2022 (12) TMI 627 - AT - Income Tax

Income accrued in India - income from rented properties held by the appellant in Australia and UK - right of the resident country to tax its residents - AO referred to the Notification No. 91/2008 dated 28.08.2008 and construed the words may be taxed as shall be taxed - DTAA with UK - assessee is a tax resident of India received rental income from the properties outside India held by her in England and Australia and declared the rental income received by her in her return of income filed in Australia and United Kingdom - HELD THAT - We find that in the absence of an express provision, the right of the resident country to tax its residents cannot be taken away under the DTAA. Therefore, the expression may be taxed cannot be construed to mean shall be taxable only in the resident state , unless it is expressly stated. Provisions of Section 90(1)(a)(i) is clearly applicable to the facts of the case. Appeals of the assessee are allowed.

Summary

Issues:
1. Appeal against orders of CIT(A)-6, Delhi dated 20.07.2018.
2. Inclusion of rental income from properties in Australia and UK in Indian income.
3. Application of provisions of section 90(2) and Double Taxation Avoidance Agreement (DTAA).
4. Disregarding DTAA provisions and taxing income from properties held abroad in India.
5. Verification of interest payment on housing loan availed in Australia.

Analysis:
The judgment involves an appeal against the orders of CIT(A)-6, Delhi dated 20.07.2018. The issues revolve around the inclusion of rental income from properties in Australia and UK in the Indian income of the assessee. The assessee contested the additions made by the Assessing Officer and CIT(A) regarding the rental income earned from properties held abroad. The grounds of appeal highlighted errors in confirming the action of the Assessing Officer, including the income from properties held abroad in the Indian income of the assessee.

The AO brought the rental income from properties held abroad to tax despite the assessee declaring such income in her tax returns filed in Australia and UK. The AO relied on the DTAA with the UK, specifically Article 6(1), which states that "income from immovable property may be taxed in the contracting state in which such property is situated." The AO interpreted the term "may be taxed" as "shall be taxed" based on a notification.

The judgment delves into the provisions of Section 90(1) and Section 90(3) concerning agreements with foreign countries or specified territories. The court examined the impact of Multilateral Instruments (MLIs) and emphasized that the right of the resident country to tax its residents cannot be taken away under the DTAA unless expressly stated. The expression "may be taxed" does not automatically mean "shall be taxable only in the resident state." The provisions of Section 90(1)(a)(i) were deemed applicable to the case.

In conclusion, the appeals of the assessee were allowed, indicating a favorable decision in favor of the assessee. The judgment highlighted the importance of interpreting international tax agreements accurately and ensuring that the rights of the resident country to tax its residents are upheld. The court's analysis provided clarity on the application of DTAA provisions and the taxation of income from properties held abroad in India.