TMI Blog2010 (9) TMI 511X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed - ITA No. 7244/Mum/08 - - - Dated:- 30-9-2010 - R.K.PANDA ACCOUNTANT MEMBER J. N.V.VASUDEVAN JUDICIAL MEMBER J. Appellant by: Shri Senthil Kumar Respondent by: Shri Jaidev ORDER PER N.V.VASUDEVAN, J.M: This is an appeal by the revenue against the order dated, 15.10.2008 of CIT (A) XXXI, Mumbai relating to A.Y. 2005-06. Grounds raised in this appeal of the revenue read as follows: 1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the benefit under the Indo-UAE DTAA is available to the assessee by relying on the Hon ble ITAT s decision in the case of Green Emirates Shipping Travels (99 TTJ 988) which ignored the reasoning given by the Hon ble Authority for Advance Ruling in the case of Abdul Razak a. Memon ( 276 ITR 306). 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the benefit under the Indo-UAE DTAA is available to the assessee although the assessee was not a treaty subject. 2. The assesee claimed that it was a non-resident and that it was resident of UAE. During the previous year it entered into an agreement wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Treat. In view of the above, Taxable Income was declared at NIL. 4. The revised return is filed in view of the decision of Bombay Tribunal in the case of ADIT vs. Green Emirates Shipping and Travels, 99 TTJ 988 wherein it has been held that DTAA between India and UAE is applicable even though the assessee has not paid any tax in U.A.E so long as the personis liable to tax in the Contracting State . It was further held that being liable to tax in a country does not necessarily imply that the person should actually be liable to tax in that Contracting State by virtue of an existing legal provision but would also cover the cases where the other Contracting State has the right to tax such persons, whether or nor such a right is exercised. 5. According to the AO, the definition of resident under Article 4 of the DTAA contemplates that the recipient must pay tax on the receipts in UAE. Admittedly in UAE the income in question was not charged to tax. The AO however placed reliance on the decision of the Authority for Advance Rulings (AAR) in Cyril Eugene Pereira (239 ITR 650) . 6. The A.O also placed reliance on decision of the AAR in the case of Abdul Razak A. Meman ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said decision was held to be not laying down the correct law by the Hon ble Supreme Court in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 7061, at page 742. The tribunal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch non-corporate 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibe this 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 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 distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that being 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 liabile to tax , which was anyway not taken by the Assessing Officer or before the CIT(A), is also not sustainable in law either. 12. Aggrieved by the order of CIT(A), the revenue is in 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 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 necessari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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