FOREIGN LAW FIRMS GET TAX REPRIEVE FROM BOMBAY HC

Foreign law firms have received a shot in the arm following a judgement from the Bombay High Court which clearly states that their income will be taxable in India only to the extent of their operations in India. Clifford Chance's contention was that under the provisions of the Income-tax Act and the Double Taxation Avoidance Agreement between India and UK, only that portion of its income from the clients which was attributable to the services performed by it in India could be subjected to Indian taxation. The Income- Tax Tribunal as well as the Appellate Authority ruled in
favour of the department. This was on the grounds that even though services rendered by Clifford Chance outside India had to be excluded while computing tax, the advice given by the legal firm was for projects that were to be executed in the country. Senior counsel Harish Salve argued before the Bombay High Court that the tax on professionals who have been in the country for over 90 days
would be taxable under the Income Tax Act. In order to be taxed here, the income must accrue or arise in India. Applying this to a legal professional rendering advisory services, his presence at the time of rendering advice would be the basis for determining where income is taxable, he contended. He further submitted that the income of an individual from professional services, therefore, is taxable in the state of residence. It is additionally taxable in the other contracting state if the services are performed in that other state.