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21 June 2019
The taxpayer in a recent case (a partnership law firm) was a tax resident of the United Kingdom. It had offices in various other countries, but not India.(1) The taxpayer received fees from clients in India in exchange for legal consultancy services. In its tax return, the taxpayer stated that in the absence of a permanent establishment in India, the fees that it had received were not subject to tax in India.
The tax officer observed that during the relevant fiscal year, employees of the taxpayer had rendered services in India for more than 90 days. The tax officer thus concluded that the taxpayer had a service permanent establishment in India under Article 5(2) of the India-UK tax treaty.
On further appeal to the Mumbai Tax Tribunal, the taxpayer contended that:
The tax tribunal – relying on its earlier decision referred to by the taxpayer – held that the multiple counting of employees on a particular day is prohibited under Article 5(2) of the India-UK tax treaty. Further, the tribunal held that since the employee in question had been on leave and no other employee of the taxpayer had rendered services in India, the period of leave had to be excluded from the calculation. As such, the tribunal held that:
For further information on this topic please contact Pranay Bhatia at BDO in India by telephone (+91 22 3332 1600) or email (email@example.com). The BDO in India website can be accessed at www.bdo.in.
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