2014 (7) TMI 992 - AT - Income Tax

Family pension received from UK Pension received from the employer of deceased wife covered under Article 23(1) of Indo-UK DTAA or not - The pension is received from the ex-employer by the assessee in his life time while family pension is received by the spouse or family members or legal dependent of the deceased employee from the employer of that deceased employee - the assessee received family pension from employer of asesseee s deceased wife, thus, it is not related to the pension but it is a clear case of family pension - any pension other than a pension referred to in Article 19(2) of this Convention, or annuity paid to a resident of a Contracting State shall be taxable only in that State. Article 23(3) is related to the items of income which are not included in the foregoing articles to Article 23(3) of this Convention, then notwithstanding the provisions of paragraphs (1) and (2) of Article 23, the same arising in the other contracting state may be taxed in that other state. Family pension which was not within the ambit of foregoing articles to the article 23 (3) of Indo-UK Treaty and arose in the other contracting state, may be taxed in other state and the said receipt of the family pension is beyond the purview of Article 23 of Indo-UK DTAA and the same is covered by the residuary article 23(3) of this Convention and, therefore, it was rightly taxed in U.K. i.e. source country - CIT(A) rightly held that the family pension received by the assessee from the employer of deceased wife of the assessee was rightly taxed at source in UK and no amount of family pension is thus taxable in India. Following the decision in DCIT v. Mideast India Ltd. 2009 (1) TMI 311 - ITAT DELHI-G the expression may be taxed in that other state mentioned in Article 23(3) authorizes only the contracting state of source to tax such income and by necessary implication, the contracting state of resident is precluded from taxing such income, specially when the tax has been deducted by the contracting state of source and contracting state of the residence cannot tax it again in the hands of resident assessee - the income received by the assessee from employer of deceased wife of the assessee and when the country of source has deducted tax and assessee received amount after deduction of tax, then the same income cannot be taxed second time in the other contracting state i.e. India the order of the CIT(A) is upheld Decided against Revenue.

Summary

Issues Involved:
1. Taxability of family pension received from the UK under the India-UK Double Taxation Avoidance Agreement (DTAA).
2. Applicability of Article 23(1) vs. Article 23(3) of the India-UK DTAA.
3. Interpretation of the term "may be taxed" under the DTAA.
4. Levy of interest under Section 234B of the Income Tax Act.

Detailed Analysis:

1. Taxability of Family Pension under India-UK DTAA:
The primary issue revolves around the taxability of family pension received by the assessee from the UK, under the India-UK DTAA. The assessee's wife was employed in the UK and, upon her death, the employer provided family pension to the assessee. The Assessing Officer taxed this family pension in India, which the CIT(A) later held as non-taxable in India under Article 23(3) of the DTAA, as it was already taxed in the UK.

2. Applicability of Article 23(1) vs. Article 23(3) of the India-UK DTAA:
The revenue argued that the family pension falls under Article 23(1) of the DTAA, which deals with items of income not covered in the foregoing articles and is taxable in India. However, the CIT(A) and the Tribunal held that Article 23(3) is applicable, which states that if the income arises in the other contracting state (UK) and is taxed there, it should not be taxed again in India. The Tribunal noted that family pension is distinct from pension and is not covered under Article 20, which pertains to pension received for past employment.

3. Interpretation of "May be Taxed" under the DTAA:
The Tribunal relied on various judicial precedents, including the cases of DCIT v. Mideast India Ltd. and Ms. Pooja Bhatt v. DCIT, to interpret the phrase "may be taxed." It concluded that this phrase authorizes only the source country (UK) to tax the income, precluding the resident country (India) from taxing it again. This interpretation aligns with the purpose of avoiding double taxation, as stipulated in the DTAA.

4. Levy of Interest under Section 234B:
Since the Tribunal held that the family pension received by the assessee is not taxable in India under Article 23(3) of the DTAA, the issue of levying interest under Section 234B of the Income Tax Act became infructuous and was dismissed.

Conclusion:
The Tribunal upheld the CIT(A)'s decision that the family pension received by the assessee from the UK is not taxable in India under Article 23(3) of the India-UK DTAA, as it was already taxed in the UK. Consequently, the revenue's appeals were dismissed, and the issue of levying interest under Section 234B was rendered moot. The Tribunal emphasized the importance of avoiding double taxation and the correct interpretation of the DTAA provisions.