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TMI Blog2011 (9) TMI 654X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough the Bank. Since there is no liability to tax in India, obviously the Bank is not covered by the provisions of TDS. - ITA No. 645/Mum/2007 & 2306/Mum/2007 - - - Dated:- 16-9-2011 - R. S. Padvekar And B. Ramakotaiah, JJ. Appellant by: Malati Shridharan Respondent by: Arati Vissanji ORDER Per B. Ramakotaiah, A.M. These two appeals are by the Revenue against the orders of the CIT(A) XXXIII, Mumbai dated 18.10.2006 and 13.12.2006 respectively on the issue of levy of interest and tax liability under sections 201(1) and 201(1A) of the I.T. Act. 2. Briefly stated, respondent bank (hereinafter referred as Bank ) is a banking company. During A.Y. 2005-06 Bank made remittance to foreign nationals based on CA certificates and undertakings in accordance with RBI Circular No. FEX/MUMBAI/EDP.1/89/14011/Msc./2004-05 dated 07.12. 2004. These 11 CA certificates were forwarded to the A.O. vide their letter dated 14.06.2005 and another 12 CA certificates vide their letter dated 19.05.2005 and 6 CA certificates vide letter dated 15.06.2005. These 29 certificates were examined by the A.O. and an order under sections 201(1) 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing CSGL account. The constituents/investors purchased and sold Government Bills through the designated account maintained by the ICICI Bank. The funds in the NRE accounts were utilised for purchase of securities whereas the proceedings of sales are remitted to the same account maintained with the bank. The contention of the Revenue is that the capital gains that has arisen to the said constituents/investors is liable to tax in India and since the Bank has not deducted tax at source the liability under section 201(1) and consequently under section 201(1A) were imposed on the said bank. 5. It was the contention of the Bank that those constituents/ investors comprises of non-resident Indians as well as persons of Indian origin residing in UAE and these investors are entitled for the benefit of Article 13 of the Treaty and hence the Bank is not required to deduct tax at source on the capital gains arising from the sale of T-Bills. The bank contended that the Treaty is more beneficial to the investor and hence the Treaty should be applied. It was further contended that the Indian Government entered into a comprehensive DTAA with the Government of UAE being fully aware that there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.1996 has indicated that the availability of DTAA benefit to individual residents in UAE and this Circular is clarificatory in nature. This circular supports the view that the Treaty applies to all types of income though the circular has specifically dealt with the dividend interest. In view of the above, the appellant contended that no tax is required to be deducted at source from the capital gains arising from transfer of Government of India T-Bills. The Bank also relied on the decision of the Green Emirates Shipping and Travels 100 ITD 203. The A.O. has not accepted the contentions of the Bank. The A.O. is of the view that since the individuals are not taxable in UAE, they cannot be considered as residents within the meaning of Article 4(1) of the Treaty and hence the provisions of the Treaty are not applicable to the individuals residing in UAE. The A.O. relied on the decision of the AAR in Cyril Ugene Perera 239 ITR 650 and the A.O. has relied on the following observations of the Hon'ble AAR in that decision. 6. The learned CIT(A), following the decision of the Hon'ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan 263 ITR 706 wherein the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n case such gains is not taxable in the country in which the alienator is a resident. Firstly, Article 13(5) of the tax treaty with Sweden reads as follows: Gains from the alienator of any property other than that referred to in paragraphs (1), (2), (3) and (4), shall be taxable only in the Contracting State of which the alienator is a resident, provided that such resident is subject to tax thereon in that state. If the resident is not subject to tax thereon, then such gains may be taxed in the other Contracting State. (emphasis supplied) Article 13(6) of the tax treaty with Ukraine reads as follows: Gains from the alienation of any property other than that mentioned in paragraphs 1,2,3,4 and 5, shall be taxable only in the Contracting State of which the alienator is a resident provided that those gains are subject to tax in that Contracting State. (emphasis supplied). Secondly, Article 13(5) of the tax treaty with Jordan reads as follows: Gains from the alienation of any property other than that referred to in paragraphs 1,2,3 and 4 shall be taxable only in the Contracting State of which the alienator is a resident, provided that such resident is subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iefly stated above the issue is of liability to capital gains in the case of the individual residents of UAE who transacted in the government T-Bills through the account maintained with the Bank. There is no dispute with reference to the fact that all these constituents/investors are residents of UAE. The A.O. also gives a finding that they are residents of UAE. There is also no dispute that during the year the various constituents/investors earned short term capital gains as stated in the Annexure to the AO s order by transacting in government T-Bills. It was the contention that those residents of UAE are not liable to tax in view of Article 13(3) of the Indo-UAE DTAA. Since the constituents were residents of UAE, it is only the UAE which has right to tax capital gains and not India. Article 13 of the agreement for avoidance of double taxation between India and the UAE (hereinafter referred to as the India-UAE Treaty) provides an exemption from capital gains tax in India to the residents of UAE. It reads as under: - Article 13: Capital gains: (1) Gains derived by a resident of a contracting State form the alienation of immovable property referred to in paragraph 2 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinate Bench in the case of Green Emirates Shipping and Travels 100 ITD 203 wherein the Tribunal had an occasion to deal with an identical issue and held as under: - 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 appellant bank is paying tax in both the countries in respect of the same income, in the ground 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 judgement 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 treating r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the treaty from taxability in the other country. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5th day of June 2006, which was notified vide Notification No. 282 of 2007 dated 28th November 2007. This Protocol amended the DTAA and vide Article 4 of the Protocol the following were modified: - Article 4 Paragraph 3 of article 13 (Capital Gains) of the Agreement shall be replaced by the following: 3. Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in a Contracting State may be taxed in that State. 4. Gains from the alienation of shares other than those mentioned in paragraph 3 in a company which is a resident of a Contracting State may be taxed in that State. 5. Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4 above shall be taxable only in the Contracting State of which the alienator is a resident. 16. As can be seen from the above the amended Article 13 (after insertion of modified Article 13(3), 13(4) and 13(5) ) gives rise to a situation where the gains from alienation of shares of the capital stock of a company is also taxed in the contracting state where the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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