Treaty phrase "subject to tax" means liability to foreign tax, not actual payment, under Indo-Austrian relief rules.

Under the Indo-Austrian Double Taxation Convention, the phrase "subject to Austrian tax" was read to require liability to Austrian tax, not proof of actual payment. The Court distinguished tax liability from actual tax paid and noted that a person may remain taxable even where exemptions or deductions eliminate payment. It also held that, for treaty relief, the Austrian taxing provisions had to be placed on record so the foreign law could be examined and the assessee could show that the remuneration fell within Austrian tax liability. The relevant treaty interpretation point was thus clarified, while the foreign-law basis still required further evidence before final determination.

---

---

Issues: (i) Whether, under article XIV(2)(c) of the Indo-Austrian Double Taxation Convention, the assessee had to prove actual payment of tax in Austria or only that the remuneration was subject to Austrian tax; (ii) Whether the reference could be finally answered without the Austrian taxing provisions being brought on record.

Issue (i): Whether, under article XIV(2)(c) of the Indo-Austrian Double Taxation Convention, the assessee had to prove actual payment of tax in Austria or only that the remuneration was subject to Austrian tax.

Analysis: Clause (2) of article XIV was treated as an exception to Indian taxation and the Court read sub-clause (c) according to its plain language. The expression "subject to Austrian tax" was held not to mean that tax must already have been paid in Austria. The relevant distinction was between liability to tax and actual payment of tax. The Court relied on the principle that a person may be liable to tax even if, because of exemptions or deductions, no tax is actually paid. The requirement, therefore, was to show that the Austrian statute imposed tax on such remuneration.

Conclusion: The assessee was not required to prove actual payment of tax in Austria; it was sufficient to show liability to Austrian tax. This issue was answered in favour of the assessee.

Issue (ii): Whether the reference could be finally answered without the Austrian taxing provisions being brought on record.

Analysis: Although the Court rejected the Revenue's insistence on proof of actual payment, it held that the Austrian statute itself had to be placed on record so that the assessee could discharge the burden of showing that the remuneration was subject to Austrian tax. Since the assessee was claiming the benefit of an exemption under the treaty, the necessary foreign law and supporting material had to be examined before a final determination could be made.

Conclusion: The questions referred were not answered on the existing record and the matter was sent back to the Tribunal for decision after allowing the parties to adduce further evidence. This issue was not finally decided in favour of either side.

Final Conclusion: The Court settled the treaty-interpretation point in the assessee's favour but left the ultimate tax relief to be decided by the Tribunal after the foreign law and further evidence were placed on record.

Ratio Decidendi: Under a treaty provision using the phrase "subject to tax", liability to tax is sufficient and actual payment of tax cannot be insisted upon unless the language of the convention expressly so requires; where exemption under a treaty is claimed, the assessee must still prove the foreign law establishing such liability.

---