mumbai a ruling by the mumbai bench of incometax appellate tribunal itat could result in ukbased law firms having to pay more tax in indiathe order issued on july 16 by a twomember bench of pramod kumar and rs padvekar said the ukbased law firm linklaters will have to pay tax on its income of over rs 23 crore even though it does not have an office in india this case was for the assessment year 199596 but the reasoning in the order would hold for other yearsthe itats reasoning is based on a peculiar provision in the indiauk double taxation avoidance treaty which says tax is payable on profits indirectly attributed to the indian operation therefore all profits of the ukbased law firms arising from indian operations irrespective of whether the work is done in india or not will be taxed herebut a part of the itat ruling will benefit professional firms from other countries thanks to its stand that taxing partnership firms could lead to double taxation partnership firms are generally not taxed abroad instead the partners are taxed directly the indian incometax authorities have taken the stance that since such firms are not taxed abroad it is right to tax them in india as the question of double taxation does not arisehowever itat held that even in such cases the same income gets taxed twice this was because even if the partnership firm was not being taxed twice the partners still have to pay tax twice on the same income consequently the bar on doubletaxation would come into playthis part of the itat ruling is expected to benefit law firms coming from countries other than the ukthe tribunal in the judgement running over 100 pages held that linklaters should pay income tax in india on all its indiarelated income on account of the retrospective amendment in the last budget to section 91 of the income tax act the tribunal held that linklaters had a permanent establishment in india under the indiauk treaty as its partners had spent more than 90 days in india in a year whether an establishment is permanent or not is often taken into account while deciding tax cases the term permanent when used in this particular context indicates whether a firm has a functioning office in india if the answer is yes the indian tax authorities have been aggressive in pressing claims the itat held that the provisions of indiauk tax treaty did not come to the rescue of linklatersa similar matter is being heard by the supreme court in the case of clifford chance another ukbased law firm the court has asked for details of billing done by clifford chance in last 12 years the apex court is yet to rule its decision on clifford chance will perhaps apply here as well