Prashant Kumar Gulati, Nagpur V. ITO (Int. Taxation), Nagpur

ITA 2038/PUN/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84839 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-05-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 22-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Double taxation relief; Advance ruling
• Section: 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO . 2038 / P N/ 20 1 2 ASSESSMENT YEAR : 200 6 - 07 PRASHANT KUMAR GULATI, C/O C.A. RA JEEV KHANDELWAL, 14, NAVJEEVAN COLONY, WARDHA ROAD, NAGPUR VS. ITO (INTERNATIONAL TAXATION), NAGPUR (APPELLANT) (RESPONDENT) PAN NO. AGUPG0588R APPELLANT BY: SHRI RAJEEV KHANDELWAL RESPONDENT BY: SHRI S.P. WALIMBE DATE OF HEARING : 10 - 0 6 - 20 14 DATE OF PRONOUNCEMENT : 14 - 0 8 - 2014 ORDER P ER R.S. PADVEKAR , JM : - IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER OF THE LD. CIT(A) - IT/TP, PUNE DATED 19 - 07 - 2012 FOR THE A.Y. 200 6 - 07. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS I N THE APPEAL: 1. THE HON'BLE CIT ( APPEALS) - IT/TP, PUNE ERRED IN NOT ALLOWING THE BENEFIT OF DOUBLE TAXATION AVOIDANCE RELIEF TO THE APPELLANT ON THE GROUNDS OF TAX RESIDENCY CERTIFICATE NOT BEING PRODUCED. 2. THE HON'BLE CIT ( APPEALS) - IT/TP, PUNE ERRED I N NOT DECIDING THE CASE ON ME R ITS. 3. THE HON'BLE CIT ( APPEALS) - IT/TP, PUNE DID NOT ASK FOR THE TAX RESIDENCY CERTIFICATE FOR 3 YEARS AFTER FILING OF APPEAL, DESPITE THE PHYSICAL PRESENCE OF THE COUNSEL FOR 3 HEARINGS AND MANY OTHER PERSONAL VISITS AND TH EN DISALLOWS THE APPEAL ON THAT GROUND. 2 ITA NO . 2038 /PN/201 2, PRASHANT KUMAR GULATI, NAGPUR 2. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSEE IS AN INDIVIDUAL AND FILED HIS RETURN OF INCOME FOR THE A.Y. 2006 - 07 DECLARING TOTAL INCOME OF RS.2,56,23,910/ - IN THE STATUS AS NON - RESIDE NT. THE ASSESSEE CLAIMED THAT HE IS THE RESIDENT OF UAE AND CLAIMED OF DEDUCTION OF RS.28,65,463/ - AS TAX RELIEF UNDER THE INDIA - UAE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA). ON THE SALE OF SHARES OF CUSTOMER FIRST SERVICES PRIVATE LTD., BANGALORE TO ESSAR INVESTMENTS LTD., MUMBAI ON WHICH THE ASSESSEE REALIZED LONG TERM CAPITAL GAIN OF RS.2,55,38,881/ - . THE ASSESSEE ALSO DECLARED THE INCOME FROM THE OTHER SOURCES TO THE EXTENT OF RS.85,029/ - . ON THE TOTAL INCOME DECLARED BY THE ASSESSEE IN THE RETUR N WAS OF RS.2,56,23,910/ - ON WHICH TOTAL TAX PAYABLE WAS OF RS. 28,65,463/ - AND BUT HE CLAIMED BENEFIT OF THE DTAA BETWEEN THE INDIA AND UAE ON THE LTCG ON TRANSFER OF SHARES. THE ASSESSING OFFICER DENIED THE RELIEF TO THE ASSESSEE. THE ASSESSING OFFICER ASKED THE ASSESSEE WHETHER HE HAS PAID ANY TAX IN UAE ON THE ABOVE MENTIONED LTCG, THE ASSESSEE REPLIED IN NEGATIVE. THE ASSESSING OFFICER ASKED THE ASSESSEE TO SUBMIT THE TAX RESIDEN CE CERTIFICATE (TRC) FROM UAE AUTHORITIES. THERE WAS A TDS TO THE EXTEN T OF RS.28,65,463/ - IN INDIA . SO FAR AS THE NORMAL PROVISIONS OF THE INCOME - TAX ACT ARE CONCERNED THERE IS NO DISPUTE THAT THE SAID CAPITAL GAIN IS TAXABLE. SO FAR AS THE CLAIM OF THE ASSESSEE FOR GIVING THE BENEFIT OF THE DTAA BETWEEN THE INDIA AND UAE IS CONCERNED THE ASSESSING OFFICER REFERRED TO THE RULING IN THE CASE OF CYRIL EUGEN PEREIRA 154 CTR AAR 281. THE ASSESSING OFFICER DECLINE D TO GIVE THE TAX RELIEF TO THE ASSESSEE MAINLY ON THE FOLLOWING TWO REASONS: I. THE ASSESSEE HAS NOT PAID TAX IN UA E ON THE LTCG. II. THE ASSESSEE FAILED TO PRODUCE THE TAX RESIDENT CERTIFICATE FROM UAE AUTHORITY. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT(A) BUT WITHOUT SUCCESSES. THE LD. CIT(A) CONFIRMED THE VIEW TAKEN BY THE ASSESSING OFFICER. 3 ITA NO . 2038 /PN/201 2, PRASHANT KUMAR GULATI, NAGPUR NOW, THE AS SESSEE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE LD. COUNSEL ARGUES THAT THE ASSESSMENT YEAR INVOLVED BEFORE US IS 2006 - 07 HENCE, THE DTAA BETWEEN INDIA AND UAE OF 1993 IS APPLICABLE. HE ARGUES THAT THE ASSESSEE IS IN UAE SINCE 1995 AND HE IS ENJOINS STATUS AS NRI. HE ARGUES THAT IN THE 1993 DTAA BETWEEN INDIA AND UAE , THERE IS NO REQUIREMENT FOR PRODUCTION OF THE TAX RESIDEN CE CERTIFICATE. HE SUBMITS THAT THE DECISION IN THE CASE OF CYRIL EUGEN PEREIRA (SUPRA) BY THE A A R HAS BEEN CONSIDERED BY THE ITAT, MUMBAI IN THE CASE OF ADIT (INT. TAXATION) VS. GREEN EMIRATES SHIPPING & TRAVELS 100 ITD 203 (MUM). HE ARGUES THAT THE RULING GIVEN BY THE A A R IN A PARTICULAR CASE IS ONLY HAVING THE PERSUASIVE VALUE BUT IT IS NOT BINDING ON THE APPELLATE FOR UM I.E. TRIBUNAL. HE ARGUES THAT THE RULING OF THE A A R IS IN NATURE OF ADVANCE DECISION MECHANISM AS ON THE SPECIFIC GIVEN FACTS BY THE APPLICANT THE AAR GIVES THE RULING. HE ARGUES THAT WHICH LEGAL POSITION HAS BEEN EXPLAINE D BY THE HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. AZADI BACHAO ANDOLAN 263 ITR 706 (SC) IN WHICH THEIR LORDSHIPS HAVE CONSIDERED THE RULING IN THE CASE OF CYRIL EUGEN PEREIRA (SUPRA). HE SUBMITS THAT THERE IS NO REQUIREMENT THAT THE ASSESSE E SHOULD BE TAXABLE IN THE CONTRACTING STATE OF HIS RESIDENCE. HE ARGUES THAT SO FAR AS DTAA IS CONCERNED , THERE IS AN AMENDMENT TO SEC. 9 0 BY INSERTION OF SUB - SEC. ( 4 ) W.E.F. 01 - 04 - 2013 AND HENCE, SO FAR AS A.Y. 2006 - 07 IS CONCERNED THE VIEW TAKEN BY BOT H THE AUTHORITIES BELOW ARE TOTALLY MISPLACED AS REQUIREMENT OF TRC IS ONLY F ROM A.Y. 2013 - 14. HE PLEADED FOR ALLOWING THE RELIEF TO THE ASSESSEE UNDER THE DTAA. WE HAVE HEARD THE LD. DR. 4. THE ISSUE IN CONTROVERSY IN A NARROW COMPASS. IN THIS CASE TH E ASSESSEE IS NRI OF THE UAE. THE ASSESSEE FILED THE CHART SHOWING HIS TOTAL STAY IN INDIA AS PER THE ENDORSEMENT OF HIS PASSPORT IN THE F.Y. 2005 - 06 AND IT IS SEEN THAT HIS TOTAL STAY IN INDIA IN THAT FINANCIAL YEAR 4 ITA NO . 2038 /PN/201 2, PRASHANT KUMAR GULATI, NAGPUR IS IN ALL 34 DAYS . H ENCE, THE ASSESSE E IS NON - RESIDENT AS PER SEC. 6 OF THE ACT. NOW THE NEXT QUESTION FOR OUR CONSIDERATION IS WHETHER THE DECISION RELIED ON BY THE AUTHORITIES BELOW IN THE CASE OF CYRIL EUGEN PEREIRA (SUPRA) BY THE AAR IS HAVING THE BINDING FORCE . THE SAID RULING HAS BEEN CONSIDERED AND EXPLAINED BY THE ITAT, MUMBAI IN THE CASE OF GREEN EMIRATES SHIPPING & TRAVELS (SUPRA). THE OPERATIVE PART OF THE SAID DECISION IS AS UNDER: 5. AS FOR THE AO'S RELIANCE ON RULING GIVEN BY THE AUTHORITY FOR ADVANCE RULING IN CYRIL EUGENE PE REIRIA'S CASE (SUPRA), WE DEEM IT NECESSARY TO REPRODUCE THE FOLLOWING EXTRACTS FROM THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. AZADI BACHAO ANDOLAN (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC), AT P. 742 WHEREIN THEIR LOR DSHIPS OF HON'BLE SUPREME COURT HAD AN OCCASION TO DEAL WITH THE SAID AAR RULING : 'THE RESPONDENTS PLACED GREAT RELIANCE ON THE DECISION BY THE AUTHORITY FOR ADVANCE RULINGS CONSTITUTED UNDER S. 245 - O OF THE IT ACT, 1961, IN CYRIL EUGENE PEREIRA'S CASE (1 999) 154 CTR (AAR) 281 : (1999) 239 ITR 650 (AAR). SEC. 245S OF THE ACT PROVIDES THAT THE ADVANCE RULING PRONOUNCED BY THE AUTHORITY UNDER S. 245R SHALL BE BINDING ONLY : '(A) ON THE APPLICANT WHO HAD SOUGHT IT; (B) IN RESPECT TO THE TRANSACTION IN RELATIO N TO WHICH THE RULING HAD BEEN SOUGHT; AND (C) ON THE CIT, AND THE IT AUTHORITIES SUBORDINATE TO HIM, IN RESPECT TO THE APPLICANT AND THE SAID TRANSACTION.' IT IS, THEREFORE, OBVIOUS THAT, APART FROM WHATEVER ITS PERSUASIVE VALUE, IT WOULD BE OF NO HELP TO US. HAVING PERUSED THE ORDER OF THE ADVANCE RULING AUTHORITY, WE ARE NOT PERSUADED.' (EMPHASIS, ITALICISED IN PRINT, SUPPLIED BY US NOW). THE JUDGMENTS OF HON'BLE SUPREME COURT ARE BINDING ON US UNDER ART. 141 OF THE CONSTITUTION OF INDIA; THE RULINGS OF AUTHORITY FOR ADVANCE RULINGS, WHATEVER BE THEIR PERSUASIVE VALUE, ARE NOT. THE WORDS OF HON'BLE SUPREME COURT ARE CLEAR, CATEGORICAL AND UNAMBIGUOUS. ONCE HON'BLE SUPREME COURT DECLINES TO BE 5 ITA NO . 2038 /PN/201 2, PRASHANT KUMAR GULATI, NAGPUR PERSUADED BY THE RULING GIVEN BY THE AUTHORITY FOR ADVANCE RULI NGS IN CYR IL EUGENE PEREIRA'S CASE (SUPRA), IT CANNOT BE OPEN TO US TO FOLLOW THE SAID RULING. IN THE CASE OF ASSTT. COLLECTOR OF CENTRAL EXCISE VS. DUNLOP INDIA LTD. (1985) 154 ITR 172 (SC) AT P. 180, HON'BLE SUPREME COURT HAS, INTER ALIA, OBSERVED AS FOL LOWS : 'WE DESIRE TO ADD AND AS WAS SAID IN THE CASSELL & CO. LTD. VS. BROOME (1972) AC 1027 (HL), WE HOPE IT WILL NEVER BE NECESSARY TO SAY SO AGAIN THAT 'IN THE HIERARCHICAL SYSTEM OF COURTS' WHICH EXISTS IN OUR COUNTRY, 'IT IS NECESSARY FOR EACH LOWER T IER' ...... 'TO ACCEPT LOYALLY THE DECISIONS OF THE HIGHER TIERS', 'IT IS INEVITABLE IN A HIERARCHICAL SYSTEM OF COURTS THAT THERE ARE DECISIONS OF THE SUPREME TRIBUNAL WHICH DO NOT ATTRACT UNANIMOUS APPROVAL OF ALL THE MEMBERS OF THE JUDICIARY.... BUT JUD ICIAL SYSTEM WORKS ONLY IF SOMEONE IS ALLOWED TO HAVE THE LAST WORD AND THAT LAST WORD, ONCE SPOKEN IS LOYALLY ACCEPTED', (SEE OBSERVATIONS OF LORD HALLSHAM AND LORD DIPLOCK IN BROOME VS. CASSELL ). THE WISDOM OF THE COURT BELOW HAS TO YIELD TO THE HIGHER WISDOM OF THE COURT ABOVE.' WE RESPECTFULLY FOLLOW THE HIGHER WISDOM OF THE COURTS ABOVE AND DECLINE TO APPROVE AO'S RELIANCE UPON THE RULING GIVEN BY THE AUTHORITY FOR ADVANCE RULINGS IN CYRIL EUGENE PEREIRA'S CASE (SUPRA). 6. UNDOUBTEDLY, IN CYRIL EUGE NE PEREIRA'S CASE (SUPRA), HON'BLE AUTHORITY FOR ADVANCE RULINGS, DEVIATING FROM THE STAND TAKEN BY IT IN THE EARLIER RULINGS INCLUDING RULING IN MOHSINALLY ALIMOHAMMED RAFIK, IN RE (1995) 126 CTR (AAR) 311 : (1995) 213 ITR 317 (AAR), CONCLUDED THAT, . 'AN INDIVIDUAL WHO IS NOT LIABLE TO PAY TAX UNDER THE 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 AGREEMEN T DO NOT APPLY TO ANY CASE WHERE THE SAME INCOME IS NOT LIABLE TO BE TAXED TWICE BY THE EXISTING LAWS ON BOTH THE CONTRACTING STATES'. HOWEVER, IN AZADI BACHAO ANDOLAN'S CASE (SUPRA), THEIR LORDSHIPS OF HON'BLE SUPREME COURT, AFTER REFERRING TO THE SAID RU LING AND AFTER ELABORATE DISCUSSIONS ON THE VARIOUS ASPECTS OF THIS ISSUE, CONCLUDED THAT 'IT IS ....... NOT POSSIBLE FOR US TO ACCEPT THE CONTENTIONS SO STRENUOUSLY URGED BY THE RESPONDENTS THAT THE AVOIDANCE OF DOUBLE TAXATION CAN ARISE ONLY WHEN TAX IS ACTUALLY PAID IN ONE OF THE CONTRACTING STATES'. THE REASONING GIVEN BY THEIR LORDSHIPS INCLUDED THE FOLLOWING : 6 ITA NO . 2038 /PN/201 2, PRASHANT KUMAR GULATI, NAGPUR 'ACCORDING TO KLAUS VOGEL, 'DOUBLE TAXATION CONVENTION ESTABLISHES AN INDEPENDENT MECHANISM TO AVOID DOUBLE TAXATION THROUGH RESTRICTION OF TAX CLAIMS IN AREAS WHERE OVERLAPPING TAX CLAIMS ARE EXPECTED, OR AT LEAST THEORETICALLY POSSIBLE. IN OTHER WORDS, CONTRACTING STATES MUTUALLY BIND THEMSELVES 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 SOURCES', 'TAXABLE OBJECTS', AMONGST THEMSELVES'. DOUBLE TAXATION AVOIDANCE TREATIES WERE IN VOGUE EVEN FROM TH E 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 THE CONTRACTING STATES. WHILE THE ENGLISH LAWYERS CALLED IT 'CLASSIFICATION AND ASSI GNMENT RULES', THE GERMAN JURISTS CALLED IT 'THE DISTRIBUTIVE RULES' (VERTEILUNGSNORMI), TO THE EXTENT THAT AN EXEMPTION IS AGREED TO, ITS EFFECT IS IN PRINCIPLE INDEPENDENT OF BOTH WHETHER THE OTHER CONTRACTING STATE IMPOSES A TAX IN THE SITUATION TO WHIC H THE EXEMPTION APPLIES, AND IRRESPECTIVE OF WHETHER THE STATE ACTUALLY LEVIES THE TAX. COMMENTING PARTICULARLY ON THE GERMAN DOUBLE TAXATION CONVENTION WITH THE UNITED STATES, VOGEL COMMENTS: 'THUS, IT IS SAID THAT THE TREATY PREVENTS NOT ONLY 'CURRENT' B UT ALSO MERELY 'POTENTIAL' DOUBLE TAXATION'. FURTHER, ACCORDING TO VOGEL, 'ONLY IN EXCEPTIONAL CASES, AND ONLY WHEN EXPRESSLY AGREED TO BY THE PARTIES, IS EXEMPTION IN ONE OF THE CONTRACTING STATES DEPENDENT UPON WHETHER 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 AVOIDANCE OF DOUBLE TAXATION CAN ARISE ONLY WHEN TAX IS ACTUALLY PAI D IN ONE OF CLEARLY, THEREFORE, THERE IS NO MEETING GROUND BETWEEN THE RULING GIVEN BY THE AUTHORITY FOR ADVANCE RULINGS IN CYRIL EUGENE' PEREIRA'S CASE (SUPRA) AND THE JUDGMENT DELIVERED BY THE HON'BLE SUPREME COURT IN AZADI BACHAO ANDOLAN'S CASE (SUPRA). THE CHOICE, HOWEVER, POSES NO DIFFICULTY IN THE LIGHT OF THE ELEMENTARY LEGAL POSITION THAT THE JUDGMENTS OF HON'BLE SUPREME COURT HAVE BINDING FORCE ON ALL OF US. MUCH AS WE RESPECT THE HON'BLE AUTHORITY FOR ADVANCE RULINGS, WE REGRET OUR INABILITY TO FO LLOW THE RULING WHICH, IN OUR HUMBLE UNDERSTANDING, HAS BEEN CLEARLY 7 ITA NO . 2038 /PN/201 2, PRASHANT KUMAR GULATI, NAGPUR DISAPPROVED BY THE HON'BLE SUPREME COURT. IT IS NOT EVEN OPEN TO US, EVEN IN A CASE IN WHICH OUR UNDERSTANDING OF THE ISSUE ON MERITS CONCURS WITH THAT OF THE HON'BLE AUTHORITY FOR ADVANC E RULINGS IN CYRIL EUGENE PEREIRA'S CASE, TO FOLLOW THAT SCHOOL OF THOUGHT. 7. LEARNED DEPARTMENTAL REPRESENTATIVE HAS INVITED OUR ATTENTION TO THE RULING GIVEN BY THE AUTHORITY FOR ADVANCE RULINGS IN THE CASE OF ABDUL RAZAK A. NEMAN, IN RE (2005) 195 CTR (AAR) 534 : (2005) 276 ITR 306 (AAR) WHICH SUPPORTS THE CASE OF THE REVENUE AND IS SAID TO BE ON EXACTLY THE SAME MATERIAL FACTS. WE ARE, HOWEVER, UNABLE TO ACCEPT THIS PLEA AND WE DECLINE TO TREAT THIS AS A SORT OF, TO USE THE PHRASEOLOGY EMPLOYED IN LEGA L PARLANCE/ A COVERED MATTER. AS HON'BLE SUPREME COURT HAS D ULY TAKEN (NOTE) OF IN AZADI BACHAO ANDOLAN'S CASE (SUPRA), A RULING GIVEN BY THE AUTHORITY FOR ADVANCE RULINGS IS NOT EVEN BINDING ON THE CIT, AND AUTHORITIES SUBORDINATE THERETO, IN ANY CASE EXC EPT IN THE CASE OF THAT VERY ASSESSEE IN WHICH SUCH A RULING IS GIVEN AND EVEN IN SUCH A CASE IT IS BINDING IN RESPECT OF TRANSACTION IN RESPECT OF WHICH THE RULING IS GIVEN. WHATEVER BE THE RESPECT AND DEFERENCE JUDICIAL AUTHORITIES INDEED HAVE FOR THE RU LINGS GIVEN BY THE AUTHORITY, THE AUTHORITY FOR ADVANCE RULINGS, NOT BEING A PART OF THE JUDICIAL HIERARCHY, CANNOT LAY DOWN A BINDING PRECEDENT FOR ANYONE THE REVENUE, THE ASSESSEES OR THE APPELLATE AUTHORITIES. BY NO STRETCH OF LOGIC, THEREFORE, A RULING GIVEN BY THE HON'BLE AUTHORITY OF ADVANCE RULINGS, HAS ANY PRECEDENCE VALUE IN GENERAL. THEREFORE, LEARNED DEPARTMENTAL REPRESENTATIVE'S RELIANCE ON THE RULING GIVEN IN ABDUL RAZAK A. NEMAN'S CASE (SUPRA) BY ITSELF IS NOT SUFFICIENT TO DECIDE THE MATTER O NE WAY OR THE OTHER. LEARNED DEPARTMENTAL REPRESENTATIVE'S CONTENTION IS THAT AS NON - CORPORATE ENTITIES ARE NOT TAXABLE ENTITIES UNDER THE UAE TAX DECREE 1969, SUCH NON - CORPORATE ENTITIES, EVEN THOUGH BASED IN UAE, CANNOT BE TREATED AS 'RESIDENT' FOR THE P URPOSES OF THE INDIA - UAE DTAA. OUR ATTENTION IS ALSO INVITED TO THE LEARNED AO'S 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 CON TRACTING STATES' AND THAT 'SINCE THE ASSESSEE HAS FAILED TO PROVE THAT IT IS PAYING TAXES IN UAE, THE DIT RELIEF SOUGHT BY THE ASSESSEE IS REJECTED'; BUT IT IS THE VERY PROPOSITION UNDERLYING THESE OBSERVATIONS WHICH WAS REJECTED BY THE HON'BLE SUPREME COU RT HOLDING THAT 'IT IS..... NOT POSSIBLE FOR US TO ACCEPT THE CONTENTIONS SO STRENUOUSLY 8 ITA NO . 2038 /PN/201 2, PRASHANT KUMAR GULATI, NAGPUR URGED BY THE RESPONDENTS THAT THE AVOIDANCE OF DOUBLE TAXATION CAN ARISE ONLY WHEN TAX IS ACTUALLY PAID IN ONE OF THE CONTRACTING STATES'. AS WE HAVE NOTED EARLIER ALS O, THE REVENUE IS ON RECORD TO HAVE OPPOSED THE VERY ARGUMENT THAT THE REVENUE HAS TAKEN IN THE PRESENT CASE, AS EVIDENT FROM THE HON'BLE SUPREME COURT'S FOLLOWING OBSERVATION : 'THE APPELLANTS (I.E., UNION OF INDIA) CONTENDED THAT, ACCEPTANCE OF THE RESPO NDENT'S SUBMISSION THAT DOUBLE TAXATION AVOIDANCE IS NOT PERMISSIBLE UNLESS THE TAX IS PAID IN BOTH THE COUNTRIES IS CONTRARY TO THE INTENDMENT OF S. 90. IT IS URGED THAT CL. (B) OF SUB - S. (1) OF S. 90 APPLIES TO A SITUATION WHERE INCOME - TAX HAS BEEN PAID IN BOTH THE COUNTRIES, BUT CL. (B) DEALS WITH THE 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 CL. (B) OF S. 90, SUB - S. (1) AS IF IT WERE THE SAME AS SITUATIONS CONTEMPLATED UNDER CL. (A).' THE VERY CONTENTION WHICH HAS BEEN RAISED BY THE REVENUE IN THIS CASE WAS SUCCESSFULLY CHALLENGED BY THE UNION OF INDIA BEFORE THE HON'BLE SUPREME COURT. IT CANNOT BE OPEN TO US TO TAKE ANY OTHER VIE W OF THE MATTER THAN THE VIEW SO TAKEN BY THE HON'BLE SUPREME COURT. 8. ALTHOUGH THE AO'S OBJECTION TO APPLICABILITY OF INDIA - UAE TAX TREATY WAS ONLY ON THE GROUND THAT THE PROVISIONS OF DTAAS DO NOT COME INTO PLAY UNLESS IT IS ESTABLISHED THAT THE ASSESSE E IS PAYING TAX IN BOTH THE COUNTRIES IN RESPECT OF THE SAME INCOME, IN THE GROUNDS OF APPEAL BEFORE US IT IS ALSO CONTENDED THAT THE ASSESSEE - COMPANY FAILED TO PRODUCE ANY EVIDENCE TO THE EFFECT THAT IT WAS 'LIABLE TO PAY TAXES' 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 THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN (SUPRA). R EFERRING TO THE KLAUS VOGEL'S COMMENTARY ON DOUBLE TAXATION CONVENTIONS. THEIR LORDSHIPS, INTER 'IN OTHER WORDS, CONTRACTING STATES MUTUALLY BIND THEMSELVES 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 SOURCES', 'TAXABLE OBJECTS', AMONGST THEMSELVES'. DOUBLE TAXATION AVOIDANCE TREATIES WERE IN VOGUE EVEN 9 ITA NO . 2038 /PN/201 2, PRASHANT KUMAR GULATI, NAGPUR FROM TH E 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 THE CONTRACTING STATES. WHILE THE ENGLISH LAWYERS CALLED IT 'CLASSIFICATION AND ASSI GNMENT RULE', THE GERMAN JURISTS CALLED IT 'THE DISTRIBUTIVE RULE' (VERTEILUNGSNORMI). 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 LEVIES THE TAX. COMMENTING PARTICULARLY ON THE GERMAN DOUBLE TAXATION CONVENTION WITH THE UNITED STATES, VOGEL COMMENTS: 'THUS, IT IS SAID THAT THE TREATY PREVENTS NOT ONLY 'CURRENT' BUT ALSO MERELY 'POTENTIAL' DOUBLE TAXATION'. IT IS THUS CLEAR THAT A TAX TREATY NOT ONLY PREVENTS CURRENT' BUT ALSO POTENTIAL' DOUBLE TAXATION. THEREFORE, IRRESPECTIVE OF WHETHER OR NOT THE UAE ACTUALLY LEVIES TAXES ON NON - CORPORATE ENTITIES, ONCE THE RIGHT TO TA X UAE RESIDENTS IN SPECIFIED CIRCUMSTANCES VESTS ONLY WITH THE GOVERNMENT OF UAE, THAT RIGHT, WHETHER EXERCISED OR NOT, CONTINUES TO REMAIN EXCLUSIVE RIGHT OF THE GOVERNMENT OF UAE. AS NOTED ABOVE, THE EXEMPTION AGREED TO UNDER THE 'ASSIGNMENT' OR 'DISTRIB UTIVE' RULE, IS INDEPENDENT OF 'WHETHER THE CONTRACTING STATE IMPOSES A TAX IN THE SITUATION TO WHICH EXEMPTION IMPLIES'. IN THE CASE OF JOHN N. GLADDEN VS. HER MAJESTY THE QUEEN 85 TAX CASES 5188, WHICH WAS QUOTED WITH APPROVAL BY THE HON'BLE SUPREME COUR T IN AZADI BACHAO ANDOLAN'S CASE (SUPRA), FEDERAL COURT OF CANADA HAS 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 W ERE TO ABOLISH THE CAPITAL GAINS TAX COMPLETELY, WHILE THE OTHER COUNTRY DID NOT, A RESIDENT OF THE COUNTRY WHICH HAS ABOLISHED THE CAPITAL GAINS WOULD STILL BE EXEMPT FROM CAPITAL GAINS IN THAT OTHER COUNTRY'. IT IS THUS CLEAR THAT TAXABILITY IN ONE COUNT RY IS NOT SINE QUA NON FOR AVAILING RELIEF UNDER THE TREATY FROM TAXABILITY IN THE OTHER COUNTRY. ALL THAT IS NECESSARY FOR THIS PURPOSE IS THAT THE PERSON SHOULD BE 'LIABLE TO TAX IN THE CONTRACTING STATE BY REASON OF DOMICILE, RESIDENCE, PLACE OF MANAGEM ENT, 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 OF A PERSON IS IN A CONTRACTING STATE, IRRESPECTIVE OF WHETHER OR NOT THAT PERSON IS ACTUALLY LIABLE TO PAY TAX IN THAT COUNTRY, HE IS TO BE 10 ITA NO . 2038 /PN/201 2, PRASHANT KUMAR GULATI, NAGPUR TREATED AS RESIDENT OF THAT CONTRACTING STATE. THE EXPRESSION 'LIABLE TO TAX' IS NOT TO READ IN ISOLATION BUT IN CONJUNCTION WITH THE WORDS IMMEDIATELY FOLLOWING IT, I.E., 'BY REASON OF DOMICILE, RESI DENCE, PLACE OF MANAGEMENT, PLACE OF INCORPORATION OR ANY OTHER CRITERION OF SIMILAR NATURE'. THAT WOULD MEAN THAT MERELY A PERSON LIVING IN A CONTRACTING STATE SHOULD NOT BE SUFFICIENT, THAT PERSON SHOULD ALSO HAVE FISCAL DOMICILE IN THAT COUNTRY. THESE T ESTS OF FISCAL DOMICILE WHICH ARE GIVEN BY WAY OF EXAMPLES FOLLOWING THE EXPRESSION 'LIABLE TO TAX BY REASON OF, I.E., DOMICILE, RESIDENCE, PLACE OF MANAGEMENT, PLACE OF INCORPORATION, ETC., ARE NO MORE THAN EXAMPLES OF LOCALITY - RELATED ATTACHMENTS THAT AT TRACT RESIDENCE TYPE TAXATION. THEREFORE, AS LONG AS A PERSON HAS SUCH LOCALITY - RELATED ATTACHMENTS WHICH ATTRACT RESIDENCE TYPE TAXATION, THAT 'PERSON' IS TO BE TREATED AS RESIDENT AND THIS STATUS OF BEING A 'RESIDENT' OF THE CONTRACTING STATE IS INDEPEND ENT OF THE ACTUAL LEVY OF TAX ON THAT PERSON. VIEWED IN THIS PERSPECTIVE, WE ARE OF THE CONSIDERED OPINION THAT BEING 'LIABLE TO TAX' IN THE CONTRACTING STATE DOES NOT NECESSARILY IMPLY THAT THE PERSON SHOULD ACTUALLY BE LIABLE TO TAX IN THAT CONTRACTING S TATE BY VIRTUE OF AN EXISTING LEGAL PROVISION BUT WOULD ALSO COVER THE CASES WHERE THAT OTHER CONTRACTING STATE HAS THE RIGHT TO TAX SUCH PERSONS IRRESPECTIVE OF WHETHER OR NOT SUCH A RIGHT IS EXERCISED BY THE CONTRACTING STATE. IN OUR HUMBLE UNDERSTANDING , THIS IS THE LEGAL POSITION EMERGING OUT OF HON'BLE SUPREME COURTS JUDGMENT IN AZADI BACHAO ANDOLAN'S CASE (SUPRA). THE PLEA TAKEN BY THE REVENUE THAT THE ASSESSEE WAS NOT 'LIABLE TO TAX', WHICH WAS ANYWAY NOT TAKEN BY THE AO OR BEFORE THE CIT(A), IS ALSO NOT SUSTAINABLE IN LAW EITHER. 5. THE DECISION IN T HE CASE OF GREEN EMIRATES SHIPPING & TRAVELS (SUPRA) HAS BEEN ALSO FOLLOWED BY THE OTHER CO - ORDINATE BENCH ES IN THE CASE OF ITO VS. RAMESHKUMAR GOENKA 39 SOT 132 (MUMBAI) AND MEERA BHATIA VS. ITO (2010) 38 SOT 95 (MUMBAI). WE, THEREFORE, FOLLOWING THE DECISION IN THE CASE OF GREEN EMIRATES SHIPPING & TRAVELS (SUPRA) DO NOT PREFER TO GO WITH THE RULING OF THE AAR IN THE CASE OF CYRIL EUGEN PEREIRA (SUPRA) ON THE PROPOSITION THAT AS THE LONG TERM CAPITAL GAIN ON THE TRANSFER OF SHARES IS NOT TAXABLE IN UAE HENCE, THE ASSESSEE IS NOT ELIGIBLE UNDER THE DTAA BETWEEN THE INDIA AND UAE TO CLAIM THE BENEFITS. WE, ACCORDINGLY, REVERSE THE FINDING OF THE LD. CIT(A) ON THIS 11 ITA NO . 2038 /PN/201 2, PRASHANT KUMAR GULATI, NAGPUR FIRST REASONING. NOW, THE NEXT REASON IS WHETHER THERE IS A REQUIREMENT ON THE PART OF THE ASSESSEE TO PRODUCE THE TAX RESIDENCE CERTIFICATE (TRC) FROM THE UAE AUTHORITY. SUB - SEC. (4) TO SEC. 90 WHICH HAS BROUGHT ON THE STATUTE BOOK BY THE FINANCE ACT, 2012 W.E.F. 2013 WHICH READS AS UNDER: SEC. 90(4) AN ASSESSEE, NOT BEING A RESIDENT, TO WHOM AN AGREEMENT REFERRED TO IN SUB - SECTION (1) APPLIES, SHALL NOT BE ENTITLED TO CLAIM ANY RELIEF UNDER SUCH AGREEMENT UNLESS A CERTIFICATE, CONTAINING SUCH PARTICULARS AS MAY BE PRESCRIBED, OF HIS BEING A RESIDENT IN ANY COUNTRY OUTSIDE INDIA OR SPECIFIED TERRITORY OUTSIDE INDIA, AS THE CASE MAY BE, IS OBTAINED BY HIM FORM THE GOVERNMENT OF THAT COUNTRY OR SPECIFIED TERRITORY. 6. WE, THEREFORE, FIND FORCE IN THE ARGUMENT OF THE LD. COUNSEL THAT IN THE ACT ITSELF THERE IS NO PROVISION IN THE A.Y. 2006 - 07 TO GET THE TAX RESIDENCE CERTIFICATE IN THE PRESCRIBED FORM FOR CLAIMING THE BENEFIT OF THE TREATY. WE MAKE IT CLEAR THAT THE NON - RESIDENT STATUS OF THE ASSESSEE IS NOT DISPUTED AS WE UNDERSTAND BUT TH E QUESTION RAISED IS TO THE EXTENT OF NON - FURNISHING OF THE TAX RESIDENCE CERTIFICATE. THE ASSESSEE HAS FILED THE COPY OF THE LETTER FROM OPTIMISTIX VENTURES AND HE IS A MANAGING DIRECTOR WHICH IS INCORPORATED IN THE DUBAI , UNDER THE LAWS OF DUBAI TECHN OLOGY MEDIA FREE ZONE AUTHORITY UNDER THE GOVT. OF DUBAI (UAE) AND AS PER THE SAID CERTIFICATE THE ASSESSEE IS A LEGAL RESIDENT OF THE UAE CONTINUOUSLY SINCE JANUARY, 1995. NOW COMING TO THE REQUIREMENT OF TRC , IT IS SEEN THAT THE AGREEMENT BETWEEN THE IN DIA AND UAE (DTAA) WAS ENTER INTO ON 22 - 09 - 1993 AND THE DTAA WAS NOTIFIED ON 18 - 11 - 1993. THERE IS AN AMENDMENT TO THE 1993 DTAA AS VIDE PROTOCOL DATED 03 - 10 - 2007 AS SOME OF THE ARTICLES ARE AMENDED. SO FAR AS THE AMENDMENT BY THE PROTOCOL AMENDING THE IN DO - UAE TAX TREATY , MORE PARTICULARLY ARTICLE 30 , IS CONCERNED SAME HAS BEEN CONSIDERED IN THE CASE OF MEERA BHATIA (SUPRA) AND IT IS HELD AS UNDER: 12 ITA NO . 2038 /PN/201 2, PRASHANT KUMAR GULATI, NAGPUR 9. WE HAVE NOTED THAT A SUCCESSFUL INITIATIVE HAS INDEED BEEN MADE TO RESOLVE THIS ISSUE AT THE LEVEL OF THE CONTRACTING STATES. ON 6TH MARCH, 2007, A PROTOCOL, AMENDING THE INDO - UAE TAX TREATY, HAS BEEN ENTERED INTO. THIS PROTOCOL HAS SINCE BEEN NOTIFIED BY THE GOVERNMENT OF INDIA VIDE NOTIFICATION NO. 282 OF 2007, DT. 28TH NOV., 2007 [(2007) 213 CTR (ST) 64]. ONE OF THE AMENDMENTS MADE BY THIS PROTOCOL IS THE CHANGE IN DEFINITION OF 'RESIDENT' IN ART. 4(L)(B) WHICH NOW PROVIDES THAT FOR THE PURPOSE OF THE INDO - UAE TAX TREATY, RESIDENT OF A CONTRACTING STATE, IN THE CASE OF THE UAE, MEANS 'AN INDIVIDUAL WHO IS P RESENT IN THE UAE FOR A PERIOD OR PERIODS AGGREGATING TOTALLING IN AGGREGATE AT LEAST 183 DAYS IN THE CALENDAR YEAR CONCERNED, AND A COMPANY, WHICH IS INCORPORATED IN UAE AND WHICH IS MANAGED AND CONTROLLED WHOLLY IN UAE. THIS AMENDMENT IN THE DEFINITION O F RESIDENT OF UAE, THUS ACCEPTS THE BROAD PROPOSITION THAT THE TAXABILITY IN ONE OF THE CONTRACTING STATES IS NOT A SINE QUA NON TO AVAIL TREATY BENEFITS IN THE OTHER CONTRACTING STATE. THE FUNDAMENTAL ASSUMPTION BY THE AO THAT 'AN INDIVIDUAL WHO IS NOT LI ABLE TO PAY TAX UNDER THE UAE LAW CANNOT CLAIM ANY RELIEF FROM THE ONLY TAX WHICH IS PAYABLE IN INDIA UNDER THE AGREEMENT' AND THAT 'THE PROVISIONS OF DTAAS DO NOT APPLY TO ANY CASES WHERE THE SAME INCOME IS NOT LIABLE TO BE TAXED TWICE BY THE EXISTING LAW S OF BOTH THE CONTRACTING STATES' IS THUS NO LONGER BACKED BY THE TAX ADMINISTRATION ITSELF. AS WE NOTICE THIS POSITION, WE ARE ALIVE TO THE FACT THAT THE PROTOCOL TO THE INDO - UAE TAX TREATY HAS COME INTO EFFECT FROM 1ST APRIL, 2008 BUT THAT IS NOT REALLY RELEVANT IN THE PRESENT CONTEXT. WHAT IS MATERIAL IS THE FUNDAMENTAL APPROACH TO THE AVAILABILITY OF TREATY BENEFITS TO THE RESIDENTS OF CONTRACTING STATES WITHOUT MAKING IT CONDITIONAL UPON DUAL TAXABILITY OF SAME INCOME. THIS APPROACH IS CLEARLY IN CONFO RMITY WITH THE APPROACH ADOPTED BY US IN THE CASE OF GREEN EMIRATE SHIPPING & TRAVELS (SUPRA) AND THE AMENDMENTS SO BROUGHT ABOUT BY THE AMENDMENTS IN THE INDO - UAE TAX TREATY HAVE THUS INTRODUCED GOOD DEAL OF CLARITY ABOUT THE LEGAL POSITION ON SUCH FUNDAM ENTAL ASPECTS OF A TAX TREATY AS TO WHO WILL BE ELIGIBLE FOR TAX TREATY BENEFITS. 10. WHILE ON THE AMENDMENTS BROUGHT ABOUT THE PROTOCOL AMENDING THE INDO - UAE TAX TREATY, IT IS ALSO IMPORTANT TO TAKE NOTE OF THE FACT THAT OLD ART. 13(3) IN THE ORIGINAL IND O - UAE TAX TREATY STANDS SUBSTITUTED BY NEW ARTS. 13(3), 13(4) AND 13(5) WHICH CONSIDERABLY NARROW DOWN TAXABILITY OF CAPITAL GAINS ON ALIENATION OF SHARES IN THE DOMICILE COUNTRY. EXCEPT IN A SITUATION IN WHICH THE SHARES ARE OF 13 ITA NO . 2038 /PN/201 2, PRASHANT KUMAR GULATI, NAGPUR A COMPANY HOLDING, DIRECTLY OR INDIRECTLY, PRINCIPALLY IMMOVABLE PROPERTY IN THE OTHER CONTRACTING STATE, CAPITAL GAINS ON ALIENATION OF SHARES ARE TO BE TAXED IN THE CONTRACTING STATE OF WHICH THE COMPANY IS RESIDENT. THIS PROVISION, HOWEVER, COMES INTO EFFECT FROM 1ST APRIL, 2008 AND WILL NOT, THEREFORE, HAVE ANY APPLICATION ON THE FACTS OF THE PRESENT CASE. FOR ALL THESE REASONS AND IN VIEW OF THE ABOVE DISCUSSIONS, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE AO TO EXTEND BENEFITS OF INDO - UAE TAX TREATY TO THE ASSESSEE - APPELLANT. THE ASSESSEE - APPELLANT GETS THE RELIEF ACCORDINGLY. 7. IN THE CASE OF THE PRESENT ASSESSEE HIS CASE IS COVERED UNDER THE 1993 DTAA (BEFORE THE AMENDMENT). WE, THEREFORE, FOLLOWING THE DECISION IN THE CASE OF MEERA BHATIA (SUPRA) ALLOW THE GROUN DS TAKEN BY THE ASSESSEE AND HOLD THAT LD. CIT(A) NOT JUSTIFIED IN COMING TO CONCLUSION THAT THE ASSESSEE SHOULD HAVE PRODUCED TRC FROM UAE AUTHORITIES . 8. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 14 - 08 - 2014 SD/ - SD/ - ( G . S . PAN NU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 14 TH AUGUST, 2014 COPY TO 1 DEPARTMENT 2 ASSESSEE 3 THE CIT(A) - IT/TP, PUNE 4 THE CIT - IT/TP, PUNE 5 THE DR , ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE