TaxTMI 
TaxTMI 
2011 (9) TMI 654
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....otal tax liability under section 201(1) at Rs. 94,02,048/- and under section 201(1A) at Rs. 9,25,437/-. 3. The Bank also forwarded another 43 CA certificates vide their letter dated 19.05.2005, 5 certificates vide letter dated 26.04.2005, 84 certificates vide letter dated 23.03.2005 and 90 certificates vide letter dated 25.04.2005. Against these certificates the A.O. raised a demand under section 201(1) at Rs. 2,40,71,073/- and under section 201(1A) at Rs. 23,69,899/-. These two separate orders passed by the A.O. 28th March 2007 and 12th January 2006 were subject matter of appeal before the CIT(A) and the CIT(A) vide the above dated orders deleted the tax and interest levied under section 201(1) and 201(1A). Therefore, the Revenue is aggrieved and raised the following common grounds in respect of the above appeals: - "a) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the order passed under section 201(1) & 201(1A) of the Act, ignoring the fact that the beneficiaries of Capital Gain are not treaty subjects in UAE. b) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred summarily ignoring the rulin....
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....urther contended that there are a number of Articles in the DTAA between India & UAE solely concerning with individuals (in particular, Article 14 to 21). If the intention was not to make the DTAA applicable to individuals, there was no need to have such Articles dealing with taxation of income in the hands of the individuals. The Bank further contended that the DTAA applies to all persons residing in UAE and there is no justification for excluding individuals from the purview of the relevant provision. The Bank contended that whenever the government intended the provisions of Treaty should not be applicable if the resident of one state is no subject to tax in that state a specific restrictive clause to that extent is included in the Treaty. In this regard the Bank has made references to the DTAA signed by India with Ukraine, Jordan and Sweden. The Bank further argued that since no such provision is available in the Indo-UAE Treaty the individuals residing in UAE cannot be taxed in India. The Bank further contended that the provisions of DTAA entered into between the Governments allocate jurisdiction between contracting states for the purpose of levy of tax and limits rate of tax l....
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.... Pereia 239 ITR 650 was considered and also the decision of the Tribunal in the case of ACIT vs. Green Emirates Shipping & Travels 100 ITD 203, came to a conclusion that there is no tax liability on the capital gains on the constituents who are residents of UAE and hence the Bank is not responsible for deducting tax. He also gave the following finding in para 5 of the order: - "5. Before parting, I also wish to share the following views which also supports my decision: (a) DTAA Treaty is entered into two countries to benefit the people living in these two countries from avoidance of double taxation. Just because the individuals are not an assessable entity in UAE, if we hold they are not entitled to the benefits of tax treaty, then it will amount to leaving the entire citizens living in UAE out of the tax treaty. This may not be intention of the Treaty. (b) As per DTAA article 13, the capital gains on immovable property will be taxed in the country in which the property is situated. Similarly, for the movable assets forming part of business assets, the capital gains arises where the Permanent Establishment is situated. Hence, in these two cases, the capital gains are taxable ....
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....other Contracting State.´(emphasis supplied) Since no such provision is available in the UAE treaty, the contentions put forth by the appellant is acceptable. 5.1 In view of the decision of the Hon'ble Supreme Court in the case of Azadi Bacaho Andolan 263 ITR 706; & also the Hon'ble ITAT's decision in the case of Asstt. DIT vs. Green Emirates Shipping & Travels 100 ITD 203 and also in view of my above observations I am fully convinced that the capital gains arising out of the transfer of T Bills in the hands of the residents of UAE is not taxable in India in view of DTAA. I direct the A O to cancel the demand raised u/s. 201 and u/s. 201(1A) of the I.T. Act." Revenue is aggrieved on the above and raised the grounds accordingly. 7. It was the contention of the learned D.R. that the Tribunal has taken a decision already but the proof that these constituents are residents of UAE is required to be verified and made request that the matter be examined afresh. She relied on the order of the A.O. in submitting that there is no tax liability on the constituents/investors in UAE, therefore, they are liable to be taxed in India as held by the A.O. 8. The learned counsel....
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....orming 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 the 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) Gains from the alienation of any property other than that mentioned in paragraphs 1 and 2 shall be taxable only in the contracting State of which the alienator is a resident. Article 4 of the India-UAE DTAA defines resident of a contracting State as any persons who under the laws of the State is liable to tax therein. 10. Vide Article 13(3) it is very clearly stated that gains from alienation of any property other than mentioned in paragraphs 1 and 2 shall be taxable only in the contracting state of which the alienator is a resident. Paragraph 1 refers to alienation of immovable property and paragraph 2 refers to alienation of movable property forming part of business property ....
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....s', '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 UAE residents in specified circumstances vest....
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...., 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 judgement 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." 13. In our view the decision in the case of Green Emirates Shipping and Travels (supra) is clearly applicable to the facts of the case. As held in the aforesaid case the expression 'liable to tax in the contracting state' as used in Article 4.1 of Indo....