ITAT Rules Legal Services Not FTS; No Tax Without PE

The assessee, Linklaters Singapore Pte. Ltd., a Singapore-based law firm, filed its return for AY 2019-20 declaring nil income. It rendered legal advisory services to Barclays Bank Plc, UK, in relation to transactions involving REC Ltd. Although invoices were raised on Barclays, the payment was made by REC Ltd under a separate commercial understanding. The services primarily involved due diligence, document review, and legal opinions under foreign laws.

The Assessing Officer reopened the assessment and held that the income of Rs. 10,086,300 was taxable in India as Fees for Technical Services (FTS) under Section 9(1)(vii) and Article 12 of the India–Singapore DTAA. The AO also alleged the existence of a Permanent Establishment (PE) in India, citing visits of employees and use of hotel/client premises. The DRP upheld the additions. Aggrieved, the assessee filed an appeal before the ITAT.

Issue Raised: Whether legal advisory services rendered by a foreign law firm qualify as Fees for Technical Services under the India-Singapore DTAA, and whether such income is taxable in India in the absence of a Permanent Establishment.

Tribunal’s Decision: The Tribunal allowed the appeal and deleted the entire addition. It held that the legal services rendered by the assessee did not satisfy the “make available” condition under Article 12 of the India-Singapore DTAA. The services were purely advisory in nature and did not result in the transfer of technical knowledge or skill, enabling the recipient to apply it independently in the future.

On the issue of Permanent Establishment, the Tribunal noted that the employees of the assessee were present in India for only 21 days, which is far below the 90-day threshold prescribed under Article 5(6) of the DTAA. It further held that the temporary use of hotel rooms or client premises cannot constitute a fixed place PE. The Tribunal also rejected the AO’s attempt to tax the income under Article 15, observing that the provision applies only to individuals and not to companies. Additionally, it held that reimbursements of expenses, in the absence of any markup, cannot be treated as income. Relying on its own earlier decisions in the assessee’s case, the Tribunal concluded that the receipts constitute business income and, in the absence of a PE in India, are not taxable. Accordingly, the entire addition was deleted, and the appeal was allowed.

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