My UK firm advised on Indian projects, partly from London and partly on visits to India, and our partners were here more than 90 days. Is the whole fee taxable in India?
No. The Bombay High Court held that only the income attributable to services actually performed in India is chargeable, measured on the firm's hourly billing for work done in India. Article 15 of the India-UK treaty taxes an individual, including a member of a partnership, in the other State only if he performs services there and is present 90 days or more, and then only so much of the income as is attributable to those services. Under section 9(1)(vii)(c) the services must be both rendered in India and utilised in India, and territorial nexus does not permit the whole of a composite fee to be treated as arising in every jurisdiction touched.
Decided by the High Court (High Court of Judicature at Bombay, Original Side - Dr. S. Radhakrishnan and V.C. Daga, JJ. (judgment per V.C. Daga, J.)) on 2008-12-19, reported as Income Tax Appeal Nos.181 and 182 of 2002 (Bombay High Court). It bears on section 9(1)(vii), section 9(1)(i), section 5(2), section 90 of the Income Tax Act 1961, in Residence & Treaty Benefit and How Tax Law Is Read matters.
This is the leading application of Ishikawajima-Harima to professional services, and it is the case a cross-border adviser reaches for when the Revenue argues that because a project is in India the entire global fee is Indian income. It does three things. It confirms that crossing the 90-day threshold in Article 15 takes the assessee out of the treaty protection but does not enlarge the charge - taxability then falls to be worked out under section 9(1)(i) and the ordinary territorial nexus principles. It holds that where operations giving rise to a single receipt are carried out in more than one territory, the income must be apportioned rather than taxed whole in each. And it accepts contemporaneous time sheets and hourly billing as the measure of apportionment, which is the practical answer to the question of how to divide a composite fee.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The appellant was an international firm of solicitors resident in the United Kingdom with no office or fixed base in India. For the year ended 31 March 1996 it acted as English law legal adviser on three Indian projects - the Bhadravati Power Project, the Vizag Power Project and the Ravva Oil and Gas Fields Project - and for the year ended 31 March 1997 additionally on the Vemagiri Power Project. Of the seven clients across the four projects, six were non-residents; only Ispat Industries Ltd, a participant in the Bhadravati joint venture, was resident in India. Each partner and employee kept detailed time sheets recording hours spent, separated between work done in India and work done outside it; the hours were multiplied by the agreed hourly rates, apportioned in the two joint ventures among the participants, and the bills were paid outside India. In the year relevant to assessment year 1997-98 the partners' presence in India exceeded 90 days. The firm returned Rs.5,08,87,950 as attributable to its operations in India. The Assessing Officer held on 29 March 2000 that the entire fee from all four projects was taxable and assessed Rs.17,26,38,634. The Commissioner (Appeals) agreed, holding that what mattered was the place where the services were utilised, not where they were performed. The Tribunal accepted that Article 15 applied and that income for services rendered outside India had to be excluded, but held that in the absence of full details of three of the four projects it could not fault the Assessing Officer's refusal to limit the income to hours billed in India, and so taxed the whole. The firm appealed under section 260A.
The appeals were allowed with no order as to costs and the substantial questions of law were answered in favour of the assessee. Only the income charged on an hourly basis for services rendered in India and utilised in India is chargeable to tax, as disclosed in the returns. The Court held that section 9(1)(vii)(c), read plainly, requires two conditions to be met simultaneously - that the services which are the source of the income are rendered in India and that they are utilised in India - and that on these facts both were not satisfied for the whole of the fee. Article 15 of the India-UK treaty, which aggregates the presence of members of a partnership, taxes in the other State only so much of the income as is attributable to the services performed there; crossing the 90-day threshold takes the assessee out of the treaty and leaves taxability to be determined under section 9(1)(i), but does not extend the charge to income with no Indian nexus.
The Court began with Article 15 of the treaty, which taxes professional or independent personal services in the State of residence, with an exception where the individual performs services in the other State and is present there for 90 days or more in the fiscal year, and then only to the extent of income attributable to those services; sub-article (2) aggregates the presence of partners. Once the 90-day test is met the treaty ceases to shelter the income and the charge falls to be worked out under section 9(1)(i). Section 9 creates a legal fiction, and a fiction in a taxing statute must be construed by reference to the object it serves and read with the other provisions of the Act, including section 5. The Court traced the territorial nexus principle through section 42 of the 1922 Act, which taxed only such part of the income as was attributable to operations carried out in India, and through Carborundum, Toshoku and Ishikawajima-Harima. Where the operations giving rise to income are carried on partly in one territory and partly in another, each territory has a nexus with the income on an actual basis, and it is not correct to say the whole income accrues or arises in each. Following Ishikawajima-Harima, no extended meaning can be given to income deemed to accrue or arise in India; what a resident pays a non-resident as fees for services does not automatically fall within section 9(1)(vii), and a distinction must be drawn between the rendition of services and their utilisation. Applying that to the four projects, both conditions were not simultaneously met for the whole fee, so only the Indian-hours component was chargeable.
Income arising out of operations in more than one jurisdiction would have territorial nexus with each of the jurisdictions on actual basis.
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Handle my notice → Ask a CA on WhatsAppNo. The Bombay High Court held that only the income attributable to services actually performed in India is chargeable, measured on the firm's hourly billing for work done in India. Article 15 of the India-UK treaty taxes an individual, including a member of a partnership, in the other State only if he performs services there and is present 90 days or more, and then only so much of the income as is attributable to those services. Under section 9(1)(vii)(c) the services must be both rendered in India and utilised in India, and territorial nexus does not permit the whole of a composite fee to be treated as arising in every jurisdiction touched. This was decided by the High Court (High Court of Judicature at Bombay, Original Side - Dr. S. Radhakrishnan and V.C. Daga, JJ. (judgment per V.C. Daga, J.)) and bears on section 9(1)(vii), section 9(1)(i), section 5(2), section 90 of the Income Tax Act 1961. It is reported as Income Tax Appeal Nos.181 and 182 of 2002 (Bombay High Court). This is the leading application of Ishikawajima-Harima to professional services, and it is the case a cross-border adviser reaches for when the Revenue argues that because a project is in India the entire global fee is Indian income. It does three things. It confirms that crossing the 90-day threshold in Article 15 takes the assessee out of the treaty protection but does not enlarge the charge - taxability then falls to be worked out under section 9(1)(i) and the ordinary territorial nexus principles. It holds that where operations giving rise to a single receipt are carried out in more than one territory, the income must be apportioned rather than taxed whole in each. And it accepts contemporaneous time sheets and hourly billing as the measure of apportionment, which is the practical answer to the question of how to divide a composite fee. If it applies to you, the first step is this: Keep contemporaneous time records that separate hours worked in India from hours worked outside it, partner by partner, and preserve them; that was the evidence the Court accepted as the measure.
The appellant was an international firm of solicitors resident in the United Kingdom with no office or fixed base in India. For the year ended 31 March 1996 it acted as English law legal adviser on three Indian projects - the Bhadravati Power Project, the Vizag Power Project and the Ravva Oil and Gas Fields Project - and for the year ended 31 March 1997 additionally on the Vemagiri Power Project. Of the seven clients across the four projects, six were non-residents; only Ispat Industries Ltd, a participant in the Bhadravati joint venture, was resident in India. Each partner and employee kept detailed time sheets recording hours spent, separated between work done in India and work done outside it; the hours were multiplied by the agreed hourly rates, apportioned in the two joint ventures among the participants, and the bills were paid outside India. In the year relevant to assessment year 1997-98 the partners' presence in India exceeded 90 days. The firm returned Rs.5,08,87,950 as attributable to its operations in India. The Assessing Officer held on 29 March 2000 that the entire fee from all four projects was taxable and assessed Rs.17,26,38,634. The Commissioner (Appeals) agreed, holding that what mattered was the place where the services were utilised, not where they were performed. The Tribunal accepted that Article 15 applied and that income for services rendered outside India had to be excluded, but held that in the absence of full details of three of the four projects it could not fault the Assessing Officer's refusal to limit the income to hours billed in India, and so taxed the whole. The firm appealed under section 260A. The matter was decided on 2008-12-19 by the High Court (High Court of Judicature at Bombay, Original Side - Dr. S. Radhakrishnan and V.C. Daga, JJ. (judgment per V.C. Daga, J.)). On those facts the High Court held as follows. The appeals were allowed with no order as to costs and the substantial questions of law were answered in favour of the assessee. Only the income charged on an hourly basis for services rendered in India and utilised in India is chargeable to tax, as disclosed in the returns. The Court held that section 9(1)(vii)(c), read plainly, requires two conditions to be met simultaneously - that the services which are the source of the income are rendered in India and that they are utilised in India - and that on these facts both were not satisfied for the whole of the fee. Article 15 of the India-UK treaty, which aggregates the presence of members of a partnership, taxes in the other State only so much of the income as is attributable to the services performed there; crossing the 90-day threshold takes the assessee out of the treaty and leaves taxability to be determined under section 9(1)(i), but does not extend the charge to income with no Indian nexus.
The Court began with Article 15 of the treaty, which taxes professional or independent personal services in the State of residence, with an exception where the individual performs services in the other State and is present there for 90 days or more in the fiscal year, and then only to the extent of income attributable to those services; sub-article (2) aggregates the presence of partners. Once the 90-day test is met the treaty ceases to shelter the income and the charge falls to be worked out under section 9(1)(i). Section 9 creates a legal fiction, and a fiction in a taxing statute must be construed by reference to the object it serves and read with the other provisions of the Act, including section 5. The Court traced the territorial nexus principle through section 42 of the 1922 Act, which taxed only such part of the income as was attributable to operations carried out in India, and through Carborundum, Toshoku and Ishikawajima-Harima. Where the operations giving rise to income are carried on partly in one territory and partly in another, each territory has a nexus with the income on an actual basis, and it is not correct to say the whole income accrues or arises in each. Following Ishikawajima-Harima, no extended meaning can be given to income deemed to accrue or arise in India; what a resident pays a non-resident as fees for services does not automatically fall within section 9(1)(vii), and a distinction must be drawn between the rendition of services and their utilisation. Applying that to the four projects, both conditions were not simultaneously met for the whole fee, so only the Indian-hours component was chargeable. In the words reproduced by the source cited on this page: "Income arising out of operations in more than one jurisdiction would have territorial nexus with each of the jurisdictions on actual basis."
It was decided by the High Court on 2008-12-19 and is reported as Income Tax Appeal Nos.181 and 182 of 2002 (Bombay High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 9(1)(vii), section 9(1)(i), section 5(2), section 90, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were allowed with no order as to costs and the substantial questions of law were answered in favour of the assessee. Only the income charged on an hourly basis for services rendered in India and utilised in India is chargeable to tax, as disclosed in the returns. The Court held that section 9(1)(vii)(c), read plainly, requires two conditions to be met simultaneously - that the services which are the source of the income are rendered in India and that they are utilised in India - and that on these facts both were not satisfied for the whole of the fee. Article 15 of the India-UK treaty, which aggregates the presence of members of a partnership, taxes in the other State only so much of the income as is attributable to the services performed there; crossing the 90-day threshold takes the assessee out of the treaty and leaves taxability to be determined under section 9(1)(i), but does not extend the charge to income with no Indian nexus. It arises in Residence & Treaty Benefit and How Tax Law Is Read matters, on section 9(1)(vii), section 9(1)(i), section 5(2), section 90 of the Income Tax Act 1961, and was decided by High Court of Judicature at Bombay, Original Side - Dr. S. Radhakrishnan and V.C. Daga, JJ. (judgment per V.C. Daga, J.). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put the full project and engagement details on record at the assessment stage - the Tribunal decided against the firm because it found the details of three of four projects incomplete, and that finding nearly cost it the case. Count the days of every partner's presence, since Article 15(2) aggregates the presence of members of the same partnership. Argue rendition and utilisation as two separate conditions under section 9(1)(vii)(c), and identify where each occurred. Check the current text of section 9 before relying on the rendered in India requirement for later years.
Still good law. The apportionment reasoning of this judgment — that only so much of the fee as is attributable to services actually rendered in India is taxable — has been applied since the law changed. A Special Bench of the Mumbai Tribunal in the firm's own case for assessment years 1998-99 to 2003-04, order dated 13 May 2013, was taken to the retrospective Explanation to section 9 and held that it reaches only clauses (v), (vi) and (vii) of section 9(1) and not clause (i), so it did not negate this judgment; the Special Bench answered the referred questions for the assessee and also rejected the argument that the 'profits indirectly attributable' language of the treaty imports a force of attraction rule. The qualification recorded earlier stands and matters. For section 9(1)(vii) specifically, the requirement in Ishikawajima-Harima that services be both rendered in India and utilised in India no longer holds: the Explanation below section 9(2) as it now stands, read on the departmental section-9 page, declares that a non-resident's income is deemed to accrue or arise in India under clause (v), (vi) or (vii) whether or not the non-resident has a residence, place of business or business connection in India and whether or not the non-resident has rendered services in India. Anyone relying on this decision for a year after that amendment must take the fee through the current text of section 9 and through the treaty, and not through the territorial limb of Ishikawajima. Whether the Revenue carried this judgment further has still not been established. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line dates the judgment 2009; it was delivered on 19 December 2008 and that date is used. The judgment's own recital of the years contains a slip, describing the two appeals as relating to assessment years 1996-97 and 1996-97, while the facts show they are 1996-97 and 1997-98. The Court answered the questions without setting out separately how the Tribunal's adverse finding on the sufficiency of the project details was displaced. No reporter citations were supplied, so the appeal numbers are used. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were allowed with no order as to costs and the substantial questions of law were answered in favour of the assessee. Only the income charged on an hourly basis for services rendered in India and utilised in India is chargeable to tax, as disclosed in the returns. The Court held that section 9(1)(vii)(c), read plainly, requires two conditions to be met simultaneously - that the services which are the source of the income are rendered in India and that they are utilised in India - and that on these facts both were not satisfied for the whole of the fee. Article 15 of the India-UK treaty, which aggregates the presence of members of a partnership, taxes in the other State only so much of the income as is attributable to the services performed there; crossing the 90-day threshold takes the assessee out of the treaty and leaves taxability to be determined under section 9(1)(i), but does not extend the charge to income with no Indian nexus.
TaxSphere, “Clifford Chance v DCIT”, https://taxnotice.vittsphere.com/caselaw/case/clifford-chance-v-dcit/ (validity last checked 2026-09-16)
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