TMI Blog2017 (12) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee does not get any benefits of the Indo-UAE agreement which would have been otherwise available. The requirement necessary for invoking Article 29 is thus not fulfilled in the present case. Following the co-ordinate bench decision in the case of MUR Shipping DMC Co. (2015 (10) TMI 2374 - ITAT RAJKOT ), we reject the grievances of the Assessing Officer on this count also. As regards the wordings of the Tax Residency Certificate, based on which the Assessing Officer has concluded that the company was formed only for the purpose of availing Indo-UAE tax treaty benefits, we may mention that neither the inference of the Assessing Officer is based on any legally sustainable material or even common sense, nor this Tax Residency Certificate is relevant in any way. There is no dispute that the assessee was liable to tax in UAE by the virtue of incorporation in UAE and therefore, the assessee was covered by definition of “resident of Contracting State” under Article 4(1) of the Indo-UAE Tax Treaty. - ITA Nos. 7 to 9/Rjt/2011 - - - Dated:- 28-11-2017 - Pramod Kumar AM And Rajpal Yadav JM For The Appellant : CS Anjaria For The Respondent : Kalpesh Doshi ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated, the relevant material facts are like this. During the course of scrutiny of return filed under section 172(4) of the Act, the Assessing Officer invited attention of the assessee to the fact that, as evident from the list of directors of the assessee-company, the directors of the assessee-company being different nationalities other than UAE i.e. Indian, German and Portuguese nationalities and therefore, assessee-company was required to show-cause as to why the treaty protection should not be declined to the assessee. The attention of the assessee was also invited to Article 29 of the Indo-UAE Tax Treaty, wherein it is, inter alia, provided that an entity which is a resident of a Contracting State shall not be entitled to the benefits of Indo-UAE Tax Treaty if the main purpose or one of the main purposes of the creation of such entity was to obtain the benefits of Indo-UAE Tax Treaty which would not have been otherwise available. The Assessing Officer was also required the assessee to show-cause as to why Article 29 not being invoked in the facts of the present case. It was also pointed out by the Assessing Officer that when a resident of the Contracting State can be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en, the assessee carried the matter in appeal before the learned CIT(A). The learned CIT(A) reverses the action of the Assessing Officer on the basis of his categorical findings that the place of effective management of the assessee-company was UAE and, that, in view of the Residency Certificate, Incorporation Certificate, Trading License and other documents, it is clear in principle that the assessee was a resident of Dubai and accordingly eligible for treaty protection. While holding so, the CIT(A), inter alia, observed as follows: 2.5 The matter has been has been considered, .keeping in view the arguments of both sides. The additional evidence is accepted because the assessee working as agent was prevented because of reasonable reason that information was required to be collected from principals at UAE which could not be collected fully in the limited time given during assessment proceedings. The issue at hand is about the applicability of LOB clause, effective control and management of the company and about granting of DTAA benefits under India - UAE Tax Treaty. In my considered opinion the company Martrade is eligible for DTAA benefits under India UAE Treaty as: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, I have also considered the views both sides, in my opinion, as fact remains that in UAE Friday is the weekly off and Sunday is a working day. Further the disclaimer clause seems to be general and restricting UAE government liability and has nothing exceptional for this company as these wordings are commonly found in all TRC issued at UAE. In any case, these wordings cannot be basis for denial of DTAA benefits. * Martrade has not only registered office in UAE and presence of senior employees but also its effective control and management is in UAE in my considered view based on facts. The number of senior resident employees and substantiated and increasing expenditure on staff reinforce my view. As per explanation under Section 115VC of Income Tax Act, 1961 defining the place of effective management of ship operating company, where it is specifically stated that in a case where the board of directors routinely approve the commercial and strategic decisions made by the executive directors or officers of the company, the effective management lies in the place where such executive directors or officers of the company perform their functions, since all the board meetings h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not decide the matter one way or the other because what, according to the AO, is important is whether the assessee was liable to tax in UAE or not. Therefore, whether the assessee was resident in UAE or not would not have really mattered from the point of view of the AO. For this reason, we are unable to approve the reasoning and stand of the CIT(A). Having held so, the next question that we are required to address ourselves to is whether or not the AO was justified in raising the objection that he did. Is it really the liability to pay tax in UAE which is sine qua non to avail the benefits of the India-UAE DTAA or a fiscal domicile or residency in UAE per se will be sufficient for an assessee to claim the benefits of the India-UAE DTAA ? Is it taxation liability at present which is material for this purpose or is it even prospect of future tax liability which is sought to be prevented by the said DTAA ? 5. As for the AO s reliance on ruling given by the Authority for Advance Ruling in Cyril Eugene Pereiria s case (supra), we deem it necessary to reproduce the following extracts from the judgment of Hon ble Supreme Court in the case of Union of India vs. Azadi Bachao And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdom of the Court below has to yield to the higher wisdom of the Court above. We respectfully follow the higher wisdom of the Courts above and decline to approve AO s reliance upon the ruling given by the Authority for Advance Rulings in Cyril Eugene Pereira s case (supra). 6. Undoubtedly, in Cyril Eugene Pereira s case (supra), Hon ble Authority for Advance Rulings, deviating from the stand taken by it in the earlier rulings including ruling in Mohsinally Alimohammed Rafik, In re (1995) 126 CTR (AAR) 311 : (1995) 213 ITR 317 (AAR), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent delivered by the Hon ble Supreme Court in Azadi Bachao Andolan s case (supra). The choice, however, poses no difficulty in the light of the elementary legal position that the judgments of Hon ble Supreme Court have binding force on all of us. Much as we respect the Hon ble Authority for Advance Rulings, we regret our inability to follow the ruling which, in our humble understanding, has been clearly disapproved by the Hon ble Supreme Court. It is not even open to us, even in a case in which our understanding of the issue on merits concurs with that of the Hon ble Authority for Advance Rulings in Cyril Eugene Pereira s case, to follow that school of thought. 7. Learned Departmental Representative has invited our attention to the ruling given by the Authority for Advance Rulings in the case of Abdul Razak A. Meman, In re (2005) 195 CTR (AAR) 534 : (2005) 276 ITR 306 (AAR) which supports the case of the Revenue and is said to be on exactly the same material facts. We are, however, unable to accept this plea and we decline to treat this as a sort of, to use the phraseology employed in legal parlance, a covered matter. As Hon ble Supreme Court has duly taken (note) of in Azadi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) of sub-s. (1) of s. 90 applies to a situation where income-tax has been paid in both the countries, but cl. (b) deals with the situation of avoidance of double taxation of income, inasmuch as Parliament has distinguished between the two situations, it is not open to a Court of law to interpret cl. (b) of s. 90, sub-s. (1) as if it were the same as situations contemplated under cl. (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. 8. Although the AO s objection to applicability of India-UAE tax treaty was only on the ground that the provisions of DTAAs 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esident can benefit from the exemption (under the treaty) regardless of whether or not he is taxable on that capital gain in his own country. If Canada or the 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, resid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company had this locality related attachment which led to residence type taxation. It is not at all necessary to be treated as liable to be taxed in UAE , for the purposes of this treaty, that the assessee should actually pay tax in UAE. To this extent, grievance of the Assessing Officer clearly ill conceived. It is also important to note the trite rule with respect to residential status of the assessee company comes into play when the assessee is resident of both the Contracting States, i.e. India and UAE, in this case. It is not even the case of the Assessing Officer that the assessee could be treated as a resident of India. Therefore, the tie breaker rule set out in Rule 4(4), to which so much of emphasis is placed by the Assessing Officer, is wholly irrelevant in the present context. We have also noted that the learned CIT(A) has given very reasoned and elaborate findings that the place of effective management of the assessee company was from UAE. We find no reasons to disturb these findings of the learned CIT(A) nor any specific defect therein has been pointed out by the revenue authorities. Finally, so far as Article 29 of the Indo-UAE Tax Treaty is concerned, we may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontroversy on whether, under this provision, the actual taxability of income in the UAE was a condition precedent for availing the treaty benefits in India. This issue was particularly relevant as not all the residents, whether individual or corporate, were necessarily taxable entities under the UAE law. The UAE, as a tax jurisdiction, had right to tax these residents but the rights were not exercised by introducing law to tax them. While dealing with the issue as to whether or not, in such a situation, the UAE tax residents will be eligible for treaty protection in respect of their income sourced in India, a coordinate bench of this Tribunal, in the case of ADIT Vs Green Emirate Travels [(2006) 100 ITD 203 (Bom)] , observed that, . .... as long as a person has such locality-related attachments which 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 and concluded that 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 perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dents in UAE was thus consciously removed from the definition of resident of a contracting state . As noted by Hon ble Delhi High Court, in the case of Emirates Shipping Line FZE Vs ADIT [(2012) 349 ITR 493 @519 (Del)] , in the context of this amended definition of resident of a contracting state so far as a UAE tax resident is concerned, Under the amended article, the requirement of liability to tax has been done away with . It cannot, therefore, be any longer open to the Assessing Officer to decline the treaty protection to a UAE tax resident, in respect of India sourced income, on the ground that the UAE tax resident has not actually been taxed in respect of his income in UAE. To that extent, learned Departmental Representative is completely in error and we reject his stand on this issue. 11. The amendment of treaty definition for resident in a contracting state , however, did come with a built in check to ensure that this provision is not abused by incorporating special purpose vehicles in UAE only to seek undue benefits in India. As a plain reading of the Article 29 shows, this article seeks to decline the treaty benefits in a case in which main purpose, or one o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service only when main purpose, or one of the main purposes of the creation of an entity was to obtain benefits of that benefits of this agreement which would otherwise not be available but then since nothing really turns on the situs of ownership of the ships so far as treaty benefits, on the facts of this case, are concerned, the fact of the ships being owned by an entity in Marshall Islands is wholly irrelevant for invoking Article 29. 14. Coming to the second ground on which the Assessing Officer had invoked Article 29, it has been stated that the income from operations of ships of the Switzerland based entities in international traffic is not covered by Article 8 of India Switzerland DTAA [(1995) 214 ITR (Statute) 223; Indo Swiss tax treaty, in short] and therefore if both the Swiss shareholders, which wholly own capital of the assessee company, were to carry on business directly, the treaty protection would not have been available. 15. This line of reasoning is clearly fallacious inasmuch as the assessment year before us is post the amendment vide protocol dated 16th February 2000 [Notification no. 35 of 2001, dated 7th February 2001; 165 CTR (Statute) 47] which g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaty which would not be otherwise available , could not have been fulfilled on the facts of this case as the assessee was anyway liable for treaty protection of its India sourced income from operations of ships in international traffic whether the business was carried out from Switzerland or from UAE and irrespective of the fact whether owner of the vessel was in Marshall Islands or anywhere else. 18. Coming to the question as to whether the assessee qualified to be a resident of UAE under article 4(1), all that is required is that the company is incorporated in the UAE and which is managed and controlled wholly in UAE . We find that there is no dispute that the assessee is incorporated in the UAE. As regards the stand of the Assessing Officer that the directors of the assessee company are not UAE nationals, this is wholly irrelevant as the directors are residents of the UAE and nationality of the directors, dehors their place of residence and business activity, is not decisive of the fact as to whether or not the company is managed and controlled in the UAE. We also find that the directors of the assessee company are residents of UAE and the board, as also shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or to establish that the company is controlled or managed from outside UAE, learned CIT(A) was indeed quite justified in reversing the action of the Assessing Officer and in granting the benefits of India UAE tax treaty. 20. In view of the detailed reasons set out above, as also bearing in mind entirety of the case, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. 9. As evident from the above observations, in order to invoke Article 29, what is to be established is that if the assessee company was not to be formed in the UAE, the assessee would not have been entitled for such benefits. We have noted that the entire share capital of the assessee company is held by German entities by the name of Martrade Shipping + Transport GMBH and C.R. Consulting Holding GMBH, but then, in the Indo-German DTAA also similar treaty protection with regard to taxability of shipping profits only in the state of residents are available. Therefore, whether the company was to be formed in UAE or in Germany, it would not have any material difference so far as non-taxability of said income in India is concerned. As corollary to this legal po ..... X X X X Extracts X X X X X X X X Extracts X X X X
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