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2011 (8) TMI 448 - AT - Income TaxTaxability - Double Taxation Avoidance Agreement - Article 4 of Indo-UAE DTAA - whether existing liability to pay taxes in UAE is a sine qua non to avail the benefit of India-UAE tax treaty in India - In the the decision of the Mumbai Bench of the Tribunal in the case of Asstt. DIT v. Green Emirate Shipping & Travels 2005 (11) TMI 239 - ITAT MUMBAI 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),find no grounds to interfere with the order of CIT(A) - Therefore, confirm the order of CIT(A) and dismiss the appeal by the revenue.
Issues Involved:
1. Interpretation of the phrase "liable to tax" in Article 4 of the Indo-UAE DTAA. 2. Eligibility of the assessee for the benefits of the Indo-UAE DTAA. Detailed Analysis: Issue 1: Interpretation of "liable to tax" in Article 4 of Indo-UAE DTAA The Revenue contended that the assessee could not be considered a resident of UAE for the purposes of the Indo-UAE DTAA because there is no tax payable by an individual in UAE. The Assessing Officer argued that, according to Article 4(1) of the DTAA, a resident would be considered such if they are liable to pay tax in the contracting state. Since there is no tax on individuals in UAE, the assessee should not be granted the status of a resident of UAE. The Tribunal, however, disagreed with this interpretation. It referred to previous decisions, including the case of Ramesh Kumar Goenka, where it was held that the phrase "liable to tax" does not necessarily imply that the person should actually be liable to tax in the contracting state. It is sufficient if the other contracting state has the right to tax such a person, whether or not this right is exercised. This interpretation was supported by the Supreme Court's ruling in the Azadi Bachao Andolan case, which stated that the avoidance of double taxation is not contingent on the actual payment of tax in one of the contracting states. Issue 2: Eligibility for Benefits of Indo-UAE DTAA The second issue was whether the benefit of the Indo-UAE DTAA was available to the assessee. The assessee claimed that the short-term capital gain earned in India was not chargeable to tax in India under Article 13(3) of the Indo-UAE DTAA because the assessee was a resident of Dubai, UAE. The Assessing Officer rejected this claim on the grounds that the benefit of the DTAA was not available since the assessee was not liable to pay tax in UAE. The Tribunal upheld the assessee's claim, citing its own previous decisions and the Supreme Court's ruling. It noted that the Tribunal in the case of Green Emirate Shipping & Travel had already established that the expression "liable to tax" does not imply actual tax payment but rather the potential liability to tax. The Tribunal also referenced the Authority for Advance Rulings and other Tribunal decisions that supported the assessee's position. The Tribunal concluded that the assessee was indeed entitled to the benefits of the Indo-UAE DTAA and that the short-term capital gains should not be taxed in India. The Tribunal dismissed the appeal filed by the Revenue, confirming the order of the Commissioner of Income-tax (Appeals). Conclusion: The Tribunal's judgment clarified that the phrase "liable to tax" in the context of the Indo-UAE DTAA does not require actual tax payment but rather the potential liability to tax. Consequently, the assessee, being a resident of UAE, was entitled to the benefits of the DTAA, exempting the short-term capital gains from taxation in India. The Revenue's appeal was dismissed, upholding the decision of the Commissioner of Income-tax (Appeals).
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