Treaty-based exemption for international shipping income bars Indian tax where residence state has exclusive taxing rights.

Article 8 of the India-UAE DTAA was applied to shipping profits earned by a UAE-resident ship owner through operation of ships in international traffic. Because the treaty allocated exclusive taxing rights to the State of residence, the general charging provisions of the Income-tax Act yielded to the treaty. On the admitted facts, the Indian tax authorities had no jurisdiction to tax the shipping income, so the deletion of tax was held to be in accordance with law and the Revenue's appeals failed.

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Issues: Whether the assessee, as agent of a ship owned by a resident of the UAE, was liable to tax in India on shipping income in view of Article 8 of the Double Taxation Avoidance Agreement between India and UAE.

Analysis: Article 8 of the DTAA provided that profits derived by an enterprise of a contracting State from the operation of ships in international traffic are taxable only in that State. The Board's circulars clarified that where a treaty allocates taxing rights exclusively to the State of residence, the general provisions of the Act yield to the treaty. On the admitted facts, the ship owner was a UAE resident and the income arose from operation of ships in international traffic, so the Indian taxing authorities had no jurisdiction to levy tax on that income.

Conclusion: The assessee was not liable to tax in India on the shipping income, and the deletion of tax by the appellate authorities was in law.

Final Conclusion: No substantial question of law arose, and the Revenue's appeals failed.

Ratio Decidendi: Where a tax treaty grants exclusive taxing rights over shipping profits from international traffic to the State of residence of the enterprise, the income cannot be taxed in India under the general provisions of the Income-tax Act.

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