Income Tax Appellate Tribunal - Delhi
Saket Kanoi,Gurgaon vs Dcit Intl. Taxation, Gurgaon on 23 October, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'D', NEW DELHI
Before Dr. B. R. R. Kumar, Accountant Member,
Sh. Yogesh Kumar US, Judicial Member
ITA No. 3243/Del/2023 : Asstt. Year: 2021-22
Saket Kanoi, Vs DCIT,
E-702, Caitriona Apartment, International Taxation,
Ambience Island, National Highwa- Gurgaon-122001
8, Gurgaon, Haryana-122002
(APPELLANT) (RESPONDENT)
PAN No. AFTPK1512M
Assessee by : Sh. Sunny Jain, CA
Sh. Rajesh Sanghwi, CA
Revenue by : Sh. Vizay B. Vasanta, CIT-DR
Date of Hearing: 14.08.2024 Date of Pronouncement: 23.10.2024
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the as sessee against the order dated 29.09.2023 passed by the AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961.
2. Following grounds have been raised by the assessee:
" 1 . In t h e fa c t s a n d ci r c um st a n c e s of t he c a s e a n d in l a w , th e Ld . A ss es si n g O ffi c e r (A O ) a n d c on s equ ent l y th e D i sp u te R e s ol u t i o n Pa n e l ( D R P) h a v e g r os sl y e r r ed b y d en yin g th e app ell a n t , th e b en e fit o f A rti c l e 13 ( 5) a n d a n y ot h e r b en e fi t s u nd e r th e I n di a -U A E D T A A on c a p it a l g a in s on sa l e of deb t mu t ual fu nd s o f R s. 1 ,5 4 ,0 1, 1 66 / -, o n t h e p r e mi s e th a t a n in di v id ual (t h e a p pe l la n t h e r ein ) i s e x clu d e d f r om th e de fi ni ti on of " p e r s o n " u n d e r UA E T a x De c r e e of 19 6 9 a n d t h a t in a bs en c e of a n y exi st in g I n c om e t a x la w in t h e U A E on In di vi du a l s a nd i n t h e a b s en c e o f a ny a ct u a l p a y m en t o f In c o m e t a x a n d f i li ng of a n y I n c o m e Ta x r et u rn s in t h e UA E, th e su bj e c t ca pi ta l g a in s o f R s . 1 ,5 4 ,0 1 ,1 6 6/ - d o e s n o t g et th e ben e fit of an y a rti c l e u nd e r th e I nd i a - U A E D TA A .2 ITA No. 3243/Del/2023
Saket Kanoi
2. In th e fa ct s a n d ci r cum sta n c e s of t h e ca s e a n d in l a w , th e L d . As s e s s in g O ffi c e r ( A O) a n d c on s equ ent l y t h e D i sp ut e R e s ol u t i o n P a n el (D RP) h a v e gr o s sl y e r r ed b y c on cl u d i ng t h a t s in c e a pp ell a nt i s n ot "l i a b l e t o a n y ta x e s " in th e U A E a n d s in c e t h e r e a r e n o e xi st in g I n c om e t a x l a w s i n t h e U A E app li ca bl e on I nd iv i du al s , th e q u es t i on o f g iv i ng b en e fit of th e In dia U A E D TAA t o t h e a p p el la n t d o e s n ot a ri s e .
3. In th e fa ct s a n d ci r cum sta n c e s of t h e ca s e a n d in l a w , th e D i sp ut e R e s olu t ion Pa n el ( D R P) & c ons e q u en tl y th e L d A O h av e g r o ssl y e r r ed by c on c lu di ng t h a t a s p e r S e c 90 ( 1) si nc e th e w o r ds u s ed a r e " ta x e s p a i d " t h e b e n e fi t of In d ia U A E D TA A c a nn ot b e gi v en t o t h e a p p ella n t .
4. In th e fa ct s a n d ci r cum sta n c e s of t h e ca s e a n d in l a w , th e D i sp ut e R e s olu t ion Pa n el ( D R P) & c ons e q u en tl y th e L d A O h av e g r o s sly e rr e d by d i s r eg a rd in g t h e ca s e la w s a s r eli e d u pon by th e a pp ell a nt o n s i mil a r f a ct s/l eg a l i s s u e o f va r iou s tri bu n al s es p t h e j ud g em en t o f A D I T v s Gr e e n E m i ra t es Sh i ppi n g 2 8 6 I TR 6 0 Mu m; M r . Ra m es hk u ma r G o en k a I TA N o .
3 56 2 / Mu m /2 0 09 ; K . E. F a i za l b y C o ch i n IT AT vi d e IT A N o. 42 3 / C o ch /2 0 18 w hi ch i n t u rn ha d r e li e d o n th e o b se r va t ion s in th e ca s e o f A z a d i B a c h a o c a se o f H on . Su p r em e c ou rt a n d w hi c h w e r e m u ch s i m il a r a s p er th e cu r r en t fa ct s a nd c a s e o f th e a pp ell an t.
5. In th e fa ct s a n d ci r cum sta n c e s of t h e ca s e a n d in l a w , th e Ld . A O a n d c on s eq u en t ly th e D i sp u t e R e s ol u ti on Pa n el , ha s e r r ed b y r el y in g o n th e H on . AA R j u d g em en t s of C y r il Eu g en e P er e i ra a n d Ab du l Ra z a k w h i ch w e r e t r ea t e d a s n ot g o o d l a w by H on 'bl e Mu m ba i I T A T in t h e c a s e o f Ra m e s hk u m a r G o e nk a an d w hi ch c a s e ( C y r il ) d i d n ot p e rsu a d e ev en th e S C.
6. In th e fa ct s a n d ci r cum sta n c e s of t h e ca s e a n d in l a w , th e Ld . A O h a s e r r e d by m ent io ni ng a b out t h e U A E T a x d e c r e e o f 1 96 9 w h er e a s t h e r e i s n o s u ch m ent ion i n t h e cu r r en t I n di a UA E- D TA A en t e r ed i n to f o r c e on 22 -9 - 1 99 3 .
7. In th e f a c ts a nd c ir c u m st a n ce s o f t h e c a se a nd in l a w an d w i th ou t pr ej ud ic e , t h e L d . A O h a s er r e d by n ot app r e ciat in g t ha t t he C B D T N oti fi ca ti o n N o. 28 2 of 20 0 7 dt :
2 8- 11 - 20 0 7 m a d e c ha n g e s a m en d in g th e Ind ia U A E T r ea ty me a n i ng t h a t ta xa b i l it y i n on e o f t h e c o n tr a ct i n g st a t e i s n ot a s in e q u a n on t o a va il t r e a t y b en ef i ts a s a p p r e ci a t e d by th e H on 'bl e M u m ba i I T A T in M e e ra B h a t ia c a s e dt : 29 - 10 - 09 ."
3. During the scrutiny proceedings, it was noted that the assessee had received capital gains of Rs. 1,5 4,01,166 /- in India, however, the sa me was not offered to tax relying upon 3 ITA No. 3243/Del/2023 Saket Kanoi the Article 13(5) of India-UAE DTAA. It was found that the assessee was not covered by the article 2 of the tax treaty and also, it was not a case of double taxatio n. The income had not suffered tax anywhere in the world. Accordingly, vide show cause dated 02.12.2022, the assessee was afforded an opportunity to explain as to why tax treaty benefits may not be disallowed. T he assessee vide response date d 06.12.2022 submitted the following:
(a) That actual pa yment of tax in UAE is not required. Right to tax of UAE is sufficient to invoke provisions of the DTAA.
(b) That decisions of Hon' ble Cour ts/tribunals in the cases of Az adi Bachao Andolan, Rame sh Kumar Goenka vs. IT dept., Assistant Director of income-tax vs. Green Emirates Shipping are applicable in his case.
(c) That claim of the assessee had been allowed in earlier years .
(d) That tax liability also includes future tax liability as well.
4. Response of the assessee has been perused by the AO in the light of facts of the case and relevant provisions of the law. The AO held that, " the assessee co ntends that he may be allowe d benefits of tax tr eaty and capital gains from sale o f mutua l funds m ay not be taxed in India. After conside ring respo nse o f the assessee, the iss ues fo r conside ra tion a nd adjudicatio n are:
4 ITA No. 3243/Del/2023Saket Kanoi
(a) Whethe r provisio ns of the double tax avoidance agreement betwe en India and UAE can be invoked even whe n there is no double t axation?
(b) Can tax tre aty impose tax liability when there is no domestic ta x la w on the ma tter?
(c) Can tax treaty provisions be invok ed w hen the taxpa yer is not covered by taxes t o which the DTAA applies?
Before proceeding ahead, it would be pe rtinent to refer to re levant provisions o f the Indian Income-tax Act and provisions o f the tax treaty. Section 90 of the Ac t pro vides a s under:
90. ( 1) T he Centr al Gove rnment may ente r into an agreement with the Gove rnment of any country outsi de I ndia or specified territory o utside India,--
(a) for the granting of relief in respect o f--
(i) income on which have been paid both income-
tax under this A ct and income-tax in that country or specified terr ito ry, as the case may be, or
(ii) income-ta x chargeable unde r this Act and under the co rresponding law in fo rce in that country or specified terr ito ry, as the case may be, to promote mutual eco nomic relations , trade and investment, or
(b) for the a voidance of double taxation o f income under this Act and under the corresponding law in fo rce in that co untry o r specified territo ry, as 5 ITA No. 3243/Del/2023 Saket Kanoi the case ma y be , [without creating opportunities for non-taxatio n o r reduced taxation thro ugh tax evasion or avo idance (including through treaty-
shopping arrange ments aimed at obtaining relie fs provide d in the said agreement for the indirect benefit to reside nts of any o ther country or territo ry) ,] or From the above , it may be see n that the Go vernment of India may e nter into an agre ement with the Government o f any country for avoidance of double taxation on income charge able to tax under the Indian Income-tax Act and under the corres ponding law in fo rce in that co untry. T herefore, it is evident that agreement may be signed to grant re lie f for income which is chargeable to ta x unde r the Indian law and under the corre sponding law o f the fo reign country. Once tax treaty is signe d with the abo ve objective, mechanism of avoidance of do uble taxatio n provide d in the tax treaty is followe d.
For refere nce preamble and relevant articles of India-UAE DTAA are being reproduced:
Preamble: Whe reas the annexe d agreement betwee n the Government of the United Arab Emirates and the Government of the Republic of India for the avoidance of double taxa tio n and the prevention o f fisc al e vas ion with Respect to taxe s on income and on capital has entered into fo rce on the 22nd September , 1993 after the no tification by both the Contrac ting States to each other o f the comple tion of the procee dings r equired by laws for bringing into 6 ITA No. 3243/Del/2023 Saket Kanoi force of the sai d agreement in accordance w ith par agraph 1 o f Article 30 o f the said agreement.
ARTICLE 1 PERSONA L S COPE This Agreement shall apply to persons w ho are residents of one o r both of the Contracting States .
ARTICLE 2 TAXES C OVERED
1. There shall be regarded as taxes o n income and on capital all taxe s imposed on to tal income, on to tal capita l, or on elements of incom e or of capital including taxes on gains from alienatio n of movable or immovable property as well as on capital appreciation.
2. The e xisting taxes to w hic h the Agreement shall apply are;
(a) In United Arab Emirates:
(i) Income tax;
(ii) Corpo ration tax;
(iii) Wealth-tax
(hereinafter referred
to as " U.A.E. tax")
3. This A greement shall also apply to any identical or s ubs tantially simila r ta xes on income or capital whic h a re imposed at Fe deral o r State level by either 7 ITA No. 3243/Del/2023 Saket Kanoi Contrac ting State in additio n to, or in place of, the taxes refe rre d to in paragraph 2 of this A rticle . The competent author ities o f the Co ntracting State shall noti fy e ach o ther o f any substantial changes which are made in their respective taxatio n laws.
ARTICLE 3 GENERAL DEFINITIONS
1. In this Agreement, unless the context o therwise requires:
(e) The term "person" includes an individual, a company, and any othe r entity which is tr eated as a taxable unit under the taxation laws in fo rce in the respective C ontr acting State;
ARTICLE 4 RESIDENT 1[1. For the purposes of this Agr eement the term 'reside nt of a Contracting State' mea ns:
(b) in the case of the Unite d Arab Emirates: an individual who is present in the UAE for a pe rio d or periods to taling in the aggregate at least 183 days in the c alendar ye ar concerned, and a company which is incor por ated in the UAE and w hich is managed and controlle d wholly in UAE.8 ITA No. 3243/Del/2023
Saket Kanoi From the above , it may be seen that the tax treaty has been signed for the avo idance of double taxation and the preve ntion of fiscal evasion w ith respect to taxes on income and on capita l. A perusal o f the above ar ticles jo intly reve als tha t tax treaty is applic able to an individual who is a resident of UAE for taxes co vere d under ar ticle 2 o f the tax treaty. A perus al o f article 2 revea l that it cove rs existing taxes viz. income-tax and corporatio n tax. Furthe r, it is noted that as per UAE tax decree there are no personal income tax in UAE as on date. The taxation in force in UAE is the UAE Tax Dec ree of 1969 ( for short the "UA E Decree"), which came into force on 1stJanuar y, 1969. Clause (4) of a rticle 2 o f the UAE Decree de fines the te rm " person" to mean a body corpor ate whe rev er established and the e xpression "perso n liable ", as de fined in clause (3) the reof, means a body corporate whereve r e stablis hed which would no t be e xempt from the responsibility of pay ing income-ta x impose d o n it. Thus , it is clear that an ' individual' is excluded from the de finition o f 'person' under UAE Decree . T hus, in absence o f any exis ting income-tax in UAE, prese nt transac tions gets out o f ambit of the tax treaty.
The assessee company filed its obje ctions against the dra ft assessment order passed on the abo ve discussed lines before the the Hon'ble Dispute Resolution Pan 1, New De lhi. The Ho n'ble DRP pas sed its orde r u/s 144C(5) of the Income Tax 4 1961 date d 22.08.2022 wherein the Ho n'ble Pane l has give n the follow ing directions:
9 ITA No. 3243/Del/2023Saket Kanoi
8. DRP's Directio ns: The Hon' ble DR P has gave its direc tio n on the abo ve said) o bj ections w hic h is repro duce d as under:
The only major issue in this objection is re garding applic ability of lndo-UAE DTAA the benefit o f w hic h was c laimed by appellant but was denied by the AO . Attention is drawn to section 90( 1) of IT Act w hic h is repro duce d below:
"90(1) The Central Go vernment m ay enter into an agreement with the Gove rnment of any country outsi de I ndia or specified territory o utside India,-
(a) for the granting of relief in respect o f- (i) income on w hich have bee n paid bo th income-tax
under this Act and income-tax in that countr y o r specifie d territo ry, as the case may be, o r
(ii) income-ta x cha rge able unde r this A ct and unde r the correspo nding law in fo rce in that country o r specifie d te rritory, as the case may be , to promote mutual economic relat ions, trade and inves tment, o r
(b) for the avoidance of double taxatio n of income under this Act and unde r the co rre sponding law in force in that co untr y or specifie d territo ry, as the case may be , [without creating o ppo rtunities for non-
taxation o r reduced ta xatio n through tax e vas ion or avoidance (including through treaty-shopping arrangements aim ed at o btaining re liefs provide d in 10 ITA No. 3243/Del/2023 Saket Kanoi the said agreement for the indirect bene fit to residents of any other co untry or terr itor y) ,] or
(c) fo r exchange of informatio n for the preve ntion of evasio n or a voida nce o f incom e-tax chargeable under this Act o r unde r the co rre sponding law in force in that co untr y or specifie d territo ry, as the case maybe , o r investiga tion of case s of suc h evas ion or avoidance, or
(d) fo r re cover y of income-tax under this Act and under the corresponding law in force in that country or s pecifie d territory, as the case may be, and may, by no tific ation i n the Official Gazette, make s uch provisio ns as may be necessary fo r implementing the agreement".
4.1 The words used are clearly "taxe s paid" and hence reliance o n var ious case laws would not he lp the a ppellant. The AO has de bated the iss ue in de tail with appropriate references to the case laws , the DTAA, and judgem ents o f AAR. He has held as under:
"3.1.9 In view of the fore going, it is held that the assessee is no t eligible for tax tre aty be nefits. Fo r availing tax treaty be nefits, the fo llowing conditions should be fulfilled:
(a) There should be an event o f double taxation on the same income under corresponding tax laws of both the co ntracting states.
(b) The assessee should a tax res ident of a
contr acting state .
11
ITA No. 3243/Del/2023
Saket Kanoi
(c) The double taxation of income sho uld be with respect to taxes governe d by the tax treaty.
However in the present case, the re is no double taxation on Income from ca pital gains. Also, double taxation is not with respe ct to taxe s covered by the tax treaty as per article 2 of the ta x tre aty. Thus, it is held that capital gains from sale of mutual funds is lia ble to tax in India as per provisio ns of the Act.
Further, it may also be appreciated that tax tre aties are ente red into to prov ide re lie f from the burde n o f double ta xa tion which an income suffe rs in two contr acting state s under their respective tax laws whic h a re in force. The tax treaty does not contemplate any such relief which a contracting state may levy in future. Tax treaties provide relief from actual taxes paid or liable to be paid in contracting states as per e xisting tax laws .
The assessee has also taken a plea that his claim was ac cepte d in e arlier yea rs, howe ver, the plea is not acceptable as each a ssessment yea r is differe nt under the Act. The Hon'ble Suprem e Cour t has held on multi ple o ccasions tha t r ule of r es judicata is not applic able to i ncome tax proceedings. Each year's assessment is final to only that financ ial year and determines the liability of the a ssessee of that par tic ular fina ncial year. It is open to the authorities to cons ider the issues a nd position o f the assessee in the subseque nt ye ars. Thus, plea o f the assessee is not acceptable and the same is hereby rejecte d.
12 ITA No. 3243/Del/2023Saket Kanoi A perus al of pre amble of the tax treaty and re levant background at the time of signing of the tax treaty makes it cle ar that the objective o f the tax treaty is to prov ide relief fr om burden o f double taxation. T he taxes which the UAE gove rnment w as contemplating to impose o n individuals as pe r recommendations of the IMF, as note d by the Hon'ble AAR in its o rder i n case of Sh. Abdul Razak Memon; and w hic h have not been imposed till date, kee ps the individuals excluded from tax treaty. Thus, kee ping in view the objective o f ta x treaty enshrined in the pre amble of tax treaty and e xclusion of individual tax residents from existing tax laws o f UAE as pe r artic le 2 o f tax treaty , remaining provisio ns of the t ax treaty are not applic able in case of the assessee. Capital gains from sale of mutua l funds are cove red w ithin sco pe of income us 5 of the Act. Accor dingly, capit al g ains from s ale of mutual funds are hereby added to income of the as sessee".
5. Aggrieve d, the assessee filed appeal before the Tribunal.
6. The issue before us is whe ther the assessee is eligible for exemption from tax in India or not when the UAE authorities choo se not to tax the assessee owing to DTAA wherein the capital gains are to be taxed by the UAE.
7. On this issue, we are guided by the settled principle s laid down by the Tribunal a nd the Ho n'ble High Courts .
13 ITA No. 3243/Del/2023Saket Kanoi
8. In the case of Addl. DIT Vs. Frate Line, Dubai in IT A No. 2439/Mum/2008, vide order dated 29.10.2010, the Co-ordinate Bench of ITAT held as under:
"On the facts an d in the cir cumstances of the ca se and in law, the ld CIT (A) er red in holding that the assessee is entitled t o the benefit of Indo-UAE DTAA and direct ing the Assessing offic er to a llow r elief accordingly desp ite the fact that Art ic les 2(3) of Part -1 of Dubai Inco me t ax Decree , 1969 defines "chargeab le pers on" to mean a body c orpor ate only, while the assessee is a pr o priet ary concern ."
2. The sho rt iss ue tha t we are required to adjudic ate in this appeal is whether or not the learned Commissioner (Appeals) was jus ti fie d in holding that the assessee was e nti tled to the bene fit o f Indo-UAE Double Taxation A voidance Agreement [205 ITR (St) 49]. This iss ue is set out in a very narrow compass of Assessment year: 2003-04 undisputed facts . The assessee befo re us is a res ident of United Arab Emirates and is fiscally domiciled in the UAE. On this basis , the assessee has cla imed pro tection of Indo- UAE Double Taxa tio n Avoidance Agree ment. In terms of Article 8 of Indo-UAE Double Taxation Avoidance Agreement, the profits derived by the assessee, who is engaged in the business o f shipping, are taxable in the juris dic tio n, in which the assessee is fiscally domic iled. T he re ason on acco unt of which this claim has been declined by the Assess ing Office r is that the assessee is no t liable to pay taxes in UAE and since the assesse e does no t have any tax liability in UAE, according to the Assess ing Office r, the assessee is not eligible to claim treaty protec tio n from taxa bility in India in te rms o f Indo UAE DTAA . In other wo rds , the AO has proceeded o n the basis that the taxability in UAE is s ine quo non for claiming the be nefits of Indo UAE DTAA by a UAE reside nt in India. Howeve r, whe n the matter trave led befo re the 14 ITA No. 3243/Del/2023 Saket Kanoi CI T (A), the CIT (A) reve rsed the a ction of the Assessing Officer i n holding that the assessee is entitled to the bene fits o f I ndo UAE DTAA, as per the decision o f the IT AT in the case o f ACIT v. Green Emirates Shipping & Tra vels, 100 ITD 203, wherein, it has been, inter a lia, held that the expressio n 'liable to tax' in the Contracting State does no t ne cessarily imply that the pe rson sho uld ac tually be lia ble to tax but w ould also cover the cases whe re other Contracting State has the right to tax such persons-irres pective of w hether or not s uch a right is e xerc ised by the Co ntrac ting State. The sole reason adopted by the CIT (A) fo r giving the impugned re lie f is that as lo ng as UAE has right to ta x the assessee in r espect which, whether suc h right has been exe rcised or not, the assessee is entitle d to benefits of Indo UAE DTAA. The Assessing Office r is aggrieved and is in appe al before us.
3. We have hea rd the r ival contentions and pe rused the material on record. We find that, as rightly no ted by the CIT (A), the iss ue is covered in favour of the assessee by the decision of the Tribunal in the c ase of ACIT v. Green Emirates Shipping & T ravels ,(supra), where in, on identical facts, the Tribunal has held that the assessee is entitle d to the benefits o f Indo UA E DTAA. We have also noted that in the case of Meera Bhatia Vs Income Tax Officer, 38 SOT 95(Mumbai), a co- ordinate Bench o f this Tribunal, elaborating upo n the s ame is sue , has, inter alia , obser ved as fo llows:
"3. Learned representatives fairly agree that the issue is co vered by the Tribunal ' s decision dt. 30th N ov., 2005, in the case o f Asstt. Dire ctor of IT vs. Green Emirate S hipping & Travels (2006) 99 TTJ (Mumbai) 988 : (2006) 100 IT D 203 (Mumbai) whe rein the Tribunal has he ld tha t ac tual payment of ta x in one o f the Contracting States is Assessment ye ar: 2003- 04 not a condition precede nt to avail the benefits of DTAA in the o ther Contracting States be cause the tax treaty prevents not only ' current ' taxation, but also "po tential ' 15 ITA No. 3243/Del/2023 Saket Kanoi double taxa tion. Once the r ight to tax UAE reside nts in spec ified circums tances vests o nly w ith principal S tate of the UAE unde r a tax treaty , that right, whether that r ight exe rcised o r not, co ntinues to remain exc lusive right of that State . In this case , speaking thro ugh one of us (i.e ., the AM), the Tribunal furthe r observed as follows :
"...... As no ted above, the exemptio n agreed to unde r the ' assignment ' o r ' distributive ' rule, is indepe ndent o f ' whether the Contrac ting State imposes a tax in the situation to which exemptio n implie s ' . In the case of John N . Gladden vs. Her Majesty the Queen 85 TC 5188, which was quoted w ith approval by the Ho n ' ble Supreme Court in Azadi B achao A ndola n ' s c ase (s upra), Fe der al Court of Canada was observe d tha t ' the non- reside nt can be nefit from the exemptio n (under the treaty) regardless of whether or not he is ta xable on that ca pital gain in his own co untry. I f Canada or the US we re to abolish the capital gains ta x completely, while the other country did not, a resident of the countr y which has abolished the c apital gains would still be exempt from capital gains in that country ' . It is thus clear that taxability in one country is no t s ine qua non fo r a vailing rel ief unde r the tre aty from taxability in the other Courts . All that is nece ssar y for this purpose is that the person should be liable to tax in the Contracting State by reaso n of domicile, res idence, place o f management, place o f incorporation fo r any othe r c riterio n of similar nature which esse ntially re fers to the fisc al domicile of such a person. In other words, if fiscal dom icile of a person is that person is actually liable to pay tax in that country, he is to be treated as resident of that Contracting State . The expres sion liable to tax ' is no t to re ad in isolation but in conjunc tio n with the wo rds immediately following it i.e ., ' by re ason o f domic ile, residence, place o f management, place of inco rporation or any o ther criterio n o f simila r na ture ' . That would mean that m erely a person living in a Contra cting State should not be sufficient, that person 16 ITA No. 3243/Del/2023 Saket Kanoi should also have fiscal domicile in that country. Thes e te xts of fisc al domicile w hic h are given by w ay of e xamples following the expres sion liable to tax by reaso n o f i.e., domici le, re sidence , place of management, place of incorporation etc . are no more than examples o f locality rel ate d attachments which attr act, residence type taxation, that ' person ' is to be treated as resident and this status of being a ' reside nt ' of the Contracting State is independent of the activ ity of tax on that pe rso n. Viewe d in this perspec tive , we are of the co nsidered opinion that be ing ' liable to tax in the Contrac ting State by the virtue of an existing legal provision but would a lso cover the cases where that othe r Contrac ting State has the right to tax such persons irrespective of whethe r o r not such a right is exe rcise d by the Contracting State."
4. Learned Departmental Representative , ho wever, dutifully relies upon the o rders of the a uthorities below, and urges us to confirm the same. She highlights the reasoning adopted by the CIT(A), relies upon the rulings of the Ho n'ble Author ity for Advance Rulings Assessment year: 2003- 04 fo llowe d by the CIT(A), and submits that ther e is no j ustifica tion for any inte rference in the order of the CIT(A).
5. However , we see no re asons to take any o ther view of the matte r than the v iew so taken by the Co -ordinate Be nch in the case of Green Emirate Shipping & Trave ls (supra). It may result in double non- taxation but then we cannot be oblivious to the fact that do uble non- taxa tion is also a fact of life, and tax sparings , which find place in severa l Indian tax treaties, are also a re ality in internatio nal taxation. To enter or no t to enter in a tax treaty which may leave scope for do uble non-taxation is a conscious de cision of the respective Contracting State, but once such a tax treaty, as may leave s cope for do uble non-taxation, is entered into, judicial forums have to interpre t the provisions o f ta x treaty as they exist. We are in 17 ITA No. 3243/Del/2023 Saket Kanoi conside red agreement with the vie ws expresse d by the Co-o rdinate Bench. Res pectfully, follo wing the same, grievance of the assesse e must be upheld. It wo uld pe rhaps also be appropr iate to add a fe w lines o n the deve lopments post the said decision in the case o f Green Emirate Shipping & Tra vels (supra) .
6. The view take n by the Tribunal in the c ase of Green Emirate Shipping & Trave ls (supra) o f the Tribunal has also been confirmed, a few months la te r, by a Dutch High Cour t vide judgment dt. 15th Feb., 2006. We conside r it appro pr iate to reproduce the observations made by la te Prof. Klaus Vogel in the B ulletin for Internatio nal Taxation (Volume 60, No. 6-2006 at pp. 218- 219) published by the International Bureau of Fiscal Documentation, Amsterdam. Pro f. Dr. Klaus Voge l, after re ferring to the Tribuna l dec ision in the case of Green Emir ate Shipping & Trave ls (supra), had observed as follows :
An unusual case decided by the Dutc h Gerechts h of Am sterdam Court of appeals on 15th Fe b., 2006 confi rms this decision. The ow ners o f the Dutc h company, XBV emigrated from the Netherl ands to Greece in 1995 and advised the Dutch tax authorities that they no w exerc ised management and co ntract from the ir new location, as a conseque nce o f w hich the company became a Greek resident. This was no t in dispute in May, 2000, the ta xpaye rs informed the authorities that, since their re location, they had e ndeavoure d to regis ter the com pany with Greek tax autho rities , but faile d to succeed bec ause of the Greek tax authorities , but failed s ucceed because o f the Greek bureaucracy the company had not yet been assessed to the corporate inco me-tax. These facts we re not conteste d by the Dutch a utho rities. But in 2004 the y assessed the taxpayers for the Dutch corpo rate income-tax retros pective fo r the year 1995. The tax Inspecto r argued for applying art. 4(1) of the Netherlands-Greece tax liability is not sufficient r athe r a subjective indebte dness" (" een feitelike subjective onderw orpnheld") is 18 ITA No. 3243/Del/2023 Saket Kanoi required. The ho wever, refuted this argument it pointe d o ut that the tax treaty did not po stula te fac tual taxation: ins tead a le gal obligation to pay tax on wo rldwide income w as called fo r, whic h under Greek was e stablished.
7. In le gal matte rs like inte rpre tation o f international tax treaties and w ith a vie w to consistency in judicial interpretation thereof under Assessment ye ar: 2003-04 differe nt tax regimes, it is desir able that interpre ta tion given by the foreign Co urts should also be given due respect and consideration unless , of co urse, there are any co ntrar y de cis ions from the binding judicial fo rums or unless are any o ther good re asons to ignore such judic ial prece dents o f other tax regimes. T he tre aties a re more often than not base d on the models de velo ped by the multi lateral for ums judicial bodies in the regimes where such models are being use d to get occas ions to expres s views on expressions employed in such models. It is only when the v iews so expressed by judicia l bodies glo bally conver ge towards a common ground that an internatio nal tax language as visualize d by Hon ' ble Andhra Pra de sh High Co urt in the case of CIT vs. Visakha pa tnam Port (1984) 38 CTR (AP) 1 : ( 1983) 144 ITR 146 (AP), can trul y come into existence , because everyo ne, us ing a word, or a set of wo rds, in a language , does not unders tand it in the manner, that language will make little sense. There is one de cis ion in favour of the assessee this issue by the Dutch Cour t of appeal and no other countr y j udicia l precedent from any judicial forum has been brought to our notice . The view taken by this Tribunal has been followed the a foresaid subsequent Dutch Co urt of appea l judgment. These things taken to gether, viewed in perspective discussed above, also persuade us not to take any o ther view o f the than the view so taken by the Tribunal in the case of Green Emirate Shipping & Travels (supra).
19 ITA No. 3243/Del/2023Saket Kanoi
8. While conc luding the afo resaid decision, the Tr ibunal had made the following obse rvatio ns :
Before parting with the matter, we may add that instead of allowing such matters , as is the dispute befo re us, be subjec ted to co nfusing signals res ulting in unce rtainty and prolo nged litigation, certainly more des irable fo r the Go vernment to take a cle ar-cut stand on the issue or let the be resolved at the le vel of Gove rnments of the Contrac ting State s. That per ha ps is a bette r solution for quickly resolving the disputes on such a fundamental aspec t of a tax treaty as to who will eligible for the bene fits of that tax treaty. We hope Government w ill resolve this matter once and would not allo w that uncer tainty to last fo r long.
9. We have note d that a succ essful initiative has indee d been mad e to resolve this issue level of the Contr acting States. On 6th March, 2007, a protocol, amending the Ind o-UAE tax has been entered into. This protocol has since been n otif ied by the Government of India Notificat io n No. 282 of 2007, dt. 28th Nov., 2007 [(20 07) 213 CTR (St) 6 4]. One of amendments mad e by this pr otocol is the ch ange in definition of 'res ident' in art. 4(1)(b) n ow prov ides th at for the purp ose of the Indo- UAE t ax tre aty , r esident of a Cont ract ing State, the c ase of the UAE, means "an ind ividual who is present in t he UAE for a period or per iod s aggregating totalling in aggr egate at least 18 3 days in the ca lendar year concerned, and, company, which is incorpor ated in UAE and which is man age d and c ontrolled wholly in UAE". Amendm ent in the d efin ition of res ident of UAE, thus accept s the broad prop osition that taxa bility in one of the Contr act ing States is not a s ine qua non to av ail tre aty benefits in the other Contractin g Assessment year: 2003- 04 State. The fun dam ental assumption by the AO that "an indiv idu al who is not liable to pay tax under t he UAE law 20 ITA No. 3243/Del/2023 Saket Kanoi cannot claim any relief from the only tax which is payable in India under the agreement" and that "the prov isions of DTAAs do not apply to any cases where the same incom e is not liable to be tax ed tw ic e by the existing laws of both the Contract ing States" is thus no long er backed by the tax admin istrat ion itself. As we not ice this position, we are a live to the fact that the protocol to the Indo-UAE ta x treaty h as co me into effect from 1st Apr il, 20 08 but that is not really re levant in the present context. What is materia l is the fundamental appr oach to the availability of treaty b enefits to the residents of Contracting Stat es without mak ing it cond itional upon dual taxability of same incom e. This ap proach is clearly in conformity with the a ppro ach adopted by us in the case of Green Emir ate S hipp ing & Travels (supra) and the amendments so brought a bo ut by the amen dments in the Indo-UAE t ax treaty have thus introduce d go od d eal o f c lar ity about the legal posit ion on such fundamental as pects of a tax treaty as to who will be e ligible for tax treaty benefits."
4. The view so taken by the Tr ibunal has also been adopted by the subsequent pro tocol amending the I ndia UK DTAA, and the approach underlying the stand of the Assessing Officer has been abandone d by the tax administratio n itself. In vie w o f the abo ve discussio ns, and following the vie w taken by the coordina te benches in a large number of dec isions including in the ca ses of Green Emirates Shipping & Trave ls (supra) and Meera Bhatia (supra), we approve the conc lus ions arrived at by the CI T(A) and decline to inte rfe re in the matte r.
5. In the res ult, a ppeal filed by the revenue stands dis missed."
21 ITA No. 3243/Del/2023Saket Kanoi
9. In the ca se of ITO Vs. Shri Ramesh Kumar Goenka in ITA No. 3562/Mum/2009 vide order dated 16.04.2 010, the Co- ordinate Bench of ITAT held as under:
"Grounds of appe al raise d by the revenue reads as follows :-
1) On the fac ts and circumstances of the case and in law, learned CI T(A) erre d in :
(i) holding tha t the assessee a resident of UAE, is entitle d to the benefits of DTAA between India and UAE.
(ii) Ho lding that the assessee is not liable to pay any taxo n the short term ca pital gains earne d in I ndia .
2) the appellant prays that the orde r of lear ned CIT(A) on the abo ve grounds be set aside and that of the Assessing Office r restored.
3. The Assessee is an individual. He is a resident of UAE. During the previous year he earne d sho rt te rm capital gain o f RS.5,04,89,379/-. He claimed tha t the sho rt term ca pital ga in cannot be brought to tax in I ndia in view of Article 13( 3) o f the Indo-UAE DTAA. S ince the Assessee was a Resident of UAE, it is only UAE whic h has a right to tax c apital gain and no t India. A rticle 13 of the agreement for avoidance of double taxation betwee n India and the UAE (hereinafter referred to as ' the India-UAE Treaty') provides an exemptio n from capital ga ins tax in India to residents of UAE. It reads as under:-
Artic le 13 : Capital gains :
1) Gains derived by a resident of a contracting s tate from the alie nation of im movable pro perty referred to in paragr aph 2 o f Artic le 6 and s ituated in the other C ontracting State m ay be taxed in that o ther s tate.22 ITA No. 3243/Del/2023
Saket Kanoi
2) Gain from the alie na tion o f movable pro per ty forming part of the business property of a permanent establishment which an e nterpris e of a contracting state has in the other co ntr acting state or o f movable prope rty pertaining to a fixed base a vailable to a resident o f a co ntrac ting state in the othe r contracting state for the purpo se of perfo rming inde pendent personal se rvices, including s uch gains from the alienation of such a pe rmanent establishment (alo ne o r toge ther with the e nterpr ise) or o f such fixe d base may be taxe d in that other state .
3) Gains from the a liena tion of any property other than that mentioned in paragraph 1 and 2 shall be taxable only in the contr acting s tate of w hich the alienator is a reside nt.
Artic le 4 of the India UAE DTAA defines res ident o f a contracting state as any person w ho under the laws of that State is liable to tax therein. The re is no dispute that the Assessee is a resident of UAE.
The AO ho wever rejected the claim of the Assessee on the ground that the as sessee 'is not paying taxes in UAE' . The As sessing Officer relied upo n the decision o f the AAR in the case of Abdul Razac k Menon 276 ITR 306 which had considered the decis ion of the Hon' ble Supreme Court in the case of Aza di Bachao Andolan 263 ITR 706 (sc) and held that the assessee has faile d to discharge the onus on it to prove that it is lia ble to pa y tax in UAE. A ccording to the AO it is not suffic ient for a person to claim the benefits of Article 13(3) to be just a "Res ident of the othe r contracting State" , but he mus t also have paid ta x o n the income in respect o f which the benefit o f Article 13(3) is claimed. In UAE the c apital gain in question was admitted not c ha rged to tax.
4. On appeal by the Assessee, the CIT(A) held that the Assessee w as entitle d to the benefits o f Article 13(3) of Indo-UAE treaty an d therefore capital gain cannot be bro ught to tax in India. In do ing so 23 ITA No. 3243/Del/2023 Saket Kanoi he fo llo wed the decision of the Mumbai Bench of the Tribunal in the case o f Ass istant Director o f I ncome-tax (International Taxation), Range 1(2) vs . Green Emirate Shipping & T rave ls 100 ITD 203 (Mum) ITAT. I n the c ase of Assistant D irector o f Income-tax (International Taxation) , R ange 1(2) vs. Green Emirate Shipping & T ravels 100 IT D 203 (Mum) ITAT, the Mumbai Tribunal had an occasion to deal with an ide ntical c ase. The facts o f the case were that the assessee was a shipping line based in United Arab Emirates. In the re levant pre vio us year, the as sessee had a taxable income of Rs. 28,35,628 from shipping ope rations. The assessee's claim was that in terms of article 8 of the Indo-UAE Double Taxation Avoidance Agreement, the assessee's income was liable to tax only in the country o f domicile i.e., UAE, but this conte ntion was rejected by the As sessing Office r on the ground that the assessee 'is not paying taxe s in UAE'. The Assessing Officer relied upon the decision of the AAR in the case of Cyril Euge ne Pe reria, In re [ 1999] 239 ITR 6501 in suppo rt o f the propos ition that the provisio ns of the DTAA do not apply to any case whic h the 's ame income is not liable to be taxe d twice by the exis ting laws o f bo th the Contracting Sta tes' .
5. The Tribunal firstly dis agreed with the view expressed by the AAR in the case o f Cyril Euge ne Pere ria (Supra) on the ground that the said decision was held to be not laying down the co rrect law by the Hon'ble Supreme Court in the case of Union of India v. Az adi Bachao Andolan [2003] 263 ITR 7061, at page 742. The tribunal he ld that:-
6. Undoubte dly, in Cy ril Eugene Pereria's case (s upra), Hon' ble Authority for Advance Ruling, de viating from the stand taken by it in the e arlie r rulings including ruling in Mohsinally A limo hammed Rafik, In re [1995] 213 ITR 3171, concluded that " an individual w ho is not lia ble to pay ta x under the UAE law canno t claim any relief from the only tax on income which is pa yable in India under the agreement"
and that "the prov isio ns of the Double Taxati on Avoidance 24 ITA No. 3243/Del/2023 Saket Kanoi Agreement do not apply to any case where the same income is not lia ble to be ta xed twice by the e xisting laws o n both the Co ntrac ting States ". Ho wever, in Azadi Bachao Ando lan' s c ase (supra), The ir Lords hips of Hon'ble Supreme Court, after referring to the said ruling and after elaborate disc ussio ns on the various aspects of this issue, concluded that "it is . . . . not possible fo r us to accept the contentions so strenuously urged by the respondents that the avoidance of double taxation can arise only whe n tax i s ac tually paid in o ne o f the Co ntr acting States". The reasoning given by The ir Lords hips inc luded the follo wing:
"According to K laus Vogel " Double Taxation Conventions establishes an inde pende nt mechanism to avoid double taxatio n through restriction of tax claims in areas w here o ver lapping tax c laims are expecte d, or at leas t theoretically po ssible . In other wor ds , Contrac ting States mutually bind the mselves no t to levy taxes o r to tax only to a limited e xte nt in cases when the treaty rese rves taxation for the o ther Contracting State eithe r entirely or in par t. Contrac ting States are said to waive ' tax c laims' or more illustra tively to div ide 'tax so urces', ' taxable obj ects', amongst themselves ". Double taxa tio n avoidance tre aties were in vo gue even from the time of the League of Na tions. The e xpe rts appointed in the early 1920s by the League of Nations describe this method of class ifica tion of items and their a ssignments to the Co ntrac ting States . W hile the English lawye rs called it 'c las sification and assignment rule', the Ge rman j urists called it 'the distributive r ule' (Verteilungsnorm). To the extent that an exemption is agreed to, its effec t is in pr inciple independent o f bo th whe ther the Contrac ting State imposes a tax in the si tuatio n to which the exemption applies, and irrespec tive of whe the r the State actually le vies the tax. Commenting particularly on the Ge rman Double Taxation Co nvention with the United S tates, Voge l comments: "Thus , it is said that the 25 ITA No. 3243/Del/2023 Saket Kanoi treaty prevents not only 'current' but also mere ly 'po tential' doubl e taxation". Further , accor ding to Vo gel, "o nly in exceptio nal cases, and only when express ly agreed to by the par ties, is exemptio n in one of the Contracting Sta tes dependent upon whe ther the income or capital is taxable in the other Co ntr acting State , o r upon whe ther it is actually taxe d there."
It is , the refo re, not possible for us to acce pt the conte ntions so strenuous ly urged by the respo ndents that the avoidance of do uble taxation ca n arise only when ta x is actually paid in one of the Contrac ting Sta tes."
6. The Tribunal also held that the decision o f the Autho rity for Advance Ruling in the case of Abdul Razak A. Menon, In re [2005] 276 ITR 306 was also no t good law.
7. The Tribunal de alt with the argum ent o f the Learne d Depar tmental Representative that as no n-corpora te entities are no t taxable entities under the UAE Tax Trea ty such non-corporate entities, even though based in UAE, cannot be treated as ' reside nt' for the purposes o f the India-UAE DTAA a s fo llo ws:
"Our attentio n is also invite d to the le arned Assessing Officer's observ ations to the effect that "the provisions o f the DTAA do not apply to any case which the same income is not liable to be ta xed twice by the existing laws of both the Contra cting States" and that "since the assessee has fa ile d to pro ve that it is paying taxes in UA E, the DIT relie f sought by the assessee is rejected" but it is the very propos ition underlying these o bser vatio ns which w as rejected by the Hon'ble Supreme Cour t holding that " it is . . . . not po ssible for us to accept the co ntentions so strenuously urged by the res ponde nts that the avo idance of double taxation can arise only w hen tax is actually paid in one o f the Contracting S tates". As we have note d e arlier also, the revenue is on record to have o pposed the very argument that the 26 ITA No. 3243/Del/2023 Saket Kanoi revenue has taken in the present case, as evi dent fro m the Hon' ble Supreme Court's follow ing observation :
"The appellants (i.e., Union of I ndia) contend that, acc eptance of the respondent' s submission that double taxation avoidance is not permiss ible unless the tax is paid in both countries is contrary to the intendment o f section 90. It is urged that c lause (b) of subsection (1) of sect ion 90 applies to a situation whe re income-tax has been paid in both the countries, but clause (b) deals w ith the s ituation o f avoidance o f double taxation of inco me. Inasmuch as Par liament has distinguished between the two situations , it is not o pe n to a Court o f law to interpret clause (b) o f sec tion 90 - s ubsec tion (1) as if it were the same as situations contempla ted under claus e (a) ."
The ve ry contention w hich has bee n r aise d by the revenue in this case was s uccessfully challenge d by the Union of I ndia before the Hon'ble Supreme Court. It canno t be open to us to take any othe r view of the matte r than the view so take n by the Hon'ble Supreme Court."
8. The T ribunal then de alt w ith the question as to whether existing lia bility to pay taxes in UAE is a sine qua non to avail the benefit of India-UAW ta x tre aty in India as fo llows:
"8. Although the Assessing Office r's objection to applicability of India-UAE tax tre aty was o nly on the ground that the pro vis ions of double taxation a voidance agreements do no t come into play unles s it is established that the assessee is paying tax in both the co untr ies in respec t o f the same income, in the gro unds o f appe al befo re us it is also contende d tha t the assessee-company failed to pro duce any evide nce to the e ffect that it was ' liable to pay taxes' in UAE. The question then arises whether an e xisting liability to pay taxes in UAE is a s ine qua no n to a vail the be nefit of India-UAE tax treaty i n India. On this issue a lso, we find guidance from the judgment of 27 ITA No. 3243/Del/2023 Saket Kanoi Hon'ble Supreme Court in the case of A zadi Bachao A ndolan (supra). Referr ing to the Klaus Vogel's Commentary on Double Taxa tio n Conventio ns, Their Lordships, inter a lia, obse rved as follows:
"I n other wo rds , C ontr acting States mutually bind the mselves not to levy taxes or to tax only to a limited extent in cases w hen the tre at y reserves taxation for the other Contracting State eithe r entirely or in par t. Contr acting Sta tes are said to w aive 'tax claims' o r more illustra tively to div ide 'tax so urces', ' taxable obj ects', amongst themselves . Double taxation avoidance treaties were in vogue even from the time of the League of Na tions. The e xpe rts appointed in the early 1920s by the League of Nations describe this method of class ifica tion of items and their a ssignments to the Co ntrac ting States . W hile the English lawye rs called it 'c las sification and assignment rule', the Ge rman j urists called it 'the distributive r ule' (Vertei- lungsno rm). To the extent that an exemption is agreed to , its effec t is in pr inciple independent o f bo th whe ther the Contrac ting State imposes a tax in the si tuatio n to which the exemption applies, and irrespec tive of whe the r the State actually le vies the tax. Commenting particularly on the Ge rman Double Taxation Co nvention with the Unite d S tates, Vogel com ments : 'Thus , it is said that the treaty prevents not only 'current' but also mere ly 'po tential' doubl e taxation' ." [Empha sis supplied] It is thus cle ar that a ta x treaty no t only preve nts 'curre nt' but also 'potential' double taxation. T here for e, irrespec tive o f whethe r or not the UAE actually levies taxes on non-corpo rate entities, once the right to tax UAE r esidents in specified circumstances vests only with the Go ver nment of UAE, that right, whe ther exer cised or not, conti nues to rema in exclusive right o f the Gove rnme nt of UAE. As noted above , the exemption agree d to under the ' assignment' o r 'distributive' rule, is independent o f 'whe ther the Contracting State imposes a tax in the situa tion to which exemptio n implies' . In the 28 ITA No. 3243/Del/2023 Saket Kanoi case o f John N . Gladde n v. Her Maje sty the Q ueen 85 TC 5188, which was quote d with approval by the Hon'ble Supreme Cour t in Azadi Bachao Andolan's case (supra), Federal Cour t of Canada was observed that "the non- resident can benefit from the exemption (unde r the treaty) rega rdless o f whe ther or not he is taxable on that capital gain in his own co untry . If Canada or the US were to abo lis h the capital gains tax completely, w hile the other co untry did no t, a resident of the co untry which has abolished the c apital gains would still be e xempt from capi ta l gains in that other country". It is thus clear that taxability in one country is no t sine qua non fo r availing relief under the treaty from ta xability in the o the r co untry. A ll that is necessary for this purpose is that the perso n should be 'liable to tax in the Co ntrac ting State by reason of domic ile , residence, place of management, place of inco rpo ration or any o the r criterion o f similar nature' w hic h essentially refers to the fiscal domicile o f suc h a person. In othe r wo rds, if fiscal domic ile of a person is in a Contrac ting S tate , irrespective of whethe r o r no t t hat per son is actually liable to pay tax in tha t country, he is to be treated as resident of that C ontracting State. The express ion 'liable to tax' is not to read in isolatio n but in conjunctio n with the wo rds immediate ly follow ing it i.e ., 'by reason o f domicile, re sidence, pla ce of management, place o f inco rpo ration o r any other criterion of similar na ture' . T hat would mean that merely a pe rson living in a Contrac ting State sho uld no t be sufficient, that person should also have fisca l domicile in that co unt ry.
These tests o f fiscal domicile which are give n by way of e xamples following the e xpr ession ' liable to tax by reason o f' i.e ., domic ile, residence, place o f ma nagement, place o f incorporation etc. are no more than e xam ples of loca lity relate d attachments that attr act residence type taxation. There fore , as long as a pe rson has such locality related attachments which attract res idence type taxatio n, 29 ITA No. 3243/Del/2023 Saket Kanoi that 'person' is to be tre ate d as resident and this status o f being a 'reside nt' of the C ontr acting State is indepe ndent of the actual le vy of tax on that person. Vie wed in this pe rspective, we are of the conside red o pinion that being 'liable to tax' in the Co ntracting State does not necessarily imply that the person s hould actually be liable to tax in that Contracting S tate by the virtue o f an exis ting legal provisio n but w ould also cove r the cases whe re that o the r Contrac ting State has the right to tax such persons - irrespec tive of whether or not such a right is e xercised by the Contr acting State. In our humble under standing, this is the legal position e merging out o f Hon'ble S upreme Court's judgment in Azadi Bachao Andolan's ca se (supra). T he plea taken by the rev enue that the as sessee w as not 'liabile to tax' , which was anyw ay not taken by the Assessing Office r or be fore the CIT(A), is also no t sustainable in law either.
9. Aggr ieve d by the or der of CIT (A), the revenue is in ap pea l before the Tribunal. We h ave heard the submissions of learned Departmental Representat ive who relied on the order of the Assessing Off icer. In our view d ecis ion in the c ase of Green Emirate Shipp ing & Travels (supra) is squarely app lica ble t o the facts of the pr esent case . As held in the af oresaid c ase, expression 'liab le to tax' in the contrac ting sta te as used in Article 4(1) of Indo-UAE- DTAA d oes not necessar ily imply that the person should actua lly be lia ble to t ax in that contract ing state and that it is enough if oth er contract ing st ate has r ight to t ax such person, whether or n ot such a r ight is exercised. In the light of the r atio laid d own in the aforesa id decision, wh ich has been follow ed by CIT(A), w e find no grounds to interfere with the order of CIT(A). We t herefore confirm the ord er of CIT(A) and dismiss the appeal by the revenue."
30 ITA No. 3243/Del/2023Saket Kanoi
10. In the case of DCIT Vs. Shri K. E. Faizal in ITA No. 423/Coch/2018 vide order dated 08.07.2019, the Co-or dinate Bench of ITAT held as under:
"2. The grounds raised read as follow s:-
"1. The order of the learned Commissioner o f Income Tax (Appeals)- II, Kochi is contrary to the law and facts of the c ase.
2. The learned Co mmissioner of Income Tax (Appeals) -II Kochi erred in ho lding that the units of e quity oriented Mutual F unds and equity shares ca nno t be held to be the same.
3. The lea rned Commissioner of Income Tax (Appeals)-II Kochi ought to have cons idered the fa ct that the unde rlying instr ument of any equity o riented M utual Fund is nothing but a s hare and hence the gains arising from the sa le o f the under lying instrum ent, be ing the equity share results in C apital Gains.
4. The learned Co mmissioner of Income Tax (Appeals) -II Kochi erred in ho lding tha t as per the provisions of the India-UAE Double Taxation Avo idance Agreement the gain can be taxe d only in the country of res ide nce which is UA E.
5. The lea rned Commissioner of Income Tax (Appeals)-II Kochi ought to have cons ider ed the fact that the Equity Share being the underlying instrument, the gains from the alienation of Units of an Equity oriente d M utual F und is thus taxable unde r Article 13( 4) of the India- UAE Tre aty in India i.e. the co ntracting State in which the company, whose share / units have been trans ferre d, is a resident.
6. The learned Co mmissioner of Income Tax (Appeals) -II Kochi erred in relying on the decis ion of the Mumbai Be nch o f ITAT without conside ring the fact that the decision of the Mumbai Bench o f ITAT is not binding on the Income-tax autho rities o f Kerala Charge .31 ITA No. 3243/Del/2023
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7. Fo r these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learne d Commissioner of Income Tax (A ppe als)-II Kochi may be cancelled and that of the AO may be res tore d."
3. Br ief fac ts o f the case are as follows:
The assessee , an individual, is non- resi dent for the relevant assessment year, viz., A.Y. 2012-2013. T he assessee Sri.K.E.F aizal.
had sold units of equity o rie nted mutual funds during the rele vant assessment ye ar and derive d short term capital gains (STCG) o n the same amounting to Rs.1,34,99,407. For the asses sment year 2012- 2013, the re tur n of income w as file d o n 31.07.2012 by c laimi ng the short term c apital gain amounting to Rs.1,34,99,407 as exempt to tax in I ndia by virtue of Article 13(5) o f India-UAE T reaty. The assessment was completed u/s 143( 3) of the I.T.Ac t vide order da ted 30.03.2015. The Assessing Officer held that the unde rlying instrument of any equity oriented mutual funds is nothing but a `share', and therefore , as per Article 13(4) o f the Treaty, STCG would be taxable in India. Accordingly, he added a sum of Rs.1,34,99,407.
4. Aggrieve d by the above said addition under the s hor t term capital gains, the assessee preferred an appeal to the first appellate authority . The as sessee ra ised various contentions before the first appe llate autho rity and the same was repro duced at pages 6 to 10 of the impugned order (po rtion o f para 4.3 o f the CIT( A) order). The CI T(A) decided the issue in favour of the assessee by ho lding that the s hort te rm ca pital ga ins derived by the assessee on account o f sale of units of equity o riented mutual funds are no t taxable in India. The CIT(A) was o f the view tha t the equity o riente d mutual funds are no t `shares' a nd therefor e the ca se was governed by par a 5 of Artic led 13 o f the India-UAE T reaty. In taking the above vie w, 32 ITA No. 3243/Del/2023 Saket Kanoi the CIT(A) also r elied on the or der o f the Mumbai Bench o f the Tribunal in the case of ITO (IT) v. Sa tish Beha rilal Rahe ja [(2013) 37 taxmann.com 296 (Mumbai-Trib.)].
5. The Revenue being a ggrieve d by the orde r of the CIT(A) has filed this appeal be fore the T ribuna l. The learne d De par tmental Representative strongly relied on t he grounds raised. T he lear ned AR, o n the other hand, has filed a pa per book compr ising o f 49 pa ges enclosing the inco me tax re turn, the statement showing c apital gains / loss incurre d during the rele vant assessment year, submiss ions made befo re the Income-tax authorities e tc. T he learned AR reiterated the submissions made be fore the I ncome-tax authorities.
6. We have heard the riv al s ubmissions and perused the mater ia l on record. The assessee admitted ly is a non-resident Indian for the r elevant assessment year. The t ax resid ency certif ic ate issued to the assessee stat ing he has a va lid residency in UAE is on rec ord (pages 27 to 29 of the p aper book f iled by the assessee). The Assessing Officer also admits that the assessee is a NRI during the relevant assessmen t year. For the r elevant assessment year the assessee sold equity linked m utual funds and d erive d STCG. As per section 5(2) r.w .s. 9(1 )(i) of the I.T.Ac t, tr ansfer of a cap it al asset situated in India shall be deeme d to ac crue or arise in Ind ia. The income from tr ansfer of units of an equity-oriented mutual funds situated in India is deem ed to a ccrue or arrive in India and therefore is taxable in Ind ia even in the c ase of a non- resident. How ever, t axat ion in the case of no n-resident is subject to the provisions of the r elevant Treaty between India and the St ate of residency of the assessee. In the instant case, the prov isions of India- UAE Treaty would be applicab le. Sect ion 90(2) of the I.T.Act stat es that the provisions of th e Treaty shall apply to the ex tent they are more be nefic ial to the 33 ITA No. 3243/Del/2023 Saket Kanoi assessee as compared t o the corresponding pr ovisions of the Act. The Asses sing Officer also do es not st ate that the assessee is not ent itled to the beneficial prov isions of the DTAA entered between India an d UAE. The Assessing Officer negated the ass essee's contention by ho ld ing Ar ticle 13(4) of the Treaty would apply and not Artic le 13(5) of the Treaty . To understand the issue in controversy, it is necessary to reproduce Article 13 of the India-UAE T ax Treaty and the same reads as follow :-
"ARTICLE 13 : CAPIT AL GAINS
1. Gains d erived by a r esid ent of a Contracting State from the alienat ion of immovab le property referred to in paragraph (2) of Article 6 and situated in the other Contracting Stat e may b e taxed in that other St ate.
2. Gains from the alienat ion of movab le property forming p art of the business property of a permanent est ab lishment which an enterprise of a Contract ing State has in the other Contracting State or of movable property pertaining to a f ixed base ava ilable to a resident of a Contracting Stat e in the other Contracting St at e for the purp ose of perform in g indep endent personal serv ices, inclu ding such g ains from the alienation of such a p ermanent estab lishment (alone or toge ther with the whole enterpr ise) or of such f ixe d base may be t axed in that other St ate .
3. Gains from the alienation of s hares of the c apital stock of a comp any the pr operty of which consists direct ly or indirect ly princ ip ally of immovable property situated in a Contract ing State m ay be taxed in that Sta te.34 ITA No. 3243/Del/2023
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4. Gains from the alienation of shares other than those mentioned in paragraph 3 in a company which is a resident of a Contra cting St ate may be taxed in that State.
5. Gains fro m t he alienat ion of any pr operty other than that referred to in paragraphs 1, 2, 3 and 4 above shall be taxable only in the Co ntracting State of which the alienator is a resident."
(Emphasis supplied] 6.1 As per Ar ticle 13( 5) of the Tax Tre aty, income ar ising to a resident of UAE from transf er of property other than shares in an Indian c ompany, are liab le to tax only in UAE. On the other hand, Ar ticle 13(4) of the Tax Treaty provid es that inc ome arising to a resident of UAE from transfer of shares in an Indian co mpany other th an those spec if ic ally covered within the ambit of provisions of oth er par agraph of Article 1 3 may be tax ed in India. Art ic le 13( 4) of the Tax Treaty covers w ithin its purview c ap it al ga ins ar ising fro m transfer of ` shares' and not any of t he pro perty. Therefore, Article 13(4 ) of the Tax Treaty cannot be applied in the instant c ase unless the units of mutual fun ds transferred by the assessee qualify as shares for the pu rpose of T ax Treaty.
6.2 The te rm "share" is no t defined unde r the tax tre aty. As per A rticle 3(2) o f the tax treaty, any term not defined unde r the tax treaty sha ll, unless the conte xt other wise requires, have the meaning which it has under the la ws o f the co untry whose tax is being applied. The refore , the te rm " share " would carr y the meaning ascribed to it under Act, and if no meaning is pro vided under the Act, the n the meaning that the term carries under other all ied Indian laws would need to be applied. The Act does not define the term "share". Ho wever, section 2(84) of the Indian Companies Act, 2013 35 ITA No. 3243/Del/2023 Saket Kanoi defines the te rm " share " to mean "a share in the s hare capital of a company and inc ludes stock" . Furthe r, the te rm "company" has been defined to mean a "compa ny incor porate d unde r the Companies Ac t, 2013 or under any prev ious company law". Under the Securities and Exchange Board o f India (Mutual Funds) Regulations , 1995, mutual funds, in I ndia can be established only in the form of "trus ts", and not "companies". Therefore, the units issued by Indian mutual funds will not qualify as "shares" for the purpose of Companies Act, 2013. Further, unde r the Securities Contract (Regulation) Act, 1956, a security is defined to include inter alia -
(a) shares , scrips, stocks, bonds, debentures , debe nture stoc k or other bo dy corporate; and
(b) units or any o ther such instrum ent issued to the investors under any mutual fund scheme.
6.3 From the above de fini tion o f "se curities", it is clear that "share s "
and "units o f a mutual fund" are two se par ate types of sec urities. Applying the above meaning to the provisio ns of the tax treaty, the gains aris ing from transfe r o f units of mutual funds should no t get covered within the ambit o f A rticle 13(4) of the tax treaty, and should co nsequently be covered under Article 13(5) of the tax treaty. Therefore, the assessee, who is a re sident o f UAE for the purpo ses o f the tax tre aty, ST CG arising S ri.K.E.Faizal.
from sa le of units o f equity or iente d mutual funds and debt oriented mutual funds sho uld not be l ia ble to tax i n India in accordance with the pro vis ions of A rticle 13(5) of the tax trea ty.
6.4 Reliance is also place d on the decis ion o f the Mumba i Bench of the Tribuna l in the c ase of Inc ome-t ax Officer v. Satish Beharilal Rahe ja [(2 013) 37 taxma nn.com 296] , 36 ITA No. 3243/Del/2023 Saket Kanoi wherein on similar f acts and in the contex t of the Treaty between India and Sw itzer lan d, t he Tribunal held as under:
"In our view in t he a bsence of any spe cific provis ion under the Act to deem the unit as shares, it cou ld not be c onsidered as shares of com panies and therefore, the provisions of Artic le 13(5)(b ) (of the Indo- Sw iss Treaty) cannot be applied in case of units. We agree with the findings of the Commissioner (Ap peals) that p rovisions of Article 13(6) (of the Indo-Swiss Treaty) are applic able in case of units as per which c apit al ga ins cannot be taxed in Ind ia . "
6.5 The Mumba i T ribunal came to above conclusion by relying on the judgment of the Hon'ble Supreme C ourt ("SC") in the case of Apollo Tyres Ltd v CIT [ 2002J 122 Taxman 562 (SC), w herein the Hon'ble Apex Court held as under:
"Even tho ugh the said section (Section 32(3) of the UTI Act, creates a fic tio n to make UTI a s a deemed company and dis tr ibutio n of the income received by the unitholder a s deemed divide nd, by vir tue of these deeming provisions it canno t be said that i t a/so makes the unit o f UTI a dee med share. A dee ming pro vis ion of this nature , as found in Sec tio n 32( 3) (o f the UTI Act) should be applie d for the purposes for which the said de eming pro vision is spec ifically enacte d, w hich in the instant case w as confined only to deeming the UTI as a company, a nd the income from the units as a divide nd. If as a matter of fac t, the Legislature had contemplated making the unit as also a deemed share , then it wo uld have stated so . In the absence of any suc h spec ific deeming in regards to units as s hares, it woul d be e rro neous to extend the pro visions of Section 32(3) o f units o f UTI fo r the purpose of holding that the unit is a s hare."
6.6 In view of the afo resaid re asoning and the judicial pronouncement cited supra, we are of the view that the CIT(A) is 37 ITA No. 3243/Del/2023 Saket Kanoi justifie d in de leti ng the addition o f Rs.1,34,99,407 as s hor t term capital ga in. It is ordere d accor dingly.
7. In the res ult, the appea l filed by the Reve nue is dismissed."
11. In the case of ADIT Vs. Green Emirate Shipping and Trave ls (286 ITR 60) (Mum.) vide order dated 30.11.2005, the Co-ordinate Bench of ITAT held as under :
"1. The only grie vance raised by the Reve nue in this appeal is as follows :
On the facts and in the circumstances of the case and in law , the learned CIT(A) erred in directing the AO to allow the benefit of DTAA merely on production of the xe rox copy of the tax residenc y certificate iss ued by the Ministry of Finance and I ndus try in UAE without apprec iating the fact that the assessee-company failed to produce any ev ide nce that it was lia ble to pay taxes o r paying taxes in UAE a nd that the provisions o f the Double Taxation Avoidance Agreement did no t apply to any pe rson w here the income was not lia ble to be taxe d twice by the existing laws of both the Contracting States .
2. The sho rt factual matrix, in which this issue arise s, is this. The assessee is a shipping line based in United Arab Emirates . In the relev ant pre vio us ye ar, the assessee had a taxable income o f Rs.
28,35,628 from shipping operations. T he assessee's claim w as that in terms of Artic le 8 of the Indo- UAE DTAA [(1994) 205 ITR (St) 49] , the as sessee's income was liable to tax o nly in the country of domicile, i.e ., UA E, but this contention was rejected by the AO on the ground that the assessee 'is not paying taxes in UAE'. T he A O relied upon the decision of the AA R, in the case of Cyril Eugene Pereira , I n re in support o f the proposition that the pr ovis ions o f the DTAA do no t apply to any case which 'the same income is not liable 38 ITA No. 3243/Del/2023 Saket Kanoi to be taxed twice by the e xisting laws o f both the Co ntrac tin g States . The A O also note d that 'the assessee has failed to furnish proof/e vidences in suppo rt of claim of being eligible fo r bene fit of India-UAE DTAA, and, co nseque ntly, the assessee has failed to dischar ge the onus on it to prove that it is liable to pay tax in UAE'. It was in this back drop that the assessee's claim for no n-taxability o f shipping income in I ndia was rejected by the AO. Aggrieved, assessee c arried the matter in appe al before the CIT(A). The CIT(A) reverse d the actio n of the AO by a rathe r brief operative o rde r which is repro duced belo w for rea dy refere nce :
I have considere d submissio ns o f the appellant couns el and pursued the o rder made by the AO. The appellant has no t been allowe d the benefit of DTAA o nly because the appellant had not produced an y evide nce befo re the AO tha t he is a tax resident o f UAE. As appellant has submitte d the xe rox copy of the tax residency ce rtificate issued by the Ministry of Finance & Industry in UAE, the AO is direc ted to allo w the benefit o f DTAA to the appellant fo r the ass t. yr. 1998- 99.
Aggrie ved by the order of the CIT(A), Re venue is in appeal before us.
3. We have heard the le arned Depar tmental Representative but none appe ared for the assessee. We have also peruse d the material o n record and duly considered the applicable legal pos ition and fac tual matrix of the case .
4. The impugned orde r passed by the CIT(A) takes a rathe r super fic ia l view of the matte r a nd has convenie ntly ducked the core issue rea lly requir ed to be adjudicated upon. It has simpl y brushed aside the real obj ection ra ised by the A O which was that in orde r to avail benefits of the India-UAE DTAA, a pe rson nee d no t o nly be resident o f one of the Contracting S tate but s hould also be ' liable to tax' there in. T hen, the re is next question about the c onnotations of 39 ITA No. 3243/Del/2023 Saket Kanoi the e xpressio n ' liable to tax' . Doe s it mea n liability at present o r does it also co ver a potential future liability ? A residency certificate, by itse lf, does not decide the matter one w ay o r the other because what, ac cording to the AO, is important is whether the assessee w as lia ble to ta x in UAE or not. There fore, whether the assessee w as resident in UAE o r not would no t have rea lly mattere d from t he point of vie w o f the AO. For this reaso n, we are unable to approve the reasoning a nd stand o f the CIT(A) . Having held so , the next questio n that we are re quired to address ourselves to is whe ther o r not the AO was justified in r aising the obje ction that he did. Is it re ally the lia bility to pay tax in UAE which is s ine qua non to avail the be nefits of the India-UAE DTAA or a fiscal do micile or re side nc y in UA E pe r se will be sufficie nt for an assessee to cla im the benefits of the India-
UAE DTAA ? Is it taxation liability at present w hic h is mate rial for this purpose o r is it eve n prospect of future tax liability which is sought to be preve nted by the said DTAA ?
5. As fo r the AO's re liance on ruling give n by the Author ity for Advance Ruling in Cyril Eugene Pe reiria's case (supr a), we deem it necessary to reproduce the follow ing e xtracts from the judgment o f Hon'ble Supreme Court in the case of Unio n of India v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC), a t p. 742 where in T heir Lords hips of Ho n'ble S upreme Court had an occasion to deal with the said AAR ruling :
The res pondents placed gre at re liance on the decision by the Authority for Advance R ulings constituted under Sectio n 245- 0 o f the IT Act, 1961, in C yril Eugene Pe reira's case . Section 245S o f the Ac t provides that the Advance Ruling pronounce d by the Author ity under Sec tion 245R shall be binding only :
(a) on the a pplic ant who had so ught it;40 ITA No. 3243/Del/2023
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(b) in res pect to the transaction in relation to which the ruling had been so ught; and
(c) on the GIT and the IT autho rities subordinate to him, in respec t to the applicant and the said trans action.
It is , therefore, obvio us that, apart from whatever its persuas ive value, it would be of no he lp to us. Having pe ruse d the order of the Advance Ruling Author ity, we ar e no t pers uaded. (emphas is , ita lic ised in print, supplied by us no w).
The judgments of Ho n'ble Supreme Court are bindi ng on us under Ar ti cle 141 of the Constitution of Indi a; the rulings of Authority fo r A dvance Rulings, w hatever be their persuasive va lue, are no t. The words of Ho n'ble Supr eme Court are cle ar, categorica l and unambiguous. Once Ho n'ble Supreme Co urt declines to be persuade d by the ruling given by the Autho rity for Advance Rulings in C yr il Euge ne Pereira's case (supra), it cannot be open to us to follow the said ruling. In the case of Asstt, Collec tor o f Central Excise v. Dunlo p I ndia Ltd. , Hon' ble Supreme Court has , inter alia, observed as follow s :
We desire to add and as was said in the Casse l & Co. Ltd. v. Broome (1972) AC 1027 ( HL), we ho pe it will neve r be neces sary to s ay so again tha t 'in the hierarchical syste m of Courts' whic h exists in o ur country, 'it is necessary for e ach lower tier' ... 'to acc ept lo yally the decis ions of the higher tiers', ' it is inevitable in a hierarchical s ystem of Courts tha t the re are decisions o f the supreme Tribunal whic h do not attrac t una nimous approval of all the m embers of the judic iary .... But judicial system wo rks only if someone is allowe d to have the las t word and tha t last word, once spoken is loyall y accepte d'. (See o bserv ations o f Lord Hallsham and L ord Diplock in Broome v. Casse tt). The wisdom of the Court belo w has to yield to the higher w isdom of the Cour t above.41 ITA No. 3243/Del/2023
Saket Kanoi We respectfully fo llow the higher w isdom o f the Courts above and decline to appro ve AO's re liance upon the ruling give n by the Authority for Adva nce Rulings in Cyril Eugene Pe reira's case (supr a).
6. Undoubte dly, in Cy ril Eugene Pereira's case (supra), Hon' ble Authority for A dva nce Rulings, deviating from the stand taken by it in the e arlier rulings including ruling in Mohs inally Alimohammed Rafik, In re (1995) 213 ITR 317 (AAR) , concluded that, " an individual w ho is not lia ble to pay tax unde r the UAE law c anno t claim any re lief from the only ta x on income which is payable in India under the agreement" and that " the provis ions o f the Double Taxation A voidance Agreement do not apply to any case where the same income is not liable to be ta xed tw ice by the existing laws on both the Contra cting States" . Howe ver, in Azadi B ac hao Andolan's case (supra), T heir lor dships of Hon'ble Suprem e Court, afte r referring to the said ruling and a fter el abo rate discussions on the various a spec ts o f this issue , concluded that "It is ... not possible for us to accept the conte ntions so stre nuously urge d by the respondent s that the a voidance o f double taxatio n c an arise only when tax is actually paid in one of the Co ntracting States" . The reasoning given by The ir Lordships included the following :
According to Klaus Vogel, 'Double Ta xation Conventio n establis hes an independe nt mechanism to avoid do uble taxation thro ugh restric tio n of tax c laims in a reas whe re overla pping tax c laims are e xpecte d, or at least theore tically possible. In other words, Co ntrac ting States mutually bind the mselves not to levy taxes or to tax only to a limited extent in cases when the treaty reserves taxatio n for the other Contrac ting State eithe r entirely or in part, Co ntracting States ar e said to 'waive' tax claims or more illustrative ly, to divide 'tax sources' , 'taxa ble objec ts' , amongst themselves' . Double taxation avoidance treaties were in vogue even from the time of the League of Nations . The e xper ts a ppo inted in the e arly 1920s by the League 42 ITA No. 3243/Del/2023 Saket Kanoi of Nations des cribe this method o f classification of items and the ir assignments to the Contr acting States. While the English lawye rs calle d it ' classificatio n and assignment rules' , the German j urists calle d it 'the distributive r ules' (Verteilungsno rmi). To the e xtent that an e xemptio n is agreed to , its effect is in pr inciple independent of both whe ther the other Contracting State imposes a tax in the situation to which the exemptio n applies and irrespective o f whether the S tate ac tually levies the tax. Commenting par ticularly o n the German Double T axa tio n Conventio n with the United States, Voge l comments: "Thus, it is said that the treaty pre vents not o nly 'curre nt' but also merely 'po tential' do uble taxation" . Fur the r, according to Vogel, "o nly in exceptio nal cases and only w hen expres sly agreed to by the parties, is exemption in one o f the Contrac ting States depende nt upon whethe r the inco me or capital is taxable in the o ther Contracting State, or upon whe ther it is ac tually taxe d the re.
It is , the refo re, not possible for us to acce pt the conte ntions so strenuous ly urged by the respo ndents that the avoidance of do uble taxation ca n arise only when ta x is actually paid in one of the Contrac ting Sta tes.
Clearly, there fore, there is no mee ting ground between the ruling give n by the Authority for Advance Rulings in Cyril Eugene Pereira's case (supr a) and the judgment de live red by the Ho n'ble Supreme Court in Azadi Bachao Andolan' s case (supr a). The choice, ho weve r, poses no difficulty in the light o f the elementary legal position tha t the judgments of Hon'ble Supreme Court have binding fo rce on all o f us. Much as we r espect the Ho n'ble Authority for A dvance Rulings, we re gre t o ur inability to follow the ruling which, in our humble understanding, ha s been cle ar ly disappro ved by the Ho n'ble Supreme Court. It is not even ope n to us, even in a case in which our understanding of the issue on merits concurs w ith that of the Hon' ble 43 ITA No. 3243/Del/2023 Saket Kanoi Authority for Advance R ulings in Cyril Eugene Pereira's case , to follow that school of thought.
7. Learne d, Departmental Re prese ntative has invite d o ur attention to the ruling give n by the Autho rity fo r Adv ance R ulings in the case o f Abdul R azak A . Meman, In re w hich supports the case o f the Re venue and is said to be on e xactly the same material facts. We are , howeve r, unable to accept this plea and we decline to treat this as a sort o f, to use the phraseology employed in legal parlance, a cove red matter. As Hon'ble Supreme Court has duly taken (note) of in Azadi Bachao Andola n's case (supr a), a r uling given by the Authority for Advance Rulings is not even binding o n the CIT and author ities subor dinate there to, in any case e xcept in the case of that very assessee in whic h such a ruling is given and e ven in such a case it is bindi ng in res pect of transaction in respect of which the ruling is give n. W ha tever be the respec t and de ference j udicial author ities indee d have fo r the rulings given by the Author ity, the Autho rity fo r Advance Rulings , not being a part of the judicial hie rarchy, cannot lay do wn a binding precedent for anyone-the Revenue , the assessees or the a ppellate authorities. B y no stretch of logic , therefore, a ruling given by the Hon' ble Author ity of Advance Rulings, has any precede nce value in ge neral. The refore , learned Departmental Representative's reliance on the r uling given in Abdul Razak A. Meman 's case (supra) by itse lf is no t sufficient to decide the matter one w ay or the othe r. Le ar ned De par tmental R epresentative's contention is that as nonco rporate entities a re no t taxable entities under the UAE Tax Decree 1969, such non-cor porate entitie s, e ven though based in UAE, ca nnot be treate d as 'res ident' fo r the purposes o f the India-UAE DTAA. Our attentio n is also invite d to the learned AO's o bse rvatio ns to the effect that "the pro vis ions of the DTAA do no t apply to any case which the same income is not liable to be taxed twice by the e xisting laws o f both the Co ntrac tin g 44 ITA No. 3243/Del/2023 Saket Kanoi States " and that "since the assessee has fa iled to prove that it is paying ta xes in UAE, the DIT relief sought by the asse ssee is rejected"; but it is the very pro position underlying these observ ations which was rejected by the Hon'ble Supreme Court holding tha t "it is... no t possible fo r us to accept the contentions so strenuous ly urged by the respo ndents that the avoidance of do uble taxation ca n arise only when ta x is actually paid in one of the Contrac ting States". As we have no ted earlier also , the Reve nue is on recor d to have opposed the very argument that the Reve nue has taken in the present case, as evident from the Hon'ble Suprem e Court's following o bservation :
The appellants (i.e., Union of India) contended that, acceptance of the respondent's submission that double taxation avoidance is not permiss ible unless the tax is paid in both the countries is contrary to the intendment of Section 90. I t is urged that Claus e (b) of Sub- section (1) of Section 90 applies to a situation where income-tax has been paid in bo th the co untries, but Clause ( b) deals w ith the situation of avoidance o f double taxa tion o f income , inasmuch as Parliament has distinguished between the two situations , it is no t open to a Court of law to inte rpret Cla use ( b) o f Se ction 90, Sub- section (1) as if it were the same as situa tio ns contemplate d under Clause ( a).
The very conte ntion which has been raise d by the R evenue in this case was s uccessfully challenge d by the Union of I ndia before the Hon'ble Supreme Court. It canno t be open to us to take any othe r view of the matte r than the view so take n by the Hon'ble Supreme Court
8. Although the AO's objection to ap plic ab ility of In dia-UAE t ax treaty w as only on the ground th at the provisions of DT AAs do not come into p lay unless it is estab lished that th e assessee is 45 ITA No. 3243/Del/2023 Saket Kanoi paying tax in both the countries in respect o f the same inco me, in the grounds of ap peal before u s it is also conte nded that the assessee-com pa ny fa ile d to prod uce any evidence to the effect that it was ' liable to p ay t axe s' in UAE. The question then arises whether an ex isting liability t o pay taxes in UAE is a sine qua non to ava il the benef it of India-U AE tax treaty in India. On this is sue also, we find guid ance from the judgmen t of Hon'b le Supreme Court in the case of Azadi Bachao Andolan (supr a). Referr ing to th e K laus Vogel's Comm entary on Doub le Taxat ion Conventions. Their Lordships, inter alia, observed as follo ws :
In other w ords, Contract ing States mutua lly b in d themselves not to levy t axes or to tax on ly to a limited ex tent in c ases when the treaty reserves tax ation for the other Contract ing State either entirely or in p art. Contracting St ates are said to waive 'tax c laims' or more illustratively t o div ide 'tax sources', 'taxab le ob ject s', amongst themselves" . Double 't axat ion avoidance treaties were in vogu e even from the time of the League of Nation s. The ex perts appointed in the early 1920s by the League of Nations descr ibe this method of c la ssific ation of items and their assignments t o the Contract ing States . While the English law yers called it ' classificat ion and ass ignment rule', the Germ an jurists calle d it 'the d istr ibutive rule' (Verteilungsnormi) . To the exte nt that an ex emption is agree d to, its effec t is in pr inc ip le inde pendent of both whether the Contracting St at e imposes a tax , in the situ ation to which the exempt ion ap plies and irrespe ctive of whether the Sta te actually levies t he tax. Commenting particular ly on the German Double T axat ion Convention with the United States, Vogel comments: "Thus, it is said that the treaty prev ents not on ly 'current' but als o mer ely 'pot ential' doub le t axat ion.46 ITA No. 3243/Del/2023
Saket Kanoi It is thus clear that a tax treaty not only prevents current' but'also potential' d ouble tax ation. Therefore, irrespect ive of whether or not t he UAE actua lly levies t axes on non-corporat e entities, once t he right to tax UAE res idents in sp ecified circumstanc es v ests only with t he Government of UAE , that right, whether ex ercised or not , continues to r emain exc lusive right of the Government of UAE. As note d above, the exempt ion agree d to under the 'assignment' or 'distributive' rule, is indep end ent of 'whether t he Contracting State imposes a t ax in the situ ation to which ex emption implies'. In the case of John N. Gladden v. H er Maje sty the Queen 85 T ax Cases 51 88, which was quot ed w ith ap proval by the Hon'ble Supreme Court in Az ad i Bachao Andolan's case (supra), Federa l Court of Canada has observed that the non-resident can benefit from the ex empt ion ( under the treaty) regard less of whether or not he is taxab le on that ca pital g ain in his own country. If Canad a or the US were to ab olish the cap it al gains ta x co mp letely, while the other country d id not, a resident of the country which has abolished the c ap it al ga ins wou ld st ill be ex empt from capita l g ains in that other country". It is t hus clear that taxability in one country is not sine qu a non for availing r elief under the trea ty from t axability in the other cou ntry. All that is necessary for this purpose is that the person should b e 'liable to t ax in the Contracting State by r eason of do micile, residence, place of m anagement, place of incor por ation or any other criterion of sim ilar nature' which essentially refers to the fisc al dom ic ile of such a per son. In other w ords, if fisca l domicile o f a p erson is in a Con tracting State, irrespective of whether or not t hat person is actually liable to pay t ax in th at country, he is to be tre ated as resident of that Contract ing State. The ex pression 'liable to t ax' is not to re ad in iso lat ion but in conjunction with the words immediately fo llow ing it, 47 ITA No. 3243/Del/2023 Saket Kanoi i.e., 'by reason of domic ile, residence, place of management , place of incor poration or any other cr iter ion of similar nature'.
That would mean that merely a person living in a Contract ing State should not be sufficient, that person sho uld also have fiscal do micile in that country. These tests of fiscal domic ile which are giv en by way of examples follo wing the expression liab le to t ax by reason of, i.e., domicile , residence, p lac e of management, p lace of incor poration, et c., are no more than examples of locality-r elated attachments that attr act residence ty pe taxation. Therefore, as long as a person has such locality-related attachment s which attr act residence type taxat ion, th at 'person is to be treated as resident and this status of being a 'resident' of the Contract ing Stat e is independent of t he actual levy of tax on that person. Viewed in this pers pect ive, we are of the considered opin io n that be ing 'liable to tax ' in the Contract in g State does not necessar ily imply'that the person should act ually be liable t o t ax in that Contracting State by v irtue of an exist ing legal provision but would also cover the cases where that other Cont ract ing State has the right t o tax such persons irrespective of whether or not such a right is exerc ised by the Contracting State. In our humble underst anding, this is the legal pos it ion emerg ing out of H on'ble Su preme Courts jud gment in Azadi Bach ao Andolan's c ase (supra). The plea taken by the Revenue that the assessee was not 'liab le t o tax', which was anyway not taken by the AO or before the CIT(A), is also not sustainab le in law either.
9. For the re aso ns set out above and even though we do not appr ove the reasoning adopted by the CIT(A), we ap prove the conclusion arr ived at by the C IT(A). His hav ing arrived at r igh t conclusion may have been fortu itous but what is m ater ial is 48 ITA No. 3243/Del/2023 Saket Kanoi that he reached the r ight conclusion. We approv e h is conclusion and d ecline to interfer e in the mat ter.
............."
12. Hence, keeping in view, the parity of the fac ts, the judicial propo sition la id down and in the absence of any co ntrary judgments bro ught to our notice, we ho ld that the assessee is eligible to get benefit o f the India-UAE DTAA.
13. In the re sult, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 23/10/202 4.
Sd/ - Sd/-
(Yogesh Kumar US) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 23/10/2024
*Subodh Kumar, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR