ITO (IT)-3(1), MUMBAI V. VIJAY ISRANI, MUMBAI

ITA 4220/MUM/2008

• Counselvise Citation: 422019914 RSA 2008
• Duration Of Justice: 3 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 16-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 13-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Keywords: Double taxation relief; Advance ruling
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, A ND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 4220/MUM./2008 (ASSESSMENT YEAR : 2005-06 ) ITA NO. 4934/MUM./2009 (ASSESSMENT YEAR : 2006-07 ) INCOME TAX OFFICER (IT)-3(1) R.NO.114, SCINDIA HOUSE BALLARD PIER, MUMBAI 400 038 .. APPELLANT V/S MR. VIJAY ISRANI 151, NARIMAN BHAVAN NARIMAN POINT PAN AAACG1255E .... RESPONDENT REVENUE BY : MR. JITENDRA YADAV ASSESSEE BY : MRS. VASANTI PATEL A/W MR. R.C. PATIL DATE OF HEARING 17.01.2012 DATE OF ORDER 25.01.2012 O R D E R PER J. SUDHAKAR REDDY, A.M. THESE APPEALS PREFERRED BY THE REVENUE, ARE DIRECT ED AGAINST THE IMPUGNED ORDER DATED 9 TH APRIL, 2008, FOR ASSESSMENT YEAR 2006-07, AND ORDER DATED 17 TH JUNE 2009, FOR ASSESSMENT YEAR 2006-07, PASSED BY THE COMMISSIONER (APPEALS)-XXXIII, MUMBAI, RESPECTIVELY . AS THE ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, BOTH THESE APP EALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. MR. VIJAY ISRANI A.YS 2005-06 AND 2006-07 2 2. THE SOLE COMMON GROUND RAISED IN THESE APPEALS, IS AS FOLLOWS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE COMMISSIONER (APPEALS) ERRED IN HOLDING THAT THE AS SESSEE IS ENTITLED TO THE BENEFIT OF DTAA BETWEEN INDIA AND UAE AND HE NCE, THE CAPITAL GAINS ARE NOT TAXABLE IN INDIA AND DIRECTING THE AS SESSING OFFICER TO DELETE THE ADDITION . 3. BRIEF FACTS, AS BROUGHT OUT IN PARA-2 OF THE IMPUGN ED ORDER PASSED BY THE COMMISSIONER (APPEALS) FOR ASSESSMENT YEAR 2006 -07, READ AS FOLLOWS:- THE APPELLANT IS A NON RESIDENT INDIVIDUAL, STAYING AT DUBAI IN UAE. THE APPELLANT FILED HIS RETURN OF INCOME ON 30-07-2 006 FOR A.Y.2006- 07 DECLARING TOTAL INCOME AT RS.3,92,09,552/- BEING SHORT TERM CAPITAL GAINS ARISING ON SALE OF SHARES. WITHOUT PREJUDICE TO THE INCOME ADMITTED IN THE RETURN OF INCOME, THE APPELLANT ALS O MADE A CLAIM THAT THE CAPITAL GAINS ARE NOT TAXABLE IN INDIA IN VIEW OF ARTICLE 13(3) OF INDIA-UAE TAX TREATY. THE ASSESSMENT U/S. 143(3) WA S COMPLETED ON 21-10-2008 DETERMINING THE TOTAL INCOME AT RS. 3,92 ,09,552/-. IN THAT ORDER, THE ASSESSING OFFICER HAS DENIED THE BENEFIT S OF INDIA UAE DTAA AND NEGATIVED THE APPELLANTS CLAIM THAT THE SHORT TERM CAPITAL GAINS ARISING ON THE SALE OF SHARES IN INDIA ARE NOT LIAB LE TO TAX IN INDIA UNDER ARTICLE 13(3) OF THE INDIA-UAE TAX TREATY . 4. THE FIRST APPELLATE AUTHORITY APPLIED THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN ADIT (I.T) V/S GREEN EMIRATE SHIPPI NG, [2006] 100 ITD 0203 (MUM.), AND DECIDED THE ISSUE IN FAVOUR OF THE ASSE SSEE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL FOR BOTH T HE YEARS UNDER ASSESSMENT. 5. BOTH THE PARTIES, BEFORE US, SUBMITTED THAT THE ISS UE NOW STANDS COVERED BY THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN GREEN EMIRATE SHIPPING (SUPRA), WHEREIN THE TRIBUNAL HELD AS FOLLOWS:- HELD; THE JUDGMENTS OF THE SUPREME COURT ARE BINDING ON T HE TRIBUNAL UNDER ARTICLE 141 OF THE CONSTITUTION OF INDIA; THE RULINGS OF AUTHORITY FOR ADVANCE RULING, WHATEVER BE THEIR PERSUASIVE VA LUE, ARE NOT. THESE WORDS OF THE SUPREME COURT IN THE CASE OF UNION OF INDIA V. AZADI BACHAO ANDOLAN [2003] 263 ITR 706/132 TAXMAN 373 AR E CLEAR, CATEGORICAL AND UNAMBIGUOUS. IN THAT CASE, THE SUPR EME COURT HAD AN OCCASION TO DEAL WITH THE RULING GIVEN BY THE AUTHO RITY / OR ADVANCE RULING IN CYRIL EUGENE PERERIAS CASE (SUPRA). AFTE R REFERRING TO THE SAID RULING AND AFTER ELABORATE DISCUSSIONS ON THE VARIO US ASPECTS OF THIS MR. VIJAY ISRANI A.YS 2005-06 AND 2006-07 3 ISSUE, THE SUPREME COURT CONCLUDED THAT IT IS NOT POSSIBLE FOR ONE TO ACCEPT THAT THE AVOIDANCE OF DOUBLE TAXATION CAN AR ISE ONLY WHEN TAX IS ACTUALLY PAID IN ONE OF THE CONTRACTING STATES CLEA RLY, THEREFORE, THERE IS NO MEETING GROUND BETWEEN THE RULING GIVEN BY TH E AUTHORITY FOR ADVANCE RULING IN THE CASE OF CYRIL EUGENE PERERI ( SUPRA) AND THE JUDGMENT DELIVERED BY THE SUPREME COURT IN AZADI BA CHAO ANDOLANS CASE (SUPRA). THEREFORE, THE ASSESSING OFFICERS RE LIANCE UPON THE RULING GIVEN BY THE AUTHORITY FOR ADVANCE RULING IN THE CASE OF CYRIL EUGENE PERERIA (SUPRA), COULD NOT BE APPROVED. THE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOL AN (SUPRA) HAD ALSO HELD THAT A RULING GIVEN BY THE AUTHORITY FOR ADVANCE RULING IS NOT EVEN BINDING ON THE COMMISSIONER AND AUTHORITIES SU BORDINATE THERETO, IN ANY CASE EXCEPT IN THE CASE OF THAT VER Y 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 GI VEN. WHATEVER BE THE RESPECT AND DEFERENCE JUDICIAL AUTHORITIES INDEED H AVE FOR THE RULINGS GIVEN BY THE AUTHORITY, THE AUTHORITY FOR ADVANCE R ULING, NOT BEING A PART OF THE JUDICIAL HIERARCHY, CANNOT LAY DOWN A B INDING PRECEDENCE FOR ANYONE. THE REVENUE, THE ASSESSEE OR THE APPELL ATE AUTHORITIES. BY NO STRETCH OF LOGIC, THEREFORE, A RULING GIVEN BY T HE AUTHORITY OF ADVANCE RULING HAS ANY PRECEDENCE VALUE IN GENERAL. THEREFORE, THE REVENUES RELIANCE ON THE RULING GIVEN BY THE AUTHO RITY FOR ADVANCE RULING IN THE CASE OF ABDUL RAZAK A. MENAN, [2005] 276 ITR 306/146 TAXMAN 115, BY ITSELF WAS NOT SUFFICIENT TO DECIDE THE MATTER ONE WAY OR THE OTHER. FURTHER, SINCE THE VERY CONTENTION WH ICH HAD BEEN RAISED BY THE REVENUE IN THE INSTANT CASE WAS SUCCESSFULLY CHALLENGED BY THE UNION OF INDIA BEFORE THE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN (SUPRA), IT COULD NOT BE OPEN TO THE TRIBUN AL TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE SU PREME COURT. ALTHOUGH THE ASSESSING OFFICERS OBJECTION TO APPLI CABILITY OF INDIA-UAE TAX TREATY WAS ONLY ON THE GROUND THAT THE PROVISIO NS OF DOUBLE TAXATION AVOIDANCE AGREEMENTS DID NOT COME INTO PLA Y UNLESS IT WAS ESTABLISHED THAT THE ASSESSEE WAS PAYING TAX IN BOT H THE COUNTRIES IN RESPECT OF THE SAME INCOME, IN THE GROUNDS OF APPEA L, IT WAS ALSO CONTENDED THAT THE ASSESSEE FAILED TO PRODUCE ANY E VIDENCE TO THE EFFECT THAT IT WAS LIABLE TO PAY TAXES IN UAE THE Q UESTION THEN WOULD ARISE WHETHER AN EXISTING LIABILITY TO PAY TAXES IN UAE IS A SINE QUA NON TO AVAIL THE BENEFIT OF INDIA-UAE TAX TREATY IN IND IA. IT IS CLEAR FROM THE OBSERVATIONS MADE BY THE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN (SUPRA), THAT A TAX TREATY NOT ONLY PREVENT S CURRENT BUT ALSO POTENTIAL DOUBLE TAXATION. THEREFORE, IRRESPECTIV E OF WHETHER OR NOT THE UAE ACTUALLY LEVIES TAXES ON NON-CORPORATE ENTI TIES, ONCE THE RIGHT TO TAX UAE RESIDENTS IN SPECIFIED CIRCUMSTANCES VES TS ONLY WITH THE GOVERNMENT OF UAE, THAT RIGHT, WHETHER EXERCISED OR NOT, CONTINUES TO REMAIN EXCLUSIVE RIGHT OF THE GOVERNMENT OF UAE. HO WEVER, THE EXEMPTION AGREED TO UNDER THE ASSIGNMENT OR DIST RIBUTIVE RULE IS INDEPENDENT OF WHETHER THE CONTRACTING STATE IMPOS ES A TAX IN THE SITUATION TO WHICH EXEMPTION APPLIES IT IS, THUS, C LEAR THAT TAXABILITY IN ONE COUNTRY IS NOT SINE QUA NON FOR AVAILING RELIEF UNDER THE TREATY FROM TAXABILITY IN THE OTHER COUNTRY. ALL THAT IS N ECESSARY FOR THIS PURPOSE IS THAT THE PERSON SHOULD BE LIABLE TO TAX IN THE CONTRACTING STATE BY REASON OF DOMICILE, RESIDENCE, PLACE OF MA NAGEMENT, PLACE OF INCORPORATION OR ANY OTHER CRITERION OF SIMILAR NAT URE WHICH ESSENTIALLY MR. VIJAY ISRANI A.YS 2005-06 AND 2006-07 4 REFERS TO THE FISCAL DOMICILE OF SUCH A PERSON. IN OTHER WORDS, IF FISCAL DOMICILE OF A PERSON IS IN A CONTRACTING STATE, IRR ESPECTIVE OF WHETHER OR NOT THAT PERSON IS ACTUALLY LIABLE TO PAY TAX IN THAT COUNTRY, HE IS TO BE TREATED AS RESIDENT OF THAT CONTRACTING STATE. T HE EXPRESSION LIABLE TO TAX IS NOT TO BE READ IN ISOLATION BUT IN CONJU NCTION WITH THE WORDS IMMEDIATELY FOLLOWING IT I.E., BY REASON OF DOMICI LE, RESIDENCE, PLACE OF MANAGEMENT, PLACE OF INCORPORATION OR ANY OTHER CRI TERION 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 TESTS OF FISCAL DOM ICILE WHICH ARE GIVEN BY WAY OF EXAMPLES FOLLOWING THE EXPRESSION LIABLE TO TAX BY REASON OF I.E., DOMICILE, RESIDENCE, PLACE OF MANAGEMENT, PLA CE OF INCORPORATION, ETC., ARE NOT MORE THAN EXAMPLES OF LOCALITY RELATE D ATTACHMENTS THAT ATTRACT RESIDENCE TYPE TAXATION. THEREFORE, AS LONG AS A PERSON HAS SUCH LOCALITY-RELATED ATTACHMENTS WHICH ATTRACT RES IDENCE TYPE TAXATION, THAT PERSON IS TO BE TREATED AS RESIDEN T AND THIS STATUS OF BEING A RESIDENT OF THE CONTRACTING STATE IS INDE PENDENT OF THE ACTUAL LEVY OF TAX ON THAT PERSON. THEREFORE, BEING LIABL E TO TAX IN THE CONTRACTING STATE DOES NOT NECESSARILY IMPLY THAT T HE PERSON SHOULD ACTUALLY BE LIABLE TO TAX IN THAT CONTRACTING STATE BY VIRTUE OF AN EXISTING LEGAL PROVISION BUT WOULD ALSO COVER THE C ASES WHERE OTHER CONTRACTING STATE HAS THE RIGHT TO TAX SUCH PERSONS - IRRESPECTIVE OF WHETHER OR NOT SUCH A RIGHT IS EXERCISED BY THE CON TRACTING STATE. THERE/ORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE ASSESSEE S CLAIM THAT ITS INCOME WAS LIABLE TO TAX ONLY IN UAE, HENCE, THE CONCLUSION ARRIVED AT BY THE COMMISSIONER (APPE ALS) WAS RIGHT, THOUGH THE REASONING ADOPTED BY HIM COULD NOT BE AP PROVED. 6. IN VIEW OF THE ABOVE, WE UPHOLD THE FINDINGS OF THE C.I.T(A) AND DISMISS BOTH THE APPEALS OF THE REVENUE. 7. IN THE RESULT, REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JANUARY 2012 SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 25 TH JANUARY 2012 MR. VIJAY ISRANI A.YS 2005-06 AND 2006-07 5 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, L BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI DATE INITIAL 1. DRAFT DICTATED ON 23.1.2012 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 23.1.2012 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 23.1.2012 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 23.1.2012 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 23.1.2012 SR.PS 6. DATE OF PRONOUNCEMENT 25.1.2012 SR.PS 7. FILE SENT TO THE BENCH CLERK 25.1.2012 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER