2012 (4) TMI 76 - HC - Income Tax

High Court upholds DTAA: UAE resident not liable for Indian tax on profits

The High Court dismissed the appeals regarding the tax liability of an assessee under the Double Taxation Avoidance Agreement (DTAA) between India and ... DTAA between India and UAE - there is no dispute that tax has been assessed upon the assessee as agent of a shipping Company situated at UAE - Circular No. 333 dated February 2, 1982 issued by the Board which states that the provisions made in DTAA would prevail over the general provisions of the Act - Held that: the owner of the ship being admittedly a resident of UAE, there was no scope of taxing the income of the ship in any of the ports in India. - once it is found that the ship belongs to a resident of the other contracting country and such position has also been clarified by the Circulars issued by the Board as indicated above. - Appeal is dismissed Issues:- Interpretation of Double Taxation Avoidance Agreement (DTAA) between India and UAE- Tax liability of an assessee working as an agent of a ship registered in UAE- Application of Circulars issued by the Board in relation to taxation of shipping profits- Jurisdiction of taxing officers in India over profits derived by enterprises of a contracting stateInterpretation of DTAA:The High Court dealt with appeals under section 260A of the Income Tax Act, 1961, regarding the tax liability of the assessee under the DTAA between India and UAE. The central question was whether the Tribunal erred in holding that the assessee was not liable to tax in India as per Article 8 of the DTAA and in deleting the tax levied by the Assessing Officer. The Court examined the provisions of Article 8 of the DTAA, which stated that profits derived by an enterprise of a contracting state from the operation of ships in international traffic shall be taxable only in that state. The Court emphasized that the agreement between the two countries ousted the jurisdiction of Indian taxing officers to tax the income of the ship when the owner is a resident of the other contracting country.Tax Liability of Assessee:The Court noted that the assessee, working as an agent of a ship registered in UAE, claimed that no tax was payable in India as the final freight beneficiary was a shipping company resident in UAE, not liable to tax under the DTAA. Despite the Assessing Officer levying tax on the assessee, the CIT [Appeals] and the Tribunal held that the Assessing Officer had no authority to tax the ship's owner in India. The Court observed that the Circulars issued by the Board clarified that if ships are owned by an enterprise from a country with a double taxation agreement with India, no tax is payable at Indian ports.Application of Circulars and Jurisdiction of Taxing Officers:The Court referenced Circulars issued by the Board, emphasizing that the provisions of the DTAA prevail over general tax provisions. It highlighted that the Circulars clarified that no tax is payable at Indian ports for ships owned by enterprises from countries with double taxation agreements with India. The Court concluded that based on the DTAA provisions and Circulars, the taxing officers in India had no jurisdiction to tax the profits derived by the enterprise when the ship's owner is a resident of the other contracting country.Conclusion:After considering the arguments and relevant provisions, the Court found no substantial question of law in the appeals. Consequently, all the appeals were summarily dismissed, upholding the decisions of the CIT [Appeals] and the Tribunal regarding the tax liability of the assessee under the DTAA between India and UAE.