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2012 (7) TMI 806 - HC - Income TaxInitiation of reassessment proceedings u/s 147 r.w.s. 148 - DTAA between India and the UAE - as there was no tax regime in UAE and as the assessee was not liable to taxation in UAE, the question of benefit under the said DTAA was not applicable - Held that:- In terms of Circular No. 732 dated 20th December, 1995, the petitioner was issued an ‘annual no objection certificate’ and in terms thereof, the ships operated and owned by the petitioner were allowed to leave the ports. The certificate as itself was treated as valid and binding and in compliance with the Section 172. As the AO has relied upon judgments of ARR in Cyril Eugene Pereira, In Re (2005 (5) TMI 12 - AUTHORITY FOR ADVANCE RULINGS ) for the proposition that benefit under DTAA is only meant for taxpayers who are liable to pay tax twice in two countries on the same income and not where tax is not payable in one country but failed to notice the decision of the Supreme Court in Azadi Bachao Andolan [2003 (10) TMI 5 - SUPREME COURT]disapproving the reasoning/ratio mentioned in Cyril Eugene Pereira The circular issued by CBDT No. 789 dated 13th April draws a distinction between “liability to pay tax” and “actual or de facto payment of tax”. Phrase ‘liable to taxation’ it has been held is not the same as ‘payment of tax’. The test for liability for taxation is not determined on the basis of an exemption granted in respect of any particular source of income but by taking into consideration the totality of provisions of income tax law - Merely because at the given time there is an exemption from income tax in respect of any particular head, it cannot be contended or held that the assessee is not liable to tax - For the purpose of application of article 4 of the DTAC, what is relevant is the legal situation, namely, liability to taxation, and not the fiscal fact of actual payment of tax. If this were not so, the DTAC would not have used the words, “liable to taxation”, but would have used some appropriate words like “pays tax” - the company incorporated in Dubai and carrying on shipping business in India is entitled to benefit under Article 8 of the DTAA and there is no scope of taxing them in any port of India - in favour of assessee.
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