2013 (8) TMI 585 - AT - Income Tax

Benefit of DTAA between India and UAE - whether time charter and hiring of slots fell within the Article 8 of the Treaty or not. - CIT granted benefit - Held that - a tax treaty not only prevents current but also potential double taxation. - assessee, who is tax resident of UAE, but has not paid taxes there - assessee is otherwise liable to tax in UAE. Simply because there is no tax incidence in UAE, does not mean that the assessee ceases to be otherwise liable to tax , as per Article 4. Once the assessee, gets within the expression otherwise liable to tax in UAE Treaty, DTAA becomes operative - Order of CIT set aside. The case of Balaji Shipping (2008 (8) TMI 389 - ITAT BOMBAY-L) cannot be relied upon, simply because Article 8 is differently worded. - the wordings used in Article 8 in UAE Treaty is pari materia to the language used in US Treaty - there is no detailed reasoning in the orders of the revenue authorities, giving the nature of the receipts from shipping business - matter remanded back.

Issues Involved:
1. Eligibility for the benefit of the DTAA between India and UAE.
2. Application of Article 8 of the DTAA to time charter and slot hire agreements.
3. Reliance on precedents from different treaties (India-UK, India-USA) for interpreting the India-UAE DTAA.

Detailed Analysis:

1. Eligibility for the Benefit of the DTAA Between India and UAE:
The primary issue is whether the assessee, a UAE resident engaged in shipping, is eligible for the benefits of the DTAA between India and UAE. The department contends that the benefit is not available because the Notification 282/2007-FTD is effective from 03.10.2007, and the assessee did not pay taxes in the UAE. The CIT(A) allowed the benefit based on the assessee's arguments and precedents, holding that the assessee is "liable to tax" in the UAE, which is sufficient for DTAA applicability. The ITAT upheld this view, referencing the case of Green Emirate Shipping & Travels, which established that actual tax payment in the UAE is not necessary for DTAA benefits, as long as the assessee is "liable to tax" by virtue of domicile, residence, or place of management.

2. Application of Article 8 of the DTAA to Time Charter and Slot Hire Agreements:
The controversy centers on whether income from time charter and slot hire agreements falls under Article 8 of the DTAA. The assessee argued that both time charter and slot hire should be covered under Article 8(4) of the DTAA, which pertains to profits from participation in a pool, joint business, or international operating agency. The CIT(A) agreed, citing the case of Balaji Shipping (UK) Ltd., which allowed treaty benefits for slot business profits. However, the department contended that the reliance on Balaji Shipping was misplaced, as the India-UK Treaty is differently worded compared to the India-UAE Treaty. The ITAT found merit in the department's argument, noting the similarity between the India-UAE and India-USA Treaties, and directed the AO to reconsider the nature of the income in light of the Federal Express Corporation case, which pertains to the India-USA Treaty.

3. Reliance on Precedents from Different Treaties (India-UK, India-USA) for Interpreting the India-UAE DTAA:
The CIT(A) relied on the Balaji Shipping (UK) Ltd. case, which interpreted the India-UK Treaty, to allow the assessee's claim. The department argued that the India-UK Treaty is differently worded and not applicable. The ITAT agreed with the department, emphasizing that the wording of Article 8 in the India-UAE Treaty is similar to the India-USA Treaty. Consequently, the ITAT directed the AO to reconsider the case based on the Federal Express Corporation ruling, which interprets the India-USA Treaty.

Conclusion:
The ITAT set aside the CIT(A)'s order and directed the AO to re-evaluate the nature of the assessee's income and the applicability of Article 8 of the India-UAE Treaty, following the principles laid down in the Federal Express Corporation case. The appeals were allowed for statistical purposes, and the AO was instructed to provide the assessee with a reasonable opportunity to present its case.

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