TaxTMI 
TaxTMI 
2010 (10) TMI 610
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....The assessee submitted the details of the foreign remittances made to residents of UAE, from which the Assessing Officer noted that these remittances had been made without deduction of tax at source, as per the certificates issued by the Chartered Accountants. In the certificates, the Chartered Accountants would appear to have stated that the remittances represent capital gains arising to the non-residents based in UAE on sale of Government securities issued by the Government of India and held by them and that they were exempt from capital gains tax in India under Article 13(3) of the Agreement for the Avoidance of Double Taxation entered into between India and UAE. It was therefore stated by the assessee-bank that no tax was liable to be deducted at source from the remittances. 3. The Assessing Officer, however, took the view that the capital gains arising to the residents of UAE did not qualify for exemption from Indian Income Tax under the DTAA and, therefore, the assessee-bank became a defaulter by not deducting the tax from the remittances. A show cause notice was accordingly issued to the assessee under section 201 of the Income Tax Act, 1961, proposing to treat the assess....
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....ment of UAE, that right continues to remain with that Government, whether exercised or not and the expression "liable to tax in the UAE" does not imply that the person should actually be taxed by virtue of an existing law in UAE. On the basis of the aforesaid submissions the assessee pleaded that it should not be treated as a defaulter or charge interest under section 201 of the Act. 5. These submissions did not find favour with the Assessing Officer, who held that Article 4(1) of the treaty was more relevant and since the individual customer of the bank, who was residing in UAE, was not liable to pay tax in UAE, he cannot be considered as a resident of UAE and conferred the benefit of the treaty. According to him, due to the absence of any tax on the individuals in UAE, they cannot take the benefit of the Double Taxation treaty. Under Article 4(1), the liability to pay tax is the condition for deciding whether a person is a resident of a Contracting State or not. Unless a person is liable to pay tax in a Contracting State, he cannot be considered as a resident of that State. Since there is no individual income tax in UAE, the individuals residing there cannot be considered a....
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....nion of India vs. Azadi Bachao Andolan (supra), where it was observed that the rulings of the AAR have no binding authority but have only persuasive value. He also referred to the order of the Mumbai Bench of the Tribunal in the case of ADIT vs. Green Emirate Shipping and Travels (supra) and after quoting extensively therefrom, held in paragraph 3.12 that the capital gains arising to NRIs residing in UAE cannot be taxed in India and hence the assessee was not obliged to deduct tax therefrom. In this view of the matter, he deleted the demand raised under section 201(1) and levy of interest under section 201(1A) of the Act. 8. In addition to the above findings, the CIT(A) also gave certain other reasons in support thereof and these are contained in paragraph 3.13 of his order. He took the view that if it is held that the individuals residing in UAE are not entitled to the benefit of the tax treaty just because they have not been assessed or are not assessable entities there, it will then amount to leaving the entire citizens living in UAE out of the treaty, which will be contrary to the intention of the treaty. He also referred to Article 13 of the DTAA under which the capital gai....
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....an be charged under sub-section (1A) of the section. 11. We have considered the rival contentions and the facts. Taking the cross objection first, section 195(1) provides that if any person responsible for paying any sum chargeable under the Act to a non-resident, he shall, at the time of credit of the income to the account of the payee or at the time of actual payment thereof, whichever is earlier, deduct income tax thereon at the rates in force. Section 204 defines the meaning of "person responsible for paying". According to clause (iia), in the case of any sum payable to a nonresident Indian, being any sum representing consideration for the transfer by him of any foreign exchange asset, which is not a short term capital asset, the authorized dealer responsible for remitting such sum to the NRI or for crediting the sum to the NRE Account maintained in accordance with the FERA, will be considered as a person responsible for paying any other sum chargeable under the Act. The assessee has claimed before the Assessing Officer that all the Government securities which were sold on behalf of the non residents were of the maturity period of 364 days only and, therefore, the securities....
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....om 01.06.1986. Whereas clause (iii) was in general terms, clause (iia) specifically provided for cases of amounts payable to a non-resident Indian of consideration for the transfer by him of any foreign exchange asset, which is not a short term capital asset. The scope and effect of introducing this clause was explained by Circular No.461 dated 9th July 1986, reported in (1986) 161 ITR (St.) 17. Paragraph 30.1 of the Circular states that the clause has been inserted with a view to simplifying the procedure for the tax deduction at source and to avoid delay and inconvenience in the case of NRIs wishing to remit the sale proceeds of foreign exchange assets. It further states that the expression "person responsible for paying" has been amended to include an authorized dealer who is responsible for remitting such sum to the NRI or crediting the same to the NRE Account of the NRI. Thus a special provision has been made to cover sale proceeds representing long term capital gains on sale of foreign exchange assets effected by NRIs. It is a fundamental rule of interpretation that when a specific provision has been made to cover a specific situation or where some special facts are present, ....
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.... are not actually assessable to tax in the UAE, they cannot be denied the benefit of the Indo-UAE treaty and once they are liable to tax in UAE, they cannot be taxed in India in respect of the capital gains and on this ground the assessee-bank was under no liability to deduct tax under section 195(1) of the Act. 14. The order of the Mumbai Bench of the Tribunal in the case of Assistant Director of Income Tax (International Taxation) vs. Green Emirate Shipping and Travels (supra) directly covers the issue in favour of the assessee. In this order it was held that taxability in one country is not a sine qua non for availing relief under the treaty from taxability in the other country and that all that is necessary is that the person should be liable to tax in UAE by reason of domicile, residence, etc. which essentially refers to fiscal domicile and further that the expression "liable to tax" in a Contracting State does not necessarily imply that the person should actually be liable to tax in UAE by virtue of any existing legal provision and the expression would also cover cases where UAE has the right, as a sovereign country, to tax such person irrespective of whether or not the ri....