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2010 (9) TMI 511 - AT - Income Tax


Issues Involved:
1. Availability of benefits under the Indo-UAE Double Taxation Avoidance Agreement (DTAA) to the assessee.
2. Determination of whether the assessee qualifies as a treaty subject under the Indo-UAE DTAA.

Detailed Analysis:

Issue 1: Availability of benefits under the Indo-UAE Double Taxation Avoidance Agreement (DTAA) to the assessee

The revenue challenged the CIT(A)'s decision granting the assessee benefits under the Indo-UAE DTAA, relying on the ITAT's decision in Green Emirates Shipping & Travels (99 TTJ 988). The assessee argued that it was a non-resident and a UAE resident, providing technical consultancy services to Nortel Network (India) Ltd., and thus, the fees received should not be taxable in India. The assessee cited several reasons, including the lack of a Permanent Establishment (PE) in India and the residency certificate issued by the UAE Ministry of Finance, to support its claim.

The Assessing Officer (AO) rejected the claim, citing the AAR decisions in Cyril Eugene Pereira (239 ITR 650) and Abdul Razak A. Meman (276 ITR 306), which held that benefits under the DTAA were not applicable if the income was not taxed in the UAE. However, the CIT(A) sided with the assessee, following the Mumbai Tribunal's decision in Green Emirates Shipping & Travels, which stated that being "liable to tax" does not necessarily mean actual payment of tax but includes the potential to be taxed.

The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's judgment in Azadi Bachao Andolan (263 ITR 706), which clarified that the avoidance of double taxation does not require actual tax payment in one of the contracting states. The Tribunal emphasized that the right to tax, whether exercised or not, is sufficient for the DTAA to apply.

Issue 2: Determination of whether the assessee qualifies as a treaty subject under the Indo-UAE DTAA

The AO argued that the definition of "resident" under Article 4 of the DTAA required the recipient to pay tax in the UAE, which was not the case here. The CIT(A) disagreed, following the precedent set by the Mumbai Tribunal in Green Emirates Shipping & Travels, which stated that the DTAA applies as long as the person is "liable to tax" in the contracting state, irrespective of actual tax payment.

The Tribunal supported this view, noting that the expression "liable to tax" should be read in conjunction with criteria like domicile, residence, place of management, or place of incorporation, indicating fiscal domicile. The Tribunal concluded that the status of being a "resident" of the contracting state is independent of actual tax levy, as long as the person has locality-related attachments that attract residence-type taxation.

In summary, the Tribunal dismissed the revenue's appeal, affirming that the assessee was entitled to the benefits of the Indo-UAE DTAA and that the income in question could not be taxed in India. The Tribunal's decision was based on the interpretation that "liable to tax" includes potential tax liability and not just actual tax payment, aligning with the Supreme Court's stance in Azadi Bachao Andolan.

 

 

 

 

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