THE DDIT(IT)-1(2), MUMBAI V. M/S. CLIFFORD CHANCE LLP, MUMBAI

ITA 2060/MUM/2008

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3571 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 28-01-2016
• Assessment Year: 1999-2000
• Appeal Filed On: 25-03-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SARABJOT WALIA
• Keywords: Double taxation relief; Deemed to accrue or arise in india; Additional evidence; Permanent establishment
• Section: 5(2)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI L BENCH , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAM LAL NEGI,JUDICIAL MEMBER /.ITA NO.5034/MUM/2004 , /ASSESSMENT YEAR-1998-99 ADIT(IT)-1(2) ROOM NO.113, SCINDIA HOUSE BALLARD ESTATE MUMBAI-400 001. VS. M/S. CLIFFORD CHANCE,LLP (FORMERLY KNOWN AS CLIFFORD CHANCE)C/O., PRICEWATER HOUSE COOPERS PVT. LTD., 17-18 FLOOR, BLDG. NO.10,TOWER-C, DLF CYBER CITY GURGAON, HARYANA-122002. PAN:AABFC 3095 N /.ITA NO.5035/MUM/2004 , /ASSESSMENT YEAR-1999-2000 ADIT(IT)-1(2) MUMBAI-400 001. VS. M/S. CLIFFORD CHANCE,LLP GURGAON-122002.HARYANA. /.ITA NO.2060/MUM/2008, /ASSESSMENT YEAR-1999-2000 ADIT(IT)-1(2) MUMBAI-400 001. VS. M/S. CLIFFORD CHANCE,LLP GURGAON-122002.HARYANA. /.ITA NO.7095/MUM/2004 , /ASSESSMENT YEAR-2000-2001 ADIT(IT)-1(2) MUMBAI-400 001. VS. M/S. CLIFFORD CHANCE,LLP GURGAON-122002.HARYANA. /.ITA NO.3021/MUM/2005 , /ASSESSMENT YEAR-2001-02 DDIT(IT)-1(2) MUMBAI-400 001. VS. M/S. CLIFFORD CHANCE,LLP GURGAON-122002.HARYANA. /.ITA NO.2061/MUM/2008 , /ASSESSMENT YEAR-2003-04 ADIT(IT)-1(2) MUMBAI-400 001. VS. M/S. CLIFFORD CHANCE,LLP GURGAON-122002.HARYANA. /.ITA NO.6628/MUM/2010 , /ASSESSMENT YEAR-2005-06 DDIT(IT)-1(2) MUMBAI-400 001. VS. M/S. CLIFFORD CHANCE,LLP GURGAON-122002.HARYANA. ( / APPELLANT) ( / RESPONDENT) C.O./41/M/08ARISING OUT OF /.ITA/5034/M/2004, /AY.-1998-99 M/S. CLIFFORD CHANCE,LLP GURGAON-122002,HARYANA VS. ADIT(IT)-1(2) MUMBAI-400 001. C.O.NO.42/M/08 ARISING OUT OF /.ITA/5035/M/2004, /AY.1999-00 M/S. CLIFFORD CHANCE,LLP GURGAON-122002,HARYANA. VS. ADIT(IT)-1(2) MUMBAI-400 001. C.O.NO.43/M/08 ARISING OUT OF /.ITA/7095/M/2004, /AY.2000-01 M/S. CLIFFORD CHANCE,LLP GURGAON-122002,HARYANA. VS. ADIT(IT)-1(2) MUMBAI-400 001. C.O.NO.44/M/08ARISING OUT OF /.ITA/3021/M/2005, /AY.2001-02 ITA/5034/M/04 & OTHS,AY.98-99-CLIFFORD CHANCE,LLP 2 M/S. CLIFFORD CHANCE,LLP GURGAON-122002,HARYANA. VS. ADIT(IT)-1(2) MUMBAI-400 001. ( / CROSS OBJECTOR) ( /RESPONDENT) /ASSESSEE BY: S/SHRI PAWAN KUMAR, RAVI SHARMA, PHIL IP COURTNEY AND MS. SARABJOT WALIA / REVENUE BY : SHRI GIRISH DAVE / DATE OF HEARING : 28.01.2016 / DATE OF PRONOUNCEMENT : 02.03.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER BENCH - CHALLENGING THE ORDERS OF THE CS.IT(A)FOR ABOVE MEN TIONED ASSESSMENT YEARS(AY.S.)THE ASSESSING OFFICERS(AO.S)AND THE ASSESSEE HAVE FILED APPEAL/CROSS OBJECTIONS(CO.S.).AS THE ISSUE INVOLVED IN THE APPEALS/CO.S.ARE COMMON,THERE FORE,FOR SAKE OF CONVENIENCE,WE ARE ADJUDICATING THEM BY A SINGLE COMMON ORDER. ITA/5034/MUM/2004-AY.1998-99 ASSESSEE IS A PARTNERSHIP FIRM OF SOLICITORS OF UNI TED KINGDOM(UK).IT FILED ITS RETURN OF INCOME ON 29.12.1998 DECLARING INCOME OF RS.4.84 CRORES.TH E AO COMPLETED THE ASSESSMENT ON 30. 03.2001,U/S.143(3)OF THE ACT,DETERMINING THE INCOME OF THE ASSESSEE AT RS.17.67 CRORES. 2. THE AO HAS RAISED FIVE GROUNDS OF APPEAL.HE HAS ALS O FILED ADDITIONAL GROUND FOR THE YEAR UNDER APPEAL.FIRST EFFECTIVE GROUND (GOA-1&2) OF AP PEAL IS ABOUT AS TO WHETHER THE ASSESSEE IS ENTITLED TO THE BENEFITS OF INDO-UK DTAA.THE AO HAS ALSO RAISED ADDITIONAL GROUND FOR THE YEAR UNDER APPEAL. 3. DURING THE COURSE OF HEARING,BEFORE US,REPRESENTATI VES OF BOTH THE SIDES AGREED THAT THE ISSUES RAISED BY THE AO IN HIS APPEALS STAND COVERED AGAIN ST HIM AND IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE SPECIAL BENCH(ITA NOS.5034/MUM/2004, 5 035/MUM/2004,7075/MUM/2004, 3021/ MUM/2005 & 2060-61/MUM/2000) & C.O.41-44/MUM/2008 A RISING OUT OF ITA NOS.5034/ M/ 04,5035/M/04,7095/M/04 & 3021/M/05 AYS.1998-99,1999 -00,2000-01 & 2001-02.)WE FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL HAS NOT ONLY DISCUSSED THE FACTS OF THE CASE,BUT HAS ALSO DELIBERATED UPON THE ISSUE IN FOLLOWING MANNER: 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HERE IN IS A FIRM OF SOLICITORS WHICH IS A TAX RESIDENT OF UK. DURING THE YEARS UNDER CONSIDERATION, IT RENDER ED LEGAL CONSULTANCY SERVICES IN CONNECTION WITH DIFFERENT PROJECTS IN INDIA, SOME PART OF WHIC H WAS PERFORMED IN INDIA. INCOME ATTRIBUTABLE TO THE SERVICES SO PERFORMED IN INDIA WAS OFFERED T O TAX BY THE ASSESSEE IN INDIA IN THE RETURN OF INCOME FILED FOR A.Y. 1998-99 AS PER ARTICLE 15 OF THE INDIA-UK TREATY SINCE THE AGGREGATE PERIOD OF ITS PRESENCE IN INDIA THROUGH PARTNERS AND EMPLO YEES EXCEEDED 90 DAYS IN THAT YEAR. IN THE RETURNS OF INCOME FILED FOR OTHER YEARS, THE ASSESS EE DECLARED NIL INCOME ON THE GROUND THAT THE AGGREGATE PERIOD OF ITS PRESENCE IN INDIA DID NOT E XCEED 90 DAYS AND ITS INCOME WAS NOT TAXABLE ITA/5034/M/04 & OTHS,AY.98-99-CLIFFORD CHANCE,LLP 3 IN INDIA AS PER ARTICLE 15 OF THE INDIA-UK TREATY. ACCORDING TO THE A.O., ARTICLE 15 OF THE INDIA- UK TREATY, IS NOT APPLICABLE - THE ASSESSEE BEING A PARTNERSHIP FIRM. HE HELD THAT THE ASSESSEE HAVING CARRIED ON THE ACTIVITY OF RENDERING SERVICE S IN INDIA FOR A PERIOD OR PERIODS AGGREGATING TO MORE THAN 90 DAYS WITHIN ANY 12 MONTHS PERIOD, I T WAS HAVING A PERMANENT ESTABLISHMENT IN INDIA IN TERMS OF ARTICLE 5(2)(K) OF THE INDIA-UK D TAA AND THE PROFIT EARNED BY THE ASSESSEE FROM THE RENDERING OF SERVICES IN INDIA WAS CHARGEABLE T O TAX IN INDIA AS BUSINESS PROFIT UNDER ARTICLE 7 OF THE INDIA-UK DTAA. HE ALSO HELD THAT THE ENTIR E FEES RECEIVED BY THE ASSESSEE FROM ITS CLIENTS FOR THE SERVICES RENDERED IN INDIA AS WELL AS OUTSI DE INDIA WAS CHARGEABLE TO TAX IN INDIA AS THE SAID SERVICES WERE UTILISED IN RELATION TO THE PROJ ECTS IN INDIA. 17.ON APPEAL, THE LD. CIT(A) AGREED WITH THE STAN D OF THE ASSESSEE THAT ITS CASE WAS COVERED UNDER ARTICLE 15 AND NOT UNDER ARTICLE 5(2) READ WI TH ARTICLE 7 OF THE DTAA BY RELYING ON THE DECISION OF THE TRIBUNAL PASSED IN ASSESSEES OWN C ASE FOR A.Y. 1996-97 AS REPORTED IN (2002) 82 ITD 106 (MUM.) IN THE SAID DECISION, IT WAS HELD BY THE DIVISION BENCH OF THIS TRIBUNAL THAT ARTICLE 15 OF THE INDIA-UK DTAA DEALS WITH INDEPEN DENT PERSONAL SERVICES OF PROFESSIONALS AND SUCH SERVICES COULD ONLY BE RENDERED BY COMPETE NT PROFESSIONALS. IT WAS HELD THAT AS PER ARTICLE 15, THE INCOME MUST BE DERIVED FROM PROFESS ION BY AN INDIVIDUAL AND THE INDIVIDUAL CAN GET THIS INCOME IN HIS OWN CAPACITY OR AS A MEMBER OF PARTNERSHIP. IT WAS ALSO HELD THAT THE TERM MEMBER AS USED IN ARTICLE 15 OF THE INDIA-UK DTAA IS THE TERM OF MOST GENERAL MEANING AND EVEN LAWYERS REPRESENTING THE FIRM AS EMPLOYEES ALS O COME WITHIN ITS AMBIT. AS REGARDS THE QUANTIFICATION OF INCOME TO BE TAXED IN INDIA, THE TRIBUNAL HELD THAT IF THE ASSESSEE COULD PROVE THAT IT RENDERED SERVICES OUTSIDE INDIA, ITS INCOME TO THAT EXTENT SHOULD BE EXCLUDED WHILE COMPUTING ITS TOTAL INCOME FOR DETERMINING TAX PAYA BLE IN INDIA. HOWEVER IN THE ABSENCE OF ANY DOCUMENT OR OTHER PROOF PRODUCED BY THE ASSESSEE TO ESTABLISH THAT THE SERVICES WERE ALSO RENDERED OUTSIDE INDIA, THE TRIBUNAL HELD THAT THIS ISSUE COULD NOT BE DECIDED IN FAVOUR OF THE ASSESSEE. IT WAS HELD BY THE TRIBUNAL IN THIS CONTE XT THAT IT COULD BE PRESUMED THAT THE MAIN SERVICES WERE RENDERED BY THE ASSESSEE IN INDIA AND IF AT ALL SOME MINOR WORK WAS DONE OUTSIDE INDIA, IT WAS ONLY OF ALLIED AND INCIDENTAL NATURE. IT WAS HELD BY THE TRIBUNAL THAT THE ENTIRE FEES CHARGED BY THE ASSESSEE IN RESPECT OF THE SERVICES RENDERED IN RELATION TO INFRASTRUCTURE PROJECTS IN INDIA AS COMPOSITE ACTIVITY WAS THUS CHARGEABLE TO TAX IN INDIA. 18. THE DECISION OF THE TRIBUNAL IN ITS CASE FOR A. Y. 1996-97 WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED BEFORE THE HONBLE BOMBAY HIGH COURT. WHILE DISPOSING OF THE SAID APPEAL (BY THE JUDGMENT REPORTED IN (2009) 176 TAXMANN 458 (BOM.) AS CLIFFORD CHANCE VS. DCIT), THE HONBLE BOMBAY HIGH COURT AGREED WITH THE VIEW OF THE TRIBU NAL THAT ARTICLE 15 OF THE INDIA-UK TREATY WAS APPLICABLE IN THE CASE OF THE ASSESSEE. IN THIS CONTEXT, THE COURT OBSERVED THAT ARTICLE 15 PROVIDES FOR THE RESIDENCE RULE IN RELATION TO TAXA TION OF INCOME OF AN INDIVIDUAL INCLUDING MEMBERS OF A PARTNERSHIP, THE EXCEPTION BEING WHERE SUCH AN INDIVIDUAL IS PRESENT IN THE OTHER STATE FOR A PERIOD AGGREGATING TO 90 DAYS OR MORE I N THE RELEVANT PREVIOUS YEAR. IT WAS HELD THAT IF THE TEST OF 90 DAYS IS SATISFIED, THE EFFECT IS TO VIRTUALLY TAKE THE ASSESSEE OUT OF THE TREATY, THE TAXABILITY OF THE INCOME BEING DETERMINED U/S 9(1)( I) OF THE ACT. AS REGARDS THE DETERMINATION OF INCOME U/S 9(1)(I) OF THE ACT, THE HONBLE BOMBAY H IGH COURT HELD THAT THE TERRITORIAL NEXUS DOCTRINE PLAYS AN IMPORTANT PART IN THE ASSESSMENT OF TAX AND IF THE INCOME ARISING OUT OF OPERATIONS IN MORE THAN ONE JURISDICTION HAS TERRIT ORIAL NEXUS WITH EACH OF THE JURISDICTIONS ON ACTUAL BASIS, IT MAY NOT BE CORRECT TO CONTEND THAT THE ENTIRE INCOME ACCRUES OR ARISES IN EACH OF THE JURISDICTIONS. REFERENCE IN THIS REGARD WAS MAD E TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES LT D. VS. DIT (2007) 288 ITR 408 WHICH WAS IN ITA/5034/M/04 & OTHS,AY.98-99-CLIFFORD CHANCE,LLP 4 THE CONTEXT OF SECTION 9(1)(VII)(C) REQUIRING FULFI LLMENT OF TWO CONDITIONS NAMELY THE SERVICES WHICH ARE THE SOURCE OF INCOME THAT IS SOUGHT TO BE TAXED IN INDIA `MUST BE UTILISED IN INDIA AND RENDERED IN INDIA. IT WAS HELD BY THE HONBLE BOMBA Y HIGH COURT THAT SINCE BOTH THESE CONDITIONS WERE NOT SATISFIED SIMULTANEOUSLY IN THE CASE OF THE ASSESSEE, THE INCOME OF THE ASSESSEE AS CHARGED ON HOURLY BASIS FOR THE SERVICE S RENDERED IN INDIA AND UTILISED IN INDIA ONLY WAS CHARGEABLE TO TAX IN INDIA. 4. THE HONBLE BOMBAY HIGH COURT HAS UPHELD THE ORDER OF THE TRIBUNAL(318ITR237).THE HONBLE COURT HAS MENTIONED THE FACTS OF THE CASE A S UNDER: THE ASSESSEE WAS A LAW FIRM INCORPORATED IN THE UN ITED KINGDOM. DURING THE PREVIOUS YEAR ENDED ON MARCH 31, 1996, (RELEVANT TO THE ASSESSMEN T YEAR 1996-97), IT WAS APPOINTED AS ENGLISH LAW LEGAL ADVISERS FOR THREE PROJECTS IN INDIA, NAM ELY B, V, AND R. THE B PROJECT WAS A THREE-WAY JOINT VENTURE FOR THE CONSTRUCTION OF A POWER PLANT BETWEEN THREE PARTICIPANTS : I, G AND E. G AND E WERE NOT RESIDENT IN INDIA. ONLY ONE OF THEM, I W AS A RESIDENT IN INDIA. THE V PROJECT WAS A TWO-WAY JOINT VENTURE PROJECT FOR THE CONSTRUCTION OF A POWER PLANT BETWEEN TWO NON-RESIDENT PARTICIPANTS, NAMELY, N AND M. THE R PROJECT WAS A CLIENT OF THE ASSESSEE, A NON-RESIDENT AUSTRALIAN COMPANY CALLED C. THE APPELLANT, DURING THE PREVIOUS YEAR ENDED ON MARCH 31, 1997, (RELEVANT TO THE ASSESSMENT YEAR 1997-98) WAS APPOI NTED AS ENGLISH LAW LEGAL ADVISERS ADDITIONALLY FOR THE V POWER PROJECT. IN THE CASE O F V, THE ASSESSEES CLIENT, A WAS ALSO NOT RESIDENT IN INDIA. DURING THE PREVIOUS YEAR RELEVAN T TO THE ASSESSMENT YEAR 1997-98 , THE NUMBER OF DAYS THE APPELLANTS PARTNERS WERE PRESENT IN IN DIA EXCEEDED 90 DAYS. THE APPELLANT FILED A RETURN OF INCOME SHOWING AN INCOME, LIABLE TO INDIA N TAXATION OF RS. 5,08,87,950 ARRIVED AT ON THE BASIS OF THE INCOME OF THE APPELLANT, WHICH WAS ATT RIBUTABLE TO ITS OPERATION IN INDIA IN RESPECT OF THE FOUR PROJECTS. THE ASSESSING OFFICER HELD THAT THE ENTIRE FEES RECEIVED BY THE APPELLANT FROM THE CLIENTS ENGAGED IN THE FOUR PROJECTS WERE TAXAB LE IN INDIA. DECIDING THE MATTER,THE HONBLE COURT HELD AS FOLLO W: THE TERRITORIAL NEXUS DOCTRINE PLAYS AN IMPORTANT PART IN THE ASSESSMENT OF TAX. TAX IS LEVIED ON ONE TRANSACTION WHERE THE OPERATIONS WHICH MAY GIVE RISE TO INCOME MAY TAKE PLACE PARTLY IN ONE TERRITORY AND PARTLY IN ANOTHER. INCOME ARISING OUT OF OPERATIONS IN MORE THAN ONE JURISDICTION WOULD HAVE TERRITORIAL NEXUS WITH EACH OF THE JURIS DICTIONS ON ACTUAL BASIS. THUS, IT MAY NOT BE CORRECT TO CONTEND THAT ENTIRE INCOME ACCRUES OR A RISES IN EACH OF THE JURISDICTIONS. FOR A NON- RESIDENT TO BE TAXED ON INCOME FOR SERVICES, SUCH A SERVICE NEEDS TO BE RENDERED WITHIN INDIA, AND HAS TO BE PART OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA. HAVING REGARD TO THE INTERNATIONALLY ACCEPTED PRINCIPLE AND THE DOUB LE TAXATION AVOIDANCE AGREEMENT, NO EXTENDED MEANING CAN BE GIVEN TO THE WORDS INCOME DEEMED TO ACCRUE OR ARISE IN INDIA AS EXPRESSED IN SECTION 9 OF THE INCOME-TAX ACT, 1961. SECTION 9 INCORPORATES VARIOUS HEADS OF INCOME ON WHICH TAX IS SOUGHT TO BE LEVIED BY INDIA . WHATEVER IS PAYABLE BY A RESIDENT TO A NON- RESIDENT BY WAY OF FEES FOR SERVICES, THUS WOULD NO T ALWAYS COME WITHIN THE PURVIEW OF SECTION 9(1)(VII) OF THE ACT. IT MUST HAVE SUFFICIENT TERRI TORIAL NEXUS WITH INDIA SO AS TO FURNISH A BASIS FO R IMPOSITION OF TAX. WHEREAS A RESIDENT WOULD COME WI THIN THE PURVIEW OF SECTION 9(1)(VII) OF THE ACT, A NON-RESIDENT WOULD NOT, AS SERVICES OF A NON -RESIDENT TO A RESIDENT UTILIZED IN INDIA MAY NOT HAVE MUCH RELEVANCE IN DETERMINING WHETHER THE INCO ME OF THE NON-RESIDENT ACCRUES OR ARISES IN INDIA. IT MUST HAVE A DIRECT LINK BETWEEN THE SERVI CES RENDERED IN INDIA. WHEN SUCH A LINK IS ESTABLISHED, THE SAME MAY AGAIN BE SUBJECTED TO REL IEF UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT. A DISTINCTION MAY ALSO BE MADE BETWEEN R ENDITION OF SERVICES AND UTILIZATION THEREOF. ARTICLE 15 OF THE DOUBLE TAXATION AVOIDANCE AGREEME NT BETWEEN THE UNITED KINGDOM AND INDIA PROVIDES FOR THE RESIDENCE RULE IN RELATION TO THE TAXATION OF INCOME OF AN INDIVIDUAL, INCLUDING ITA/5034/M/04 & OTHS,AY.98-99-CLIFFORD CHANCE,LLP 5 MEMBERS OF A PARTNERSHIP, THE EXCEPTION BEING WHERE SUCH INDIVIDUAL IS PRESENT IN THE OTHER STATE FOR A PERIOD AGGREGATING 90 DAYS OR MORE IN T HE RELEVANT PREVIOUS YEAR. IN THE CASE OF A PARTNERSHIP, WHERE AN INDIVIDUAL IS A MEMBER OF A PARTNERSHIP EVEN IF HE IS NOT PRESENT BUT ANOTHER INDIVIDUAL MEMBER OF THE PARTNERSHIP IS SO PRESENT AND PERFORMS PROFESSIONAL SERVICES, THEN THE PRESENCE OF ALL SUCH MEMBERS IS AGGREGATED TO ASCERTAIN THEIR PRESENCE FOR 90 DAYS. IF THE TEST OF 90 DAYS IS SATISFIED, THE EFFECT IS TO VIRT UALLY TAKE THE ASSESSEE OUT OF THE TREATY, THE TAXABILITY OF THE INCOME BEING DETERMINED UNDER SEC TION 9(1)(I) OF THE ACT. THAT SECTION 9(1)(VII)(C) ENVISAGES THE FULFILMENT OF TWO CONDIT IONS : SERVICES WHICH ARE THE SOURCE OF INCOME SOUGHT TO BE TAXED IN INDIA MUST BE (I) UTILIZED IN INDIA, AND (II) RENDERED IN INDIA. IN THE PRESENT CASE, BOTH THESE CONDITIONS HAD NOT BEEN SATISFIED SIMULTANEOUSLY. THE INCOME OF THE ASSESSEE CHARGED ON HOURLY BASIS IN INDIA AND UTILISED IN IN DIA WOULD ONLY BE CHARGEABLE TO INCOME-TAX AS DISCLOSED IN THE RETURN. FROM THE ABOVE ORDER IT IS CLEAR THAT THE ISSUE STA NDS DECIDED IN FAVOUR OF THE ASSESSEE . CONSIDERING THESE PECULIAR FACTS,WE ARE OF THE OPIN ION THAT EVEN IF THE FAA HAD ADMITTED ADDITIONAL EVIDENCES DURING THE APPELLATE PROCEEDIN GS,IT WOULD NOT BE ADVISABLE TO RESTORE BACK THE MATTER TO HIS FILE FOR FRESH ADJUDICATION.IN OU R OPINION,UNNECESSARY LITIGATION SHOULD BE AVOIDED.BUT,WE WOULD LIKE TO MENTION THAT THE FAA S HOULD HAVE CALLED FOR A REMAND REPORT FROM THE AO.WITH THESE OBSERVATIONS,WE DISMISS THE ADDIT IONAL GROUND RAISED BY HIM. 5. GROUND NO.3 PERTAINS TO TAXING UK PONDS 8,51,701 AN D NOT THE TOTAL FEES OF UK POND 33,39, 951 FOR THE YEAR UNDER CONSIDERATION.THE AR AND THE DR STATED THAT PARAGRAPH NO.27 OF THE ORDER OF THE SPECIAL BENCH DEALS WITH THE ISSUE AND IS DE CIDED AGAINST THE AO.WE ARE REPRODUCING THE SAID PARAGRAPH AND IT READS AS UNDER: 27. HAVING ANSWERED QUESTION NO. 1 REFERRED TO THIS SPECIAL BENCH IN THE NEGATIVE I.E. IN FAVOUR OF THE ASSESSEE HOLDING THAT THE POSITION OF LAW AS PROPOUNDED BY THE HONBLE BOMBAY HIGH COURT IN ASSESSEES CASE FOR A.Y. 96-97 STILL HOLDS GOOD AND ACCORDINGLY ITS INCOME DERIVED FROM THE PROFESSIONAL SERVICES RENDERED IN RESPECT OF TH E PROJECTS IN INDIA IS CHARGEABLE TO TAX IN INDIA ONLY TO THE EXTENT IT IS ATTRIBUTABLE TO THE SERVIC ES RENDERED/PERFORMED IN INDIA, WE ARE OF THE VIEW THAT THE ISSUE INVOLVED IN QUESTION NO. 2 REFERRED TO THIS SPECIAL BENCH HAS BECOME VIRTUALLY INFRUCTUOUS AND IS RENDERED ONLY ACADEMIC. HOWEVER, AS THE SAID QUESTION IS ALSO REFERRED SPECIFICALLY FOR THE CONSIDERATION OF THIS SPECIAL BENCH, WE NOW PROCEED TO CONSIDER AND DECIDE THE SAME FOR THE SAKE OF COMPLETENESS. RESPECTFULLY,FOLLOWING THE ABOVE ORDER OF THE SPECI AL BENCH,WE DECIDED GROUND NO.3 AGAINST THE AO. 6. GROUND NO.4 IS ABOUT ALLOWING THE AMOUNTS OF REIMBU RSEMENT OF EXPENDITURE AS DEDUCTION AND IGNORING THE PROVISIONS OF SECTION 44C OF THE ACT.W E FIND THAT THE SPECIAL BENCH HAS ADJUDICATED THE ISSUE IN FAVOUR OF THE ASSESSEE IN FOLLOWING MA NNER: 66. THE AMOUNT OF REIMBURSEMENT OF EXPENDITURE COUL D NOT BE TREATED AS THE INCOME OF THE ASSESSEE. IT WAS STATED THAT THESE WERE THE REIMBUR SEMENT OF ACTUAL EXPENSES INCURRED BY THE ASSESSEE UNDER THE TERMS OF CONTRACTS IN RELATION T O THE THREE PROJECTS. WE FIND THAT ASSESSING OFFICER DID NOT MAKE ANY DISALLOWANCE ON THIS COUNT .CIT(A) NOTED THAT THIS ISSUE ESCAPED THE NOTICE OF THE ASSESSING OFFICER.AS SUCH,HE DIRECTED THE ASSESSING OFFICER TO CONSIDER THE CLAIM ON MERITS AND ALLOW THE SAME AFTER VERIFICATION.WE AGR EE TO THE EXTENT THAT BEFORE MAKING THE ITA/5034/M/04 & OTHS,AY.98-99-CLIFFORD CHANCE,LLP 6 ALLOWANCE IN REGARD TO THIS CLAIM, ASSESSING OFFIC ER SHOULD VERIFY THE VARIOUS AMOUNTS.IF THE AMOUNTS ARE PURELY OF THE CHARACTER OF REIMBURSEMEN T AS IS ALLEGED BEFORE US, THE SAME MAY BE ALLOWED AS DEDUCTION . FOLLOWING THE ABOVE,THE AO IS DIRECTED TO VERIFY TH E CLAIM MADE BY THE ASSESSEE THAT THE AMOUNTS IN QUESTION WERE PURELY OF THE CHARACTER OF REIMBU RSEMENT.GROUND NO.4 IS DECIDED IN FAVOUR OF THE AO,IN PART. 7. LAST EFFECTIVE GROUND (GOA-5)DEALS WITH ISSUE OF AL LOWING THE SALARY EXPENSES TO THE STAFF MEMBERS INCURRED OUTSIDE INDIA IN CONTRAVENTION OF SECTION 44COF THE ACT.WE FIND THAT THE ISSUE OF SALARY OF THE STAFF INCURRED OUTSIDE INDIA WAS D ELIBERATED UPON BY THE SPECIAL BENCH AT PARAGRAPHS NO.67-68 AT PAGE NO.162 OF THE ORDER AS UNDER: 67. NEXT IT WAS ARGUED THAT THE CIT(A) OUGHT, IN A NY EVENT, TO HAVE GIVEN A SPECIFIC DIRECTION TO THE ASSESSING OFFICER TO GRANT THE ASSESSEE A DEDUC TION OF UK POUNDS 1,86,927.77 BEING THE SALARY EXPENSES INCURRED BY THE ASSESSEE OUTSIDE IN DIA IN RELATION TO THE PROFESSIONAL SERVICES RENDERED BY IT TO BE PARTIES ENGAGED IN EXECUTING T HE BHADRAVATL, RAVVA AND VIZAG PROJECTS. 68.THE TOTAL SALARY CLAIMED BY THE ASSESSEE WAS EQU IVALENT TO RS. 97,20,244. CIT(A) NOTED THAT THIS ESCAPED THE NOTICE OF THE ASSESSING OFFICER. A S SUCH, HE DIRECTED THE ASSESSING OFFICER TO MAKE PROPER VERIFICATION. WE AGREE WITH THE VIEW TH AT THE EXPENSES ON SALARY TO THE STAFF MEMBERS CAN BE ALLOWED. WE DIRECT THE ASSESSING OFF ICER TO ALLOW THE SAME AFTER NECESSARY VERIFICATION. RESPECTFULLY FOLLOWING THE ABOVE ORDER,WE DIRECT TH E AO TO VERIFY THE CLAIM MADE BY THE ASSESSEE AND ALLOW THE SAME.GROUND NO.5 IS ALLOWED IN FAVOUR OF THE AO,IN PART. /.ITA NO.5035/MUM/2004, /ASSESSMENT YEAR-1999-2000 /.ITA NO.2060/MUM/2008, /ASSESSMENT YEAR-1999-2000 /.ITA NO.7095/MUM/2004, /ASSESSMENT YEAR-2000-2001 /.ITA NO.3021/MUM/2005, /ASSESSMENT YEAR-2001-02 /.ITA NO.2061/MUM/2008, /ASSESSMENT YEAR-2003-04 /.ITA NO.6628/MUM/2010 , /ASSESSMENT YEAR-2005-06 FOLLOWING OUR ORDERS FOR THE AY.1998-99,WE DECIDE G ROUNDS NO.1,2 AND 3 AGAINST THE AO GROUNDS NO.4 AND 5 IN HIS FAVOUR,IN PART AS INDICAT ED IN EARLIER PARAGRAPHS OF OUR ORDER CO.S.NO/41 - -- - 44/M/08 AY.S.-1998-99 TO 2001-02 WE FIND THAT THE GROUNDS RAISED BY THE ASSESSEE IN THE CO.S.ARE DIRECTLY RELATED TO THE GROUNDS RAISED BY THE AO.WHILE DECIDING THE APPEALS FILED B Y THE AO,WE HAVE DECIDED GROUNDS NO.1-3 AGAINST HIM AND IN FAVOUR OF THE ASSESSEE.WE HAVE R ESTORED BACK GROUNDS 4 AND 5 TO HIS FILE FOR VERIFICATION.IN THESE CIRCUMSTANCES,WE ARE ALLOWING THE CO.S FILED BY THE ASSESSEE FOR STATISTICAL PURPOSES FOR ALL THE AY.S. AS A RESULT,APPEALS FILED BY THE AO.S.STAND PARTLY ALLOWED AND THE CO.S.OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. !' ! ()*+ (! !' !,. ITA/5034/M/04 & OTHS,AY.98-99-CLIFFORD CHANCE,LLP 7 ORDER PRONOUN CED IN THE OPEN COURT ON 2 ND MARCH, 2016. 2 , 2016 SD/- SD/- ( /RAM LAL NEGI) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 02.03. 2016 . . . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , L , . . . 6. GUARD FILE/ / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.