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2010 (4) TMI 720 - AT - Income TaxDTAA - The Assessee is an individual, resident of UAE - Assessee claimed that the STCG cannot be brought to tax in India in view of Article 13(3) of the Indo-UAE DTAA - The AO however rejected the claim of the Assessee on the ground that the assessee Is not paying taxes in UAE - 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
Issues Involved:
1. Entitlement of the assessee to the benefits of the Double Taxation Avoidance Agreement (DTAA) between India and UAE. 2. Tax liability of the assessee on short-term capital gains earned in India. Detailed Analysis: 1. Entitlement to DTAA Benefits: The primary issue was whether the assessee, a resident of UAE, is entitled to the benefits of the DTAA between India and UAE. The assessee argued that under Article 13(3) of the Indo-UAE DTAA, gains from the alienation of any property other than immovable property or movable property forming part of a permanent establishment are taxable only in the contracting state of which the alienator is a resident. Therefore, as a resident of UAE, the assessee claimed exemption from capital gains tax in India. The Assessing Officer (AO) rejected this claim, arguing that the assessee did not pay taxes in UAE and relied on the decision of the AAR in Abdul Razack Menon, which held that to claim DTAA benefits, the assessee must be liable to pay tax in the other contracting state (UAE in this case). 2. Tax Liability on Short-Term Capital Gains: The AO contended that the assessee's short-term capital gains of Rs. 5,04,89,379/- should be taxed in India since the assessee did not pay taxes in UAE. The AO's position was based on the interpretation that the DTAA benefits apply only if the income is liable to be taxed in both contracting states. Tribunal's Findings: The Tribunal upheld the CIT(A)'s decision, which followed the precedent set by the Mumbai Bench of the Tribunal in the case of Assistant Director of Income-tax (International Taxation), Range 1(2) vs. Green Emirate Shipping & Travels. The Tribunal disagreed with the AO's reliance on the AAR's decision in Cyril Eugene Pereria and Abdul Razak A. Menon, noting that the Supreme Court in Azadi Bachao Andolan had rejected the notion that DTAA benefits require actual tax payment in the other contracting state. The Tribunal emphasized that the DTAA aims to prevent both current and potential double taxation. The key criterion is whether the person is "liable to tax" in the contracting state by reason of domicile, residence, place of management, or any similar criterion, not whether the person actually pays tax. The Tribunal clarified that the right to tax by the contracting state suffices, irrespective of whether the tax is levied. Conclusion: The Tribunal found no grounds to interfere with the CIT(A)'s order, confirming that the assessee was entitled to the benefits of Article 13(3) of the Indo-UAE DTAA. Consequently, the short-term capital gains earned by the assessee in India were not taxable in India. The appeal by the revenue was dismissed. Order Pronouncement: The order was pronounced on 16th April 2010.
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