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Mrs. Shalini Seekond Versus Income Tax Officer, Mumbai

2016 (7) TMI 460 - ITAT MUMBAI

Taxability in India - capital gain arising on the sale of immovable property in Colombo, Sri Lanka - DTAA - Held that:- The income of the assessee earned on capital gains on sale of immovable property situated in Sri Lanka during relevant previous year shall be chargeable to tax only in Sri Lanka by Government of the Democratic Socialist Republic of Sri Lanka, while the same income shall be included in the income of the assessee chargeable to tax in India under the provisions of the Act and the .....

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amit Kochar, Accountant Member This appeal, filed by the assessee, being ITA No. 3877/Mum/2012, is directed against the order dated 28-03-2012 passed by learned Commissioner of Income Tax (Appeals)- 8, Mumbai (hereinafter called "the CIT(A)" ), for the assessment year 2007-08, the appellate proceedings before the CIT(A) arising from the assessment order dated 30-12-2009 passed by the learned Assessing Officer (hereinafter called "the AO") u/s 143(3) of the Income Tax Act,1961 .....

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that the case of the assessee was selected for scrutiny by Revenue under CASS. It was observed by the AO from the CASS details that the assessee has purchased units of Mutual Funds amounting to ₹ 2,44,17,000/- . The assessee was asked to submit the source of the said investment by the AO to which the assessee submitted that the assessee had one-half right, title and interest in a property at Sri Lanka. The other half right, title and interest was held by her father, Mr Jhamatmal Mirchanda .....

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Paragraph 1 of Article 13 reads as under: 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. Therefore, it was submitted by the assessee that under Article 13 of the DTAA, the gains derived by a resident of even India from the sale of an immovable property situated in Sri-Lanka are required to be taxed in Sri-Lanka. Thus, in view of th .....

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f which she is a national, namely Sri-Lanka , and if the fiscal domicile is Sri Lanka , the capital gain must be deemed to have arisen in Sri-Lanka and taxable only in Sri-Lanka. The AO rejected the contentions of the assessee in view of the fact that the assessee is a Resident of India u/s. 6 of the Act and any income arising in India or outside India is fully taxable u/s. 5 of the Act. The AO held that the claim of the assessee is not found tenable considering the Notification No. 91 of 2008 d .....

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a "may be taxed" in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income Tax Act,1961 (43 of 1961) , and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement." Thus, the AO held that in view of the above notification dated 28-08-2008 issued by Central Government , the assessee should have included the income from cap .....

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at the income from sale of immovable property situated in Sri-Lanka be taxed as Long Term Capital Gains . The AO , thus, vide assessment orders dated 30-12-2009 passed u/s 143(3) of the Act brought to tax the Long Term Capital Gains arising from sale of immovable property at Sri-Lanka amounting to ₹ 1,56,01,361/-. 4. Aggrieved by the assessment orders dated 30-12-2009 passed by the AO u/s. 143(3) of the Act , the assessee filed first appeal with the learned CIT(A). 5. The assessee contende .....

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s located in Sri-Lanka. The assessee contended that Article 13 of the DTAA between India and Srilanka deals with taxability of capital gains from alienation of immovable property which is as under: " Article 13(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) to (5) **** (6) The term "alienation" means the sale , e .....

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the term 'resident of a Contracting State' means , any person who, under the law of that State, is liable to tax therein by reason of his domicile , residence, place of management or any other criteria of a similar nature. But this term does not include any person who is liable to tax in that State in respect of income from sources or capital situated therein. 2. Where by reason of the provisions of paragraph 1 of this article, an individual is a resident of both Contracting States , the .....

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e shall be deemed to be a resident of the State in which he has an habitual abode; (c) If he has an habitual abode in both States or in neither of them , he shall be deemed to be a resident of the State of which he is national; (d) If he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement. 3. Where by reason of the provisions of paragraph1 of this Article a person other than an individual is a resid .....

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ka as she also has permanent home available to her in Sri Lanka because of her parents residing there and also because she owned one immovable property in Sri Lanka which is now sold in this previous year. It was submitted that she was not the owner of any property in India. In any case , if there is any uncertainty on this issue , as per Article 4(2) , she must be deemed to be a resident of the State of which she is national, namely Sri-Lanka. Thus, the assessee submitted that if the assessee f .....

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208 ITR 400(Mad. HC). The assessee also placed reliance on circular no 333 , dated April 2, 1982 , (1982) 137 ITR (St.)1 issued by CBDT. The assessee contended that even assuming without admitting that the assessee is a resident of India even under DTAA between India and Sri Lanka , still if when one read Article 13(1) of the DTAA , the gains derived by the assessee from the alienation of immovable property situated in Sri-Lanka, may be taxed in Sri-Lanka and the term 'may be taxed' shou .....

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r the assessee is considered as resident of India or that of Sri-Lanka under DTAA , the capital gains on the sale of the immovable property located in Sri-Lanka by the assessee shall be taxed only in Sri-Lanka and not in India. It was also contended that even if there is zero taxation in one country to DTAA, still the provisions of DTAA will be applicable and to contend that the relief will be available only when tax has been paid in both the countries which are party to DTAA is not correct and .....

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ner of Taxation v. Lamesa Holdings, (1997) 785 FCA, the court held that it is not necessary that tax should be payable in both states to grant the benefit of DTAA. It was submitted that there is no need that tax should be levied or leviable in both countries in order to apply the provisions of the Treaty. Thus, if one country does not tax and other does, if the income is in the country which does not tax, then the country which taxes cannot take away the right of not taxing the concerned income. .....

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ovable property can only be in Sri-Lanka and not in India, keeping in view provisions of Article 13(1) of the DTAA between India and Sri- Lanka , which view is supported by the decision of Hon'ble Supreme Court in the case of P.V.A.L. Kulandagan Chettiar , 267 ITR 654(SC) . The learned CIT(A) rejected the contentions of the assessee and held that as per Section 6 of the Act, the assessee fulfills all the conditions in terms of its status that the assessee is a resident of India during the re .....

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learned CIT(A), the assessee filed second appeal with the Tribunal. 7. The learned counsel for the assessee submitted that the issue in this appeal is regarding taxability of gains earned by the assessee on the sale of immovable property located at Sri-Lanka . The learned counsel drew our attention to the DTAA entered between India and Sri-Lanka to contend that as per Article 13 of the said treaty , the gains arising on sale of immovable property located in Sri-Lanka is taxable in Sri-Lanka. Th .....

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Article 4 of DTAA. It was submitted that it is to be ascertained based on facts and circumstances of the case where the domicile of the assessee is situated whether at place of marriage i.e. India or at Sri-Lanka. It was submitted that in case of divorce taking place, will the domicile change again. The learned counsel submitted that the assessee is resident of Sri-Lanka and hence income from Sri-Lanka is taxable in Sri- Lanka and not in India. The learned counsel referred to commentary on Artic .....

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the Act to contend that the assessee is resident in India as per the conditions contained there-in Section 6 of the Act , which is an admitted position now as the assessee had admitted that she is resident in India during relevant previous year as per provisions of the Act. This was not disputed before the authorities below. The learned CIT DR would contend that tax residency and nationality are two different concepts and the assessee being tax-resident of India, the capital gains arising there- .....

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e assessee cannot be allowed to change its admitted and undisputed position of being Resident in India under the provisions of the Act. The learned CIT DR contended that the Article 4(2) of DTAA will come into play when the assessee is tax-resident of both the contracting states. The assessee being resident of India, global income is taxable in India. The learned counsel for the assessee submitted in rejoinder that it is relevant and material to see the resident status under DTAA for chargeabili .....

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ned by her during the relevant previous year which immovable property so sold during relevant previous year was situated in Sri- Lanka. It was an admitted and undisputed position before the authorities below that as per provisions of Section 6 of the Act , the assessee is resident in India during the relevant previous year as it was stated that the assessee duly stayed for more than prescribed period u/s. 6 of the Act in India during the relevant previous year to come within the definition of be .....

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Act, which determines residence of an individual , she is resident of India for the purposes of the Income-tax Act,1961( "the Act")" The same contentions were repeated by the assessee during appellate proceedings before the learned CIT(A) vide written submissions no IT/S- 33/307 dated 06-12-2011 vide para 6 , which are placed in paper book page 82-83 filed before the Tribunal. The assessee has also declared her Residential status as being 'resident in India' during the rel .....

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ing in all to one hundred and eighty-two days or more ; or (b) 29[* * *] (c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year. 30[Explanation.-In the case of an individual,- (a) ***** (b) ***** (2) to (4) ***** (5) If a person is resident in India in a previous year relevant to an assessment year in respect of .....

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ounting in all to, seven hundred and twenty-nine days or less; or (b) a Hindu undivided family whose manager has been a non- resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.]" Nothing has been brought on record by the assessee to disprove this admitted position before the authorities below that the a .....

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39; during the relevant previous year as per provisions of the Act. No such cogent material or evidences have been brought on record by the assessee to prove her contention that she is not resident in India under the provisions of the Act during the relevant previous year. Thus, we hold that she is resident in India during the relevant previous year under the provisions of the Act keeping in view the provisions of Section 6 of the Act. Now coming to the residential status of the assessee as per .....

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be seen that whether the assessee can be categorized as resident of Sri- Lanka under the provisions of DTAA. The conditions vide Article 4(2) of DTAA stipulates that the person shall be deemed to be resident of the State in which he/she has permanent home available to him/her , and if he/she has permanent home available to him/her in both States , he/she shall be deemed to be a resident of the State with which his/her personal and economic relations are closer( centre of vital interest). As it .....

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national, however post marriage she continued to own one immovable property in Sri-Lanka which is the sole immovable property owned by her in Sri-Lanka which also in-fact was sold during the relevant previous year whose taxability of gain on sale of the afore- said immovable property is subject matter of the instant appeal. Her selling of the immovable property in Sri Lanka which is the sole property owned by her during relevant previous year for equivalent Indian ₹ 3.93 crores and buying .....

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ing to India to stay with her husband post marriage clearly indicates that her permanent home is now arranged, established and is available to her in India along with her husband and children, if any after marriage despite the fact she might not be owning an house in India as the condition as stipulated in Article 4 is regarding availability of permanent home in the state of residence and it no-where stipulates that the assessee should own an house in the State of residence. The availability of .....

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l for pleasure, business travel , educational travel , attending a course at a school , etc) which in the instant case the permanent home is in India in the case of the assessee as she is staying now in India after her marriage with her husband who is an Indian national. The word 'house' has been defined in Blacks Law dictionary 7th edition, page 743 as 'a home, dwelling or residence' , which in the assessee case is India which is the place where she is now staying after marriage .....

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and personal interests in Sri Lanka are demonstrated to prove her habitual abode in Sri Lanka. Her habitual abode in our considered view is in India as she has after her marriage have personal and economic relations which are of vital interest closer to India as under the factual matrix she has retained his centre of vital interest in India after her marriage with Indian national by moving to India to stay in India permanently with her husband who is an Indian national . She is also holding Cert .....

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lling of the immovable property in Sri Lanka which is the sole property owned by her during relevant previous year for equivalent Indian ₹ 3.93 crores and buying of Mutual funds to the tune of ₹ 2.44 crores in India and buying of property in Goa in India for ₹ 78.44 lacs clearly reflects strategic shift of vital economic interest to India from Sri Lanka while personal interest are in-fact closely linked with her settlement with her Indian husband in India after her marriage to .....

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Lanka permanently, regularly and consistently to bring within meaning of 'habitual abode' as contained in Article 4(2)(c) of DTAA of both the States. Under these circumstances, the onus was on the assessee to have demonstrated with cogent evidences and material that her habitual abode is in Sri Lanka and she has retained centre of vital interest in Sri Lanka, which in our considered view, the assessee failed to demonstrate in the instant case rather the facts as set out above speaks oppo .....

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he assessee in our considered view is resident in India during the relevant previous year under the DTAA between India and Sri-Lanka as she has after her marriage with Indian national on the facts and circumstances of the case as her vital personal and economic relations have now close proximity with India. The contention of the learned counsel that what will happen if the assessee divorce with her husband are all in realm of hypothetical situations which in our considered view does not warrant .....

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a both under the provisions of the Act and also under DTAA entered into between India and Sri-Lanka. It is a well settled proposition of law that provisions of the Act or of the DTAA shall be applicable which-ever is beneficial to the assessee. The provisions of the Act as contained in Section 5 of the Act , inter-alia, stipulates that income of the resident which has accrued or arisen outside India during the relevant previous year shall be taxable in India. While Article 13 of the DTAA dealing .....

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he respective Contracting States." Thus, as per Article 13(1) read with Article 13(6) of the DTAA between India and Sri-Lanka , the capital gain arisen to the assessee from sale of immovable property situated in Sri-Lanka is taxable in Sri-Lanka as the Government of Sri-Lanka has right to tax the same because the immovable property is situated in Sri-Lanka , and the Government of India cannot brought the same to tax under the provisions of the Act as the provisions of DTAA will prevail bein .....

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e assessee which are detailed in preceding para's of this order which are not repeated. However, it will be pertinent to note at this stage that these cases are prior to the issue of notification no. 91 of 2008 dated 28.08.2008 by Central Government which is reproduced hereunder : " In exercise of the powers conferred by sub-section(3) of section 90 of the Income Tax Act,1961 (43 of 1961) , the Central Government hereby notifies that where an agreement entered into by the Central Govern .....

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n such agreement." Before proceeding further , it is material and relevant to refer to Section 90(3) of the Act , under the provisions of said sub-section, the said notification was issued by the Central Government which is reproduced below: "CHAPTER IX DOUBLE TAXATION RELIEF [Agreement with foreign countries. Section 90 (1) and (2) ***** [(3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and i .....

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ss the context otherwise requires. The Central Government in exercise of its powers u/s 90(3) of the Act came out with notification no . 91 of 2008 dated 28.08.2008 whereby the Central Government specified that in DTAA whereby any income of resident of India "may be taxed" in the other country, such income shall be included in the total income chargeable to tax in India in accordance with the provisions of the Act and relief shall be granted in accordance with the method for eliminatio .....

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h has used such a term came into force. The said notification no 91 of 2008 , dated 28.08.2008 as could be observed from the plain language used is merely procedural in nature and no additional liability is sought to be fastened on the tax-payer by issuance of the said notification. It is well established proposition of law that the tax-payer does not have vested right in the procedures and the same can be brought in retrospectively. Thus, by bringing the notification no. 91 of 2008, dated 28.08 .....

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ith the provisions of the Act or the DTAA between India and Sri-Lanka and in our considered view, the said notification is merely clarificatory in nature and cannot be treated as prospective in nature and has to be read from the date of entering of DTAA between India and Sri-Lanka. Further, Since this assignment of meaning is in respect of a term used in a treaty entered into by the Government with a particular intent and objective as understood during the course of negotiations leading to forma .....

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come and on capital as under: " Convention between the Government of the Republic of India and the Government of the Democratic Socialist Republic of Sri Lanka for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital" Thus, the notification no 91 of 2008 dated 28-08-2008 issued by Central Government in exercise of powers u/s 90(3) of the Act has aimed at clarifying the manner of granting relief from double taxation , where .....

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nt of India shall grant the relief on the taxes so paid in Sri Lanka while computing income of the residents in India in the manner stipulated in the notification dated 28-08-2008 to avoid double taxation of the same income and also prevention of fiscal evasion which is the mandate of DTAA entered into between India and Sri Lanka.The said notification is also in consonance with Article 24-Elimination of Double Taxation of DTAA entered into between India and Sri Lanka. We further hold that if the .....

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applicable in Sri Lanka to the relevant year as is contended by the assessee, then the same cannot be brought to tax in India under the provisions of the Act merely on the grounds that the said income is subjected to 'Nil' or 'zero' rate of income-tax in Sri Lanka as per applicable statute. This direction of our's is subject to verification by the learned AO for which necessary material and evidences in support of her contentions shall be brought on record by the assessee bef .....

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ack to the date of entering of DTAA between India and Sri Lanka is fortified by the explanation 3 to Section 90 of the Act inserted by Finance Act ,2012 w.e.f 01- 10-2009 as under : "[Explanation 3.-For the removal of doubts, it is hereby declared that where any term is used in any agreement entered into under sub-section (1) and not defined under the said agreement or the Act, but is assigned a meaning to it in the notification issued under sub-section (3) and the notification issued there .....

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ecified territories for the purpose of granting reliefs particularly in respect of double taxation. Under this power, the Central Government has entered into various treaties commonly known as Double Taxation Avoidance Agreements (DTAA's). Section 90A of the Act similarly empowers the Central Government to adopt and implement an agreement between a specified association in India and any specified association in a specified territory outside India for granting relief from 'double taxation .....

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e notification under section 90(3) gives a legal frame work for clarifying the intent, and the clarification should normally apply from the date when the agreement which has used such a term came into force. Therefore, the legislative intent of sub-section (3) to section 90 and section 90A that whenever any term is assigned a meaning through a notification issued under Section 90(3) or section 90A(3), it shall have the effect of clarifying the term from the date of coming in force of the agreeme .....

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