TaxTMI 
TaxTMI 
2011 (8) TMI 448
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....al Representative submitted that this appeal has to be argued by another Departmental Representative, Shri N.K. Chand and therefore, an adjournment be granted. On the other hand, ld. counsel of the assessee submitted that issue in dispute is squarely covered in favour of the assessee by the order of the ITAT passed in assessment years 2004-05 to 2006-07 on 24-9-2010. He placed on record, a copy of the Tribunal's order. He further contended that revenue has challenged this order in appeal before the Hon'ble High Court and the Hon'ble High Court has dismissed the appeal of the revenue. Thus the issue is covered in favour of the assessee by the decision of the Hon'ble High Court also. He further contended that the short issue involved in this appeal is whether short-term capital gain earned by the assessee is taxable in India on the ground that there is no tax leviable on an individual in UAE and therefore, assessee would not be treated as resident of UAE for granting the benefit of DTAA between India and UAE. He further pointed out that an identical issue and verbatim similar grounds were considered by the Tribunal in earlier three appeals of the Revenue. 4. We have considered the....
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.... Mumbai, 38 SOT 95 and ADIT v. Green Emirate Shipping & Travel [2006] 99 TTJ (Mum.) 988 [2006] 6 SOT 329 (Mum.) : [2006] 100 ITD 203 (Mum.). He further contended that apart form these three orders of the Tribunal, referred to above, this issue was considered by the Authority for Advance Rulings On a number of occasion and issue was decided in favour of the assessee. He further pointed out that the facts in the case of Ramesh Kumar Goenka and in the assessee's case are identical. Ld. DR, on the other hand, was unable to controvert the contention of the assessee. She relied upon the assessment order. 3. We have duly considered the rival contention and gone through the record carefully. The dispute in all the three years relate to taxability of capital gains arose on account of transfer of shares and securities. According to the assessee, he is a resident of Dubai, UAE and is covered under the Indo-UAE DTAA. He is entitled to benefit under the Double Taxation Avoidance Agreement executed between India & UAE. According to the assessee, as per Article 13.3 of the above treaty, assessee is not chargeable to tax on capital gains arising from transfer of shares/securities. The Assessing....
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....ting 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 establishment (alone or together with the enterprise) or of such fixed base may be taxed in that other State. (3) Gains from the alienation of any property other than that mentioned in paragraphs 1 and 2 shall be taxable only in the contracting State of which the alienator is a resident. Article 4 of the India-UAE DTAA defines resident of a contracting State as any person who under the laws of that State is liable to tax therein. There is no dispute that the assessee is a resident of UAE. The Assessing Officer, however, rejected the claim of the assessee on the ground that the assessee 'is not paying taxes in UAE'. The Assessing Officer relied upon the decision of the AAR in the case of Abdul Razak A. Meman, In re [2005] 276 ITR 306 (AAR - New Delhi) which had considered the decision of the Hon'ble Supreme Court in the case of Union of India v. Azadi Bachao Andolan [2003....
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.... 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 liable to be taxed twice by the existing laws on both the Contracting States". However, in Azadi Bachao Andolan's case (supra), Their Lordships of Hon'ble Supreme Court, after referring to the said ruling and after elaborate discussions on the various aspects of this issue, concluded that "it is. . . . not possible for us to accept the contentions so strenuously urged by the respondents that the avoidance of double taxation can arise only when tax is actually paid in one of the Contracting States". The reasoning given by Their Lordships included the following : "According to Klaus Vogel "Double Taxation Conventions establishes an independent mechanism to avoid double taxation through restriction of tax claims in areas where overlapping tax claims are expected, or at least theoretically possible. In other words, Contracting States mutually bind themselves not to levy taxes or to tax only to a limited extent in cases when the treaty reserves taxation for the ....
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.... 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 strenuously urged by the respondents that the avoidance of double taxation can arise only when tax is actually paid in one of the Contracting States". As we have noted earlier also, the revenue is on record to have opposed the very argument that the revenue has taken in the present case, as evident from the Hon'ble Supreme Court's following observation : "The appellants (i.e., Union of India) contend that, acceptance of the respondent's submission that double taxation avoidance is not permissible unless the tax is paid in both countries is contrary to the intendment of section 90. It is urged that clause (b) of sub-section (1) of section 90 applies to a situation where income-tax has been paid in both the countries, but clause (b) deals with the situation of avoidance of double taxation of income. Inasmuch as Parliament has distinguished between the two situations, it is not open to a Court of law to interpret clause (b) of section 90 - sub-section (1) as if it were the same as situati....
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.... 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] It is, thus, clear that a tax treaty not only prevents 'current' but also 'potential' double taxation. Therefore, irrespective of whether or not the UAE actually levies taxes on non-corporate entities, once the right to tax UAE residents in specified circumstances vests only with the Government of UAE, that right, whether exercised or not, continues to remain exclusive right of the Government of UAE. As noted above, the exemption agreed to under the 'assignment' or 'distributive' rule, is independent of 'whether the Contracting State imposes a tax in the situation to which exemption implies'. In the case of John N. Gladden v. Her Majesty the Queen 85 TC 5188, which was quoted with approval by the Hon'ble Supreme Court in Azadi Bachao Andolan's case (supra), Federal Court of Canada was observed that "the nonresident can benefit from the exemption (under the treaty) regardless of whether or not he is taxable on that capital gain in his own country. If Canada or the US were....