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TMI Blog2005 (11) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... y taxes or paying taxes in UAE and that the provisions of the Double Taxation Avoidance Agreement did not apply to any person where the income was not liable to be taxed twice by the existing laws of both the Contracting States". 2. The short factual matrix, in which this issue arises, is this. The assessee is a shipping line based in United Arab Emirates. In the relevant previous year, the assessee had a taxable income of Rs. 28,35,628 from shipping operations. The assessee's claim was that in terms of article 8 of the Indo-UAE Double Taxation Avoidance Agreement (205 ITR St. 49), the assessee's income was liable to tax only in the country of domicile i.e., UAE, but this contention was rejected by the Assessing Officer on the ground that the assessee 'is not paying taxes in UAE'. The Assessing Officer relied upon the decision of the AAR in the case of Cyril Eugene Pereria, In re [1999] 239 ITR 6501 in support of the proposition that the provisions of the DTAA do not apply to any case which the 'same income is not liable to be taxed twice by the existing laws of both the Contracting States'. The Assessing Officer also noted that 'the assessee has failed to furnish proof/evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion that we are required to address ourselves to is whether or not the Assessing Officer was justified in raising the objection that he did. Is it really the liability to pay tax in UAE which is sine qua non to avail the benefits of the India-UAE DTAA or a fiscal domicile or residency in UAE per se will be sufficient for an assessee to claim the benefits of the India-UAE DTAA ? Is it taxation liability at present which is material for this purpose or is it even prospect of future tax liability which is sought to be prevented by the said DTAA ? 5. As for the Assessing Officer's reliance on ruling given by the Authority for Advance Ruling in Cyril Eugene Pereria's case (supra), we deem it necessary to produce the following extracts from the judgment of Hon'ble Supreme Court in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 7061, at page 742 wherein Their Lordships of Hon'ble Supreme Court had an occasion to deal with the said AAR ruling : "The respondents placed great reliance on the decision by the Authority for Advance Ruling constituted under section 245-O of the Income-tax Act, 1961, in Cyril Eugene Pereria's case [1999] 239 ITR 650 (AAR). Section 245S of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in Mohsinally Alimohammed Rafik, In re [1995] 213 ITR 3171, concluded that "an individual who is not liable to pay tax under the UAE law cannot claim any relief from the only tax on income which is payable in India under the agreement" and that "the provisions of the Double Taxation Avoidance Agreement do not apply to any case where the same income is not liable to be taxed twice by the existing laws on both the Contracting States". However, in Azadi Bachao Andolan's case (supra), Their Lordships of Hon'ble Supreme Court, after referring to the said ruling and after elaborate discussions on the various aspects of this issue, concluded that "it is . . . . not possible for us to accept the contentions so strenuously urged by the respondents that the avoidance of double taxation can arise only when tax is actually paid in one of the Contracting States". The reasoning given by Their Lordships included the following : "According to Klaus Vogel "Double Taxation Conventions establishes an independent mechanism to avoid double taxation through restriction of tax claims in areas where overlapping tax claims are expected, or at least theoretically possible. In other words, Contracting S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncurs with that of the Hon'ble Authority for Advance Ruling in Cyril Eugene Pereria's case (supra), to follow that school of thought. 7. Learned Departmental Representative has invited our attention to the ruling given by the Authority for Advance Ruling in the case of Abdul Razak A. Menon, In re [2005] 276 ITR 3061 which supports the case of the revenue and is said to be on exactly the same material facts. We are, however, unable to accept this plea and we decline to treat this as a sort of, to use the phraseology employed in legal parlance, a covered matter. As Hon'ble Supreme Court has duly taken of in Azadi Bachao Andolan's case (supra), a ruling given by the Authority for Advance Ruling is not even binding on the Commissioner of Income-tax, and authorities subordinate thereto, in any case except in the case of the very assessee in which the such a ruling is given and even in such a case it is binding in respect of transaction in respect of which the ruling is given. Whatever be the respect and deference judicial authorities indeed have for the rulings given by the Authority, the Authority for Advance Ruling, not being a part of the judicial hierarchy, cannot lay down a bindi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a before the Hon'ble Supreme Court. It cannot be open to us to take any other view of the matter than the view so taken by the Hon'ble Supreme Court. 8. Although the Assessing Officer's objection to applicability of India-UAE tax treaty was only on the ground that the provisions of double taxation avoidance agreements do not come into play unless it is established that the assessee is paying tax in both the countries in respect of the same income, in the grounds of appeal before us it is also contended that the assessee-company failed to produce any evidence to the effect that it was 'liable to pay taxes' in UAE. The question then arises whether an existing liability to pay taxes in UAE is a sine qua non to avail the benefit of India-UAE tax treaty in India. On this issue also, we find guidance from the judgment of Hon'ble Supreme Court in the case of Azadi Bachao Andolan (supra). Referring to the Klaus Vogel's Commentary on Double Taxation Conventions, Their Lordships, inter alia, observed as follows : "In other words, Contracting States mutually bind themselves not to levy taxes or to tax only to a limited extent in cases when the treaty reserves taxation for the other Contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... All that is necessary for this purpose is that the person should be 'liable to tax in the Contracting State by reason of domicile, residence, place of management, place of incorporation or any other criterion of similar nature' which essentially refers to the fiscal domicile of such a person. In other words, if fiscal domicile of a person is in a Contracting State, irrespective of whether or not that person is actually liable to pay tax in that country, he is to be treated as resident of that Contracting State. The expression 'liable to tax' is not to read in isolation but in conjunction with the words immediately following it i.e., 'by reason of domicile, residence, place of management, place of incorporation or any other criterion of similar nature'. That would mean that merely a person living in a Contracting State should not be sufficient, that person should also have fiscal domicile in that country. These tests of fiscal domicile which are given by way of examples following the expression 'liable to tax by reason of' i.e., domicile, residence, place of management, place of incorporation etc. are no more than examples of locality related attachments that attract residence type ..... X X X X Extracts X X X X X X X X Extracts X X X X
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