TMI Blog2010 (9) TMI 1128X X X X Extracts X X X X X X X X Extracts X X X X ..... by the orders of the Tribunal rendered in the case of ITO-3(1), Mumbai vs. Ramesh Kumar Goenka, 39 SOT 132, Mera Bhatia vs. ITO1(1), Mumbai, 38 SOT 95 and ADIT vs. Green Emirate Shipping Travel (2006), 99 TTJ (Mumbai) 988 (2006) 6 SOT 329 (Mumbai) : (2006) 100 ITD 203 (Mumbai). 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 decided in favour of the assessee. He further pointed out that the facts in the case of Ramesh Kumar Goenka and in the assessee s case are identical. Ld.DR, on the other hand, was unable to controvert the contention of the assessee. She relied upon the assessment order. 3. We have duly considered the rival contention and gone through the record carefully. The dispute in all the three years relate to taxability of capital gains arose on account of transfer of shares and securities. According to the assessee, he is a resident of Dubai, UAE and is covered under the Indo-UAE DTAA. He is entitled to benefit under the Double Taxation Avoidance Agreement executed between India UAE. According to the assessee, as per Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 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 person who under the laws of that State is liable to tax therein. There is no dispute that the assessee is a resident of UAE. The Assessing Officer, however, rejected the claim of the assessee on the ground that the assessee is not paying taxes in UAE . The Assessing Officer relied upon the decision of the AAR in the case of Abdul Razak A. Meman, In re [2005] 276 ITR 306 (AAR - New Delhi) which had considered the decision of the Hon ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 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 one of the Contracting States . The reasoning given by Their Lordships included the following : According to Klaus Vogel Double Taxation Conventions establishes an independent mechanism to avoid double taxation through restriction of tax claims in areas where overlapping tax claims are expected, or at least theoretically possible. In other words, Contracting States mutually bind themselves not to levy taxes or to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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 is not permissible unless the tax is paid in both countries is contrary to the intendment of section 90. It is urged that clause (b) of subsection (1) of section 90 applies to a situation where income-tax has been paid in both the countries, but clause (b) deals with the situation of avoidance of double taxation of income. Inasmuch as Parliament has distinguished between the two situations, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax 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 distributive rule, is independent of whether the Contracting State imposes a tax in the situation to which exemption implies . In the case of John N. Gladden v. Her Majesty the Queen 85 TC 5188, which was quoted with approval by the Hon ble Supreme Court in Azadi Bachao Andolan s case (supra), Federal Court of Canada was observed that the non-resident can benefit from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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 necessarily imply that the person should actually be liable to tax in that contracting State and that it is enough if other contracting State has right to tax such person, whether or not such a right is exercised. In the light of the ratio laid down in the aforesaid decision, which has been followed by CIT(A), we find no grounds to interfere with the order of CIT(A). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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