The Mumbai Tribunal in Maharashtra State Electricity Board v. DCIT (83 TTJ 325), examined applicability of the old India-UK Double Tax Avoidance Treaty (DTAA), which was substituted by new DTAA in 1994, to fees received by a UK-based firm of solicitors for legal services provided to an Indian company.
It was contended that fees received were covered under article 15 (independent personal services of old DTAA) and since all the conditions provided under this article (including the restriction of 90 days stay in India) were satisfied, fees were not taxable in India.
However, the assessing officer took the view that under the DTAA, article 15 covered only professional services rendered by individuals and not by firms. He held that the fee was in the nature of technical service fees under article 13. He also pointed out that article 13(4) defining fees for technical services only excluded payment made to an individual for professional services mentioned under article 15.
The tribunal observed that article 15 of the India-UK DTAA referred to income derived by 'resident of a contracting state'. Article 4 defined resident of a contracting state to mean any person and hence it held that the term 'resident' used in article 15 also included a firm. Even though article 13(4) excluded professional service fees paid to individuals, article 15 (being a more specific article for professional services), overrides article 13.
The tribunal specifically noted that article 15 of new DTAA refers to 'income derived by an individual, whether in his own capacity or as a member of a partnership'. When comparing this wording with the wording used in the old DTAA, the tribunal observed that scope of the article 15 under old DTAA was broader and hence fees received by a firm of UK solicitors would be covered under article 15.
This decision would be relevant for determining the scope of a similarly-worded article on independent services under other Indian treaties (treaties with the Netherlands, Spain and Italy for example).
The 90-day rule
The other issue involved in this case was about calculating the number of days stay in India for the application of the 90-day rule. The assessing officer had held that the 90-day limit would be applied based on multiple counting of common days where more than one person from the solicitor firm was present in India. However, the tribunal held that multiple counting of common days should be avoided so that the days when two or more persons were present in India together are to be counted only once. It observed that the interpretation placed by assessing officer would result in absurdity since if 20 partners were present in India together for 20 days in one fiscal year, multiple counting would result in 400 days while there cannot be more than 365 days in a year.
Multinationals offering stock option plans to Indian employees
Up until now shares of foreign companies having a branch or an Indian office in India or an Indian subsidiary or an Indian company in which such foreign company holds not less than 51% shareholding (referred to as 'Indian entity') could issue an employee-stock-option plan (ESOP) to an employee or director of such Indian entity without any monetary limit provided that the ESOPs were offered at a concessional price.
The Reserve Bank of India has now dispensed with this requirement that the ESOPs should be offered at a concessional price.
Further, the sale of shares acquired under the ESOPs required prior approval of the Reserve Bank of India. Now the Reserve Bank of India has also granted general permission to sell the shares so acquired, without obtaining prior permission, provided the proceeds of such sale are repatriated to India.
Rajesh Kadakia (rajesh.kadakia@in.ey.com) and Samit Sawant (samit.sawant@in.ey.com), Mumbai
