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TMI Blog2021 (12) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... axation of capital represented by immovable property, the said article refers to taxation of capital but does not provide, as learned Departmental Representative seem to suggest, for taxation by virtue of investment in the immovable property. The assessee before us is certainly an Indian national, but he is admittedly resident in the UAE so far as his residential status, under the Indo UAE tax treaty is concerned, is of the UAE tax resident. The residuary taxation rights, in terms of the treaty provisions, belong to the residence jurisdiction, but even if that was not to be so, the residence rights can at best go to the source jurisdiction, which in turn refers to a jurisdiction in which the income is earned, rather than a jurisdiction in which the income is invested. By no stretch of logic, therefore, such an income could be taxed in India, which is neither residence nor source jurisdiction; it is at best investment jurisdiction. However, the scheme of tax treaties limits the rights of taxation either to residence or to source jurisdiction. As for the alleged interest income, there is no finding whatsoever to suggest that there was indeed any interest income inasmuch as even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his investments in India. 2. To set out the backdrop in which this question arises, a few things need to be taken note of. By way of this appeal, the Assessing Officer has challenged the correctness of the order dated 29th July 2019, passed by the learned CIT(A), in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2010-11. Grievances raised by the appellant Assessing Officer are as follows: 1. Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in not appreciating the existence of commercial relation between the assessee and M/s Ahuja Group? 2. Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in not appreciating the evidentiary value of statement of Shri Jagdish Bhagwandas recorded u/s 132(4) of the IT Act, 1961? 3. Whether on the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in considering the interest income amounting to ₹ 4,47,150/- to be taxable under article 22 of India-UAE DTAA not under article 11of the treaty? 4. Whether on the facts and in the circumstance of the case and in law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such an income cannot be taxed in India. The Assessing Officer is aggrieved and is in appeal before us. 4. We have heard the rival contentions at length, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 5. Let us, first of all, consider as to what is the basic nature of the transaction, which has resulted in the impugned tax liability. The assessee is said to have, even going by the claim of the revenue authorities, paid some unaccounted monies to the builder, and, by a fiction of law, these unaccounted or unexplained investments are being brought to tax. The trigger for taxability is thus investment in the immoveable property- unexplained investment at that. Bearing this in mind, let us now see the treaty provisions under which this income can be brought to tax in the hands of the assessee- in terms of the provisions of the Indo UAE tax treaty, as there is no dispute that the assessee is, being resident in and fiscally domiciled in the UAE, entitled to the benefits of the Indo UAE tax treaty. We are right now dealing with an assessment year in which tax residency certificate was not even mandatory, but quite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in an immovable property. The plea is thus devoid of any legally sustainable merits. As for article 23(1), which refers to taxation of capital represented by immovable property, the said article refers to taxation of capital but does not provide, as learned Departmental Representative seem to suggest, for taxation by virtue of investment in the immovable property. Explaining the scope of similar provision, the OECD Model Convention Commentary, which is quoted with approval in UN Model Convention Commentary, states as follows: 1. This Article deals only with taxes on capital, to the exclusion of taxes on estates and inheritances and on gifts and of transfer duties. Taxes on capital to which the Article applies are those referred to in Article 2. 2. Taxes on capital generally constitute complementary taxation of income from capital. Consequently, taxes on a given element of capital can be levied, in principle, only by the State which is entitled to tax the income from this element of capital. 7. Clearly, therefore, article 23(1) has no application in the present context. What is impugned before us is not a taxation on capital represented by an immoveable propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence nor source jurisdiction; it is at best investment jurisdiction. However, the scheme of tax treaties limits the rights of taxation either to residence or to source jurisdiction. 12. What essentially follows is that if, under the domestic tax laws of the UAE, the amounts in question can be treated as of income nature, the tax implications of these amounts, under the scheme of the Indo UAE tax treaty, can at best follow in the UAE, but that is not relevant in the present context of holding these amounts to be, even if so permissible in our domestic tax laws, taxable in India. The revenue thus derives no support from the Indo UAE tax treaty, which, under the scheme of Section 90(2), must make way to the domestic law provisions except to the extent the applicable treaty provisions are more favourable to the assessee. 13. As for the alleged interest income, there is no finding whatsoever to suggest that there was indeed any interest income inasmuch as even the Assessing Officer is tentative when he states that the related entry probably refers to interest receipt. The taxability of interest is, even by the standards of the revenue authorities, also thus far from establis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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