Appeal Details
Counselvise Citation
153120114 RSA 2011
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 month(s) 28 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-08-2011
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
E
Next Hearing Date
26-08-2011
Assessment Year
2007-2008
Appeal Filed On
29-03-2011
Judgement Text
ITA NO. 1531/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRESE IDENT AND SHRI RAJPAL YADAV, JUDICIAL MEMBER I.T.A. NO. 1531/DEL/2011 A.Y. : 2007-08 DDIT, INTL. TAXATION, CIR.-2(2), NEW DELHI VS. MR. MUSTAQ AHMAD VAKIL, C/O SUNIL GOEL & ASSOCIATES, E-86, PACHIMI MAGAR, NEW DELHI (PAN/GIR NO. : ACOPV9799F) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. SUNIL GOEL, CA DEPARTMENT BY : SMT. SRUJANI MOHANTY, SR. D.R. ORDER ORDER ORDER ORDER PER RAJPAL YADAV: JM PER RAJPAL YADAV: JM PER RAJPAL YADAV: JM PER RAJPAL YADAV: JM THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 14.12.201 0 PASSED FOR ASSESSMENT YEAR 2007-08. 2. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE READ AS UNDER:- (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN INFERRING THE MEANING OF PHRASE LIABLE TO TAX IN ARTICLE 4 OF INDO-UAE DTAA. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN ITA NO. 1531/DEL/2011 2 HOLDING THAT THE BENEFIT OF INDO-UAE DTAA IS AVAILA BLE TO ASSESSEE. (III) THE APPELLANT PRAYS FOR LEAVE TO ADD, AMEND, MODIFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OR BEFOR E THE HEARING OF THE APPEAL. 3. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT TH IS APPEAL HAS TO BE ARGUED BY ANOTHER DEPARTMENTAL REPRESENTATIVE, SHRI N.K. CHAND AND THEREFORE, AN ADJOURNMENT BE GRANTED. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ISSUE IN DISP UTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HE ITAT PASSED IN ASSESSMENT YEARS 2004-05 TO 2006-07 ON 24.9.2010. HE PLACED ON RECORD, A COPY OF THE TRIBUNALS ORDER. HE FURTHER CONTENDED THAT REVENUE HAS CHALLENGED THIS ORDER IN APPEAL BEFORE THE HONBLE HIGH COURT AND THE HONBLE HIGH COURT HAS DISMISSED THE APPEAL OF THE REVENUE. THUS THE ISSUE IS COVERED IN FAVOUR OF T HE ASSESSEE BY THE DECISION OF THE HONBLE HIGH COURT ALSO. HE FURTHE R CONTENDED THAT THE SHORT ISSUE INVOLVED IN THIS APPEAL IS WHETHER SHOR T TERM CAPITAL GAIN EARNED BY THE ASSESSEE IS TAXABLE IN INDIA ON THE GROUND THAT THERE IS NO TAX LEVIABLE ON AN INDIVIDUAL IN UAE AND THEREFO RE, ASSESSEE WOULD NOT BE TREATED AS RESIDENT OF UAE FOR GRANTING THE BENEFIT OF DTAA BETWEEN INDIA AND UAE. HE FURTHER POINTED OUT TH AT AN IDENTICAL ISSUE AND VERBATIM SIMILAR GROUNDS WERE CONSIDERED BY THE T RIBUNAL IN EARLIER THREE APPEALS OF THE REVENUE. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GO NE THROUGH THE RECORDS CAREFULLY. ON PERUSAL OF THE RECORD, WE F IND THAT THERE IS NO DISPARITY ON FACTS, RATHER GROUNDS OF APPEAL TAKEN BY THE REVENUE FOR ASSESSMENT YEAR 2004-05 ARE IDENTICALLY WORDED WIT H THE GROUNDS OF ITA NO. 1531/DEL/2011 3 APPEAL IN THE PRESENT ASSESSMENT YEAR. THE ASSESSEE HAS A SHORT TERM CAPITAL GAIN OF ` 30,59,911/- IN INDIA. HE C LAIMED THAT SHORT TERM CAPITAL GAIN IS NOT CHARGEABLE TO TAX IN INDIA IN TERMS OF ARTICLE 13(3) OF THE INDO-UAE TREATY, BECAUSE ASSESSEE IS A RESIDENT OF DUBAI, UAE AND THE INDO-UAE TREATY IS APPLICABLE TO THE ASSESSEE. THIS CLAIM OF THE ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER ON THE GROUND THAT IN ARTICLE 4(1) THE MEANING OF RESIDENT OF A CONTRACTING STATE HAS BEEN PROVIDED AND ACCORDING TO SUCH MEANING A R ESIDENT WOULD BE CONSIDERED, IF HE IS LIABLE TO PAY TAX IN THE C ONTRACTING STATE. THERE IS NO TAX PAYABLE BY AN INDIVIDUAL IN UAE. THEREFORE, ASSESSEE COULD NOT BE GRANTED STATUS OF A RESIDENT OF UAE. THE TRIBUNAL HAS CONSIDERED THIS ISSUE IN ASSESSMENT YEARS 2004-05 TO 2006-07 AND AFTER TAKING NOTE OF VARIOUS ORDERS OF THE ITAT, H ELD THAT NO TAX ON THE ALLEGED SHORT TERM CAPITAL GAIN IS IMPOSABLE UPON TH E ASSESSEE. THE TRIBUNAL HAS UPHELD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). THE FINDING OF THE TRIBUNAL INCLUDING C OGNIZANCE OF GROUNDS TAKEN IN THE OPENING PARAGRAPHS READ AS UNDER:- THE PRESENT THREE APPEALS ARE DIRECTED AT THE INSTA NCE OF THE REVENUE AGAINST THE COMMON ORDER OF THE CIT(A) DATE D 30.3.2010 PASSED FOR AYS 2004-05, 05-06 & 06-07. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE IN ALL THE THREE ASSESSMENT YE ARS ARE VERBATIM SAME. FOR THE FACILITY OF REFERENCE, WE TAKE NOTE OF THE GROUNDS OF APPEAL TAKEN BY THE REVENUE IN AY 2004-05 WHICH REA D AS UNDER: 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, LD.CIT(A) HAS ERRED IN INFERRING THAT THE MEANING OF PHRASE L IABLE TO TAX IN ARTICLE 4 OF INDO-UAE DTAA. ITA NO. 1531/DEL/2011 4 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DECIDING THAT THE BENEFIT OF INDO-UAE DTAA IS AVAILABLE TO ASSESSEE. 2. LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET S UBMITTED THAT ISSUE AND DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL RENDERED IN THE CASE OF ITO-3(1), MUMBAI VS. RAMESH KUMAR GOENKA, 39 SOT 13 2, MERA BHATIA VS. ITO1(1), MUMBAI, 38 SOT 95 AND ADIT VS. GREEN EMIRATE SHIPPING & TRAVEL (2006), 99 TTJ (MUM BAI) 988 (2006) 6 SOT 329 (MUMBAI) : (2006) 100 ITD 203 (MUM BAI). HE FURTHER CONTENDED THAT APART FORM THESE THREE OR DERS OF THE TRIBUNAL, REFERRED TO ABOVE, THIS ISSUE WAS CONSIDE RED BY THE AUTHORITY FOR ADVANCE RULINGS ON A NUMBER OF OCCASI ON AND ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. HE FU RTHER POINTED OUT THAT THE FACTS IN THE CASE OF RAMESH KU MAR GOENKA AND IN THE ASSESSEES CASE ARE IDENTICAL. L D.DR, ON THE OTHER HAND, WAS UNABLE TO CONTROVERT THE CONTEN TION OF THE ASSESSEE. SHE RELIED UPON THE ASSESSMENT ORDER. 3. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AND GONE THROUGH THE RECORD CAREFULLY. THE DISPUTE IN ALL T HE THREE YEARS RELATE TO TAXABILITY OF CAPITAL GAINS AROSE ON ACCO UNT OF TRANSFER OF SHARES AND SECURITIES. ACCORDING TO THE ASSESSE E, HE IS A RESIDENT OF DUBAI, UAE AND IS COVERED UNDER THE IND O-UAE DTAA. HE IS ENTITLED TO BENEFIT UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT EXECUTED BETWEEN INDIA & UAE. ACCORDING TO THE ASSESSEE, AS PER ARTICLE 13.3 OF T HE ABOVE TREATY, ASSESSEE IS NOT CHARGEABLE TO TAX ON CAPITA L GAINS ARISING FROM TRANSFER OF SHARES/SECURITIES. THE AO HAS REJECTED THIS CONTENTION OF THE ASSESSEE ON THE GRO UND THAT THE BENEFIT OF INDO-UAE DTAA IS NOT AVAILABLE TO THE AS SESSEE ITA NO. 1531/DEL/2011 5 BECAUSE ASSESSEE WAS NOT LIABLE TO PAY TAX IN UAE. IN OTHER WORDS, ACCORDING TO THE AO, THE BENEFIT OF THE INDI A-UAE DTAA WOULD BE AVAILABLE TO THE ASSESSEE IF HE IS LIABLE TO TAX FOR CAPITAL GAINS ON ACCOUNT OF SUCH TRANSFER OF SHARES IN UAE. WE FIND THAT THE TRIBUNAL IN THE CASE OF RAMESH KUM AR GOENKA HAS CONSIDERED AN IDENTICAL ISSUE. THE TRIB UNAL MAINLY RELIED UPON THE ORDER OF THE TRIBUNAL EARLIE R PASSED IN THE CASE OF DIT(INTERNATIONAL TAXATION) VS. GREEN E MIRATES SHIPPING & TRAVEL, READ AS UNDER: THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 31-3-2009 OF LEARNED CIT(A)-XXXIII, MUMBAI RE LATING TO ASSESSMENT YEAR 2006-07. 2. GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS FO LLOWS:- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, LEARNED CIT(A) ERRED IN : (I) HOLDING THAT THE ASSESSEE, A RESIDENT OF UAE , IS ENTITLED TO THE BENEFITS OF DTAA BETWEEN INDIA AND UAE. (II) HOLDING THAT THE ASSESSEE IS NOT LIABLE TO PAY ANY TAX ON THE SHORT-TERM CAPITAL GAINS EARNED IN INDIA. (2) THE APPELLANT PRAYS THAT THE ORDER OF LEARNE D CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSE SSING OFFICER RESTORED. 3. THE ASSESSEE IS AN INDIVIDUAL. HE IS A RESIDENT O F UAE. DURING THE PREVIOUS YEAR, HE EARNED SHORT-TERM CAPI TAL GAIN OF RS. 5,04,89,379. HE CLAIMED THAT THE SHORT- TERM CAPITAL GAIN CANNOT BE BROUGHT TO TAX IN INDIA IN V IEW OF ARTICLE 13(3) OF THE INDO-UAE DTAA. SINCE THE ASSES SEE WAS A RESIDENT OF UAE, IT IS ONLY UAE WHICH HAS A R IGHT TO TAX CAPITAL GAIN AND NOT INDIA. ARTICLE 13 OF TH E AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION BETWEEN INDIA AND THE UAE (HEREINAFTER REFERRED TO AS THE INDIA- UAE TREATY) PROVIDES AN EXEMPTION FROM CAPITAL GAINS T AX IN INDIA TO RESIDENTS OF UAE. IT READS AS UNDER : ITA NO. 1531/DEL/2011 6 ARTICLE 13 : CAPITAL GAINS : (1) GAINS DERIVED BY A RESIDENT OF A CONTRACTING STATE FROM THE ALIENATION OF IMMOVABLE PROPERTY REFERRED TO IN PARAGRAPH 2 OF ARTICLE 6 AND SITUATED IN THE OTHER CONTRACTIN G STATE MAY BE TAXED IN THAT OTHER STATE. (2) GAIN FROM THE ALIENATION OF MOVABLE PROPERTY FORMING PART OF THE BUSINESS PROPERTY OF A PERMANENT ESTABL ISHMENT WHICH AN ENTERPRISE OF A CONTRACTING STATE HAS IN T HE OTHER CONTRACTING STATE OR OF MOVABLE PROPERTY PERTAINING TO A FIXED BASE AVAILABLE TO A RESIDENT OF A CONTRACTING STATE IN THE OTHER CONTRACTING STATE FOR THE PURPOSE OF PERFORMING IND EPENDENT PERSONAL SERVICES, INCLUDING SUCH GAINS FROM THE AL IENATION OF SUCH A PERMANENT ESTABLISHMENT (ALONE OR TOGETHER W ITH THE ENTERPRISE) OR OF SUCH FIXED BASE MAY BE TAXED IN T HAT OTHER STATE. (3) GAINS FROM THE ALIENATION OF ANY PROPERTY OT HER THAN THAT MENTIONED IN PARAGRAPHS 1 AND 2 SHALL BE TAXAB LE ONLY IN THE CONTRACTING STATE OF WHICH THE ALIENATOR IS A R ESIDENT. ARTICLE 4 OF THE INDIA-UAE DTAA DEFINES RESIDENT OF A CONTRACTING STATE AS ANY PERSON WHO UNDER THE LAWS OF THAT STATE IS LIABLE TO TAX THEREIN. THERE IS NO DISPUTE THAT THE ASSESSEE IS A RESIDENT OF UAE. THE ASSESSING OFFICER, HOWEVER, REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE IS NOT PA YING TAXES IN UAE. THE ASSESSING OFFICER RELIED UPON THE DECI SION OF THE AAR IN THE CASE OF ABDUL RAZAK A. MEMAN, IN RE [200 5] 276 ITR 306 (AAR - NEW DELHI) WHICH HAD CONSIDERED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF UNION O F INDIA V. AZADI BACHAO ANDOLAN [2003] 263 ITR 706 AND HELD TH AT THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS ON IT TO PROVE THAT IT IS LIABLE TO PAY TAX IN UAE. ACCORDING TO THE ASSES SING OFFICER, IT IS NOT SUFFICIENT FOR A PERSON TO CLAIM THE BENE FITS OF ARTICLE 13(3) TO BE JUST A RESIDENT OF THE OTHER CONTRACTI NG STATE, BUT HE MUST ALSO HAVE PAID TAX ON THE INCOME IN RESPECT OF WHICH THE BENEFIT OF ARTICLE 13(3) IS CLAIMED. IN UAE, TH E CAPITAL GAIN IN QUESTION WAS ADMITTED NOT CHARGED TO TAX. ITA NO. 1531/DEL/2011 7 4. ON APPEAL BY THE ASSESSEE, THE CIT(A) HELD THAT TH E ASSESSEE WAS ENTITLED TO THE BENEFITS OF ARTICLE 13 (3) OF INDO- UAE TREATY AND, THEREFORE, CAPITAL GAIN CANNOT BE B ROUGHT TO TAX IN INDIA. IN DOING SO, HE FOLLOWED THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ASSTT. DIT V. GREEN EMIRATE SHIPPING & TRAVELS [2006] 100 ITD 203 . IN THE CASE OF GREEN EMIRATE SIPPING & TRAVELS (SUPRA), TH E MUMBAI TRIBUNAL HAD AN OCCASION TO DEAL WITH AN IDENTICAL CASE. THE FACTS OF THE CASE WERE THAT THE ASSESSEE WAS A SHIP PING LINE BASED IN UNITED ARAB EMIRATES. IN THE RELEVANT PREV IOUS YEAR, THE ASSESSEE HAD A TAXABLE INCOME OF RS. 28,35,628 FROM SHIPPING OPERATIONS. THE ASSESSEES CLAIM WAS THAT IN TERMS OF ARTICLE 8 OF THE INDO-UAE DOUBLE TAXATION AVOIDA NCE AGREEMENT, THE ASSESSEES INCOME WAS LIABLE TO TAX ONLY IN THE COUNTRY OF DOMICILE, I.E., UAE, BUT THIS CONTENTION WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASS ESSEE IS NOT PAYING TAXES IN UAE. THE ASSESSING OFFICER REL IED UPON THE DECISION OF THE AAR IN THE CASE OF CYRIL EUGENE PEREIRA V. CIT [1999] 105 TAXMAN 273 (AAR - NEW DELHI) IN SUPP ORT OF THE PROPOSITION THAT THE PROVISIONS OF THE DTAA DO NOT APPLY TO ANY CASE WHICH THE SAME INCOME IS NOT LIABLE TO BE TAXED TWICE BY THE EXISTING LAWS OF BOTH THE CONTRACTING STATES. 5. THE TRIBUNAL FIRSTLY DISAGREED WITH THE VIEW EXPRE SSED BY THE AAR IN THE CASE OF CYRIL EUGENE PEREIRA (SUPRA) ON THE GROUND THAT THE SAID DECISION WAS HELD TO BE NOT LAYING DO WN THE CORRECT LAW BY THE HONBLE SUPREME COURT IN THE CASE OF AZA DI BACHAO ANDOLAN (SUPRA). THE TRIBUNAL HELD THAT : 6. UNDOUBTEDLY, IN CYRIL EUGENE PERERIAS CASE (SU PRA), HONBLE AUTHORITY FOR ADVANCE RULING, DEVIATING FROM THE ST AND TAKEN BY IT IN THE EARLIER RULINGS INCLUDING RULING IN MOHSI NALLY ALIMOHAMMED RAFIK, IN RE [1995] 213 ITR 3171, CONCL UDED THAT AN INDIVIDUAL WHO IS NOT LIABLE TO PAY TAX UNDER T HE UAE LAW CANNOT CLAIM ANY RELIEF FROM THE ONLY TAX ON INCOME WHICH IS PAYABLE IN INDIA UNDER THE AGREEMENT AND THAT THE PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT DO NOT A PPLY TO ANY CASE WHERE THE SAME INCOME IS NOT LIABLE TO BE TAXE D TWICE BY THE EXISTING LAWS ON BOTH THE CONTRACTING STATES. HOWE VER, IN AZADI BACHAO ANDOLANS CASE (SUPRA), THEIR LORDSHIPS OF H ONBLE SUPREME COURT, AFTER REFERRING TO THE SAID RULING A ND AFTER ELABORATE DISCUSSIONS ON THE VARIOUS ASPECTS OF THI S ISSUE, CONCLUDED THAT IT IS. . . . NOT POSSIBLE FOR US TO ACCEPT THE ITA NO. 1531/DEL/2011 8 CONTENTIONS SO STRENUOUSLY URGED BY THE RESPONDENTS THAT THE AVOIDANCE OF DOUBLE TAXATION CAN ARISE ONLY WHEN TA X IS ACTUALLY PAID IN ONE OF THE CONTRACTING STATES. THE REASONI NG GIVEN BY THEIR LORDSHIPS INCLUDED THE FOLLOWING : ACCORDING TO KLAUS VOGEL DOUBLE TAXATION CONVENTI ONS ESTABLISHES AN INDEPENDENT MECHANISM TO AVOID DOUBL E TAXATION THROUGH RESTRICTION OF TAX CLAIMS IN AREAS WHERE OV ERLAPPING TAX CLAIMS ARE EXPECTED, OR AT LEAST THEORETICALLY POSS IBLE. IN OTHER WORDS, CONTRACTING STATES MUTUALLY BIND THEMSELVES NOT TO LEVY TAXES OR TO TAX ONLY TO A LIMITED EXTENT IN CASES W HEN THE TREATY RESERVES TAXATION FOR THE OTHER CONTRACTING STATE E ITHER ENTIRELY OR IN PART. CONTRACTING STATES ARE SAID TO WAIVE TAX CLA IMS OR MORE ILLUSTRATIVELY TO DIVIDE TAX SOURCES, TAXABLE OB JECTS, AMONGST THEMSELVES. DOUBLE TAXATION AVOIDANCE TREATIES WER E IN VOGUE EVEN FROM THE TIME OF THE LEAGUE OF NATIONS. THE EXPERTS APPOINTED IN THE EARLY 1920S BY THE LEAGUE OF NATIONS DESCRIBE THIS METHOD OF CLASSIFICATION OF ITEMS AND THEIR ASSIGNMENTS TO TH E CONTRACTING STATES. WHILE THE ENGLISH LAWYERS CALLED IT CLASSI FICATION AND ASSIGNMENT RULE, THE GERMAN JURISTS CALLED IT THE DISTRIBUTIVE RULE (VERTEILUNGSNORM). TO THE EXTENT THAT AN EXEMPTION IS AGREED TO, ITS EFFECT IS IN PRINCIPLE INDEPENDENT OF BOTH WHETHER THE CONTRACTING STATE IMPOSES A TAX IN THE SITUATION TO WHICH THE E XEMPTION APPLIES, AND IRRESPECTIVE OF WHETHER THE STATE ACTUALLY LEVI ES THE TAX. COMMENTING PARTICULARLY ON THE GERMAN DOUBLE TAXATI ON CONVENTION WITH THE UNITED STATES, VOGEL COMMENTS : THUS, IT IS SAID THAT THE TREATYPREVENTS NOT ONLY CURRENT BUT ALSO MERELY POTENTIAL DOUBLE TAXATION. FURTHER, ACCORDING TO VOGEL, ONLY IN EX CEPTIONAL CASES, AND ONLY WHEN EXPRESSLY AGREED TO BY THE PARTIES, I S EXEMPTION IN ONE OF THE CONTRACTING STATES DEPENDENT UPON WHETHE R THE INCOME OR CAPITAL IS TAXABLE IN THE OTHER CONTRACTING STATE, OR UPON WHETHER IT IS ACTUALLY TAXED THERE. IT IS, THEREFORE, NOT POSSIBLE FOR US TO ACCEPT THE CONTENTIONS SO STRENUOUSLY URGED BY THE RESPONDENTS THAT THE AVOID ANCE OF DOUBLE TAXATION CAN ARISE ONLY WHEN TAX IS ACTUALLY PAID I N ONE OF THE CONTRACTING STATES. 6. THE TRIBUNAL ALSO HELD THAT THE DECISION OF THE AU THORITY FOR ADVANCE RULING IN THE CASE OF ABDUL RAZAK A. MEMAN (SUPRA) WAS ALSO NOT GOOD LAW. 7. THE TRIBUNAL DEALT WITH THE ARGUMENT OF THE LEARNE D DEPARTMENTAL REPRESENTATIVE THAT AS NON-CORPORATE E NTITIES ARE NOT ITA NO. 1531/DEL/2011 9 TAXABLE ENTITIES UNDER THE UAE TAX TREATY SUCH NON- CORPORATE ENTITIES, EVEN THOUGH BASED IN UAE, CANNOT BE TREAT ED AS RESIDENT FOR THE PURPOSES OF THE INDIA-UAE DTAA AS FOLLOWS : OUR ATTENTION IS ALSO INVITED TO THE LEARNED ASSES SING OFFICERS OBSERVATIONS TO THE EFFECT THAT THE PROVISIONS OF THE DTAA DO NOT APPLY TO ANY CASE WHICH THE SAME INCOME IS NOT LIABLE TO BE TAXED TWICE BY THE EXISTING LAWS OF BOTH THE CONTRACTING STATES A ND THAT SINCE THE ASSESSEE HAS FAILED TO PROVE THAT IT IS PAYING TAXE S IN UAE, THE DIT RELIEF SOUGHT BY THE ASSESSEE IS REJECTED BUT IT I S THE VERY PROPOSITION UNDERLYING THESE OBSERVATIONS WHICH WAS REJECTED BY THE HONBLE SUPREME COURT HOLDING THAT IT IS . . . . NOT POSSI BLE FOR US TO ACCEPT THE CONTENTIONS SO STRENUOUSLY URGED BY THE RESPONDENTS THAT THE AVOIDANCE OF DOUBLE TAXATION CAN ARISE ONLY WHEN TA X IS ACTUALLY PAID IN ONE OF THE CONTRACTING STATES. AS WE HAVE NOTED EA RLIER ALSO, THE REVENUE IS ON RECORD TO HAVE OPPOSED THE VERY ARGUM ENT THAT THE REVENUE HAS TAKEN IN THE PRESENT CASE, AS EVIDENT F ROM THE HONBLE SUPREME COURTS FOLLOWING OBSERVATION : THE APPELLANTS (I.E., UNION OF INDIA) CONTEND THAT , ACCEPTANCE OF THE RESPONDENTS SUBMISSION THAT DOUBLE TAXATION AVOIDA NCE IS NOT PERMISSIBLE UNLESS THE TAX IS PAID IN BOTH COUNTRIE S IS CONTRARY TO THE INTENDMENT OF SECTION 90. IT IS URGED THAT CLAUSE ( B) OF SUB-SECTION (1) OF SECTION 90 APPLIES TO A SITUATION WHERE INCOME-T AX HAS BEEN PAID IN BOTH THE COUNTRIES, BUT CLAUSE (B) DEALS WITH TH E SITUATION OF AVOIDANCE OF DOUBLE TAXATION OF INCOME. INASMUCH AS PARLIAMENT HAS DISTINGUISHED BETWEEN THE TWO SITUATIONS, IT IS NOT OPEN TO A COURT OF LAW TO INTERPRET CLAUSE (B) OF SECTION 90 - SUB-SEC TION (1) AS IF IT WERE THE SAME AS SITUATIONS CONTEMPLATED UNDER CLAUSE (A ). THE VERY CONTENTION WHICH HAS BEEN RAISED BY THE RE VENUE IN THIS CASE WAS SUCCESSFULLY CHALLENGED BY THE UNION OF IN DIA BEFORE THE HONBLE SUPREME COURT. IT CANNOT BE OPEN TO US TO T AKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE HO NBLE SUPREME COURT. 8. THE TRIBUNAL THEN DEALT WITH THE QUESTION AS TO WH ETHER EXISTING LIABILITY TO PAY TAXES IN UAE IS A SINE QUA NON TO AVAIL THE BENEFIT OF INDIA-UAE TAX TREATY IN INDIA AS FOLLOWS : 8. ALTHOUGH THE ASSESSING OFFICERS OBJECTION TO A PPLICABILITY OF INDIA-UAE TAX TREATY WAS ONLY ON THE GROUND THAT TH E PROVISIONS OF ITA NO. 1531/DEL/2011 10 DOUBLE TAXATION AVOIDANCE AGREEMENTS DO NOT COME IN TO PLAY UNLESS IT IS ESTABLISHED THAT THE ASSESSEE IS PAYING TAX I N BOTH THE COUNTRIES IN RESPECT OF THE SAME INCOME, IN THE GROUNDS OF AP PEAL BEFORE US IT IS ALSO CONTENDED THAT THE ASSESSEE-COMPANY FAILED TOPRODUCE ANY EVIDENCE TO THE EFFECT THAT IT WAS LIABLE TO PAY T AXES IN UAE. THE QUESTION THEN ARISES WHETHER AN EXISTING LIABILITY TO PAY TAXES IN UAE IS A SINE QUA NON TO AVAIL THE BENEFIT OF INDIA -UAE TAX TREATY IN INDIA. ON THIS ISSUE ALSO, WE FIND GUIDANCE FROM TH E JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF AZADI BACHAO A NDOLAN (SUPRA). REFERRING TO THE KLAUS VOGELS COMMENTARY ON DOUBLE TAXATION CONVENTIONS, THEIR LORDSHIPS, INTER ALIA, OBSERVED AS FOLLOWS : IN OTHER WORDS, CONTRACTING STATES MUTUALLY BIND T HEMSELVES NOT TO LEVY TAXES OR TO TAX ONLY TO A LIMITED EXTENT IN CASES WHEN THE TREATY RESERVES TAXATION FOR THE OTHER CONTRACTING STATE EITHER ENTIRELY OR IN PART. CONTRACTING STATES ARE SAID TO WAIVE TAX CLAIMS OR MORE ILLUSTRATIVELY TO DIVIDE TAX SOURC ES, TAXABLE OBJECTS, AMONGST THEMSELVES. DOUBLE TAXATION AVOID ANCE TREATIES WERE IN VOGUE EVEN FROM THE TIME OF THE LEAGUE OF N ATIONS. THE EXPERTS APPOINTED IN THE EARLY 1920S BY THE LEAGUE OF NATIONS DESCRIBE THIS METHOD OF CLASSIFICATION OF ITEMS AND THEIR ASSIGNMENTS TO THE CONTRACTING STATES. WHILE THE EN GLISH LAWYERS CALLED IT CLASSIFICATION AND ASSIGNMENT RULE, THE GERMAN JURISTS CALLED IT THE DISTRIBUTIVE RULE (VERTEI-LUNGSNORM ). TO THE EXTENT THAT AN EXEMPTION IS AGREED TO, ITS EFFECT IS IN PR INCIPLE INDEPENDENT OF BOTH WHETHER THE CONTRACTING STATE I MPOSES A TAX IN THE SITUATION TO WHICH THE EXEMPTION APPLIES, AN D IRRESPECTIVE OF WHETHER THE STATE ACTUALLY LEVIES THE TAX. COMME NTING PARTICULARLY ON THE GERMAN DOUBLE TAXATION CONVENTI ON WITH THE UNITED STATES, VOGEL COMMENTS : THUS, IT IS SAID T HAT THE TREATY PREVENTS NOT ONLY CURRENT BUT ALSO MERELY POTENT IAL DOUBLE TAXATION. [EMPHASIS SUPPLIED] IT IS, THUS, CLEAR THAT A TAX TREATY NOT ONLY PREVE NTS CURRENT BUT ALSO POTENTIAL DOUBLE TAXATION. THEREFORE, IR RESPECTIVE OF WHETHER OR NOT THE UAE ACTUALLY LEVIES TAXES ON NON -CORPORATE ENTITIES, ONCE THE RIGHT TO TAX UAE RESIDENTS IN SP ECIFIED CIRCUMSTANCES VESTS ONLY WITH THE GOVERNMENT OF UAE , THAT RIGHT, WHETHER EXERCISED OR NOT, CONTINUES TO REMAIN EXCLU SIVE RIGHT OF THE GOVERNMENT OF UAE. AS NOTED ABOVE, THE EXEMPTIO N AGREED TO UNDER THE ASSIGNMENT OR DISTRIBUTIVE RULE, IS I NDEPENDENT OF ITA NO. 1531/DEL/2011 11 WHETHER THE CONTRACTING STATE IMPOSES A TAX IN THE SITUATION TO WHICH EXEMPTION IMPLIES. IN THE CASE OF JOHN N. GL ADDEN V. HER MAJESTY THE QUEEN 85 TC 5188, WHICH WAS QUOTED WITH APPROVAL BY THE HONBLE SUPREME COURT IN AZADI BACHAO ANDOLA NS CASE (SUPRA), FEDERAL COURT OF CANADA WAS OBSERVED THAT THE NON- RESIDENT CAN BENEFIT FROM THE EXEMPTION (UNDER THE TREATY) REGARDLESS OF WHETHER OR NOT HE IS TAXABLE ON THAT CAPITAL GAIN IN HIS OWN COUNTRY. IF CANADA OR THE US WERE TO ABOLIS H THE CAPITAL GAINS TAX COMPLETELY, WHILE THE OTHER COUNTRY DID N OT, A RESIDENT OF THE COUNTRY WHICH HAS ABOLISHED THE CAPITAL GAIN S WOULD STILL BE EXEMPT FROM CAPITAL GAINS IN THAT OTHER COUNTRY . IT IS, THUS, CLEAR THAT TAXABILITY IN ONE COUNTRY IS NOT SINE QU A NON FOR AVAILING RELIEF UNDER THE TREATY FROM TAXABILITY IN THE OTHE R COUNTRY. ALL THAT IS NECESSARY FOR THIS PURPOSE IS THAT THE PERSON SH OULD BE LIABLE TO TAX IN THE CONTRACTING STATE BY REASON OF DOMICI LE, RESIDENCE, PLACE OF MANAGEMENT, PLACE OF INCORPORATION OR ANY OTHER CRITERION OF SIMILAR NATURE WHICH ESSENTIALLY REFERS TO THE FISCAL DOMICILE OF SUCH A PERSON. IN OTHER WORDS, IF FISCAL DOMICILE O F A PERSON IS IN A CONTRACTING STATE, IRRESPECTIVE OF WHETHER OR NOT T HAT PERSON IS ACTUALLY LIABLE TO PAY TAX IN THAT COUNTRY, HE IS T O BE TREATED AS RESIDENT OF THAT CONTRACTING STATE. THE EXPRESSION LIABLE TO TAX IS NOT TO READ IN ISOLATION BUT IN CONJUNCTION WITH TH E WORDS IMMEDIATELY FOLLOWING IT, I.E., BY REASON OF DOMIC ILE, RESIDENCE, PLACE OF MANAGEMENT, PLACE OF INCORPORATION OR ANY OTHER CRITERION OF SIMILAR NATURE.THAT WOULD MEAN THAT MERELY A PE RSON LIVING IN A CONTRACTING STATE SHOULD NOT BE SUFFICIENT, THAT PERSON SHOULD ALSO HAVE FISCAL DOMICILE IN THAT COUNTRY. THESE TE STS OF FISCAL DOMICILE WHICH ARE GIVEN BY WAY OF EXAMPLES FOLLOWI NG THE EXPRESSION LIABLE TO TAX BY REASON OF I.E., DOMIC ILE, RESIDENCE, PLACE OF MANAGEMENT, PLACE OF INCORPORATION, ETC., ARE NO MORE THAN EXAMPLES OF LOCALITY RELATED ATTACHMENTS THAT ATTRACT RESIDENCE TYPE TAXATION. THEREFORE, AS LONG AS A PE RSON HAS SUCH LOCALITY RELATED ATTACHMENTS WHICH ATTRACT RESIDENC E TYPE TAXATION, THAT PERSON IS TO BE TREATED AS RESIDEN T AND THIS STATUS OF BEING A RESIDENT OF THE CONTRACTING STATE IS I NDEPENDENT OF THE ACTUAL LEVY OF TAX ON THAT PERSON. VIEWED IN THIS P ERSPECTIVE, WE ARE OF THE CONSIDERED OPINION THAT BEING LIABLE TO TAX IN THE CONTRACTING STATE DOES NOT NECESSARILY IMPLY THAT T HE PERSON SHOULD ACTUALLY BE LIABLE TO TAX IN THAT CONTRACTIN G STATE BY THE VIRTUE OF AN EXISTING LEGAL PROVISION BUT WOULD ALS O COVER THE CASES WHERE THAT OTHER CONTRACTING STATE HAS THE RI GHT TO TAX SUCH PERSONS - IRRESPECTIVE OF WHETHER OR NOT SUCH A RIG HT IS EXERCISED ITA NO. 1531/DEL/2011 12 BY THE CONTRACTING STATE. IN OUR HUMBLE UNDERSTANDI NG, THIS IS THE LEGAL POSITION EMERGING OUT OF HONBLE SUPREME COUR TS JUDGMENT IN AZADI BACHAO ANDOLANS CASE (SUPRA). THE PLEA TA KEN BY THE REVENUE THAT THE ASSESSEE WAS NOT LIABLE TO TAX, WHICH WAS ANYWAY NOT TAKEN BY THE ASSESSING OFFICER OR BEFORE THE CIT(A), IS ALSO NOT SUSTAINABLE IN LAW EITHER. 9. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS I N APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE SUBMISSIONS OF LEARNED DEPARTMENTAL REPRESENTATIVE WHO RELIED ON THE ORDER OF THE ASSESSING OFFICER. IN OUR VIEW, DECISION IN THE CAS E OF GREEN EMIRATE SHIPPING & TRAVELS (SUPRA) IS SQUARELY APPL ICABLE TO THE FACTS OF THE PRESENT CASE. AS HELD IN THE AFORESAID CASE, EXPRESSION LIABLE TO TAX IN THE CONTRACTING STATE AS USED IN ARTICLE 4(1) OF INDO-UAE DTAA DOES NOT NECESSARILY IMPLY TH AT THE PERSON SHOULD ACTUALLY BE LIABLE TO TAX IN THAT CONTRACTIN G STATE AND THAT IT IS ENOUGH IF OTHER CONTRACTING STATE HAS RIGHT T O TAX SUCH PERSON, WHETHER OR NOT SUCH A RIGHT IS EXERCISED. I N THE LIGHT OF THE RATIO LAID DOWN IN THE AFORESAID DECISION, WHICH HA S BEEN FOLLOWED BY CIT(A), WE FIND NO GROUNDS TO INTERFERE WITH THE ORDER OF CIT(A). WE, THEREFORE, CONFIRM THE ORDER OF CIT( A) AND DISMISS THE APPEAL BY THE REVENUE. 5. THE CIT HAS ALSO FOLLOWED THE ORDER OF THE TRIBU NAL IN THE CASE OF GREEN EMIRATES SHIPPING & TRAVEL, REFERRED TO ABOVE . RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF RAMESH KUMAR GOENKA, WE DO NOT FIND ANY REASON TO INTERFERE IN T HE ORDER OF THE CIT(A). ALL THE THREE APPEALS FILED BY THE REVENUE ARE DISMISSED. 5. ACCORDING TO THE STATEMENT MADE AT THE BAR BY THE LD. COUNSEL OF THE ASSESSEE, THIS ORDER HAS BEEN UPHELD BY THE HON BLE HIGH COURT ON 23.8.2011. LD. COUNSEL OF THE ASSESSEE INFORMED THA T HE WAS PRESENT IN THE COURT. CONSIDERING OF THESE ASPECTS AND FIN DING NO DISPARITY ON FACTS, WE DO NOT FIND ANY MERIT IN THIS APPEAL OF T HE REVENUE, HENCE, IT IS DISMISSED. ITA NO. 1531/DEL/2011 13 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26/8/2011 UPO N CONCLUSION OF HEARING. SD/- SD/- [G.E. VEERABHADRAPPA] [G.E. VEERABHADRAPPA] [G.E. VEERABHADRAPPA] [G.E. VEERABHADRAPPA] [RAJPAL YADAV] [RAJPAL YADAV] [RAJPAL YADAV] [RAJPAL YADAV] VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATE 26/8/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES
