DDIT, New Delhi V. Mr. Mushtaq Ahmad Vakil, New Delhi

ITA 3426/DEL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 7110 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 13-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y S KAKKAR
• Assessee Lawyers: SUNIL GOEL; SUHEL GOEL
• Keywords: Double taxation relief; Permanent establishment; Advance ruling
• Section: 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH : E NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NOS.3424, 3425 & 3426/DEL./2010 (ASSESSMENT YEARS : 2004-05, 05-06 & 06-07) DDIT, CIRCLE 2(2), VS. MUSHTAQ AHMAD VAKIL, NEW DELHI. C/O SUNIL GOEL & ASSOCIATES, E-86, PASCHIMI MARG, NEW DELHI. (PAN/GIR NO.ACOPV9799F) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUNIL GOEL, CA & SUHEL GOEL, CA REVENUE BY : SHRI Y.S. KAKKAR, DR ORDER PER RAJPAL YADAV, JM THE PRESENT THREE APPEALS ARE DIRECTED AT THE INSTA NCE OF THE REVENUE AGAINST THE COMMON ORDER OF THE CIT(A) DATED 30.3.2010 PASSED F OR AYS 2004-05, 05-06 & 06-07. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE IN ALL T HE THREE ASSESSMENT YEARS 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 READ AS UNDER: 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, LD.CIT(A) HAS ERRED IN INFERRING THAT THE MEANING OF PHRASE LIABLE TO TAX IN ARTICLE 4 OF INDO-UAE DTAA. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DECIDING THAT THE BENEFIT OF INDO-UAE DTAA IS AVAIL ABLE 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 O RDERS OF THE TRIBUNAL RENDERED IN THE CASE OF ITO-3(1), MUMBAI VS. RAMESH KUMAR GOENKA, 3 9 SOT 132, MERA BHATIA VS. ITO1(1), MUMBAI, 38 SOT 95 AND ADIT VS. GREEN EMIRA TE SHIPPING & TRAVEL (2006), 2 99 TTJ (MUMBAI) 988 (2006) 6 SOT 329 (MUMBAI) : (20 06) 100 ITD 203 (MUMBAI). HE FURTHER CONTENDED THAT APART FORM THESE THREE ORDER S OF THE TRIBUNAL, REFERRED TO ABOVE, THIS ISSUE WAS CONSIDERED BY THE AUTHORITY FOR ADVA NCE RULINGS ON A NUMBER OF OCCASION AND ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. H E FURTHER POINTED OUT THAT THE FACTS IN THE CASE OF RAMESH KUMAR GOENKA AND IN THE ASSESSEE S CASE ARE IDENTICAL. LD.DR, ON THE OTHER HAND, WAS UNABLE TO CONTROVERT THE CON TENTION 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 THE THREE YEARS RELA TE TO TAXABILITY OF CAPITAL GAINS AROSE ON ACCOUNT OF TRANSFER OF SHARES AND SECURITIES. ACCO RDING TO THE ASSESSEE, HE IS A RESIDENT OF DUBAI, UAE AND IS COVERED UNDER THE INDO-UAE DTAA. HE IS ENTITLED TO BENEFIT UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT EXECUTED BE TWEEN INDIA & UAE. ACCORDING TO THE ASSESSEE, AS PER ARTICLE 13.3 OF THE ABOVE T REATY, ASSESSEE IS NOT CHARGEABLE TO TAX ON CAPITAL GAINS ARISING FROM TRANSFER OF SHARES/SE CURITIES. THE AO HAS REJECTED THIS CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE B ENEFIT OF INDO-UAE DTAA IS NOT AVAILABLE TO THE ASSESSEE 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 GAI NS ON ACCOUNT OF SUCH TRANSFER OF SHARES IN UAE. WE FIND THAT THE TRIBUNAL IN THE CASE OF RAME SH KUMAR GOENKA HAS CONSIDERED AN IDENTICAL ISSUE. THE TRIBUNAL MAINLY RELIED UPON T HE ORDER OF THE TRIBUNAL EARLIER PASSED IN THE CASE OF DIT(INTERNATIONAL TAXATION) VS. GREE N EMIRATES 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 RELATING 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 AND 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 AN Y TAX ON THE SHORT-TERM CAPITAL GAINS EARNED IN INDIA. ( 2 ) THE APPELLANT PRAYS THAT THE ORDER OF LEARNED CIT (A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3 3. THE ASSESSEE IS AN INDIVIDUAL. HE IS A RESIDENT O F UAE. DURING THE PREVIOUS YEAR, HE EARNED SHORT-TERM CAPITAL 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 ASSESSEE WAS A RESIDENT OF UAE, IT IS ONLY UAE WHICH HAS A RIGHT TO TAX CAPITAL GAIN AND NOT INDIA. ARTICLE 13 OF THE A GREEMENT FOR AVOIDANCE OF DOUBLE TAXATION BETWEEN INDIA AND THE UAE (HEREINAFTER REF ERRED TO AS THE INDIA-UAE TREATY) PROVIDES AN EXEMPTION FROM CAPITAL GAINS T AX IN INDIA TO RESIDENTS OF UAE. IT READS AS UNDER : ARTICLE 13 : CAPITAL GAINS : (1) GAINS DERIVED BY A RESIDENT OF A CONTRACTING S TATE FROM THE ALIENATION OF IMMOVABLE PROPERTY REFERRED TO IN PARAGRAPH 2 OF ARTICLE 6 AN D SITUATED IN THE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. (2) GAIN FROM THE ALIENATION OF MOVABLE PROPERTY F ORMING PART OF THE BUSINESS PROPERTY OF A PERMANENT ESTABLISHMENT WHICH AN ENTERPRISE OF A CONTRACTING STATE HAS IN THE OTHER CONTRACTING STATE OR OF MOVABLE PROPERTY PERT AINING TO A FIXED BASE AVAILABLE TO A RESIDENT OF A CONTRACTING STATE IN THE OTHER CONT RACTING STATE FOR THE PURPOSE OF PERFORMING INDEPENDENT PERSONAL SERVICES, INCLUDING SUCH GAINS FROM THE ALIENATION OF SUCH A PERMANENT ESTABLISHMENT (ALONE OR TOGETHER W ITH THE ENTERPRISE) OR OF SUCH FIXED BASE MAY BE TAXED IN THAT OTHER STATE. (3) GAINS FROM THE ALIENATION OF ANY PROPERTY OTHE R THAN THAT MENTIONED IN PARAGRAPHS 1 AND 2 SHALL BE TAXABLE ONLY IN THE CONTRACTING STAT E OF WHICH THE ALIENATOR IS A RESIDENT. 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 T HEREIN. 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 PAYING TAXES IN UAE. THE ASSESSIN G OFFICER RELIED UPON THE DECISION OF THE AAR IN THE CASE OF ABDUL RAZAK A. MEMAN, IN RE [2005] 276 ITR 306 (AAR - NEW DELHI) WHICH HAD CONSIDERED THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF UNION OF INDIA V. AZADI BACHAO ANDOLAN [2003] 263 ITR 706 AND HELD THAT THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS ON IT TO PROVE THA T IT IS LIABLE TO PAY TAX IN UAE. ACCORDING TO THE ASSESSING OFFICER, IT IS NOT SUFFI CIENT FOR A PERSON TO CLAIM THE BENEFITS OF ARTICLE 13(3) TO BE JUST A RESIDENT OF THE OTHE R CONTRACTING 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, THE CAPITAL GAIN IN QUESTION WAS ADMITTED NOT CHARGED TO TAX. 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, T HEREFORE, CAPITAL GAIN CANNOT BE BROUGHT TO TAX IN INDIA. IN DOING SO, HE FOLLOWED T HE 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 ), THE MUMBAI TRIBUNAL HAD AN OCCASION TO DEAL WITH AN IDENTICAL CASE. THE FAC TS OF THE CASE WERE THAT THE ASSESSEE WAS A SHIPPING LINE BASED IN UNITED ARAB EMIRATES. IN THE RELEVANT PREVIOUS 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-UA E DOUBLE TAXATION AVOIDANCE AGREEMENT, THE ASSESSEES INCOME WAS LIABLE TO TAX ONLY IN THE COUNTRY OF DOMICILE, I.E. , 4 UAE, BUT THIS CONTENTION WAS REJECTED BY THE ASSESS ING OFFICER ON THE GROUND THAT THE ASSESSEE IS NOT PAYING TAXES IN UAE. THE ASSESSIN G OFFICER RELIED UPON THE DECISION OF THE AAR IN THE CASE OF CYRIL EUGENE PEREIRA V. CIT [1999] 105 TAXMAN 273 (AAR - NEW DELHI) IN SUPPORT OF THE PROPOSITION THAT THE PROVI SIONS OF THE DTAA DO NOT APPLY TO ANY CASE WHICH THE SAME INCOME IS NOT LIABLE TO BE TAX ED 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 DOWN THE CORRECT LAW BY THE HONBLE SUPREME COURT I N THE CASE OF AZADI BACHAO ANDOLAN ( SUPRA ). THE TRIBUNAL HELD THAT : 6. UNDOUBTEDLY, IN CYRIL EUGENE PERERIAS CASE ( SUPRA ), HONBLE AUTHORITY FOR ADVANCE RULING, DEVIATING FROM THE STAND TAKEN BY IT IN THE EARLIER RULINGS INCLUDING RULING IN MOHSINALLY ALIMOHAMMED RAFIK, IN RE [1995] 213 ITR 3171, CONCLUDED THAT AN INDIV IDUAL WHO IS NOT LIABLE TO PAY TAX UNDER THE UAE LAW CANNOT CLAIM ANY RELIE F 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 APPLY TO ANY CASE WHERE THE SAME INCOME IS NOT LIABLE TO BE TAXED TWICE BY THE EXISTING LAWS ON BOTH THE CONTRA CTING STATES. HOWEVER, IN AZADI BACHAO ANDOLANS CASE ( SUPRA ), THEIR LORDSHIPS OF HONBLE SUPREME COURT, AFTER REFERRING TO THE SAID RULING AND AFTER ELABORATE DISCUSSIONS ON THE VARIO US 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 WHE N TAX IS ACTUALLY PAID IN ONE OF THE CONTRACTING STATES. THE REASONING GIVEN BY THEIR L ORDSHIPS INCLUDED THE FOLLOWING : ACCORDING TO KLAUS VOGEL DOUBLE TAXATION CONVENTI ONS ESTABLISHES AN INDEPENDENT MECHANISM TO AVOID DOUBLE TAXATION THROUGH RESTRICT ION OF TAX CLAIMS IN AREAS WHERE OVERLAPPING TAX CLAIMS ARE EXPECTED, OR AT LEAST TH EORETICALLY 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 F OR 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 OB JECTS, AMONGST THEMSELVES. DOUBLE TAXATION AVOIDANCE TREATIES WERE IN VOGUE EVEN FROM THE TIME OF THE LEAGUE OF NATIONS. THE EXPERTS APPOINTED IN THE EARLY 1920S BY THE LEA GUE OF NATIONS DESCRIBE THIS METHOD OF CLASSIFICATION OF ITEMS AND THEIR ASSIGNMENTS TO THE CONTRACTING STATES. WHILE THE ENGLISH LAWYERS CALLED IT CLASSIFICATION AND ASSIG NMENT RULE, THE GERMAN JURISTS CALLED IT THE DISTRIBUTIVE RULE (VERTEILUNGSNORM). TO THE E XTENT 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 EXEMPTION APPLIES, AND IRRESPECTIVE OF WHETHER THE STATE ACTUALLY LEVIES THE TAX. COMMENTING PARTICULARLY ON THE GERMAN DOUB LE TAXATION CONVENTION WITH THE UNITED STATES, VOGEL COMMENTS : THUS, IT IS SAID T HAT THE TREATYPREVENTS NOT ONLY CURRENT BUT ALSO MERELY POTENTIAL DOUBLE TAXATION. FURTH ER, ACCORDING TO VOGEL, ONLY IN EXCEPTIONAL CASES, AND ONLY WHEN EXPRESSLY AGREED T O BY THE PARTIES, IS EXEMPTION IN ONE OF THE CONTRACTING STATES DEPENDENT UPON WHETHER TH E INCOME OR CAPITAL IS TAXABLE IN THE OTHER CONTRACTING STATE, OR UPON WHETHER IT IS ACTU ALLY 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 C AN ARISE ONLY WHEN TAX IS ACTUALLY PAID IN 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 ENTITIES ARE NOT TAXABLE ENTI TIES UNDER THE UAE TAX TREATY SUCH 5 NON-CORPORATE ENTITIES, EVEN THOUGH BASED IN UAE, C ANNOT BE TREATED 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 CAS E WHICH THE SAME INCOME IS NOT LIABLE TO BE TAXED TWICE BY THE EXISTING LAWS OF BOTH THE CONTRA CTING 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 HONBLE SUPREME COURT HOLDING THAT IT IS . . . . NOT POSSIBLE FOR US TO ACCEPT THE CONTENTIONS SO STRENUOUSLY URGED BY THE RESPONDENTS THAT THE AV OIDANCE OF DOUBLE TAXATION CAN ARISE ONLY WHEN TAX IS ACTUALLY PAID IN ONE OF THE CONTRACTING STATES. AS WE HAVE NOTED EARLIER ALSO, THE REVENUE IS ON RECORD TO HAVE OPPOSED THE VERY ARGUM ENT THAT THE REVENUE HAS TAKEN IN THE PRESENT CASE, AS EVIDENT FROM THE HONBLE SUPREME C OURTS FOLLOWING OBSERVATION : THE APPELLANTS ( I.E., UNION OF INDIA) CONTEND THAT, ACCEPTANCE OF THE RE SPONDENTS SUBMISSION THAT DOUBLE TAXATION AVOIDANCE IS NOT PE RMISSIBLE UNLESS THE TAX IS PAID IN BOTH COUNTRIES 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 WH ERE INCOME-TAX HAS BEEN PAID IN BOTH THE COUNTRIES, BUT CLAUSE ( B ) DEALS WITH THE SITUATION OF AVOIDANCE OF DOUBLE T AXATION OF INCOME. INASMUCH AS PARLIAMENT HAS DISTINGUISHED BE TWEEN THE TWO SITUATIONS, IT IS NOT OPEN TO A COURT OF LAW TO INTERPRET CLAUSE ( B ) OF SECTION 90 - SUB-SECTION (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 INDIA BEFORE THE HONBLE SUPREME CO URT. IT CANNOT BE OPEN TO US TO TAKE 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 IN DIA AS FOLLOWS : 8. ALTHOUGH THE ASSESSING OFFICERS OBJECTION TO A PPLICABILITY OF INDIA-UAE TAX TREATY WAS ONLY ON THE GROUND THAT THE PROVISIONS OF DOUBLE TAXATIO N AVOIDANCE AGREEMENTS DO NOT COME INTO PLAY UNLESS IT IS ESTABLISHED THAT THE ASSESSEE 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 TOPRODUCE ANY EVIDENCE TO THE EFFECT THAT IT WAS LIABLE TO PAY TAXES IN UAE. THE QUESTION THEN ARISES WHETHER AN EXISTING LIABIL ITY 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 HONBLE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN ( SUPRA ). REFERRING TO THE KLAUS VOGELS COMMENTARY ON DOUBLE TAXATION CON VENTIONS, 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 RESERV ES 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 THE TIME OF THE LE AGUE OF NATIONS. THE EXPERTS APPOINTED IN THE EARLY 1920S BY THE LEAGUE OF NATIONS DESCRIBE T HIS METHOD OF CLASSIFICATION OF ITEMS AND THEIR ASSIGNMENTS TO THE CONTRACTING STATES. WHILE THE ENGLISH 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 EFFE CT IS IN PRINCIPLE INDEPENDENT OF BOTH WHETHER THE CONTRACTING STATE IMPOSES A TAX IN THE SITUATIO N TO WHICH THE EXEMPTION APPLIES, AND IRRESPECTIVE OF WHETHER THE STATE ACTUALLY LEVIES T HE TAX. COMMENTING PARTICULARLY ON THE GERMAN DOUBLE TAXATION CONVENTION WITH THE UNITED S TATES, VOGEL COMMENTS : THUS, IT IS SAID THAT THE TREATY PREVENTS NOT ONLY CURRENT BUT ALS O MERELY POTENTIAL DOUBLE TAXATION. [EMPHASIS SUPPLIED] 6 IT IS, THUS, CLEAR THAT A TAX TREATY NOT ONLY PREVE NTS CURRENT BUT ALSO POTENTIAL DOUBLE TAXATION. THEREFORE, IRRESPECTIVE OF WHETHER OR NOT THE UAE A CTUALLY LEVIES TAXES ON NON-CORPORATE ENTITIES, ONCE THE RIGHT TO TAX UAE RESIDENTS IN SPECIFIED CI RCUMSTANCES VESTS ONLY WITH THE GOVERNMENT OF UAE, THAT RIGHT, WHETHER EXERCISED OR NOT, CONTINUE S TO REMAIN EXCLUSIVE RIGHT OF THE GOVERNMENT OF UAE. AS NOTED ABOVE, THE EXEMPTION AGREED TO UND ER THE ASSIGNMENT OR DISTRIBUTIVE RULE, IS INDEPENDENT OF WHETHER THE CONTRACTING STATE IMPOS ES A TAX IN THE SITUATION TO WHICH EXEMPTION IMPLIES. IN THE CASE OF JOHN N. GLADDEN V. HER MAJESTY THE QUEEN 85 TC 5188, WHICH WAS QUOTED WITH APPROVAL BY THE HONBLE SUPREME COURT IN AZADI BACHAO ANDOLANS 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 ABOLISH THE CAPITAL GAINS TAX COM PLETELY, WHILE THE OTHER COUNTRY DID NOT, A RESIDENT OF THE COUNTRY WHICH HAS ABOLISHED THE CAP ITAL GAINS WOULD STILL BE EXEMPT FROM CAPITAL GAINS IN THAT OTHER COUNTRY. IT IS, THUS, CLEAR TH AT TAXABILITY IN ONE COUNTRY 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 MANAGEMENT, PLACE OF INCORPORAT ION 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 THAT PERSON IS ACTUALLY LIABLE TO PAY TAX IN THAT COUNTRY, HE IS TO BE TREATED AS RES IDENT 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, RESIDENCE, PLACE OF MANAGE MENT, PLACE OF INCORPORATION OR ANY OTHER CRITERION OF SIMILAR NATURE.THAT WOULD MEAN THAT M ERELY A PERSON LIVING IN A CONTRACTING STATE SHOULD NOT BE SUFFICIENT, THAT PERSON SHOULD ALSO H AVE FISCAL DOMICILE IN THAT COUNTRY. THESE TESTS 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 O F INCORPORATION, ETC., ARE NO MORE THAN EXAMPLES OF LOCALITY RELATED ATTACHMENTS THAT ATTRA CT RESIDENCE TYPE TAXATION. THEREFORE, AS LONG AS A PERSON HAS SUCH LOCALITY RELATED ATTACHMENTS WHIC H ATTRACT RESIDENCE TYPE TAXATION, THAT PERSON IS TO BE TREATED AS RESIDENT AND THIS STATUS OF BEI NG A RESIDENT OF THE CONTRACTING STATE IS INDEPENDENT OF THE ACTUAL LEVY OF TAX ON THAT PERSO N. VIEWED IN THIS PERSPECTIVE, WE ARE OF THE CONSIDERED OPINION THAT BEING LIABLE TO TAX IN TH E CONTRACTING STATE DOES NOT NECESSARILY IMPLY THAT THE PERSON SHOULD ACTUALLY BE LIABLE TO TAX IN THAT CONTRACTING STATE BY THE VIRTUE OF AN EXISTING LEGAL PROVISION BUT WOULD ALSO COVER THE CASES WHER E THAT OTHER CONTRACTING STATE HAS THE RIGHT TO TAX SUCH PERSONS - IRRESPECTIVE OF WHETHER OR NOT S UCH A RIGHT IS EXERCISED BY THE CONTRACTING STATE. IN OUR HUMBLE UNDERSTANDING, THIS IS THE LEGAL POSI TION EMERGING OUT OF HONBLE SUPREME COURTS JUDGMENT IN AZADI BACHAO ANDOLANS CASE ( SUPRA ). THE PLEA TAKEN 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, DECISI ON IN THE CASE OF GREEN EMIRATE SHIPPING & TRAVELS ( SUPRA ) IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESEN T CASE. AS HELD IN THE AFORESAID CASE, EXPRESSION LIABLE TO TAX I N 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 CONTRACTING STATE AND THAT IT IS ENOUGH IF OTHER CONTRACTING STATE HAS RIGHT TO TAX SUCH PERSON, WHETHER OR NOT SUCH A RIG HT IS EXERCISED. IN THE LIGHT OF THE RATIO LAID DOWN IN THE AFORESAID DECISION, WHICH HAS 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 7 OF RAMESH KUMAR GOENKA, WE DO NOT FIND ANY REASON T O INTERFERE IN THE ORDER OF THE CIT(A). ALL THE THREE APPEALS FILED BY THE REVENUE ARE DISMISSE D. SD/- SD/- (SHAMIM YAHYA) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24 TH SEPTEMBER, 2010. SKB COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXIX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR/ITAT