TMI Blog2010 (10) TMI 610X X X X Extracts X X X X X X X X Extracts X X X X ..... ESIDENT: The appeal is by the Revenue and the cross objection is by the assessee. Both pertain to the assessment year 2005-06. The assessee is a company incorporated under the Companies Act, 1956 and licensed to carry on the banking business under the Banking Regulation Act, 1949. Its India Area Management Office and Registered Office are located at 52/60 Mahatma Gandhi Road, Mumbai. 2. In the course of the banking business, the assessee undertakes portfolio investment business under the Portfolio Investment Scheme for its NRI clients. In carrying on this business, the assessee makes remittances abroad in accordance with a Circular issued by the Reserve Bank of India on 07.12.2004, which is referred to in paragraph 2 of the order passed by the Assessing Officer. The assessee submitted the details of the foreign remittances made to residents of UAE, from which the Assessing Officer noted that these remittances had been made without deduction of tax at source, as per the certificates issued by the Chartered Accountants. In the certificates, the Chartered Accountants would appear to have stated that the remittances represent capital gains arising to the non-residents based in UAE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax in his home country is irrelevant in determining whether such person is eligible to enjoy in India the benefits of the tax treaty between his home country and India. Thus the question whether the NRI clients of the assessee-bank in UAE are in fact liable to tax in the UAE is not relevant consideration in determining the question whether Article 13 of the treaty is applicable; (f) in the case of Assistant Director of Income Tax (International Taxation) vs. Green Emirate Shipping and Travels, the Mumbai bench of the ITAT has held, by order dated 30.11.2005 in ITA No: 3784/Mum/2002, that whether or not the UAE actually levies income tax on individuals, once the right to tax the residents of UAE in specified circumstances becomes vested only with the Government of UAE, that right continues to remain with that Government, whether exercised or not and the expression liable to tax in the UAE does not imply that the person should actually be taxed by virtue of an existing law in UAE. On the basis of the aforesaid submissions the assessee pleaded that it should not be treated as a defaulter or charge interest under section 201 of the Act. 5. These submissions did not find favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 204 of the Act. The actual reference appears to be to clause (iii) of the section, which says that in the case of credit or payment of any other sum payable to the non-resident, the payer himself or if the payer is a company, the company itself including the principal officer thereof will be considered as the person responsible for paying. It would thus appear that the CIT(A) invoked clause (iii) of section 204 for holding the assessee to be a person responsible for paying the sun to the non-resident. 7. On the merits of the assessee s claim, namely, whether the capital gains were taxable in India and, therefore, the assessee was under a liability to deduct tax therefrom; the CIT(A) held in favour of the assessee, following the judgment of the Supreme Court in Union of India vs. Azadi Bachao Andolan (supra), where it was observed that the rulings of the AAR have no binding authority but have only persuasive value. He also referred to the order of the Mumbai Bench of the Tribunal in the case of ADIT vs. Green Emirate Shipping and Travels (supra) and after quoting extensively therefrom, held in paragraph 3.12 that the capital gains arising to NRIs residing in UAE cannot be taxed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liability for capital gains tax dependent on the country in which the transfer takes place, in contrast the treaty with UAE gives the right to tax the capital gains to that country of which the transferor is a resident 10. The Revenue is in appeal against the order of the CIT(A) questioning his decision on the merits of the assessee s claim, whereas the assessee is in cross objection to contend that the CIT(A) ought to have held that the assessee was not a person responsible for paying the sum to the non-resident and, therefore, not liable to deduct tax at source under section 195 of the Act. It is further contended that if the assessee is not so liable, it cannot be treated as an assessee in default under sub-section (1) of section 201 and no interest can be charged under sub-section (1A) of the section. 11. We have considered the rival contentions and the facts. Taking the cross objection first, section 195(1) provides that if any person responsible for paying any sum chargeable under the Act to a non-resident, he shall, at the time of credit of the income to the account of the payee or at the time of actual payment thereof, whichever is earlier, deduct income tax thereon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no need to specifically provide in clause (iia) for the liability of an authorized dealer in the case of long term capital gains since the authorized dealer would be covered by clause (iii) itself. It is therefore contended that the liability of an authorized dealer to deduct tax arises only in the case of remittance or credit of long term capital gains. 12. We find that clause (iii) was present in the section right from the introduction of the 1961 Act and the only amendment made thereto was by the Finance (No.2) Act, 1967, with effect from 01.04.1967 by substituting the opening words in the case of payments by the words in the case of credit, or as the case may be, payment . Clause (iia) was introduced later by the Finance Act, 1986, with effect from 01.06.1986. Whereas clause (iii) was in general terms, clause (iia) specifically provided for cases of amounts payable to a non-resident Indian of consideration for the transfer by him of any foreign exchange asset, which is not a short term capital asset. The scope and effect of introducing this clause was explained by Circular No.461 dated 9th July 1986, reported in (1986) 161 ITR (St.) 17. Paragraph 30.1 of the Circular sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to deduct tax from the amount credited to the NRE Account of the NRI. Therefore, on this ground alone the order passed by the Assessing Officer treating the assessee as a defaulter and also charging interest under subsection (1) and sub-section (1A) respectively of section 201, require to be set aside. We do so and thus allow the assessee s cross objection. 13. In the light of the decision rendered by us on the assessee s cross objection, it is not necessary to examine the Department s appeal in any detail. However, since the matter was argued before us, we consider it proper to decide the same. The matter stands covered in favour of the assessee by several orders of the Mumbai Benches of the Tribunal, where it has been held that even though the NRIs are not actually assessable to tax in the UAE, they cannot be denied the benefit of the Indo-UAE treaty and once they are liable to tax in UAE, they cannot be taxed in India in respect of the capital gains and on this ground the assessee-bank was under no liability to deduct tax under section 195(1) of the Act. 14. The order of the Mumbai Bench of the Tribunal in the case of Assistant Director of Income Tax (International Taxat ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
