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TMI Blog2012 (5) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee carried on business in India under the name Centre Point Corporation. The business was that of export of electronic goods and plastic mould to Dubai and Nigeria. The profits derived during the previous year from such business was Rs.7,91,512. The Assessee claimed deduction u/s.80HHC of the Income Tax Act, 1961(the Act), of Rs.3,94,641 being 50% out of the aforesaid profits derived from the business of export. 4. The AO noticed that the benefit under the provisions of Sec.80HHC of the Act was available only to resident individuals and since the Assessee was a non-resident individual, the AO denied benefit of deduction u/s.80-HHC of the Act to the Assessee. The Assessee also submitted before the AO that he was a resident of UAE and therefore was entitled to the benefits under the DTAA between India and UAE. The AO rejected this argument of the Assessee also. The AO in this regard found that under Article 4 of the India UAE DTAA a resident of a contracting state means any person who under the laws of that State is liable to tax therein. In UAE individuals are not subject to tax. Since the definition of a resident of a contracting state under the India-UAE DTAA means "a pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dtd 15th may 2008; the learned AO stated that it is common knowledge that individuals are not subjected to tax on their income in the UAE. Payments of custom duty on import, if any do not make an assessee whose income is liable to tax in UAE On the plain reading of DTAA, it is apparent that the treaty has been signed to eliminate the tax payer's problems of being taxed on the same income in two countries. Since the assessee does not paid tax on the income in UAE, the question of allowance of relief under the avoidance of double taxation does not arise. I inclined to agree with learned AO. I also place reliance on Credit Lyonnais vs. DCIT -94 ITD 401 (MUM) wherein it was held that non availability of deduction u/s.80M to foreign companies - cannot be considered as discrimination on ground of nationality. Similarly the hon'ble ITAT Pune in Aautomated Securities Cleracnce Inc Vs. ITO, Pune, 2008-TIOIL-443-Pune-dtd 10th September 2008 has held as under : "Non-Discrimination-Incentive deduction under section 80HHE in respect of profits of business of software exports - not eligible for foreign companies - no discrimination: A careful analysis of the scheme of Section 80HHE does show t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as to whether the Assessee can be considered as Resident of UAE. There is no dispute that the Assessee would be liable to tax in UAE though he may not have actually be taxed in that country because income of individuals are not liable to taxation in UAE. The question therefore is as to whether the expression 'liable to tax' in the contracting state as used in Article 4(1)of Indo-UAE-DTAA does necessarily imply that the person should actually be liable to tax in that contracting state and whether it is enough if other contracting state has right to tax such person, whether or not such a right is actually exercised. This question has already been considered by the Mumbai Bench of the Tribunal in the case of Asstt. DIT v. Green Emirate Shipping & Travels [2006]100 ITD 203 (Mum). In the case of Green Emirate Shipping & Travels (supra). The facts of the case were that the assessee was a shipping line based in United Arab Emirates. In the relevant previous year, the assessee had a taxable income of Rs. 28,35,628 from shipping operations. The assessee's claim was that in terms of article 8 of the Indo-UAE Double Taxation Avoidance Agreement , the assessee's income was liable to tax only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves taxation for the other Contracting State either entirely or in part. Contracting States are said to waive 'tax claims' 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' (Verteilungsnorm). 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". Further, according to Vogel, "only in exceptional cases, and only when expressly agreed to by the parties, is exemption in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the same as situations contemplated under clause (a)." The very contention which has been raised by the revenue in this case was successfully challenged by the Union of India before the Hon'ble Supreme Court. It cannot be open to us to take any other view of the matter than the view so taken by the Hon'ble Supreme Court." The Tribunal then dealt with the question as to whether existing liability to pay taxes in UAE is a sine qua non to avail the benefit of India-UAE tax treaty in India as follows: "8. Although the Assessing Officer's objection to applicability of India-UAE tax treaty was only on the ground that the provisions of double taxation avoidance agreements do not come into play unless it is established that the assessee is paying tax in both the countries in respect of the same income, in the grounds of appeal before us it is also contended that the assessee-company failed to produce any evidence to the effect that it was 'liable to pay taxes' in UAE. The question then arises whether an existing liability to pay taxes in UAE is a sine qua non to avail the benefit of India-UAE tax treaty in India. On this issue also, we find guidance from the judgment of Hon'ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... US were to abolish the capital gains tax completely, while the other country did not, a resident of the country which has abolished the capital gains would still be exempt from capital gains in that other country". It is thus clear that taxability in one country is not sine qua non for availing relief under the treaty from taxability in the other country. All that is necessary for this purpose is that the person should be 'liable to tax in the Contracting State by reason of domicile, residence, place of management, place of incorporation or any other criterion of similar nature' which essentially refers to the fiscal domicile of such a person. In other words, if fiscal domicile of a person is in a Contracting State, irrespective of whether or not that person is actually liable to pay tax in that country, he is to be treated as resident of that Contracting State. The expression 'liable to tax' is not to read in isolation but in conjunction with the words immediately following it i.e., 'by reason of domicile, residence, place of management, place of incorporation or any other criterion of similar nature'. That would mean that merely a person living in a Contracting State should not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 4.3.2011, since had to deal with an identical case as that of the Assessee in the present appeal. The assessee before the Special Bench was a citizen of America, was an exporter of software, having PE in India. He claimed deduction under section 80 HHE, in respect of profits earned from export of computer software. Section 80 HHE provided that in the case of an assessee, being an Indian Company or a person other than a Company (resident in India), who is engaged inter alia in the business of export of computer software out of India or its transmission from India to a place outside India by any means, the profits are not to be included in the total income. The provisions thus granted deduction only to an Indian Company or a person who is a resident in India. Since the assessee was a non-resident the claim for deduction was not allowed. The Assessee argued that Section 90(2) of the Act provides that where the Central Government has entered into an agreement with the Government of any Country outside India or specified territory outside India for grant of relief of tax or avoidance of double taxation, then in relation to the person to whom such agreement applies, the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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