TMI Blog2012 (5) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... dia-UAE have to be examined by treating him as a resident of UAE. Deduction u/s 80HHC / 80HHE to non residents - held that:- The provisions of Sec.80-HHE and 80-HHC are identical and so are the relevant clauses of the DTAA between India and UAE regarding non-discrimination. Respectfully following the ratio laid down by the Special Bench in the case of Rajeev Sureshbhai Gajwani (2011 -TMI - 202351 - ITAT, AHMEDABAD), we hold that the Assessee cannot be denied the benefit of deduction u/s.80-HHC of the Act on the sole ground that he was not a resident. - IT Appeal No. 1681 (Mum.) of 2009 - - - Dated:- 20-3-2012 - R.S. Syal, N.V. Vasudevan, JJ. M. Subramanian for the Appellant. Jitendra Yadav for the Respondent. ORDER N.V. Vasudevan, Judicial Member This is an appeal by the Assessee against the order dated 15.01.2009 of CIT(A)-XXXI, Mumbai, relating to A.Y. 2003-04. 2. Grounds of appeal of the Assessee read as follows :- "1. The Commissioner of Income Tax has erred in disallowing the claim of deduction of Rs.3,94,641/- u/s. 80HHC for the profits from exports. 2. Without prejudice, since the assessee is a non resident he ought to have been granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO it is not sufficient for a person to claim the benefits of India UAE DTAA to be just a "Resident of the other contracting State", but he must also have paid tax on the income in respect of which the benefit u/s.80-HHC of the Act was claimed. The AO also held that the Assessee did not produce tax residency certificate to prove that he was a resident of UAE. 5. Before CIT(A), the Assessee relied on Article 26(2) of the DTAA between India and UAE which provided that the taxation of a PE of an enterprise of a contracting State in the other contracting State shall not be less favorably levied in that other Contracting State than the tax levied on enterprises of that other contracting State carrying on the same activities in the same circumstances or under the same conditions and submitted that as an enterprise of the other contracting state (UAE) he was being subjected to tax which is more burdensome than those levied on the enterprise of the contracting state (India). According to the Assessee in view of the provisions of Article 26(2) of the India-UAE DTAA, the Assessee should also be allowed deduction u/s.80-HHC of the Act. 6. The CIT(A) rejected the argument of the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovides that only Indian companies are eligible for deduction. By implication, it would appear that while Indian companies are not eligible for this deduction." In the light of above decision it is seen that claim of deduction u/s.80HHC is denied due to status of assessee being non-resident and not because of nationality. Therefore the learned AO was right in disallowance the claim of appellant. Therefore, it is held that there is no discrimination as per Article 26 as claimed by the appellant. Therefore, it is held that there is no discrimination as per Article 26 as claimed by the appellant; hence this ground of appeal is rejected." 7. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. We have heard the rival submissions. The learned A.R. relied reiterated submissions made before the CIT(A) and further relied on the decision of the Special Bench of ITAT, Ahmedabad, in the case of Rajeev Sureshbhai Gajwani v. Asstt. CIT [2011] 129 ITD 145/10 taxmann.com 62 (Ahd.) and submitted that as laid down therein the benefit of deduction available to a resident of India cannot be denied to a resident of UAE in view of Article 26(2) of the DTAA betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect law by the Hon"ble Supreme Court in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/ 132 Taxmann 373 (SC) at page 742. The Tribuan in this regard observed thus: "6. Undoubtedly, in Cyril Eugene Pereria's case (supra), Hon'ble 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 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 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 Contracting States". However, in Azadi Bachao Andolan's case (supra), Their Lordships of Hon'ble Supreme Court, after referring to the said ruling 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 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate entities, even though based in UAE, cannot be treated as 'resident' for the purposes of the India-UAE DTAA as follows: "Our attention is also invited to the learned Assessing Officer'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 Contracting 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 Court holding 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". As we have noted earlier also, 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) contend that, acceptance of the respondent's submission that double taxation avoidance is not perm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od 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 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 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'." [Emphasis supplied] 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 tax 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 'distributive' rule, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'liable to tax' in the 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 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 Court's 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 Assessing Officer or before the CIT(A), is also not sustainable in law either. 9. In our view, decision in the case of Green Emirate Shipping Travels (supra) is squarely applicable 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 that 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 right is exercised. Thus the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction u/s.80-HHE of the Act, he should not be treated less favourably than a resident person in view of the aforesaid provision. The Special Bench held that Article 26(2) of the India-USA DTAA provides that the taxation of a PE of an enterprise of a Contracting State in the other Contracting State shall not be less favorably levied in that other State than the tax levied on enterprises of that other Contracting State carrying on the same activities. In simple language, Article 26(2) means that taxation of a PE of a USA resident shall not be less favorable than the taxation of a resident enterprise carrying on the same activities in the same circumstances or under the same conditions. The result is that the exemptions and deductions available to Indian enterprises would also be granted to the US enterprises if they are carrying on the same activities. As the assessee was carrying on the "same activities" of export of software as done by residents, it was entitled to s. 80HHE deduction as admissible to a resident assessee. The Special Bench overruled the decision of the Mumbai Tribunal in the case of Automated Securities Clearance Inc. v. ITO [2008] 118 TTJ 619 (Pune). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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