TMI Blog2011 (8) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... RAJPAL YADAV, JJ. Smt. Srujani Mohanty for the Appellant. Sunil Goel for the Respondent. ORDER Rajpal Yadav, Judicial Member. The Revenue is in appeal before us against the order of the Ld. Commissioner of Income-tax (Appeals), dated 14-12-2010 passed for assessment year 2007-08. 2. The grounds of appeal taken by the Revenue read as under:- "(i) On the facts and circumstances of the case, Ld. Commissioner of Income-tax (Appeals) has erred in inferring the meaning of phrase 'liable to tax' in Article 4 of Indo-UAE DTAA. (ii) On the facts and circumstances of the case, Ld. Commissioner of Income-tax (Appeals) has erred in holding that the benefit of Indo-UAE DTAA is available to assessee. (iii) The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal." 3. Ld. Departmental Representative submitted that this appeal has to be argued by another Departmental Representative, Shri N.K. Chand and therefore, an adjournment be granted. On the other hand, ld. counsel of the assessee submitted that issue in dispute is squarely covered in favour of the assessee by the order of the ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 30-3-2010 passed for AYs 2004-05, 2005-06 2006-07. The grounds of appeal taken by the revenue in all the three assessment years are verbatim same. For the facility of reference, we take note of the grounds of appeal taken by the revenue in assessment year 2004-05 which read as under: "1. On the facts and in circumstances of the case, Ld. CIT(A) has erred in inferring that the meaning of phrase liable to tax in Article 4 of Indo-UAE DTAA. 2. On the facts and circumstances of the case, Ld. CIT(A) has erred in deciding that the benefit of Indo-UAE DTAA is available to assessee. 2. Ld. Counsel for the assessee at the very outset submitted that issue and dispute is squarely covered in favour of the assessee by the orders of the Tribunal rendered in the case of ITO- 3(1), Mumbai v. Ramesh Kumar Goenka, 39 SOT 132, Mera Bhatia v. ITO 1(1), Mumbai, 38 SOT 95 and ADIT v. Green Emirate Shipping Travel [2006] 99 TTJ (Mum.) 988 [2006] 6 SOT 329 (Mum.) : [2006] 100 ITD 203 (Mum.). He further contended that apart form these three orders of the Tribunal, referred to above, this issue was considered by the Authority for Advance Rulings On a number of occasion and issue was decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of article 13(3) of the Indo-UAE DTAA. Since the assessee was a resident of UAE, it is only UAE which has a right to tax capital gain and not India. Article 13 of the agreement for avoidance of double taxation between India and the UAE (hereinafter referred to as the 'India-UAE Treaty') provides an exemption from capital gains tax in India to residents of UAE. It reads as under : Article 13 : Capital gains : (1) Gains derived by a resident of a contracting State from the alienation of immovable property referred to in paragraph 2 of Article 6 and situated in the other contracting State may be taxed in that other State. (2) Gain from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a contracting State has in the other contracting State or of movable property pertaining to a fixed base available to a resident of a contracting State in the other contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the enterprise) or of such fixed base may be taxed in that other State. (3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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'. 5. The Tribunal firstly disagreed with the view expressed by the AAR in the case of Cyril Eugene Pereira (supra) on the ground that the said decision was held to be not laying down the correct law by the Hon'ble Supreme Court in the case of Azadi Bachao Andolan (supra). The Tribunal held that : "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 rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advance Ruling in the case of Abdul Razak A. Meman (supra) was also not good law. 7. The Tribunal dealt with the argument of the Learned Departmental Representative that as non-corporate entities are not taxable entities under the UAE Tax Treaty such 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 arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or more illustratively to divide 'tax sources', 'taxable objects', amongst themselves. Double taxation avoidance treaties were in vogue even from the time of the League of Nations. The experts appointed in the early 1920s by the League of Nations describe 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch attract residence type taxation, that 'person' is to be treated as resident and this status of being a 'resident' of the Contracting State is independent of the actual levy of tax on that person. Viewed in this perspective, we are of the considered opinion 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 '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. 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, decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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