TaxTMI 
TaxTMI 
2016 (7) TMI 460
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....dia, the capital gain arising on the sale of immovable property, situated at No. 15/3, Guildford Crescent, Colombo 07, Sri Lanka , was taxable in India." 3. The brief facts of the case are that the case of the assessee was selected for scrutiny by Revenue under CASS. It was observed by the AO from the CASS details that the assessee has purchased units of Mutual Funds amounting to Rs. 2,44,17,000/- . The assessee was asked to submit the source of the said investment by the AO to which the assessee submitted that the assessee had one-half right, title and interest in a property at Sri Lanka. The other half right, title and interest was held by her father, Mr Jhamatmal Mirchandani. The property was acquired on 5th February 1975. Her father's half share was gifted to her in December 2002. The property was sold on 27th September 2006 for an amount of Sri-Lankan Rs. 8,55,75,000/- equivalent to Indian Rs. 3,93,47,246/- . It was the say of the assessee before the AO that the capital gain on sale of the aforementioned property falls within purview of Article 13 of the Double Taxation Avoidance Agreement (DTAA) between Republic of India and Republic of Sri-Lanka. Paragraph 1 of Articl....
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....otification dated 28-08-2008 issued by Central Government , the assessee should have included the income from capital gains in her total income chargeable to tax in India and accordingly claimed the relief thereof. Since no tax has been paid in Sri Lanka no relief can be granted to the assessee in India and accordingly capital gains arising thereof from sale of immovable property in Sri-Lanka is fully taxable in India. The assessee made an application u/s 144A of the Act to the Additional Commissioner of Income-tax 3(3), Mumbai but however, the Additional Commissioner of Income-tax 3(3), Mumbai directed that the income from sale of immovable property situated in Sri-Lanka be taxed as Long Term Capital Gains . The AO , thus, vide assessment orders dated 30-12-2009 passed u/s 143(3) of the Act brought to tax the Long Term Capital Gains arising from sale of immovable property at Sri-Lanka amounting to Rs. 1,56,01,361/-. 4. Aggrieved by the assessment orders dated 30-12-2009 passed by the AO u/s. 143(3) of the Act , the assessee filed first appeal with the learned CIT(A). 5. The assessee contended before the learned CIT(A) that the assessee is a Sri-Lankan natio....
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....f he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode; (c) If he has an habitual abode in both States or in neither of them , he shall be deemed to be a resident of the State of which he is national; (d) If he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement. 3. Where by reason of the provisions of paragraph1 of this Article a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the State in which its place of effective management is situated." Thus, the assessee submitted before the learned CIT(A) that the assessee is resident of Sri Lanka for the purposes of DTAA and therefore, treaty provisions will be applicable to her as if she is a Sri Lankan resident and the fact that she is resident under the Act is not relevant. The assessee submitted that she will be treated as resident of Sri Lanka as she also has permanent home available to her in Sri Lanka because of her parents residing there and also....
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....ew was over-ruled by Hon'ble Supreme Court in the case of UOI v. Azadi Bachao Andolan, 263 ITR 706(SC) whereby Hon'ble Supreme Court at page 744 held as under: " It is, therefore, not possible for us to accept the contentions so strenuously urged on behalf of the Respondents that avoidance of double taxation can arise only when tax is actually paid in one of the Contracting States." It was also submitted that in the decision of the Federal Court of Australia in Commissioner of Taxation v. Lamesa Holdings, (1997) 785 FCA, the court held that it is not necessary that tax should be payable in both states to grant the benefit of DTAA. It was submitted that there is no need that tax should be levied or leviable in both countries in order to apply the provisions of the Treaty. Thus, if one country does not tax and other does, if the income is in the country which does not tax, then the country which taxes cannot take away the right of not taxing the concerned income. It was also contended that the notification no. 91 of 2008 dated 28-08-2008 issued by Central Government under the powers conferred u/s. 90(3) of the Act is prospective as the same has , in fact , come in....
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....s of the case where the domicile of the assessee is situated whether at place of marriage i.e. India or at Sri-Lanka. It was submitted that in case of divorce taking place, will the domicile change again. The learned counsel submitted that the assessee is resident of Sri-Lanka and hence income from Sri-Lanka is taxable in Sri- Lanka and not in India. The learned counsel referred to commentary on Article 4 model convention -OECD which is placed in the file to contend that the assessee is not resident of India but resident of Sri-Lanka. The attention was drawn to Sri-Lankan passport held by the assessee which is placed at paper book 34-36. It was submitted that RBI has imposed restriction on foreign exchange remittances to Sri-Lanka which are applicable to the assessee. On the other hand learned CIT DR submitted that the assessee is tax resident in India. He drew our attention to Section 6 of the Act to contend that the assessee is resident in India as per the conditions contained there-in Section 6 of the Act , which is an admitted position now as the assessee had admitted that she is resident in India during relevant previous year as per provisions of the Act. This was not dispu....
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...., which are placed in paper book page 63 filed before the Tribunal: "5. Mrs Seekond is a Sri Lankan national though she is residing in India on the basis of her marriage to an Indian national, Shri Gurpreet Seekond. Also because she is residing in India for more than requisite period under Section 6 of the Act, which determines residence of an individual , she is resident of India for the purposes of the Income-tax Act,1961( "the Act")" The same contentions were repeated by the assessee during appellate proceedings before the learned CIT(A) vide written submissions no IT/S- 33/307 dated 06-12-2011 vide para 6 , which are placed in paper book page 82-83 filed before the Tribunal. The assessee has also declared her Residential status as being 'resident in India' during the relevant previous year in the return of income filed with the Revenue for the relevant assessment year which is placed in paper book filed with the Tribunal at pages 1-11. The residential status of an individual under the Act is governed by provisions of Section 6 of the Act which are reproduced below : "Residence in India. 6. For the purposes of this Act,-- (1) An ....
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....t in India under the provisions of the Act during the relevant previous year. Thus, we hold that she is resident in India during the relevant previous year under the provisions of the Act keeping in view the provisions of Section 6 of the Act. Now coming to the residential status of the assessee as per provisions of Article 4 of the DTAA, it clearly stipulates that for the purposes of DTAA, the term "resident of a Contracting State" means any person who , under the law of that State , is liable to tax therein by reason of his domicile, residence, place of management or any other criteria of a similar nature. Thus, as we had already held that the assessee is resident in India during the relevant previous year fulfilling condition of Section 6 of the Act is resident in India , it is to be seen that whether the assessee can be categorized as resident of Sri- Lanka under the provisions of DTAA. The conditions vide Article 4(2) of DTAA stipulates that the person shall be deemed to be resident of the State in which he/she has permanent home available to him/her , and if he/she has permanent home available to him/her in both States , he/she shall be deemed to be a resident of the State....
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....permanent home in India of the husband who is Indian national, and not occasionally for the purpose of a stay, which owing to the reasons for it, is necessarily of short duration (travel for pleasure, business travel , educational travel , attending a course at a school , etc) which in the instant case the permanent home is in India in the case of the assessee as she is staying now in India after her marriage with her husband who is an Indian national. The word 'house' has been defined in Blacks Law dictionary 7th edition, page 743 as 'a home, dwelling or residence' , which in the assessee case is India which is the place where she is now staying after marriage with her husband who is an Indian national. The assessee could not demonstrate by cogent evidences that her habitual abode now is in Sri-Lanka after her marriage with Indian national and more specifically in the relevant previous year except making a bald statement that her parents are living in Sri-Lanka and /or she also owned one immovable property in Sri-Lanka which also was sold during the relevant previous year. No details and /or description of actual stay in Sri Lanka or having economic and perso....
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....o demonstrate in the instant case rather the facts as set out above speaks opposite. As per facts emerging from records , she has an habitual abode in India and not at Sri-Lanka post her marriage with Mr. Gurpreet Seekond who is an Indian national and she moved to India to stay with him after her marriage and in- fact sold her only immovable property in Sri Lanka for equivalent Indian Rs. 3.93 crores during relevant previous year and made investment in Mutual Funds to the tune of Rs. 2.44 crores in India and bought property in Goa in India for Rs. 78.44 lacs. The assessee in our considered view is resident in India during the relevant previous year under the DTAA between India and Sri-Lanka as she has after her marriage with Indian national on the facts and circumstances of the case as her vital personal and economic relations have now close proximity with India. The contention of the learned counsel that what will happen if the assessee divorce with her husband are all in realm of hypothetical situations which in our considered view does not warrant adjudication by us to adjudicate this instant appeal , as in that situations several other the then prevailing facts and surrounding ....
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.... in preceding para's of this order which are not repeated. However, it will be pertinent to note at this stage that these cases are prior to the issue of notification no. 91 of 2008 dated 28.08.2008 by Central Government which is reproduced hereunder : " In exercise of the powers conferred by sub-section(3) of section 90 of the Income Tax Act,1961 (43 of 1961) , the Central Government hereby notifies that where an agreement entered into by the Central Government with the Government of any country outside India for granting relief of tax or as the case may be, avoidance of double taxation, provides that any income of the resident of India "may be taxed" in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income Tax Act,1961 (43 of 1961) , and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement." Before proceeding further , it is material and relevant to refer to Section 90(3) of the Act , under the provisions of said sub-section, the said notification was issued by the Central Government which is reproduc....
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....erty situated in Sri-Lanka is sought to be brought to tax in India by the Central Government. The said notification merely stipulates the manner and procedure of granting the relief from tax to avoid double taxation without expanding scope of taxability of income from capital gains arising on sale of immovable property situated in Sri-Lanka nor is the same inconsistent with the provisions of the Act or the DTAA between India and Sri-Lanka and in our considered view, the said notification is merely clarificatory in nature and cannot be treated as prospective in nature and has to be read from the date of entering of DTAA between India and Sri-Lanka. Further, Since this assignment of meaning is in respect of a term used in a treaty entered into by the Government with a particular intent and objective as understood during the course of negotiations leading to formalization of treaty, the notification under section 90(3) of the Act gives a legal frame work for clarifying the intent, and the clarification should normally apply from the date when the agreement which has used such a term came into force. It is also to be kept in mind that the DTAA entered into between India and Sri-Lanka s....
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....39; or 'zero' rate of income-tax in Sri Lanka as per applicable statute. This direction of our's is subject to verification by the learned AO for which necessary material and evidences in support of her contentions shall be brought on record by the assessee before the AO as no such material is placed before the Tribunal to support contentions by the learned counsel for the assessee, before any relief can be granted to the assessee. Needless to say proper and adequate opportunity of being heard shall be granted by the AO to the assessee in accordance with the principles of natural justice and in accordance with law. Our view about retrospectivity of notification no 91 of 2008, dated 28-08- 2008 to the date of DTAA between India and Sri Lanka relating back to the date of entering of DTAA between India and Sri Lanka is fortified by the explanation 3 to Section 90 of the Act inserted by Finance Act ,2012 w.e.f 01- 10-2009 as under : "[Explanation 3.--For the removal of doubts, it is hereby declared that where any term is used in any agreement entered into under sub-section (1) and not defined under the said agreement or the Act, but is assigned a meaning to it in the ....