The Income Tax Appellate Tribunal (ITAT), New Delhi Bench held that Benefit of India UK Double Taxation Avoidance Agreement (DTAA) allowable to Limited Lability Partnership (LLP) on portion of Income from Indian Engagements.
The assessee,Herbert Smith Freehills LLP is a firm of solicitors, having its registered office in the United Kingdom and is engaged in providing legal services to its clients worldwide (non-residents andresidents of India). The assessee is a UK based Limited Liability Partnership with a majority of its partners being tax residents of the UK.
During the previous year under consideration, the assessee provided legal services to its clients in India/ Outside India relating to activities carried out by such clients in India. The Assessing Officer (AO) in his assessment order opined that the assessee is not eligible for benefits of India-UK DTAA.
According to the AO, an entity to be eligible for India-UK DTAA, needs to be ‘resident of a contracting state’, within the meaning of Article 4.1 of India-UK DTAA and that the assessee was not a resident of UK. The AO held that a Limited Liability Partnership incorporated as per the laws of UK, is a fiscally transparent entity, not liable to taxation in UK and has been specifically excluded from the definition of a resident.
The CIT(A) upheld the orders of AO hence the present appeal has been preferred.
According to the India-UK DTAA he income received by HSF from the provision of legal services, being in the nature of business income for HSF, is not taxable in India in the absence of a Permanent Establishment (‘PE’) of HSF in India as per the provisions of Article 5 read with Article 7 of the UK-India Convention.
The Counsel for the assessee relied on the judgment of the Tribunal in a plethora of cases wherein it was held that the eligibility of a fiscally transparent partnership firm to avail of the tax treaty benefits is affirmed on the basis that the income of the partnership firm has been taxed in the foreign state in the hands of its partners.
A Bench comprising Shamim Yahya, Accountant Member and Yogesh Kumar US, Judicial Member relied on the judgment in Linklaters LLP wherein it was observed that “The assessee is entitled to the benefit of Article 4. 1 of India-UK DTAA on the portion of its income from Indian engagements, which has been taxed in the UK in the hands of its UK tax resident partners.”
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