P & O Nedlloyd Ltd. & Ors vs. ADIT (Calcutta High Court)

(i) It is the other objection regarding attempt on the part of the Revenue to subject the said partnership to taxation on the ground its income was not saved from the charge of income tax by the India-UK Treaty, that the Revenue has not been able to overcome. In dealing with such objection it is necessary to reproduce below certain clauses, relevant for the purpose, of the India-UK Treaty notified on 11th February, 1944.

(ii) The effect of the relevant provisions of the India-UK Treaty is the convention applies to persons who are residents of one or both of the Contracting States by operation of clauses 1(f) and 2 of Article 3 of the convention. It is found the said partnership, partners of which are registered in the UK, is not a person treated as a taxable unit under the taxation laws in force in the UK. Under section 2(31) (iv) of the Income Tax Act, 1961, person includes a firm. Under section 2(23)(i) thereof a firm shall have the meaning assigned to it in the Indian Partnership Act, 1932 and shall include a limited liability partnership as defined in the Limited Liability Partnership Act, 2008. The provisions of the Indian Partnership Act, 1932 in particular sections 4 and 69 when applied for the purpose of determining whether the said partnership is a firm within the meaning of the said Act, leads this court to conclude in the affirmative. That obviates the necessity of applicability of the provisions of the Limited Liability Partnership Act, 2008.

(iii) Once it is found the said partnership is a firm under section 2(23)(i) of the Income Tax Act, 1961, it becomes a person under section 2(31)(iv) of the said Act, attracting the operation of paragraph 2 of Article 3 of the said convention. Such conclusion is inescapable as the Revenue must bring a charge of income tax against a person under section 4 of the Income Tax Act, 1961. The Revenue in treating the said partnership as an assessee and seeking to assess income of it which had escaped assessment is for the purpose of charging tax on the income of the said partnership, treating it as a person liable to be charged with the levy of income tax under the said section. In doing so the revenue has to treat the said partnership as a person within the definition provided of person under section 2(31)(iv) of the said Act. Thus the Revenue’s case the said partnership is not covered by the said convention fails.

(iv) In as much as in the facts and circumstances aforesaid it would be unjust to compel the said partnership or the petitioners to submit themselves to the assessment sought by the impugned notice, the writ petition succeeds. The impugned notice dated 25th March 2004 issued under section 148 of the Income Tax Act, 1961 to P&O Nedlloyd (partnership) is set aside and quashed.