Articles 7(1)(b) and 7(1)(c) of the UN Model Convention as well as of the UN Model Convention Commentary can’t be relied upon to come to a conclusion that the connotation of “profits indirectly attributable to permanent establishment” used in Article 7(1) of the Indo- UK treaty incorporated a force of attraction rule
In the instant case, the assessee- a U.K. partnership firm of Solicitors, was engaged in providing international legal services in certain areas and operated through its principal office in UK and branch offices in certain other countries. During the years under consideration, it rendered legal consultancy services in connection with different projects in India. It did not have an office in India. Assessee returned nil income relying on Art 15 of Indo-UK DTAA on the ground that the aggregate period or period of stay of its partners and employees during the said years did not exceed 90 days. Revenue rejected assessee’s claim on the footing that Article 7(1) of Indo-UK DTAA should be interpreted in the light of Article 7(1) of the UN Model Convention to read the force of attraction rule so as to deny assessee the benefit of Article 15 and tax the activities in India applying Article 7.
The Tribunal held in favour of assessee as under:
1) It would not be correct to say that the connotation of “profits indirectly attributable to permanent establishment” in Article 7(1) extend to the two categories of income as specified in clause (b) and clause (c) of Article 7(1) of the UN Model Convention and incorporate a force of attraction rule as held by the Division Bench of this Tribunal in the case of Linklaters LLP;
2) When the connotations of “profits indirectly attributable to permanent establishment” are defined specifically in Article 7(3) of the India-UK DTAA which clearly explains the scope and ambit of the profits indirectly attributable to the PE and the provisions of said article being unambiguous and capable of giving a definite meaning, there was no need to refer to the provisions of Article 7(1) of UN Model Convention which were materially different from the provisions of Article 7(1) of the India-UK DTAA read with Article 7(3) thereof - ADIT V. CLIFFORD CHANCE [2013] 33 taxmann.com 200 (Mumbai - Trib.) (SB)
In the instant case, the assessee- a U.K. partnership firm of Solicitors, was engaged in providing international legal services in certain areas and operated through its principal office in UK and branch offices in certain other countries. During the years under consideration, it rendered legal consultancy services in connection with different projects in India. It did not have an office in India. Assessee returned nil income relying on Art 15 of Indo-UK DTAA on the ground that the aggregate period or period of stay of its partners and employees during the said years did not exceed 90 days. Revenue rejected assessee’s claim on the footing that Article 7(1) of Indo-UK DTAA should be interpreted in the light of Article 7(1) of the UN Model Convention to read the force of attraction rule so as to deny assessee the benefit of Article 15 and tax the activities in India applying Article 7.
The Tribunal held in favour of assessee as under:
1) It would not be correct to say that the connotation of “profits indirectly attributable to permanent establishment” in Article 7(1) extend to the two categories of income as specified in clause (b) and clause (c) of Article 7(1) of the UN Model Convention and incorporate a force of attraction rule as held by the Division Bench of this Tribunal in the case of Linklaters LLP;
2) When the connotations of “profits indirectly attributable to permanent establishment” are defined specifically in Article 7(3) of the India-UK DTAA which clearly explains the scope and ambit of the profits indirectly attributable to the PE and the provisions of said article being unambiguous and capable of giving a definite meaning, there was no need to refer to the provisions of Article 7(1) of UN Model Convention which were materially different from the provisions of Article 7(1) of the India-UK DTAA read with Article 7(3) thereof - ADIT V. CLIFFORD CHANCE [2013] 33 taxmann.com 200 (Mumbai - Trib.) (SB)
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