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2008 (10) TMI 251 - AT - Income TaxDouble Taxation Relief - Whether the sum received by the assessee on account of her performance in Canada can be taxed in India in view of the provisions of art. 18 of Indo-Canada treaty? - tax was also deducted at source in Canada - assessee was a resident of India - HELD THAT - We are of the view that income derived by the assessee from the exercise of her activity in Canada is taxable only in source country, i.e., Canada for the reasons given hereafter. The scheme of taxation of income is contained in Chapter III of DTAA/Indo-Canada treaty. The conjoint reading of all the provisions of articles in Chapter III of Indo-Canada treaty, leads to only one conclusion that by using the expression may be taxed in the other State , the contracting parties permitted only the other State, i.e., State of income source and by implication, the State of residence was precluded from taxing such income. Wherever the contracting parties intended that income may be taxed in both the countries, they have specifically so provided. Hence, the contention of the Revenue that the expression may be taxed in other State gives the option to the other State and the State of residence is not precluded from taxing such income cannot be accepted. Therefore, it is held that the assessee cannot be taxed in respect to the sum under the provisions of the IT Act, 1961 in view of the overriding provisions of DTAA between India and Canada. The order of the CIT(A) sustaining the addition is set aside and consequently, the AO is directed to exclude the same from the total income of the assessee. Appeal is allowed.
Issues Involved:
1. Taxability of income received by the assessee from performance in Canada under the Indo-Canada treaty. 2. Interpretation of the expression "may be taxed" in Article 18 of the Indo-Canada treaty. 3. Application of Article 23 of the Indo-Canada treaty regarding double taxation relief. Issue-wise Detailed Analysis: 1. Taxability of Income Received by the Assessee from Performance in Canada under the Indo-Canada Treaty: The primary issue in this appeal is whether the sum of Rs. 1,86,000 received by the assessee, a film artiste, for a performance in Canada can be taxed in India. The assessee argued that Article 18 of the Indo-Canada treaty precludes India from taxing this income, asserting that only the source country, Canada, has the right to tax it. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] rejected this contention, holding that as a resident of India, the assessee's global income is taxable under the Income Tax Act, 1961. The Tribunal, however, sided with the assessee, ruling that the income is taxable only in Canada based on the provisions of Article 18 of the Indo-Canada treaty. 2. Interpretation of the Expression "May Be Taxed" in Article 18 of the Indo-Canada Treaty: The Tribunal analyzed the language of Article 18, which states that income derived by entertainers from their activities "may be taxed" in the Contracting State where these activities are performed. The Revenue contended that this phrase merely allows the source country to tax the income without precluding the resident country from doing so. However, the Tribunal, referencing various judicial precedents including the Supreme Court's decisions in P.V.A.L. Kulandagan Chettiar and Torqouise Investment & Finance Ltd., concluded that the phrase "may be taxed" implies that only the source country has the right to tax such income, thereby precluding the resident country from taxing it. 3. Application of Article 23 of the Indo-Canada Treaty Regarding Double Taxation Relief: The Revenue argued that Article 23 provides relief from double taxation by allowing credit for taxes paid in the source country. They contended that this article supports the view that both countries can tax the income. The Tribunal disagreed, stating that Article 23 applies only to cases where income is taxed in both countries, which is not the case here. The Tribunal emphasized that the specific provisions of Article 18, which allocate the taxing right exclusively to the source country, override the general provisions of Article 23. Conclusion: The Tribunal concluded that the income received by the assessee from her performance in Canada is taxable only in Canada and not in India, based on the provisions of Article 18 of the Indo-Canada treaty. The Tribunal set aside the order of the CIT(A) and directed the AO to exclude the sum of Rs. 1,86,000 from the total income of the assessee. The appeal was allowed in favor of the assessee.
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