9911796707
TMI Blog1994 (12) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... n India, but the income from this is also not liable to tax, as the property is retained for purposes of his residence but actually unoccupied since the applicant is away at Dubai almost throughout the year. The applicant makes occasional visits to India almost every year but not for periods long enough to make him a resident within the meaning of the Act. His only other income derived in India comprises interest and dividends derived by him from shares, bonds, debentures and other like securities of movable nature held by him in India. The short question on which the applicant seeks an advance ruling is about the rate of income- tax that would be applicable : (i) to the interest and dividend income derived by him from investments already made and further investments proposed to be made out of his various non-resident accounts, and (ii) to the capital gains (long-term or short-term, as the case may be), which he may derive on alienations of these investments from time to time, if any. There is an agreement between India and the United Arab Emirates ("U. A. E.", for short), of which Dubai is one, for the avoidance of double taxation (hereinafter briefly referred to as "the DTAA"). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) or of such fixed base may be taxed in that other State. (3) Gains from the alienation of any property other than that mentioned in paragraphs 1 and 2 shall be taxable only in the Contracting State of which the alienor is a resident." Based on these provisions, the substantial contention urged on behalf of the applicant before the authority is that he is taxable at 15 per cent., 12.5 per cent., and nil per cent., respectively, on the income derived by him by way of dividend, interest and capital gains in respect of the Indian investments made by him. The applicant has, however, posed six questions for the Authority's ruling in his application. These are : " (1) Whether the applicant, an individual residing in the U. A. E. is entitled to claim the benefit of the provisions of the tax treaty entered into between India and U. A. E. ? (2) Whether in terms of article 13(3) and article 4 of the tax treaty between India and U. A. E., the applicant, an individual Indian national residing in U. A. E., is liable to capital gains tax on the transfer effected in India of movable assets in the nature of shares, debentures and other securities ? (3) Whether the applicant is liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articles will be available only if the applicant can be termed a resident of the U.A.E. within the meaning of the agreement. The topic of "residence" is dealt with in three paragraphs of article 4 of the agreement and it is necessary to set them out here. The article runs : "1. For the purposes of this Agreement, the term 'resident of a Contracting State' means any person who, under the laws of that State is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation or any other criterion of similar nature. 2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows : (a) he shall be deemed to be a resident of the State in which he has a permanent home available to him ; if he has a permanent home available to him in both States, he shall be deemed to be a resident in the State with which his personal and economic relations are closer (centre of vital interests) ; (b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent even if accepted, will not really help the applicant. It is not sufficient for him to say that he is not a resident in India. He can derive the benefits sought from the DTAA, as already pointed out, only if he is resident in the U. A. E. within the meaning of article 4. But, this consideration apart, the argument is not well-founded. It is true that if the words "or any other criterion of a similar nature" are given a very narrow meaning as contended for and construed as applicable only where the liability of the person concerned to tax arises out of his continued presence or activity in the country in question, it may be possible to say that the present applicant is not a resident in India. But it appears to the Authority that such a narrow interpretation would not be correct. What the paragraph contemplates is that the liability to taxation for its purposes should arise out of some nexus between India (or the other country) and the claimant. The four words, "resident", "domicile", "place of incorporation" and "place of management" have been used only to indicate the need for the existence of some nexus between the applicant and the State concerned which can justify the imposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the terms of article 7 thereof and hence presumably continues to be in force till today. That agreement is of no relevance for the present purposes except for a narration in article 3 thereof. That article refers to the income-tax "as imposed by the Federal Government of the U. A. E.". Unfortunately, the provisions of no such law have been placed before the Authority and the scope of such law, if any, is not known. On the other hand, it has been asserted by the applicant that there is no levy of income- tax on individuals either under any federal law or under the law of any of seven Emirates, and hence, the issue before the Authority has to be decided on this assumption. (2) The applicant stated before us that though income-tax is levied in all the Emirates, in Dubai and two other Emirates, it is restricted only to foreign banks and foreign oil exploration companies. The Dubai Income- tax Ordinance of 1969, a copy of which has been filed has, however, a much wider scope. Article 1 of the Ordinance declares that "an annual income-tax shall be imposed on all "taxable income" i.e., net income after permissible allowances of every person liable from 1st of January, 1969, at the rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " It seems from later passages in the publication, that construction activities are generally granted exemption from income-tax, but that oil companies and foreign banks are taxed on their income subject to certain deductions under the rules. The Dubai Ordinance specifies a rate of 55 per cent. on oil companies but in practice it would be much less in individual cases. Tax is paid by foreign banks at 20 per cent. The resultant position thus is that though the Dubai Statute levies income-tax on companies carrying on all types of trade and business in Dubai, only foreign oil companies and banks are in practice subjected to tax. However, it is clear that individuals like the applicant, are not liable to tax under the Dubai law. This being so, it can be said, the applicant cannot claim to be a resident of the U. A. E. entitled to the benefit of articles 10, 11 and 13 of the DTAA. While, ex facie, the above seems to be a simple way of reading the DTAA, a more liberal interpretation is suggested by other circumstances. The most crucial circumstance to be taken note of is that there is no income-tax or wealth-tax on individuals in any of the Emirates. There was no such tax there when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in India. Read in this background, articles 10 and 11 clearly envisage a lower rate of income-tax to all U. A. E. investors on such investments and article 13 clearly leaves it to the U. A. E. to deal with the capital gains on movable property realised by all U. A. E. investors. It could perhaps be argued that as the DTAA is to be an agreement indefinite in its period of operation, it will be appropriate to consider it as applicable to entities liable to tax under the existing law at any point of time during its subsistence. Thus, it can be said, corporate bodies are now liable to tax and hence will be residents of U. A. E. entitled to avail of the benefits of the agreement. Individuals, not being now liable to tax, cannot claim to be residents but, if at a future date, income-tax is levied on individuals too in U. A. E., they will become entitled to invoke the terms of the DTAA. Though this argument may be consistent with the narrow interpretation of article 4 earlier set out, there are difficulties in accepting this construction of the DTAA. It is too artificial and far-fetched to say that India, with the full knowledge of the absence of any income- tax in Dubai in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would have used the words "a person who is subjected to tax in that State" or stopped with the words "liable to tax in that State under the laws of that State". The further words in the paragraph would then be pure surplusage. Secondly, as already pointed out, the several articles in the DTAA which specifically concern individuals would make no sense at all, if individuals living in U. A. E. are treated as excluded from the benefits of the agreement because they are not currently subjected to any tax in U. A. E. It is difficult to conceive of a large number of such provisions being inserted in the agreement merely to meet a situation which does not arise on the date of the agreement but may possibly arise in future. These provisions are consistent only with the interpretation that certain benefits qua Indian tax are intended to be conferred on individuals resident in the U. A. E. even though they are not liable to tax in their State. Thirdly, if one accepts the stricter interpretation, all corporate bodies will be residents entitled to the benefits of the agreement, they being liable to tax under the Dubai Ordinance although as pointed out earlier those provisions are not actually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax laws of that country. If the applicant is a resident of both the Contracting States within the meaning of paragraph 1 of article 4, the agreement requires a status to be assigned to him as a resident of one of these two States and this has to be determined in accordance with clauses (a) to (d) of paragraph 2 of article 4. The contention of the applicant is that he has to be considered as a resident of Dubai either under clause (a) or under clause (b). There is substance in this contention. The applicant, no doubt, has a permanent home available to him both in Dubai and in India. However, his personal and economic relations are closer with Dubai rather than with India. In this context, the attention of the Authority has been drawn to a return filed on behalf of the Dubai company in India in Form No. 3CE for the assessment year 1994-95. This shows that the total remuneration drawn by the applicant and his share of profit by way of salary and commission from the Dubai firm amounts to over Rs. 23 lakhs whereas the Indian income, comparatively speaking, is definitely small. Quite apart from the actual figures of income, it is clear that the applicant has left India for Dubai several ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt : (i) those acquired prior to the coming into effect of the tax treaty between India and U. A. E. ; (ii) those acquired prior to his becoming a non-resident ; and (iii) those acquired after his becoming a non-resident but from out of non-repatriable funds in India. This type of distinction, however, is irrelevant for the purposes of the DTAA. Under article 30, once the agreement comes into force, it shall have effect in India in respect of income arising in any previous year beginning on or after April 1 next following the calendar year in which the agreement entered into force. In this case, the agreement entered into force, as already mentioned, on September 29, 1993. It, therefore, follows that all income arising to the applicant on or after the 1st of April, 1994, will be governed by the agreement. The only relevant question is the date of accrual of income of various categories referred to in the Double Taxation Avoidance Agreement. The date of acquisition of the assets which yielded the income or the status of the applicant at the time when he acquired the assets or the nature of the moneys with which those assets were acquired are all irrelevant for the purposes of ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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