Tax treaty protection for UAE residents barred withholding tax on capital gains from securities sales in India.

Capital gains earned by UAE resident account holders from sale of securities in India were treated as not taxable under the India-UAE tax treaty on the concurrent findings of the Tribunal and CIT(A), and the bank was therefore not required to deduct tax at source. The Court found no perversity in those factual and legal conclusions and held that no substantial question of law arose.

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Issues: Whether the respondent bank was required to deduct tax at source from capital gains earned by UAE resident account holders on sale of securities in India under the India-UAE tax treaty.

Analysis: The admitted facts showed that the remittances were made to foreign nationals on the basis of chartered accountant certificates and undertakings, and the authorities below found that the gains arose to UAE residents from sale of government securities. The Tribunal and the Commissioner of Income Tax (Appeals), relying on the India-UAE treaty and the principle affirmed in prior precedent, held that the capital gains were not liable to tax in UAE and that, on those facts, the income was not taxable so as to attract withholding at source in India. The Court found no perversity in that concurrent factual and legal conclusion and held that no substantial question of law arose.

Conclusion: The respondent bank was not liable to deduct tax at source on the said capital gains.

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