2023 (11) TMI 504 - AT - Income Tax

Indian resident cannot exclude Australian rental income from taxation despite paying tax in Australia under section 90(3)

ITAT Jaipur dismissed the appeal where an Indian resident claimed rental income from Australian properties should not be taxable in India under Article 6 ... Indian resident deriving foreign income - interpretation of the expression “may be taxed” - taxability of particular income in both the contracting states - addition under the head income from house property in respect of rental income received from two properties situated in Australia - whether as per Article 6 of DTAA such income is taxable in Australia and not in India? - rental income from Australian property was not included in the Indian income tax return in view of Article 6 of DTAA and in respect of the rental income, tax of 4698.16 Australian dollars was paid in the income tax return filed in Australia - HELD THAT:- The issue of interpretation of phrase “may be taxed in other contracting States”, as used in different Articles including Article 7 in the DTAA has been discussed in detailed by the Tribunal in Essar Oil Ltd. [2013 (9) TMI 126 - ITAT MUMBAI] after taking into consideration various decisions of the High Court, Supreme Court, effect of amendment in section 90(3) and notification dated 28th August 2008, issued by the Central Government. DR in addition to the judgment relied upon by the ld. AO and that of the ld. CIT(A) has also relied upon the judgment of the Bank of India Vs. ACIT [2020 (12) TMI 862 - ITAT MUMBAI] wherein the judgment and circular relied upon by the ld. AR of the assessee is discussed at length and even though the decision is given in the favour of the revenue by holding that as a result of the amendment w.e.f. 01.04.2004 by which section 3 to section 90 has been brought to tax in the statute from the assessment year 2004-05 there is a clear departure from the earlier position wherein the courts have interpreted the expression “may be taxed” in as much as now the central government which is one of the contracting state has been empowered to assign meaning to the various terms and expressions and used in the agreement. Once the tax is payable or paid in the country of source, then country of residence is denied of the right to levy tax on such income or the said income cannot be included in return of income filed in India, would no longer apply after the insertion of provision of sub-section (3) of section 90 w.e.f. 1st April, 2004, i.e. Assessment Year 2004-05. Based on these finding we see no reasons to interfere with the finding of the lower authority and therefore, we see no merits in the appeal of the assessee and the same is dismissed. Issues Involved:1. Taxability of rental income from properties situated in Australia under the Double Taxation Avoidance Agreement (DTAA) between India and Australia.2. Whether the rental income received from Australian properties should be included in the Indian income tax return.Summary:1. Taxability of Rental Income under DTAA:The primary issue is whether the rental income received from properties situated in Australia, on which income tax is paid in Australia, can also be taxed in India. The appellant argued that according to Article 6 of the DTAA between India and Australia, such income is taxable only in Australia and should not be included in the Indian income tax return. Article 6 states, 'Income from real property may be taxed in the Contracting State in which that property is situated.' The appellant contended that the term 'may be taxed' implies exclusive taxation rights to the state where the property is located, as supported by various articles in the DTAA and judicial precedents.2. Inclusion of Rental Income in Indian Tax Return:The Assessing Officer (AO) observed that Article 6 of the DTAA does not preclude the taxation of the rental income in the resident state (India). The AO referred to section 5(1)(c) of the Income Tax Act, which mandates the taxation of global income of a resident in India, and added the rental income of Rs. 15,22,442/- to the assessee's total income. The CIT(A) upheld this decision, distinguishing the appellant's reliance on certain judicial precedents and emphasizing that the DTAA does not explicitly exclude the resident state from taxing such income.Judicial Precedents and Arguments:The appellant cited decisions from the ITAT Delhi Bench in Natasha Chopra Vs. DCIT and ITAT Mumbai Bench in Ms. Pooja Bhatt Vs. DCIT, which supported the view that rental income from properties in Australia should not be taxed in India. However, the CIT(A) distinguished these cases, noting that they did not consider the impact of section 90(3) of the Income Tax Act and the CBDT Notification No.91/2008, which allows the resident state to tax such income while providing relief through tax credits.Tribunal's Decision:The Tribunal, referencing the decision in Bank of India Vs. ACIT and other relevant cases, concluded that after the insertion of sub-section (3) of section 90 w.e.f. 1st April 2004, the principle that income taxed in the source country cannot be taxed in the resident country no longer applies. Consequently, the Tribunal upheld the lower authorities' decision to include the rental income from Australian properties in the assessee's Indian income tax return, dismissing the appeal.Conclusion:The appeal was dismissed, affirming that the rental income from properties situated in Australia should be included in the Indian income tax return, with the provision for tax credits for taxes paid in Australia.