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11. In a situation, therefore, in which a specific provision like the one in Article 25(1) in India UAE tax treaty exists, there cannot be any occasion to ignore the limitations on deduction of expenses under the domestic tax legislation. That would be a case of, what can be termed as, reverse discrimination. Just as much a discrimination against a non resident assessee is undesirable, a discrimination against the resident assessee is also not desirable. As is the underlying philosophy of the tax treaties, there should be a level paying ground for everyone, which must include domestic enterprises as well. When we put this to the learned counsel, it was submitted that it is not clear as to what was the language in the relevant DTAA and whether the Government of Canada has used different terminology in different tax treaties. Learned counsel also submitted that this 'reverse discrimination', as we term it, is not only permissible under the tax treaties, it is also permissible under the Income Tax Act. Our attention was then invited to the provisions of Section 10(15) which provides for certain exemptions only to non residents, as also the provisions of section 115A which provides for lower rates of taxes for certain category of incomes of the non residents. Learned counsel has also invited our attention to different phraseology employed in different treaties, and contended that a uniform meaning given to all these different expressions will make differentiation in expression meaningless. It is also contented that once a tax treaty is legally entered into by a Contracting State, it is duty of the Contracting State to apply the same in letter and in spirit. Our attention is invited to the CBDT circular no 333 which is also referred to by some of the Tribunal decisions cited by the learned counsel. Learned counsel submits that it cannot be open to a Contracting State to shy away from implementing a tax treaty on the ground that the consequences of its implementation could be contrary to the intentions of the treaty. We are thus urged to interpret the provisions of Section 7(3) to mean that all the expenses, irrespective of the limitations under the domestic tax laws, incurred by the PE are to be allowed as deduction in computing the taxable profits of the PE.

12. We are not impressed with this line of reasoning either. As far as learned counsel's reference to exemptions available to non resident tax payers, under the Indian Income tax Act, is concerned, it is important to bear in mind that an exemption for aliens essentially seeks to restrict host country's jurisdiction to tax, and it is well settled that, as has also been observed by Prof Kees Van Raad, "while nationality is virtually unconditionally employed as a ground of non discrimination,....., it is not related to the use of nationality as jurisdictional basis for income taxes..." (Non discrimination in Income Tax Law - Prof Kees Van Raad, at page 15). Therefore, non taxability of any of an aliens income sourced in the host country can not be viewed as discrimination in his favour. It is, therefore, too far fetched to suggest that availability of certain tax exemptions to aliens shows that reverse discrimination is generally permissible under the scheme of Indian Income Tax Act. We reject this proposition. As far as learned counsel's reference to Section 115 A is concerned, this is also I.T.A. No. 1342/Mum/2006 Assessment year: 2002-03 fallacious inasmuch as it does not take into the fact that the related incomes are taxed on gross basis in the hands of the non residents taxpayers and net basis in the hands of the resident tax payers. Dealing with this aspect of the matter, a co ordinate bench of this Tribunal, in the case of DCIT Vs Boston Consulting Group Pte Ltd (94 ITD 31) has observed as follows:

18. What follows from the entire discussion is this. Reverse discrimination, which would have resulted by not restricting the deductions in the light of the provisions of the Act for non- residents assessees, was not permissible under the Indo UAE treaty prior to the protocol amendment in question, as was held by the Mashreq Bank decision (supra), and such a reverse discrimination is permissible even now as specifically provided for in the said protocol amendment in the Indo UAE tax treaty itself. That is what is clearly discernable from the Indian tax treaty approach and is completely in harmony with the judicial precedents and the best practices in well developed international tax jurisdictions- as discussed at length in the Mashreq Bank decision.