Treaty residence under Indo-UAE DTAA extends to right to tax, so capital gains exemption could not be denied.

For treaty residency under Article 4(1) of the Indo-UAE DTAA, "liable to tax" covers a person whom the foreign State has the right to tax by reason of residence or a similar nexus, even if no tax is actually levied there. On that basis, the Tribunal held that the assessee, a UAE resident, could claim treaty benefits and the short-term capital gains were exempt from tax in India under Article 13(3). It also applied the principle that a tax treaty can prevent potential double taxation, not only actual double taxation, so the absence of current tax liability in the UAE did not defeat relief.

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Issues: Whether the assessee, as a resident of UAE, was entitled to the benefit of the Indo-UAE DTAA so as to exempt short-term capital gains from tax in India, despite the absence of actual tax liability on individuals in UAE.

Analysis: The Tribunal followed its earlier decision on identical facts and grounds. It held that the expression "liable to tax" in Article 4(1) does not require actual payment of tax in the other Contracting State. The decisive factor is that the other State has the right to tax by reason of residence or similar connecting criteria. On that basis, the treaty benefit under Article 13(3) was available to the assessee, and the capital gains were not taxable in India. The Tribunal also relied on the principle that a tax treaty may prevent potential, and not merely current, double taxation.

Conclusion: The assessee was entitled to the benefit of the Indo-UAE DTAA and the Revenue's appeal failed.

Ratio Decidendi: For treaty residency under Article 4(1), "liable to tax" includes cases where the foreign State has the right to tax the person by reason of residence or similar nexus, even if no tax is actually levied; therefore, treaty exemption under Article 13(3) cannot be denied merely because the foreign State does not impose tax on that income.

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