n
     :———–:———————:—————-:
\n     : Project                :                          Appellant’s         :              Whether                    :\n<\/p>\n
     :                                      :               Client                      :          Resident            :\n\n\n\n\n                                                                     \n     :                                   :                                                   :       in India.         :\n<\/pre>\n
     :———–:———————:—————-:\n<\/p>\n
     : (1)                        :                   (2)                           :           (3)                    :\n     :                                                                                                                 :\n<\/pre>\n
     :———–:———————:—————-:\n<\/p>\n
     :                               :                                              :                                  :\n     :     Bhadravati:                   Electric      De                                   :         Non-resident.    :\n     : Power                    :          France                           :                                          :\n     : Project           :                                                     :                                       :\n     :                                          :       GEC Alsthom                              :     Non-resident.   :\n     :                                 :      Group                               :                                    :\n\n\n\n\n                                                 \n     :                               :                                              :                                  :\n     :                                             :      Ispat Industries            :        Resident.               :\n     :                     ig            :     Limited.                       :                                        :\n<\/pre>\n
     :———–:———————:—————-:\n<\/p>\n
     :                               :                                              :                                  :\n     :Vizag          Power:                       Machen        Development         :               Non-resident.      :\n     : Project              :          Corporation                      :                                              :\n                         \n     :                               :                                              :                                  :\n     :                                                  :      National Power plc :                    Non-resident.   :\n     :                               :                                              :                                  :\n<\/pre>\n
     ————:———————:—————-:\n<\/p>\n
     :                               :                                              :                                  :\n      \n\n     Ravva        Oil        and                Chase      Manhattan                      :           Non-resident.    :\n     : Gas                        :         Bank                                 :                                     :\n     : Fields              :                                                    :                                      :\n   \n\n\n\n     : Project                 : (Australia) Limited :                                                                 :\n     :_________________________________________________                                                                :\n     :                                                                                                                 :\n     :     Vemagiri                :                 Avondale      Ltd.                     :         Non-resident.    :\n     : Power                  :                                                   :                                    :\n\n\n\n\n\n     : project           :                                                     :                                       :\n<\/pre>\n
     ———————————-:—————–\n<\/p>\n
     10.             The Appellant’s method of billing the Clients
\n     for the services rendered by the Appellant to them
\n     was, briefly, as follows :\n<\/p>\n
                              (i)               each               partner             and           employee
\n                                                of                  the         Appellant        who      was
\n                                                involved                 in             doing            work
\n                                                for                  the               clients            was
\n                                                required                      to                      maintain
\n                                                detailed                      time                      sheets
\n                                                recording                        the         time        spent
\n                                                by            them              on          such        work;\n<\/p><\/blockquote>\n
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\n                                                     -6-<\/span><\/p>\n
                                            the                said                          time            sheets\n                                            separately              showed                                      the\n                                            time                spent      on                    doing        such\n\n\n\n\n                                                                                                \n                                            work in India and outside\n                                            India;\n\n\n\n\n                                                                   \n                          (ii)              the         time                   so             spent     was\n                                            multiplied                          by            the     hourly\n                                            billing                               rates           applicable\n                                            to                             each                   respective\n                                            partner          \/                         employee           as\n\n\n\n\n                                                                  \n                                            specified        in                the          terms         of\n                                            appointment                         between                  the\n                                            Appellant and the\n                                            Clients;\n\n\n\n\n                                             \n                          (iii)             in             the           case               of                   the\n                                            Bhadravati                              Power                   Project\n                       ig                   and                      Vizag            Power                 Project,\n                                            the              amounts                   arrived                    at\n                                            under             (ii)                     above                   were\n                                            appointed                         among                              the\n                                            different                      participants                           of\n                     \n                                            the                  joint                   venture                  in\n                                            proportion                    to                                   their\n                                            respective                       shares                          therein\n                                            and             bills                     were                   accord\n                                            ingly                 raised                 by                      the\n      \n\n                                            Appellant upon such\n                                            participants; and\n   \n\n\n\n                          (iv)              the                  bills            so           raised         were\n                                            paid                  to            the           Appellant        by\n                                            the Clients      outside\n                                            India.\n\n\n\n\n\n     ASSESSMENT OF INCOME:\n     --------------------\n\n\n\n<\/pre>\n
     11.           During the previous year relevant to the<\/p>\n
     assessment        year              1997-98,            the       number          of           days         the<\/p>\n
     Appellant’s              partners              were       present          in          India             during<\/p>\n
     the           previous        year,       relevant        to        the          Assessment                Year<\/p>\n
     1997-98,         exceeded               90      days.              The          appellant      filed          a<\/p>\n
                                                                   ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>
\n                                                            -7-<\/span><\/p>\n
     Return       of           Income            showing          an           income,               liable           to          Indian<\/p>\n
     taxation,              of            Rs.5,08,87,950\/-.                     The           said            figure                  of<\/p>\n
     Rs.5,08,87,950\/-                    was        arrived            at       on           the         basis             of        the<\/p>\n
     income               of         the          Appellant,           which           was            attributable                    to<\/p>\n
     its operations in India in respect of the above Four<\/p>\n
     Projects.\n<\/p><\/blockquote>\n
     12.               The Assessing Officer, took up the Appellant’s<\/p>\n
     above       Return             of         Income          for            scrutiny            and          proceeded              to<\/p>\n
     assess       the              quantum           of          the            Appellant’s               income,                which,<\/p>\n
     according to the respondent, Assessing Officer was<\/p>\n
     liable to Indian Taxation.\n<\/p>\n
     13.               The Assessing Officer, however, by his order<\/p>\n
     dated         29th                  March            2000         held         that      the              entire               fees<\/p>\n
     received              by            the       Appellant            from          the           Clients                     engaged<\/p>\n
     in          the               above         Four      Projects           was          taxable               in               India.\n<\/p>\n
     The relevant portion of the assessment order is<\/p>\n
     extracted hereinbelow-\n<\/p>\n
                               “As          against            the          $         31,11,727          the
\n                               assessee                  has         returned        a        sum         of
\n                               $\u00a3            8,71,369               which           is           considered
\n                               as                     taxable           and          is         attributable<\/p>\n
                               to            services              performed            in            India.<\/p><\/blockquote>\n
\n                               It              is         also        stated     that                income\n                               attributable                          to                             services\n                               performed                       outside        India          is          not\n                               taxable               in                       India.                    This\n                               contention of the assessee\n                               cannot be accepted.\n\n                               .                               For                          the                                 earlier\n\n\n\n\n                                                                            ::: Downloaded on - 09\/06\/2013 14:10:34 :::<\/span>\n                                                                   -8-<\/span>\n\n\n\n\n                                 Assessment                 Year                  1996-97,                                           the\n                                 total               fees                   received,                                            whether\n                                 the           work        was         done       in       India                                      or\n\n\n\n\n                                                                                                                    \n                                 outside          India             but                 for                                          the\n                                 Indian             Project          as       a        whole                                        was\n                                 taken                 together          and         total                                          fees\n\n\n\n\n                                                                                \n                                 received                were                        taxed,                                          for\n                                 detailed                   reasons           mentioned                                               in\n                                 that            year.               Since       there        is                                      no\n                                 change               in        this        year        also,                                        the\n                                 total               fees          received          for                                           these\n\n\n\n\n                                                                               \n<\/pre>\n
                                 projects taken together are
\n                                 taxed”.\n<\/p><\/blockquote>\n
     14.               On this basis of the total fees received by<\/p>\n
     the               Appellant              from          all         clients          engaged           in              the      above<\/p>\n
     Four               Projects,
\n                            ig                assessed            the           Appellant          on           an                 income<\/p>\n
     of             Rs.17,26,38,634\/-                as                 against                    the                figure            of<\/p>\n
     Rs.5,08,87,950\/-                 shown          by             the            Appellant             on                the       basis<\/p>\n
     of the income as attributable to the services<\/p>\n
     rendered by it in India.\n<\/p>\n
     15.               Being aggrieved by the above order dated 29th<\/p>\n
     March,              2000                 passed          by          the         Assessing                 Officer,               the<\/p>\n
     Appellant             preferred                 an           appeal         to     the        CIT                 (A)            and<\/p>\n
     reiterated                 its                contentions             to          the        effect             that              the<\/p>\n
     quantum               of                its     income             which          could        be          subjected               to<\/p>\n
     Indian                taxation            was          only           that          portion           of              its     income<\/p>\n
     which was attributable to the services performed by<\/p>\n
     it in India.\n<\/p>\n
     16.               The CIT (A) vide its order dated 20-12-2000<\/p>\n
     held                that          the         entire           fees           received         by               the         Appellant<\/p>\n
                                                                                 ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>
\n                                                                           -9-<\/span><\/p>\n
     from             the                    Clients            in        respect             of        the                Four                   Projects<\/p>\n
     were           taxable                 in            India,               irrespective               of          the               fact          that<\/p>\n
     such        fees                were             received                  for           services              rendered                 by        the<\/p>\n
     Appellant                   outside              India,              as,                     according          to           the                 CIT<\/p>\n
     (A),                 the              determining               factor                 was         the          place              where          the<\/p>\n
     Appellant’s                       services                       were                  utilised           by          the                     Clients<\/p>\n
     and not the place where the Appellant’s services<\/p>\n
     were performed for, or rendered to, the Clients.\n<\/p>\n
     17.                  Being aggrieved by the above order of the CIT<\/p>\n
     (A),<\/p>\n
     The
\n                          the<\/p>\n
                      Appellant
\n                                           Appellant               preferred<\/p>\n
                                                          reiterated             its
\n                                                                                            an<\/p>\n
                                                                                              stand
\n                                                                                                        appeal<\/p>\n
                                                                                                              to
\n                                                                                                                           to<\/p>\n
                                                                                                                                 the
\n                                                                                                                                       the          ITAT.\n<\/p>\n
                                                                                                                                                    effect<\/p>\n
     that             both,               under           the        provisions                   of      the        Act           as                 well<\/p>\n
     as          under                     the              provisions                 of              the             Double                     taxation<\/p>\n
     avoidance                  agreement                       executed                               between                   India                and<\/p>\n
     United               Kingdom                         (UK)            (“DTA”              for        short).                  Only                that<\/p>\n
     portion               of                 its         income            from             the        Clients                  which                was<\/p>\n
     attributable                to                 the               services                           performed                      by             the<\/p>\n
     Appellant                  in                  India                 could             be         subjected                  to                Indian<\/p>\n
     taxation.                       In              support                    of                      this               contention,                 the<\/p>\n
     Appellant                             explained,                in               detail,            the           method                     followed<\/p>\n
     by              it              for            billing               of                   Clients              and,               in             this<\/p>\n
     connection,                       drew                 a             pointed                        reference                 to                  the<\/p>\n
     time-sheets which showed the services rendered by<\/p>\n
     partners and employees, in India and outside India.\n<\/p>\n
                                                                                            ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span><\/p>\n
                                                                                – 10 –\n<\/p>\n
     18.                   The ITAT, by its order dated 27th September,<\/p>\n
     2001            accepted                         that             Article              15                of               the               DTA              was<\/p>\n
     applicable                 to                  the              Appellant               case                  and                the               Appellant’s<\/p>\n
     income                 which                         was                  attributable                          to                    the                services<\/p>\n
     rendered                    by                       the          Appellant             outside               India             has          to               be<\/p>\n
     excluded                     while                            computing                      the                     Appellant’s                         income<\/p>\n
     chargeable                      to             tax        in       India.                   The           ITAT             then             went              on<\/p>\n
     to            hold                         that           “the          work           of          the          assessee               related                 to<\/p>\n
     (a)             the                        general              advice            in         relation               to                 the                 entire<\/p>\n
     projects,                   (b)                         the        projects            were              to          be          executed                      in<\/p>\n
     India,<\/p>\n
     details\n<\/p>\n
                          (c)<\/p>\n
                            of
\n                                 ig             the<\/p>\n
                                                      three
\n                                                                     assessee<\/p>\n
                                                                      out        of
\n                                                                                             had<\/p>\n
                                                                                            four          projects,
\n                                                                                                                   not                 provided<\/p>\n
                                                                                                                                     and          (d)
\n                                                                                                                                                                  full<\/p>\n
                                                                                                                                                                    in<\/p>\n
     the              absence                             of         details          as         to       the             projects               and              the<\/p>\n
     nature          of          the                 work             done,            it         was              not           possible               to       find<\/p>\n
     fault                 with                 the            findings           of         the           AO                 that          income              could<\/p>\n
     not             be                   limited              to       the        billed             hours          in                India.                      In<\/p>\n
     principle,             the                     Tribunal                accepted               the              view               that              it         is<\/p>\n
     the          nature                       of              the             work                     that                  will           decide               the<\/p>\n
     tax-liability                        in                   India                   would                             have                     to               be<\/p>\n
     ascertained.”                In                  view             of           this              finding,                 the               ITAT            held<\/p>\n
     that                 the                       entire           income             received              by                     the                 Appellant<\/p>\n
     from the clients engaged in the Four Projects was<\/p>\n
     taxable in India.\n<\/p>\n
     19.                   Being aggrieved by the aforesaid order of the<\/p>\n
     ITAT dated 27th September, 2001 the Appellant has<\/p>\n
                                                                                                 ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                 – 11 –\n<\/p>\n
     invoked the appellate jurisdiction of this court.\n<\/p>\n
     Rival Submissions :\n<\/p>\n
     —————–\n<\/p>\n
     20.                  Mr. Harish Salve learned senior counsel<\/p>\n
     appearing                        for         the         appellant,                 urged               that          the            finding<\/p>\n
     of            the                Tribunal              that         the         assessee            did               not             place<\/p>\n
     material        it         has         to      be        understood                 in        the                 context                 in<\/p>\n
     which           it           was               rendered.                       It            is            submitted                    that<\/p>\n
     complete               details                of              the     presence               of         each                of           the<\/p>\n
     “members”                ig  of                    Clifford                    Chance                       (partners                   and<\/p>\n
     associates)                  and             their        billing               hours             on            the          basis       of<\/p>\n
     which          clients             were            invoiced           were                have             seen            placed         in<\/p>\n
     full        before               the          assessing              authorities                  all           along.                    It<\/p>\n
     is            further                  submitted           that           if        (as           contended            by                the<\/p>\n
     assessee)            the           fees             generated             in             India             is          the           correct<\/p>\n
     basis, then the requisite material to ascertain<\/p>\n
     income was and is very much on record.\n<\/p>\n
     21.                  It is further urged that in the case of a<\/p>\n
     legal                        professional                 rendering                      advisory                 services,              the<\/p>\n
     services              are              only              rendered              at        a        place               where              the<\/p>\n
     professional                      is                 personally                          present.                     In                 the<\/p>\n
     submission of Mr. Salve, any other rule would<\/p>\n
     create chaos and uncertainty.\n<\/p>\n
     22.                  Mr.                    Salve              submits                    that            the              tax           on<\/p>\n
                                                                                    ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                            – 12 –\n<\/p>\n
     professionals                     who               has               crossed               the           90              day                 rule          would<\/p>\n
     be             chargeable                          to           tax            under          Section                 9(1)(i)                 of               the<\/p>\n
     Income                Tax                   Act.                 In        his          submission                  in         order               to           be<\/p>\n
     taxed                in         India,             the           income               must           accrue                   or          arise                 in<\/p>\n
     India.                     According                        to            him,          Explanation                  1                    makes                  it<\/p>\n
     clear              that               only                 such                  income                       as                   is                “reasonably<\/p>\n
     attributable              to                the             operations                      carried                   out                     in            India”<\/p>\n
\n\n     is           taxable                  in             India.                     Applying            this                      to               a             legal\n\n     professional                                rendering                      advisory                  services,                           and                where\n\n\n\n\n                                                                \n     such         advice              is             billed               on           the             basis               of                billing             hours,\n\n     his\n\n     be           the\n                        presence\n                                ig  basis\n                                                at        the\n\n                                                         for\n                                                                          time             of\n\n                                                                                    determining\n                                                                                                       rendering\n\n                                                                                                                     where\n                                                                                                                                   advice\n\n                                                                                                                                               income\n                                                                                                                                                                 would\n\n                                                                                                                                                                      is\n                              \n     taxable.                         He             submits               that         the            billing                hours                are               an\n\n<\/pre>\n
     accurate reflection of the service rendered by a<\/p>\n
     legal professional to a client.\n<\/p>\n
     23.                        Mr.                      Salve              submitted                  that              applying                  the          project<\/p>\n
     rule                      for               ascertaining                        whether                  the                  advisory                    services<\/p>\n
     are          taxable              in                India,                 undermines                         the              very                     foundation<\/p>\n
     on                 which              the           nature                of          the          legal                 profession                          rests.\n<\/p>\n
     A          legal          professional                    has             no            stake                 or           interest                  in        the<\/p>\n
     project-                  he          is           available               at         any           time                 to             the                 client<\/p>\n
     for          advice               on                 all         legal           issues.                 It               would                      be          a<\/p>\n
     conflict             of               interest                  if              the               professionals                          giving                the<\/p>\n
     advice were to have any kind of interest in the<\/p>\n
     project.\n<\/p>\n
                                                                                             ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span><\/p>\n
                                                                       – 13 –\n<\/p>\n
     24.                   In         the          submission              of          Mr.                     Salve,             the                   Tribunal<\/p>\n
     has             accepted                 (and           is           not          contested                  for             this               year      by<\/p>\n
     the         Department)                  that           income                  has              to              be           ascertained                 by<\/p>\n
     applying                   Article            15          of          the             Treaty.                         which                        provides<\/p>\n
     that          “income                     derived                    by         an                 individual                       ….                  in<\/p>\n
     respect               of                  professional                services               …                      may           also                  be<\/p>\n
     taxed          in                the               other                         contracting                       state                   if           such<\/p>\n
     services             are                  performed                       in         that                   other                   State                and<\/p>\n
     …..”.              He                submits            that             the              income                 of           an                individual<\/p>\n
     from<\/p>\n
     first<\/p>\n
                         professional<\/p>\n
                         instance                       taxable
\n                                                               services,<\/p>\n
                                                                               in
\n                                                                                       therefore,<\/p>\n
                                                                                           the             State
\n                                                                                                                   is<\/p>\n
                                                                                                                             of
\n                                                                                                                                          in                  the<\/p>\n
                                                                                                                                                       residence.\n<\/p>\n
     It               is                  additionally              taxable                 in              the              other                    contracting<\/p>\n
     State if the services are performed in that other<\/p>\n
     State.\n<\/p>\n
     25.              Mr. Salve urged that professional such as a<\/p>\n
     solicitor                  performs                          services                which                are            advisory                         in<\/p>\n
     character                  by                   being          present               in            that            other            State                 at<\/p>\n
     the           time                     when         the          client           needs               his          services.                            Any<\/p>\n
     services                   performed               by            a             professional                  from             his                       home<\/p>\n
     State for a client who is overseas cannot be taxed<\/p>\n
     in a state other than the state of residence.\n<\/p>\n
     26.              In the submission of Mr. Salve, it is<\/p>\n
     significant                     to        note            that             the            test              of          residence                  is      a<\/p>\n
                                                                                          ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                            – 14 –\n<\/p>\n
     test                   that           excludes,                as           it       were,              the             application                         of<\/p>\n
     the                Treaty             and             makes               the        income                then             taxable                      under<\/p>\n
     Section                       9(1)(i).                       The                 treaty                     does                  not-as                     it<\/p>\n
     cannot-levy tax where no tax would be leviable under<\/p>\n
     the domestic law-i.e. the Income Tax Act 1961.\n<\/p>\n
     27.                    According to Mr.                                                    Salve, two independent<\/p>\n
     conditions                      need             to          be            satisfied            to           bring               income                      to<\/p>\n
     tax               in               the          “other”              State,         viz.                   (a)                   the                   services<\/p>\n
     have         to          be            performed                in           that          other             State               and             (b)       the<\/p>\n
     individual<\/p>\n
     According
\n                            has
\n                                   ig to
\n                                           to          be<\/p>\n
                                                             him,
\n                                                                     present<\/p>\n
                                                                                these
\n                                                                                         in           that<\/p>\n
                                                                                                conditions
\n                                                                                                                      other<\/p>\n
                                                                                                                            are
\n                                                                                                                                        State.\n<\/p>\n
                                                                                                                                                      cumulative
\n                                                                                                                                                                   .\n<\/p>\n
     for         the           reasons                that               the           presence              in             the              other             State<\/p>\n
     for               90          days          does             not           make           the         income                of          such            person<\/p>\n
     taxable                   in           that            other              State           in         its          entirety.                        It        is<\/p>\n
     only such income from “services performed in that<\/p>\n
     other State” which is taxable.\n<\/p>\n
     28.                    Mr. Salve submits that the test of residence<\/p>\n
     obviously                        is              not                 directly                        correlated                        to                  the<\/p>\n
     rendition                 of                   service.                    In       other            words,            it                   is             not<\/p>\n
     necessary                       that            where                the           services                are          rendered                  by         a<\/p>\n
     person                  to                 a          client          then          for          rendering                        service                    to<\/p>\n
     that        client,             the             residence                  should              exceed             90              days.                      A<\/p>\n
     professional                       who                         is                         generally                          present                        for<\/p>\n
     professional                    work                    in           the          other         State            for                   90                 days<\/p>\n
                                                                                           ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                          – 15 –\n<\/p>\n
     becomes                   taxable             in           respect             of           the           income              earned                   by<\/p>\n
     him             in           the          other                state.                 He,           thus,            submits               that       the<\/p>\n
     key question is as to when are such services<\/p>\n
     performed in that State.\n<\/p>\n
     29.              It                is              submitted              that        it      is             clear                    from            the<\/p>\n
     language          of               the             Treaty                 that              the            place                of           utilization<\/p>\n
     of         service             is               not                relevant                        but               the               place           of<\/p>\n
     performance of service is                     what would be<\/p>\n
     determinative of the matter. Reliance is placed on<\/p>\n
     the Apex Court Judgment in the case of Ishkawajima<\/p>\n
     Harima Heavy Industries Vs. Director of Income Tax,<\/p>\n
     Mumbai (2007) 288 ITR, 408.\n<\/p>\n
                            408<\/span><\/p>\n
     30.              According to Mr. Salve, the legal system on<\/p>\n
     which          advice               given                 is            equally              irrelevant.                              An           advice<\/p>\n
     given            on                      Indian            law,           in          England              by             a                professional<\/p>\n
     resident             in                 England,                    is                not                 taxable                     in            India.\n<\/p>\n
     Conversely,                advice                  given                 in                   English                     law              by           a<\/p>\n
     professional                   in             India               and            present             in              India             would           be<\/p>\n
     taxable               in           India            (subject              to          the          test         of            number                   of<\/p>\n
     days                   residence                   were                  applicable).                           It              is,             therefore,<\/p>\n
     submitted             that              the           presence                   in               India              is           the             criteria<\/p>\n
     in         ascertaining                 the           situs               and               the            performance                     of         the<\/p>\n
     service           by                    legal                   professional.                                   It               is               further<\/p>\n
     submitted         that              in             fact            it          has            been              clearly                stated          by<\/p>\n
                                                                                           ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                      – 16 –\n<\/p>\n
     the          assessee             that           being             English                 lawyers                   there           was         no<\/p>\n
     question                   of              their          rendering                advice             on                 Indian                 law<\/p>\n
     looking                     to          the         engagement                     letters            with             the                   clients<\/p>\n
     produced                    on          record.                  He               submits             that            the                  assessees<\/p>\n
     being             the                members                     of          the          legal                      profession,               they<\/p>\n
     would             identify                    Indian               issues               that               may                    arise           in<\/p>\n
     particular                 transaction                    but                     wherever                       necessary                   advice<\/p>\n
     on            Indian               Legal                  issues         would                be       obtained                     from          a<\/p>\n
     professional                       who             is           entitled                 to           practice                Indian           Law<\/p>\n
     and              vice            versa.                  Mr.                  Salve,               thus,             submits          that       the<\/p>\n
     impugned order is unsustainable and the appeal is<\/p>\n
     liable to be allowed.\n<\/p>\n
     31.               Per contra, the learned counsel appearing for<\/p>\n
     the               Revenue,                 urged            that             the              term           “attributable                       to”\n<\/p>\n
     is            wider                in         meaning            than             the          term                   “derived                from”\n<\/p>\n
     and,         therefore,             on           the            facts              of           the             present              case        the<\/p>\n
     whole                 of                  the           consideration                received                on          account                 of<\/p>\n
     services                    rendered               relating             to              projects             in              India                is<\/p>\n
     taxable               in                India.          Reliance             is         placed             on                 the             Apex<\/p>\n
     Court          judgment              in            the          case               of              Cambay               Electric             Supply<\/p>\n
     Industrial                  Co.                     Ltd.                           Vs.                          Commissioner                     of<\/p>\n
     Income-tax,                 [1978]                 113              ITR             84         (SC).                          He             further<\/p>\n
     submits                 that         the           Apex            Court                judgment                in          the       case       of<\/p>\n
     Ishikawajima-Harima                                Heavy                Industries                    Ltd.                                   (Supra)<\/p>\n
     cannot be applied in their favour in this case for<\/p>\n
                                                                                        ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                    – 17 –\n<\/p>\n
     two reasons namely viz.\n<\/p>\n
     (a)           the            decision                    is             in                   respect                 of             Technical<\/p>\n
               services.                         The                nature                  of                the                       appellant’s<\/p>\n
               services as admitted by the assessee is not in<\/p>\n
               the nature of technical services;\n<\/p>\n
     (b)       There has been a retrospective amendment in<\/p>\n
               section 9 of the Income-Tax Act 1961<\/p>\n
               reading as under:\n<\/p>\n
     .         “Explanation-                    For           the            removal                   of              doubts,           it         is<\/p>\n
               hereby                      declared                that            for           the          purposes                  of        this<\/p>\n
               section,                where                 income               is        deemed                to       accrue                  or<\/p>\n
               arise             in                   India                 under          clause           (v),                 (vi)             and<\/p>\n
               (vii)        of              sub-section                   (1),             such              income                shall           be<\/p>\n
               included                    in                 to          income            of                    the               non-resident,<\/p>\n
               whether                     or            not                the                  non-resident                    has                a<\/p>\n
               residence or place of business or business<\/p>\n
               connection in India.”\n<\/p>\n
     32.           Lastly                  he             submits            that          ITAT             has             recorded                a<\/p>\n
     clear     finding         of               fact           that           there              is           no            indication              in<\/p>\n
     the      agreement               or               any            documentary                       proof              that               services<\/p>\n
     has        been             rendered                     outside            India.                      This                 being             a<\/p>\n
                                                                                       ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                               – 18 –\n<\/p>\n
     finding               of          fact           the         appellant          cannot           at        this       stage,<\/p>\n
     be        permitted         to           produce             any         additional            evidence.                 He<\/p>\n
     submits           that            Tribunal               has             considered              the          submissions<\/p>\n
     made         on          behalf           of           the          appellant         on          the         “attribution”\n<\/p>\n
     with           which         no          fault         can        be      found.               He,       thus,       prayed<\/p>\n
     for dismissal of the appeal and confirmation of the<\/p>\n
     order of the ITAT.\n<\/p>\n
     Statutory provision :\n<\/p>\n
     ——————-\n<\/p>\n
     33.               Before
\n                            ig          embarking                 upon         the         rival           submissions,        it<\/p>\n
     is           necessary                   to       turn         to      the               statutory                provisions<\/p>\n
     relevant to decide the issues raised in this appeal:\n<\/p>\n
     .                     Section 5(2), section                                                   9(1)(i), section<\/p>\n
     9(1)(vii) of the Act, which are relevant for our<\/p>\n
     purpose, read as under :\n<\/p>\n
     “Section 5(2) Subject to the provisions of this<\/p>\n
                                         Court, the total income of any<\/p>\n
                                         previous year of a person who is a<\/p>\n
                                         non-resident includes all income<\/p>\n
                                         from whatever source derived which –\n<\/p>\n
     (a)        is received or is deemed to be<\/p>\n
                                         received in India in such year by or<\/p>\n
                                         on behalf of such person; or<\/p>\n
                                                                            ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                 – 19 –\n<\/p>\n
     (b)      accrues or arises or is deemed to<\/p>\n
                                 accrue or arise to him in India<\/p>\n
                                 during such year.\n<\/p>\n
     Section 9(1) The following incomes shall be<\/p>\n
                                 deemed to accrue or arise in India-\n<\/p>\n
     (i)      all income accruing or arising,<\/p>\n
                                 whether directly or indirectly,
\n                      ig         through or from         any business<\/p>\n
                                 connection in India, or through or<\/p>\n
                                 from any property in India, or<\/p>\n
                                 through or from any asset or source<\/p>\n
                                 of income in India, or through the<\/p>\n
                                 transfer of a capital asset situate<\/p>\n
                                 in India<\/p>\n
                                 [Explanation 1] -For the purposes<\/p>\n
                                 of this clause-\n<\/p>\n
     (a)      in the case of a business of which<\/p>\n
                                 all the operations are not carried<\/p>\n
                                 out in India, the income of the<\/p>\n
                                 business deemed under this clause to<\/p>\n
                                 accrue or arise in India shall be<\/p>\n
                                                            ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                           – 20 –\n<\/p>\n
                                        only such part of the income as is<\/p>\n
                                        reasonably attributable to the<\/p>\n
                                        operations carried out in India;\n<\/p>\n
     (vii) income by way of fees for technical services<\/p>\n
     payable by –\n<\/p>\n
     (a)                                the Government; or\n\n     (b)         a person who is a resident, except\n\n<\/pre>\n
                                        where the fees are payable in<\/p>\n
                                        respect of services utilized in a
\n                          ig            business or profession carried on by<\/p>\n
                                        such person outside India or for the<\/p>\n
                                        purposes of making or earning any<\/p>\n
                                        income from any source outside<\/p>\n
                                        India; or<\/p>\n
     (c)         a person who is a non-resident,<\/p>\n
                                        where the fees are payable in<\/p>\n
                                        respect of services utilized in a<\/p>\n
                                        business or profession carried on by<\/p>\n
                                        such person in India or for the<\/p>\n
                                        purposes of making or earning any<\/p>\n
                                        income from any source in India :\n<\/p>\n
     Provided         that          nothing           contained             in        this        clause       shall<\/p>\n
     apply          in       relation      to       any       income         by     way      of     fees        for<\/p>\n
     technical           services           payable                in              pursuance          of         an<\/p>\n
     agreement made before the 1st day of April, 1976,<\/p>\n
                                                                        ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                   – 21 –\n<\/p>\n
     and approved by the Central Government.\n<\/p>\n
     [Explanation                  1.-\n                                   1.              For          the           purposes                of       the                    foregoing\n\n\n\n\n                                                                                    \n     proviso,               an         agreement               made           on       or         after        the           1st             day\n\n     of          April             1976,            shall       be           deemed          to       have               been              made\n\n     before          that              date               if           the            agreement                 is            made             in\n\n\n\n\n                                                                                   \n<\/pre>\n
     accordance with proposals approved by the Central<\/p>\n
     Government before that date.]<\/p>\n
     Explanation                   [2].-             For         the            purposes               of         this                    clauses<\/p>\n
     “fees                  for                    technical                             services”                    means                  any<\/p>\n
     consideration<\/p>\n
     for             the
\n                             ig   (including<\/p>\n
                                         rendering
\n                                                                any<\/p>\n
                                                                of            any
\n                                                                                     lump<\/p>\n
                                                                                           managerial,
\n                                                                                                            sum<\/p>\n
                                                                                                                     technical
\n                                                                                                                               consideration)<\/p>\n
                                                                                                                                              or<\/p>\n
     consultancy                   services                      (including                 the                   provision                   of<\/p>\n
     services                of          technical               or           other           personnel)               but                  does<\/p>\n
     not             include                       consideration                      for                   any                    construction,<\/p>\n
     assembly,                   mining              or         like           project            undertaken              by                  the<\/p>\n
     recipient or consideration which would be income of<\/p>\n
     the recipient chargeable under the head “Salaries”.\n<\/p>\n
     Treaty : Double Taxation Avoidance Agreement<\/p>\n
     (DTAA) :\n<\/p>\n
     Article 15 : Independent personal services :\n<\/p>\n
     1.                     Income            derived            by           an           individual,            whether            in       his<\/p>\n
     own        capacity          or          as          a      member               of          a         partnership,            who        is<\/p>\n
                                                                                    ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                         – 22 –\n<\/p>\n
     a            resident                 of                a          Contracting                  State            in                 respect                  of<\/p>\n
     professional                        services                           or                              other                                   independent<\/p>\n
     activities               of                  a         similar                   character          may                 be             taxed                  in<\/p>\n
     that           State          .            Such              income               may           also         be              taxed           in             the<\/p>\n
     other Contracting State if such services are<\/p>\n
     performed in that other State and if:\n<\/p>\n
                                   (a)           he         is         present           in       that                other             state          for         a<\/p>\n
                   periods               aggregating                    to              90            days                  in              the              relevant<\/p>\n
                   fiscal                                          year;                                                                                          or
\n                               ig  (b)                  he,            or         the          partnership,                 has         a         fixed         base<\/p>\n
                   regularly                    available                         to          him,          or             it,                in                 that<\/p>\n
                   other                    State                for             the           purpose                 of              performing                 his<\/p>\n
                   activities;\n<\/p><\/blockquote>\n
                                   but     in         each         case               only      so       much                of        the         income         as<\/p>\n
                   is                      attributable                                  to                           those                              services.\n<\/p><\/blockquote>\n
     2.                      For         the          purposes                   of          paragraph                1           of          this            Article<\/p>\n
     an           individual,                   who                    is         a          member              of                 a                  partnership<\/p>\n
     shall              be               regarded                      as         being           present              in                   the                other<\/p>\n
     State          during                 days                  on               which           although                        he               is            not<\/p>\n
     present,                 another                       individual                                   member                              of                  the<\/p>\n
     partnership                    is                 so              prsent             and            performs                   services                      or<\/p>\n
     other independent activities of a similar character<\/p>\n
                                                                                             ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                  – 23 –\n<\/p>\n
     in that State.\n<\/p>\n
     3.                       The              term                       “professional                      services”                   includes<\/p>\n
     independent                               scientific,                                            literary,                          artistic,<\/p>\n
     educational                   or              teaching               activities            as           well           as                the<\/p>\n
     independent                    activities                    of                             physicians,                         surgeons,<\/p>\n
     lawyers, engineers, architects,             dentists and<\/p>\n
     accountants.\n<\/p>\n
     Consideration :\n<\/p>\n
     —————\n<\/p>\n
     34.                 For               the          purpose            of         taxation                  the                 authorities<\/p>\n
     under             the         Act         have           proceeded               on        the          basis          that              the<\/p>\n
     fees received by the Appellant was for the entire<\/p>\n
     Indian Project as such chargeable to tax.\n<\/p>\n
     35.                     Two          basic              questions           which,              thus,          arise          for       our<\/p>\n
     consideration                 are             :                (A)          Whether               fees          charged                  for<\/p>\n
     composite                activity                  is       chargeable                to         tax?                  and              (B)<\/p>\n
     Whether                 the               income                  attributable              to                  the                 services<\/p>\n
     rendered                 by                  the           Assessee\/Appellant                             outside                      India<\/p>\n
     required to be excluded while computing the tax in<\/p>\n
     India?\n<\/p>\n
     36.               The               resolution                 of          the        above                question                  would<\/p>\n
     depend             upon             the       interpretation               of          Clause            15           of               DTA<\/p>\n
                                                                                 ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                                – 24 –\n<\/p>\n
     read            with              of         Section            9           of          the           Income                 Tax             Act                  which<\/p>\n
     clearly                   lays               down                    that                      income                        derived                 by               an<\/p>\n
     individual                 whether                   in                   his           own           capacity                         or               as             a<\/p>\n
     member                     of                     partnership,                     who                           is                     resident                      of<\/p>\n
     contracting                            State                   in                         respect                          of                           professional<\/p>\n
     Services                            or                independent                                          activities                        of                   similar<\/p>\n
     character                  may               be         taxed              in           that           State.                       Such                       income<\/p>\n
     may          also              be            taxed              in              the            other                  Contracting                   State,             if<\/p>\n
     such         services                  are          performed                      in            that                 State,                and           if          he<\/p>\n
     is         present              in           that              State               for            a               period                    aggregating                to<\/p>\n
     90<\/span><\/p>\n
     question
\n                  days<\/p>\n
                                is
\n                                          in<\/p>\n
                                               how
\n                                                         the<\/p>\n
                                                           much
\n                                                                     relevant<\/p>\n
                                                                                income
\n                                                                                             fiscal<\/p>\n
                                                                                                      is
\n                                                                                                                      year.\n<\/p>\n
                                                                                                                     taxable.\n<\/p>\n
                                                                                                                                                       Now,<\/p>\n
                                                                                                                                                       The
\n                                                                                                                                                                          the<\/p>\n
                                                                                                                                                                     answer<\/p>\n
     is : only so much of the income as is attributable<\/p>\n
     to those services.\n<\/p>\n
     37.                  Article 15 provides for the residence rule in<\/p>\n
     relation                  to                    taxation              of           income                   of                     an                    individual,<\/p>\n
     including                       members                              of            a           partnership,                       the                     exception<\/p>\n
     being            where                       such                   individual                        is                present                     in               the<\/p>\n
     “other”                   state                   for           a           period               aggregating                      90          days                    or<\/p>\n
     more                 in           the           relevant              previous                 year.                         In             the          case         of<\/p>\n
     a         partnership,                 where              “an              individual                      is          a           member                    of        a<\/p>\n
     partnership                          even            if             he             is            not              present”                   but             “another<\/p>\n
     individual                        member                  of             the            partnership                     is              so                     present<\/p>\n
     and                       performs                        professional                                      services”,                        then                   the<\/p>\n
     presence of all such members is aggregated to<\/p>\n
                                                                                                ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                      – 25 –\n<\/p>\n
     ascertain their presence for 90 days.\n<\/p>\n
     38.                    If the test of 90 days is satisfied, the<\/p>\n
     effect        is            to           virtuallly             take           the          assessee             out           of       the<\/p>\n
     treaty, the taxability of the income being<\/p>\n
     determined under section 9(1)(i) of the Act.\n<\/p>\n
     39.                    The interpretation of this section 9(1)(i), is<\/p>\n
     no         longer            res-integra.                       It           has          been         construed               by       the<\/p>\n
     Hon’ble Supreme Court in the following three cases,<\/p>\n
     viz :\n<\/p>\n
     (i) Carborandum and Co. v\/s Commissioner of Income<\/p>\n
                Tax, 108 ITR 335.\n<\/p>\n
     (ii) Commissioner of Income Tax v\/s Toshuku Ltd, 125<\/p>\n
                ITR 525.\n<\/p>\n
     (iii) Ishikawajima-Harima Heavy Industries Ltd<\/p>\n
                  v\/s Director of Income Tax, 288 ITR 408.\n<\/p>\n
     40.                    Section 9 raises a legal fiction, but having<\/p>\n
     regard                     to                    the                     contextual                 interpretation                     and<\/p>\n
     furthermore                      in        view          of            the         fact       that          we          are         dealing<\/p>\n
     with               a                  taxation         statue          the         legal         fiction               must             be<\/p>\n
     construed                   having                  regard             to          the      object          it         seeks             to<\/p>\n
     achieve.                               The          legal            fiction             created           under          section        9<\/p>\n
     of           the                 Act         must        also          be      read         having          regard        to            the<\/p>\n
     other provisions thereof, as held by the Apex Court<\/p>\n
                                                                                    ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                     – 26 –\n<\/p>\n
     in the case of Maruti Udyog Ltd. Vs. Ram Lal<\/p>\n
     [2005] 2 SCC 638.\n<\/p>\n
     41.                The provisions of section 42 of the Indian<\/p>\n
     Income-tax              Act,               1922            provided            that          only         such             part         of<\/p>\n
     income as was attributable to the operations carried<\/p>\n
     out in India would be taxable in India.\n<\/p>\n
     42.                The territorial nexus doctrine, thus, plays an<\/p>\n
     important                   part             in        assessment              of       tax.                 Tax          is         levied<\/p>\n
     on<\/p>\n
     give
\n                      one<\/p>\n
                      rise
\n                               ig         to
\n                                               transaction<\/p>\n
                                                   income
\n                                                                   where<\/p>\n
                                                                   may          take
\n                                                                                    the       operations<\/p>\n
                                                                                            place        partly
\n                                                                                                                   which<\/p>\n
                                                                                                                           in
\n                                                                                                                                           may<\/p>\n
                                                                                                                                            one<\/p>\n
     territory          and               partly           in           another.                    The            question               which<\/p>\n
     falls       for            our             consideration             is           :             whether             the             income<\/p>\n
     that              arises                   out        of      the          said        transaction                 would                be<\/p>\n
     required to be apportioned to each of the<\/p>\n
     territories or not.\n<\/p>\n
     43.                Income arising out of operations in more than<\/p>\n
     one                     jurisdiction                would           have              territorial         nexus                       with<\/p>\n
     each                of              the           jurisdictions           on          actual        basis.                     If      that<\/p>\n
     be          so,                it         may        not      be          correct       to     contend               that               the<\/p>\n
     entire income “accrues or arises” in each of the<\/p>\n
     jurisdictions.\n<\/p>\n
     44.                     The           Apex           Court          had         occasioned           to       consider                 the<\/p>\n
                                                                                    ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                           – 27 –\n<\/p>\n
     above               question                   in                   the       case        of                  Ishikawama                        Harima<\/p>\n
     (cited                     supra),                   wherein                              while                    interpreting                    the<\/p>\n
     provisions of Section 9(1)(vii)(c) of the Act, the<\/p>\n
     Supreme Court held as under :\n<\/p>\n
                                    Section           9(1)(vii)(c)                 of        the          Act              states             that       “a<\/p>\n
                   person                      who             is         a        non-resident,                where              the                  fees<\/p>\n
                   are              payable               in              respect            of              services                  utilized           in<\/p>\n
                   a                 business                       or         profession             carried           on             by              such<\/p>\n
                   person             in            India,               or        for           the          purposes                  of           making<\/p>\n
                   or<\/p>\n
                   India.”\n<\/p><\/blockquote>\n
                                ig  earning               any                  income        from                  any                 source            of<\/p>\n
     Reading                  the               provision                 in       its       plain            sense,                    as              per<\/p>\n
     Apex                Court                 it        requires              two         conditions              to         be            met            –\n<\/p><\/blockquote>\n
     the         services            which               are             the          source            of           the               income           that<\/p>\n
     is            sought             to        be             taxed,           has         to          be          rendered                 in       India,<\/p>\n
     as           well               as              utilized             in       India,        to                be              taxable                in<\/p>\n
     India.                   Both             the                  above                   conditions                   have                 to         be<\/p>\n
     satisfied                        simultaneously.                                    Thus,               for              a              non-resident<\/p>\n
     to             be         taxed           on          income               for         services,              such            a                 service<\/p>\n
     needs               to               be        rendered              within          India,        and             has                  to          be<\/p>\n
     part of a business or profession carried on by such<\/p>\n
     person in India.\n<\/p>\n
     45.                 In the above judgment, Apex Court observed<\/p>\n
                                                                                         ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                          – 28 –\n<\/p>\n
     that         “Section             9(1)(vii)             of            the             Act             must               be           read             with<\/p>\n
     section                 5                 thereof,                 which           takes               within                its                    purview<\/p>\n
     the             territorial                     nexus               on          the          basis               whereof              tax                 is<\/p>\n
     required                to                 be           levied,                namely,            (a)             resident;                             and<\/p>\n
     (b)              receipt            of          accrual               of          income.                          According                   to        the<\/p>\n
     Apex           Court,             the            global               income                of               a           resident                although<\/p>\n
     is         subjected               to             tax,               the                    global                  income                     of         a<\/p>\n
     non-resident            may              not           be.                      The              answer             to              the             question<\/p>\n
     would          depend             upon            the               nature            of           the             contract                and           the<\/p>\n
     provisions                   of          the           DTA.                       What                is          relevant                is         receipt<\/p>\n
     or            accrual
\n                              ig         of         income,<\/p>\n
     plain reading of section 5(2) of the Act subject to
\n                                                                         as          would            be          evident                  from                a<\/p>\n
     the compliance of 90 days rule.\n<\/p>\n
     46.               As per the above Judgment of the Apex Court<\/p>\n
     the              interpretation                             with           reference               to             the              nexus                  to<\/p>\n
     tax                territories                                     also                               assumes                              significance.\n<\/p>\n
     Territorial         nexus                  for                the               purpose                    of             determining                    the<\/p>\n
     tax                liability                           is                 an                      internationaly                                 accepted<\/p>\n
     principle.                        An                   endeavour                should,               thus,             be          made                  to<\/p>\n
     construe            the                   tax-ability                      of                         a                 non-resident                      in<\/p>\n
     respect             of            income             derived               by         it.                    Having                regard                 to<\/p>\n
     the                internationally                     accepted                 principle                   and              DTA,                        no<\/p>\n
     extended                 meaning               can            be           given            to             the          words                       “income<\/p>\n
     deemed                  to         accrue              or            arise            in          India”             as             expressed             in<\/p>\n
     section            9                 of          the          Act.                    The          Section               9                 incorporates<\/p>\n
                                                                                        ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                               – 29 –\n<\/p>\n
     various       heads              of             income                 on              which              tax            is         sought              to         be<\/p>\n
     levied           by                  the               Republic                         of               India.                          Whatever                   is<\/p>\n
     payable               by                   a       resident                 to         a        on-resident                   by                 way               of<\/p>\n
     fees          for                    services,                      thus,              would                    not                  always                   come<\/p>\n
     within                  the                purview                  of                section             9(1)(vii)                 of            the           Act.\n<\/p>\n
     It         must                 have                  sufficient                       territorial                  nexus                    with             India<\/p>\n
     so          as                  to                furnish              a          basis         for            imposition                        of              tax.\n<\/p>\n
     Whereas                     a          resident                would                   come               within               the            purview              of<\/p>\n
     section                    9(1)(vii)                  of            the               Act,            a             non-resident                             would<\/p>\n
     not,             as                   services               of             a          non-resident                 to                   a               resident<\/p>\n
     utilized<\/p>\n
     determining
\n                           in
\n                              ig                India<\/p>\n
                                          whether
\n                                                                 may<\/p>\n
                                                                   the
\n                                                                                     not<\/p>\n
                                                                                       income
\n                                                                                                 have           much<\/p>\n
                                                                                                               of             the
\n                                                                                                                                          relevance<\/p>\n
                                                                                                                                                         non-resident
\n                                                                                                                                                                        in<\/p>\n
     accrues               or             arises            in         India.                       It         must                have           a                direct<\/p>\n
     link              between                   the             services                  rendered             in            India.                               When<\/p>\n
     such             a                   link         is          established,                    the         same                may            again                 be<\/p>\n
     subjected                  to                   any               relief                      under                 the              DTA.                           A<\/p>\n
     distinction may also be made between rendition of<\/p>\n
     services and utilization thereof.\n<\/p>\n
     47.                  With the above understanding of Law laid down<\/p>\n
     by            the           Apex               Court,             if            one           turns            to         the            facts          of        the<\/p>\n
     case             in                   hand             and             examines                 them                on         the                    touchstone,<\/p>\n
     Section                                9(1)(vii)(c)                             which                     clearly                    states                   ………\n<\/p>\n
     where                 the                      fees           are               payable             in          respect              of                  services<\/p>\n
     utilized                in             a          business                      or           profession                  carried             on                   by<\/p>\n
     such              person               in         India                or             for       the             purposes              of                     making<\/p>\n
                                                                                                  ::: Downloaded on – 09\/06\/2013 14:10:34 :::<\/span>\n<\/p>\n
                                                                     – 30 –\n<\/p>\n
     or           earning           any           income            from            any           source           in          India”               It<\/p>\n
     is                thus,             evident               that               section             9(1)(vii)(c),                  read           in<\/p>\n
     its            plain,               envisages                  the                     fulfilment                         of                 two<\/p>\n
     conditions                :                  services,           which               are         source              of                   income<\/p>\n
     sought              to         be           taxed         in         India             must         be             (i)         utilized        in<\/p>\n
     India           and                  (ii)       rendered                in          India.               In          the                  present<\/p>\n
     case, both these conditions have not been satisfied<\/p>\n
     simultaneously.\n<\/p>\n
     48.             The provisions of section 9(1)(vii)(c) of the<\/p>\n
     Act are plain and capable of being given a meaning,<\/p>\n
     is no reason not to give full effect thereto.\n<\/p>\n
     49.             In the above view of the matter, contentions<\/p>\n
     raised         by               the                 assessee\/appellants                            need                   to                  be<\/p>\n
     accepted.                 Thus,                 the               income              of            the                  assessee              is<\/p>\n
     charged             on                hourly             basis          in          India        and                     utilised              in<\/p>\n
     India             shall             only            be          chargeable                 to       Income-Tax                      Act       as<\/p>\n
     disclosed                 in          the            return             of           Income.                        The             substantial<\/p>\n
     questions            of               law                framed              are,               thus,                answered                  in<\/p>\n
     favour              of         the           assessee            and            against            the             Revenue.                   In<\/p>\n
     the result, appeals are allowed with no order as to<\/p>\n
     costs.\n<\/p>\n
                  Sd\/-                                                                Sd\/-\n     [ V. C. DAGA, J.]                                           [ Dr. S. RADHAKRISHNAN, J.]\n\n\n\n\n                                                                                    ::: Downloaded on - 09\/06\/2013 14:10:34 :::<\/span>\n <\/pre>\n","protected":false},"excerpt":{"rendered":"
Bombay High Court Clifford Chance vs Aayakar Bhavan on 19 December, 2008 Bench: S. Radhakrishnan, V.C. Daga 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 ) […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[11,8],"tags":[],"class_list":["post-110302","post","type-post","status-publish","format-standard","hentry","category-bombay-high-court","category-high-court"],"yoast_head":"\nClifford Chance vs Aayakar Bhavan on 19 December, 2008 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/clifford-chance-vs-aayakar-bhavan-on-19-december-2008\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Clifford Chance vs Aayakar Bhavan on 19 December, 2008 - 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