TaxTMI 
TaxTMI 
2010 (4) TMI 720
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....gain of RS.5,04,89,379/-. He claimed that die short term capital gain cannot be brought to tax in India in view of Article 13(3) of the Indo-UAE DTAA. Since the Assessee was a Resident of UAE, it is only UAE which has a right to tax capital in and not India. Article 13 of the agreement for avoidance of double taxation between India and the UAE (hereinafter referred to as the India-UAE Treaty provides an exemption from capital gains tax in India to residents of UAE. It reads as under :- Article 13 : Capital gains: 1) Gains derived by a resident of a contracting state from the alienation of immovable property referred to in paragraph 2 of Article 6 and situated in the other Contracting State may be taxed in that other state. 2) Gain from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a contracting state has in the other contracting state or of movable property pertaining to a fixed base available to a resident of a contracting state in the other contracting state for the purpose of performing independent personal services, including such gains from the alienation of such a permanent estab....
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....n UAE'. The Assessing Officer relied upon the decision of the AAR in the case of Cyril Eugene Pereria, In re [1999] 239 ITR 6501 in support of the proposition that the provisions of the DTAA do not apply to any case which the 'same income is not liable to be taxed twice by the existing laws of both the Contracting States'. 5. The Tribunal firstly disagreed with the view expressed by the AAR in the case of Cyril Eugene Pereria (Supra) on the ground that the said decision was held to be not laying down the correct law by the Hon'ble Supreme Court in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 7061, at page 742. The tribunal held that: - 6. Undoubtedly, in Cyril Eugene Pereria's case (supra), Hon'ble Authority for Advance Ruling, deviating from the stand taken by it in the earlier rulings including ruling in Mohsinally Alimohammed Rafik, In re [1995] 213 ITR 3171, concluded that "an individual who is not liable to pay tax under the UAE law cannot claim any relief from the only tax on income which is payable in India under the agreement" and that "the provisions of the Double Taxation Avoidance Agreement do not apply to any case where the same income is not ....
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....by the respondents that the avoidance of double taxation can arise only when tax is actually paid in one of the Contracting States." 6. The Tribunal also held that the decision of the Authority for Advance Ruling in the case of Abdul Razak A. Menon, In re [2005] 276 ITR 306 was also not good law. 7. The Tribunal dealt with the argument of the Learned Departmental Representative that as non-corporate entities are not taxable entities under the UAE Tax Treaty such non-corporate entities, even though based in UAE, cannot be treated as "resident' for the purposes of the India-UAE DTAA as follows: "Our attention is also invited to the learned Assessing Officer's observations to the effect that "the provisions of the DTAA do not apply to any case which the same income is not liable to be taxed twice by the existing laws of both the Contracting States" and that "since the assessee has failed to prove that it is paying taxes in UAE, the DIT relief sought by the assessee is rejected" but it is the very proposition underlying these observations which was rejected by the Hon'ble Supreme Court holding that "it is .... not possible for us to accept the contentions so strenuou....
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....lly bind themselves not to levy taxes or to tax only to a limited extent in cases when the treaty reserves taxation for the other Contracting State either entirely or in part. Contracting States are said to waive 'tax claims' or more illustratively to divide 'tax sources', 'taxable objects', amongst themselves. Double taxation avoidance treaties were in vogue even from the time of the League of Nations. The experts appointed in the early 1920s by the League of Nations describe this method of classification of items and their assignments to the Contracting States. While the English lawyers called it 'classification and assignment rule', the German jurists called it 'the distributive rule' (Vertei-lungsnorm). To the extent that an exemption is agreed to, its effect is in principle independent of both whether the Contracting State imposes a tax in the situation to which the exemption applies, and irrespective of whether the State actually levies the tax. Commenting particularly on the German Double Taxation Convention with the United States, Vogel comments : "Thus, it is said that the treaty prevents not only 'current' but also merely 'potential' double taxation'." [Emphasis supplied]....