Indo-UAE treaty residence turns on fiscal domicile, not actual tax payment, for capital gains relief.

Treaty entitlement under the Indo-UAE tax treaty depends on residence in the Contracting State by reason of fiscal domicile or a similar criterion, not on proof of actual tax payment there. The expression "liable to tax" was read in context as referring to the other State's right to tax, even if that right is not exercised. The later protocol and amended resident definition were treated as consistent with this reading, confirming that dual actual taxation is not a condition for treaty relief. On this basis, treaty benefits were available for capital gains on share sale under the treaty framework.

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Issues: Whether the assessee, being a resident of the UAE, was entitled to treaty benefits under the Indo UAE tax treaty for capital gains on sale of shares notwithstanding the absence of actual tax payment in the UAE, and whether the amended treaty position confirmed that treaty residence depends on fiscal domicile and not on actual taxation.

Analysis: The treaty benefit was held to depend on residence in the Contracting State by reason of domicile or a similar criterion, not on proof of actual tax payment there. The expression "liable to tax" was read with the surrounding words in the treaty to mean fiscal domicile, and the treaty was interpreted to cover situations where the other State has the right to tax even if that right is not exercised. The later protocol amending the Indo UAE tax treaty and the notified change in the definition of resident were treated as consistent with this interpretation and as confirming that dual actual taxation is not a condition precedent for treaty relief.

Conclusion: The assessee was entitled to the benefits of the Indo UAE tax treaty, and the denial of treaty relief by the revenue authorities was not sustainable.

Final Conclusion: The appeal succeeded and the assessee obtained relief by being granted exemption from Indian taxation on the disputed capital gains under the treaty.

Ratio Decidendi: For treaty purposes, residence and entitlement to relief are determined by fiscal domicile and the Contracting State's right to tax under the agreement, not by the actual levy or payment of tax in that State.

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