THE ITO(IT)-4(1), MUMBAI V. SMT. MANU MAHAVIRCHAND MEHTA, MUMBAI

ITA 7127/MUM/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4010 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L1
• Next Hearing Date: 26-02-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 30-11-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, PRESIDENT AND SHRI J.SUDHA KAR REDDY, AM I.T.A. NOS. 7127/MUM/2007 (ASSESSMENT YEAR : 2004-05) THE INCOME TAX OFFICER(IT)-4(1), R.NO.139, SCINDIA HOUSE, 1 ST FLOOR, BALLARD ESTATE, N.M.ROAD, MUMBAI-400 038. VS. SMT.MANU MAHAVIRCHAND MEHTA, 310, REWA CHAMBERS, NEW MARINE LINES, MUMBAI-400 020. PAN:AKNPM0268P (APPELLANT) (RESPONDENT) I.T.A. NO.7128/MUM/2007 (ASSESSMENT YEAR : 2004-05) THE INCOME TAX OFFICER(IT)-4(1), R.NO.139, SCINDIA HOUSE, 1 ST FLOOR, BALLARD ESTATE, N.M.ROAD, MUMBAI-400 038. VS. SHRI MAHAVIR CHAND MEHTA, 310, REWA CHAMBERS, NEW MARINE LINES, MUMBAI-400 020. PAN:AKTPM5301P APPELLANT BY : MR. SHISHIR SRIVASTAVA RESPONDENT BY : NONE O R D E R PER R.V.EASWAR, PRESIDENT: THESE ARE APPEALS BY THE DEPARTMENT RELATING TO THE ASSESSMENT YEAR 2004-05. THE GROUNDS ARE COMMON FOR BOTH THE APPEALS, THE MAIN G ROUND BEING THAT THE CIT(A) ERRED IN HOLDING THAT THE ASS ESSEE IS ENTITLED TO THE BENEFIT OF DTAA BETWEEN INDIA AND UAE AND ACCORDINGLY NOT LIABLE TO PAY ANY TAX ON THE SHORT TERM AND LONG TERM CAPITAL GAINS EARNED ON TRANSFER OF SECURITIES IN INDIA. 2. THE RESPONDENT-ASSESSEESS ARE NON-RESIDENT INDIV IDUALS. THEY EARNED INCOME IN THE FORM OF SHORT TERM AND LO NG TERM CAPITAL GAINS FROM SALE OF SHARES DURING THE FINAN CIAL YEAR ENDED 31.03.2004. BOTH THE ASSESSEES CLAIMED THAT N O TAX WAS PAYABLE IN INDIA RELYING ON ARTICLE 13(3) OF THE DT AA BETWEEN ITA NOS.7127 & 7128/M/07 2 INDIA AND UAE. THE CLAIM WAS REJECTED BY THE ASSESS ING OFFICER BUT ON FURTHER APPEAL THE CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEES FOLLOWING THE JUDGEMENT OF THE SUPREME CO URT IN THE CASE OF UOI VS. AZADI BACHAO ANDOLAN, 263 ITR 706 A ND THE MUMBAI BENCH OF THE TRIBUNALS ORDER IN ASST. DIT V S. GREEN EMIRATES SHIPPING & TRAVELS, 100 ITD 203(MUM). THE CIT(A) ALSO APPLIED THE BOARDS CIRCULAR NO.734 DATED 24.0 1.1996. HENCE THE APPEALS BY THE DEPARTMENT. 3. THE CONTROVERSY RELATES TO THE INTERPRETATION O F ARTICLE 13(3) OF THE TREATY BETWEEN INDIA AND UAE. ACCORDIN G TO THIS ARTICLE GAINS FROM THE ALIENATION OF ANY PROPERTY O THER THAN IMMOVABLE PROPERTY OR MOVABLE PROPERTY FORMING PART OF A BUSINESS OF A PERMANENT ESTABLISHMENT, SHALL BE TAX ABLE ONLY IN THE CONTRACTING STATE OF WHICH THE ALIENATOR IS A RESIDENT. THE CLAIM OF THE ASSESSEES WAS THAT SINCE THEY WERE RES IDENTS OF UAE, THE CAPITAL GAINS ON SALE OF SHARES WERE NOT T AXABLE IN INDIA. THE ASSESSING OFFICER HOWEVER TOOK THE VIEW THAT SINCE THERE IS NO PERSONAL INCOME TAX IN UAE, THE ASSESSE ES WERE NOT LIABLE TO PAY ANY TAX IN THAT COUNTRY AND THEREFORE THE DOUBLE TAX AVOIDANCE AGREEMENT CANNOT APPLY. IT WAS HIS CA SE THAT THE TREATY CAN APPLY ONLY IF A PERSON WAS LIABLE TO PAY TAX IN BOTH THE COUNTRIES. THE CIT(A) HOWEVER FOLLOWING THE JUD GEMENT OF THE SUPREME COURT CITED ABOVE AND THE ORDER OF THE TRI BUNAL CITED ABOVE HELD THAT THE BENEFIT OF THE TREATY SHOULD BE EXTENDED TO THE ASSESSEES AND THAT THEY ARE NOT LIABLE TO PAY A NY SHORT TERM OR LONG TERM CAPITAL GAINS TAX IN INDIA. 4. THE REVENUE IS IN APPEAL TO CONTEND, RELYING ON THE DECISION OF AAR IN THE CASE OF CYRIL UGENE PEREIRA, IN RE (1999) 239 ITR 650, THAT THE PROVISIONS OF THE TREATY DO N OT APPLY TO A CASE WHERE THE SAME INCOME IS NOT LIABLE TO BE TAXE D TWICE BY THE EXISTING LAWS OF BOTH THE CONTRACTING STATES. T HIS DECISION HAS BEEN CONSIDERED BY THE TRIBUNAL IN ITS ORDER CI TED SUPRA AND ITA NOS.7127 & 7128/M/07 3 IN PARAGRAPH 5 OF ITS ORDER, AFTER REFERRING TO THE JUDGEMENT OF THE SUPREME COURT CITED ABOVE, THE TRIBUNAL HAS OBS ERVED THAT SINCE THE SUPREME COURT WAS NOT PERSUADED BY THE DE CISION OF THE AAR, IT WOULD NOT BE PROPER TO FOLLOW THE DECIS ION OF THE AAR. THE TRIBUNAL ULTIMATELY NOTICED THAT THE SUPRE ME COURT DID NOT ACCEPT THE CONTENTION THAT AVOIDANCE OF DOU BLE TAXATION CAN ARISE ONLY WHEN THE TAX IS ACTUALLY PAID IN ON E OF THE CONTRACTING STATES. WE ARE ALSO INFORMED THAT THE L BENCH OF THE MUMBAI TRIBUNAL HAS TAKEN THE SAME VIEW IN ITS ORDER DATED 29.10.2010 IN ITA NO.1876/MUM/2006 AND IN THE CASE OF ITO VS. RAMESH KUMAR GROVER, (2010) 39 SOT 132. IN THE LIGHT OF THE PRECEDENTS CITED ABOVE, WE UPHOLD THE ORDERS OF THE CIT(A) IN BOTH THE CASES HOLDING THAT THE ASSESSEES ARE NO T LIABLE TO PAY SHORT TERM OR LONG TERM CAPITAL GAINS TAX IN INDIA AND DISMISS THE APPEALS FILED BY THE REVENUE. NO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF OCTOBER, 2010. SD/- (J.SUDHAKAR REDDY) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 27 TH OCTOBER, 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE DIT(INTL TAXATION)MUMBAI. 4. THE CIT(A)-XXXIII, MUMBAI 5. THE DR L BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI