ADIT (I.T)-3(1), MUMBAI v. M/s. ICICI BANK LTD., MUMBAI

ITA 645/MUM/2007 | misc
Pronouncement Date: 16-09-2011 | Result: Dismissed

Appeal Details

RSA Number 64519914 RSA 2007
Assessee PAN AAACI1195H
Bench Mumbai
Appeal Number ITA 645/MUM/2007
Duration Of Justice 4 year(s) 7 month(s) 28 day(s)
Appellant ADIT (I.T)-3(1), MUMBAI
Respondent M/s. ICICI BANK LTD., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 16-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted L
Tribunal Order Date 16-09-2011
Date Of Final Hearing 06-09-2011
Next Hearing Date 06-09-2011
Assessment Year misc
Appeal Filed On 19-01-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'L' BENCH MUMBAI BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 645/MUM/2007 ITA NO. 2306/MUM/2007 ADIT (INTERNATIONAL TAXATION)-3(1) ICICI BANK LTD. SCINDIA HOUSE ROOM NO. 132 LAXMI COMMERCIAL BLDG. 2ST FLOOR N.M. ROAD VS. 2ND FLOOR C-WING B.K.C. MUMBAI 400051 MUMBAI 400051 PAN - AAACI 1195 H APPELLANT RESPONDENT APPELLANT BY: SMT. MALATI SHRIDHARAN RESPONDENT BY: SMT. ARATI VISSANJI DATE OF HEARING: 06.09.2011 DATE OF PRONOUNCEMENT: 16.09.2011 O R D E R PER B. RAMAKOTAIAH A.M. THESE TWO APPEALS ARE BY THE REVENUE AGAINST THE OR DERS OF THE CIT(A) XXXIII MUMBAI DATED 18.10.2006 AND 13.12.2006 RESP ECTIVELY ON THE ISSUE OF LEVY OF INTEREST AND TAX LIABILITY UNDER SECTION S 201(1) AND 201(1A) OF THE I.T. ACT. 2. BRIEFLY STATED RESPONDENT BANK (HEREINAFTER REFERR ED AS BANK) IS A BANKING COMPANY. DURING A.Y. 2005-06 BANK MADE REMI TTANCE TO FOREIGN NATIONALS BASED ON CA CERTIFICATES AND UNDERTAKINGS IN ACCORDANCE WITH RBI CIRCULAR NO. FEX/MUMBAI/EDP.1/89/14011/MSC./2004-05 DATED 07.12. 2004. THESE 11 CA CERTIFICATES WERE FORWARDED TO TH E A.O. VIDE THEIR LETTER DATED 14.06.2005 AND ANOTHER 12 CA CERTIFICATES VID E THEIR LETTER DATED 19.05.2005 AND 6 CA CERTIFICATES VIDE LETTER DATED 15.06.2005. THESE 29 CERTIFICATES WERE EXAMINED BY THE A.O. AND AN ORDER UNDER SECTIONS 201(1) & 201(1A) WAS PASSED DETERMINING THE TOTAL TAX LIABIL ITY UNDER SECTION 201(1) AT ` 94 02 048/- AND UNDER SECTION 201(1A) AT ` 9 25 437/-. ITA NO. 645 & 2306/MUM/2007 ICICI BANK LTD. 2 3. THE BANK ALSO FORWARDED ANOTHER 43 CA CERTIFICATES VIDE THEIR LETTER DATED 19.05.2005 5 CERTIFICATES VIDE LETTER DATED 26.04.2005 84 CERTIFICATES VIDE LETTER DATED 23.03.2005 AND 90 CERTIFICATES VI DE LETTER DATED 25.04.2005. AGAINST THESE CERTIFICATES THE A.O. RAISED A DEMAND UNDER SECTION 201(1) AT ` 2 40 71 073/- AND UNDER SECTION 201(1A) AT ` 23 69 899/-. THESE TWO SEPARATE ORDERS PASSED BY THE A.O. 28 TH MARCH 2007 AND 12 TH JANUARY 2006 WERE SUBJECT MATTER OF APPEAL BEFORE THE CIT(A) AND THE CIT(A) VIDE THE ABOVE DATED ORDERS DELETED THE TAX AND INTEREST LEVIED UN DER SECTION 201(1) AND 201(1A). THEREFORE THE REVENUE IS AGGRIEVED AND RA ISED THE FOLLOWING COMMON GROUNDS IN RESPECT OF THE ABOVE APPEALS: - A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ORDER PASSED UNDER SECTION 201(1) & 201(1A) OF THE ACT IGNORING THE FACT THAT THE BENEFICIARIES OF CAPITAL GAIN ARE NOT TREATY SUBJEC TS IN UAE. B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) HAS ERRED SUMMARILY IGNORING THE RULING GIVEN BY THE HON'BLE AUTHORITY FOR ADVANCE RULINGS WITHOUT EVEN GOING INTO THE REASONING GIVEN BY THE HON'BLE AUTHORITY FOR A DVANCE RULING CONTAINED IN THE RULING IN THE CASE OF ABDUL RAZAK A MEMON (276 ITR 306) WHICH CERTAINLY HAD A PERSUASIVE VALUE AS IT WAS RENDERED SUBSEQUENT TO THE JUDGEMENT OF THE HON'BLE APEX COURT RENDERED IN THE CASE OF AZADI BACHAO ANDOLAN (263 I TR 706). 4. THE ISSUE IN THE ABOVE APPEALS IS WITH REFERENCE TO THE CAPITAL GAINS ARISING TO VARIOUS PERSONS OF INDIAN ORIGIN OR NON- RESIDENT INDIANS RESIDING IN UAE WHO ARE CLIENTS OF THE BANK. THESE CLIENTS HAVE INVESTED IN GOVERNMENT OF INDIA T-BILLS WHICH HAS A TENURE OF 364 DAYS. THE T-BILLS ARE ALSO TRANSFERABLE BEFORE MATURITY. THE CLIENTS PURC HASED AND SOLD THESE T- BILLS DURING THE YEAR FOR WHICH BANK ACCORDING TO THE GUIDELINES OF THE RBI HAS OPENED A SECOND SUBSIDIARY GENERAL LEDGER IN TH EIR OWN NAME ON BEHALF OF THEIR CONSTITUENTS/INVESTORS AS REQUIRED BY THE GUIDELINES. THEY ALSO HAVE SEPARATE DESIGNATED NRE ACCOUNT WITH THE BANK. AN A GREEMENT HAS BEEN ENTERED BETWEEN THE BANK AND THE CONSTITUENTS/ INVE STORS FOR OPENING CSGL ACCOUNT. THE CONSTITUENTS/INVESTORS PURCHASED AND S OLD GOVERNMENT BILLS THROUGH THE DESIGNATED ACCOUNT MAINTAINED BY THE IC ICI BANK. THE FUNDS IN THE NRE ACCOUNTS WERE UTILISED FOR PURCHASE OF SECU RITIES WHEREAS THE PROCEEDINGS OF SALES ARE REMITTED TO THE SAME ACCOU NT MAINTAINED WITH THE ITA NO. 645 & 2306/MUM/2007 ICICI BANK LTD. 3 BANK. THE CONTENTION OF THE REVENUE IS THAT THE CAP ITAL GAINS THAT HAS ARISEN TO THE SAID CONSTITUENTS/INVESTORS IS LIABLE TO TAX IN INDIA AND SINCE THE BANK HAS NOT DEDUCTED TAX AT SOURCE THE LIABILITY U NDER SECTION 201(1) AND CONSEQUENTLY UNDER SECTION 201(1A) WERE IMPOSED ON THE SAID BANK. 5. IT WAS THE CONTENTION OF THE BANK THAT THOSE CONSTI TUENTS/ INVESTORS COMPRISES OF NON-RESIDENT INDIANS AS WELL AS PERSON S OF INDIAN ORIGIN RESIDING IN UAE AND THESE INVESTORS ARE ENTITLED FO R THE BENEFIT OF ARTICLE 13 OF THE TREATY AND HENCE THE BANK IS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON THE CAPITAL GAINS ARISING FROM THE SALE OF T-BILLS. THE BANK CONTENDED THAT THE TREATY IS MORE BENEFICIAL TO THE INVESTOR AND H ENCE THE TREATY SHOULD BE APPLIED. IT WAS FURTHER CONTENDED THAT THE INDIAN G OVERNMENT ENTERED INTO A COMPREHENSIVE DTAA WITH THE GOVERNMENT OF UAE BEING FULLY AWARE THAT THERE WAS NO INCOME TAX OR WEALTH TAX ON INDIVIDUAL S IN THE EMIRATES. IT FURTHER CONTENDED THAT THERE ARE A NUMBER OF ARTICL ES IN THE DTAA BETWEEN INDIA & UAE SOLELY CONCERNING WITH INDIVIDUALS (IN PARTICULAR ARTICLE 14 TO 21). IF THE INTENTION WAS NOT TO MAKE THE DTAA APPL ICABLE TO INDIVIDUALS THERE WAS NO NEED TO HAVE SUCH ARTICLES DEALING WIT H TAXATION OF INCOME IN THE HANDS OF THE INDIVIDUALS. THE BANK FURTHER CONT ENDED THAT THE DTAA APPLIES TO ALL PERSONS RESIDING IN UAE AND THERE IS NO JUSTIFICATION FOR EXCLUDING INDIVIDUALS FROM THE PURVIEW OF THE RELEV ANT PROVISION. THE BANK CONTENDED THAT WHENEVER THE GOVERNMENT INTENDED THE PROVISIONS OF TREATY SHOULD NOT BE APPLICABLE IF THE RESIDENT OF ONE STA TE IS NO SUBJECT TO TAX IN THAT STATE A SPECIFIC RESTRICTIVE CLAUSE TO THAT EX TENT IS INCLUDED IN THE TREATY. IN THIS REGARD THE BANK HAS MADE REFERENCES TO THE DTAA SIGNED BY INDIA WITH UKRAINE JORDAN AND SWEDEN. THE BANK FURTHER A RGUED THAT SINCE NO SUCH PROVISION IS AVAILABLE IN THE INDO-UAE TREATY THE INDIVIDUALS RESIDING IN UAE CANNOT BE TAXED IN INDIA. THE BANK FURTHER C ONTENDED THAT THE PROVISIONS OF DTAA ENTERED INTO BETWEEN THE GOVERNM ENTS ALLOCATE JURISDICTION BETWEEN CONTRACTING STATES FOR THE PUR POSE OF LEVY OF TAX AND LIMITS RATE OF TAX LEVIABLE UNDER THE TREATY. ARTIC LE 13 OF THE DTAA BETWEEN INDIA & UAE PROVIDES THAT CAPITAL GAINS ARISING IN INDIA TO A RESIDENT OF UAE WILL NOT BE SUBJECTED TO TAX IN INDIA. ACCORDINGLY THE JURISDICTION TO TAX CAPITAL GAINS ON TRANSFER OF MOVABLE PROPERTY IS AL LOCATED TO UAE UNDER ITA NO. 645 & 2306/MUM/2007 ICICI BANK LTD. 4 ARTICLE 13 OF THE SAID DTAA. THE JURISDICTION TO TA X IN RESPECT OF DIVIDEND AND INTEREST IS ALLOCATED TO THE STATE OF RESIDENCE OF THE RECIPIENT OF SUCH INCOME WHILE MAINTAINING THE JURISDICTION OF THE SO URCE STATE VIZ. INDIA TO TAX AT THE SPECIFIED RATES UNDER ARTICLES 10 & 11 O F THE DTAA. THE DTAA HAS GRANTED THE JURISDICTION OF TAXING CAPITAL GAINS FR OM ALIENATION OF SHARES DEBENTURES SECURITIES ETC. TO THE COUNTRY OF WHIC H THE ALIENATOR IS A RESIDENT. THE BANK CONTENDED THAT ITS CLIENT THE A LIENATOR IS NOT A RESIDENT IN INDIA WITHIN THE MEANING OF THE DEFINITION OF RE SIDENT UNDER THE INDIAN I.T. LAWS. UAE ONLY HAS THE JURISDICTION TO TAX SUCH GAI NS. THE JURISDICTION TO TAX CAPITAL GAINS SOLELY RESTS WITH UAE AND HENCE THE C APITAL GAINS CANNOT BE TAXED IN INDIA. THE BANK FURTHER CONTENDED THAT THE CBDT CIRCULAR NO. 734 DATED 24.01.1996 HAS INDICATED THAT THE AVAILABILIT Y OF DTAA BENEFIT TO INDIVIDUAL RESIDENTS IN UAE AND THIS CIRCULAR IS CL ARIFICATORY IN NATURE. THIS CIRCULAR SUPPORTS THE VIEW THAT THE TREATY APPLIES TO ALL TYPES OF INCOME THOUGH THE CIRCULAR HAS SPECIFICALLY DEALT WITH THE DIVIDEND & INTEREST. IN VIEW OF THE ABOVE THE APPELLANT CONTENDED THAT NO TAX IS REQUIRED TO BE DEDUCTED AT SOURCE FROM THE CAPITAL GAINS ARISING F ROM TRANSFER OF GOVERNMENT OF INDIA T-BILLS. THE BANK ALSO RELIED O N THE DECISION OF THE GREEN EMIRATES SHIPPING AND TRAVELS 100 ITD 203. TH E A.O. HAS NOT ACCEPTED THE CONTENTIONS OF THE BANK. THE A.O. IS O F THE VIEW THAT SINCE THE INDIVIDUALS ARE NOT TAXABLE IN UAE THEY CANNOT BE CONSIDERED AS RESIDENTS WITHIN THE MEANING OF ARTICLE 4(1) OF THE TREATY AN D HENCE THE PROVISIONS OF THE TREATY ARE NOT APPLICABLE TO THE INDIVIDUALS RE SIDING IN UAE. THE A.O. RELIED ON THE DECISION OF THE AAR IN CYRIL UGENE PE RERA 239 ITR 650 AND THE A.O. HAS RELIED ON THE FOLLOWING OBSERVATIONS OF TH E HON'BLE AAR IN THAT DECISION. 6. THE LEARNED CIT(A) FOLLOWING THE DECISION OF THE H ON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. AZADI BACHA O ANDOLAN 263 ITR 706 WHEREIN THE DECISION OF THE AUTHORITY FOR ADVANCE R ULING IN THE CASE OF CYCIL UGENE PEREIA 239 ITR 650 WAS CONSIDERED AND ALSO TH E DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. GREEN EMIRATES SHI PPING & TRAVELS 100 ITD 203 CAME TO A CONCLUSION THAT THERE IS NO TAX LIAB ILITY ON THE CAPITAL GAINS ON THE CONSTITUENTS WHO ARE RESIDENTS OF UAE AND HE NCE THE BANK IS NOT ITA NO. 645 & 2306/MUM/2007 ICICI BANK LTD. 5 RESPONSIBLE FOR DEDUCTING TAX. HE ALSO GAVE THE FOL LOWING FINDING IN PARA 5 OF THE ORDER: - 5. BEFORE PARTING I ALSO WISH TO SHARE THE FOLLOW ING VIEWS WHICH ALSO SUPPORTS MY DECISION: (A) DTAA TREATY IS ENTERED INTO TWO COUNTRIES TO B ENEFIT THE PEOPLE LIVING IN THESE TWO COUNTRIES FROM AVOIDANCE OF DOUBLE TAXATION. JUST BECAUSE THE INDIVIDUALS ARE NOT AN A SSESSABLE ENTITY IN UAE IF WE HOLD THEY ARE NOT ENTITLED TO THE BENEFI TS OF TAX TREATY THEN IT WILL AMOUNT TO LEAVING THE ENTIRE CITIZENS LIVIN G IN UAE OUT OF THE TAX TREATY. THIS MAY NOT BE INTENTION OF THE TREATY. (B) AS PER DTAA ARTICLE 13 THE CAPITAL GAINS ON I MMOVABLE PROPERTY WILL BE TAXED IN THE COUNTRY IN WHICH THE PROPERTY IS SITUATED. SIMILARLY FOR THE MOVABLE ASSETS FORMING PART OF B USINESS ASSETS THE CAPITAL GAINS ARISES WHERE THE PERMANENT ESTABLISHM ENT IS SITUATED. HENCE IN THESE TWO CASES THE CAPITAL GAINS ARE TA XABLE IN THE COUNTRY IN WHICH THE PROPERTY IS SITUATED. IT APPEA RS TO ME THAT FOR ALL OTHER PROPERTIES THE TREATY INTENDS TO KEEP THE FI SCAL RESIDENCE OF THE PERSON IN MIND IN TAXING THE CAPITAL GAINS. IN THIS CASE ALL SUCH CLIENTS OF THE APPELLANT BANK ARE NOT RESIDENTS OF INDIA AND HENCE CAPITAL GAINS CANNOT BE TAXED IN INDIA. (C) IN CASE IF WE HOLD THAT THE TREATY IS NOT AP PLICABLE TO THE NRI LIVING IN UAE THEN THE SAME INDIVIDUAL WILL NOT BE RESIDENT OF INDIA AND ALSO NOT A RESIDENT OF UAE AND HENCE THE CAPITA L GAINS ARISING FROM SALE OF SUCH SECURITIES CANNOT BE TAXED IN ANY OF THE COUNTRY BECAUSE ARTICLE 13(3) OF THE TREATY SAYS THAT CAPIT AL GAINS SHALL BE TAXABLE ONLY IN THE CONTRACTING STATE OF WHICH THE ALIENATOR IS A RESIDENT . IN THIS CASE AS PER THE INTERPRETATION ADVOCATED BY THE ASSESSING OFFICER THE INDIVIDUAL WILL NOT BE A RES IDENT OF UAE AS WELL AS INDIA. IN VIEW OF THIS ALSO THE APPELLANT SHOUL D SUCCEED. (D) IN MANY OF THE OTHER TREATIES IT IS SPECIFICA LLY PROVIDED THAT THE CAPITAL GAINS ARE TAXABLE IN THE COUNTRY IN WHI CH THE ALIENATION OF THE PROPERTY TAKES PLACE IN CASE SUCH GAINS IS NOT TAXABLE IN THE COUNTRY IN WHICH THE ALIENATOR IS A RESIDENT. FIRSTLY ARTICLE 13(5) OF THE TAX TREATY WITH SWED EN READS AS FOLLOWS: GAINS FROM THE ALIENATOR OF ANY PROPERTY OTHER TH AN THAT REFERRED TO IN PARAGRAPHS (1) (2) (3) AND (4) SHALL BE TAXABLE ONLY IN THE CONTRACTING STATE OF WHICH THE ALIENATOR IS A RESIDENT PROVIDED THAT SU CH RESIDENT IS SUBJECT TO TAX THEREON IN THAT STATE. IF THE RESIDENT IS NOT SUBJECT TO TAX THEREON THEN SUCH GAINS MAY BE TAXED IN THE OTHER CONTRACTING STATE. (EMPHASIS SUPPLIED) ARTICLE 13(6) OF THE TAX TREATY WITH UKRAINE READS AS FOLLOWS: GAINS FROM THE ALIENATION OF ANY PROPERTY OTHER T HAN THAT MENTIONED IN PARAGRAPHS 1 2 3 4 AND 5 SHALL BE TAXABLE ONLY IN THE CONTRACTING STATE OF WHICH THE ALIENATOR IS A RESIDENT PROVIDED THAT THOSE GAINS ARE SUBJECT TO TAX IN THA T CONTRACTING STATE . (EMPHASIS SUPPLIED). ITA NO. 645 & 2306/MUM/2007 ICICI BANK LTD. 6 SECONDLY ARTICLE 13(5) OF THE TAX TREATY WITH JOR DAN READS AS FOLLOWS: GAINS FROM THE ALIENATION OF ANY PROPERTY OTHER T HAN THAT REFERRED TO IN PARAGRAPHS 1 2 3 AND 4 SHALL BE TAXABLE ONLY IN THE CONTRACTING STATE OF WHICH THE ALIENATOR IS A RESIDENT PROVIDED THAT SUCH RESIDEN T IS SUBJECT TO TAX THEREON IN THAT STATE. IF THE RESIDENT IS NOT SUBJECT TAX THEREON THEN SU CH GAINS MAY BE TAXED IN THE OTHER CONTRACTING STATE .(EMPHASIS SUPPLIED) SINCE NO SUCH PROVISION IS AVAILABLE IN THE UAE TR EATY THE CONTENTIONS PUT FORTH BY THE APPELLANT IS ACCEPTABL E. 5.1 IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF AZADI BACAHO ANDOLAN 263 ITR 706; & ALSO THE HON 'BLE ITATS DECISION IN THE CASE OF ASSTT. DIT VS. GREEN EMIRAT ES SHIPPING & TRAVELS 100 ITD 203 AND ALSO IN VIEW OF MY ABOVE OB SERVATIONS I AM FULLY CONVINCED THAT THE CAPITAL GAINS ARISING OUT OF THE TRANSFER OF T BILLS IN THE HANDS OF THE RESIDENTS OF UAE IS NOT T AXABLE IN INDIA IN VIEW OF DTAA. I DIRECT THE A O TO CANCEL THE DEMAND RAISED U/S. 201 AND U/S. 201(1A) OF THE I.T. ACT. REVENUE IS AGGRIEVED ON THE ABOVE AND RAISED THE GR OUNDS ACCORDINGLY. 7. IT WAS THE CONTENTION OF THE LEARNED D.R. THAT THE TRIBUNAL HAS TAKEN A DECISION ALREADY BUT THE PROOF THAT THESE CONSTITUE NTS ARE RESIDENTS OF UAE IS REQUIRED TO BE VERIFIED AND MADE REQUEST THAT TH E MATTER BE EXAMINED AFRESH. SHE RELIED ON THE ORDER OF THE A.O. IN SUBM ITTING THAT THERE IS NO TAX LIABILITY ON THE CONSTITUENTS/INVESTORS IN UAE THE REFORE THEY ARE LIABLE TO BE TAXED IN INDIA AS HELD BY THE A.O. 8. THE LEARNED COUNSEL HOWEVER SUBMITTED THAT THERE IS NO DISPUTE WITH REFERENCE TO RESIDENCE OF CONSTITUENTS/ INVESTORS I N UAE AND REFERRED TO PARA 3 OF THE ORDER OF THE A.O. WHEREAS IT WAS STATED TH AT THE BENEFICIARIES OF THE REMITTANCE BY THE ICICI BANK WERE RESIDENTS OF UAE. THEREFORE THE QUESTION OF VERIFYING THE RESIDENTIAL STATUS ON THE BASIS OF THE SUBSEQUENT PROTOCOL ENTERED INTO BY THE GOVERNMENT OF INDIA WITH THE GO VERNMENT OF UAE VIDE PORTFOLIO DATED 15 TH JUNE 2006 NOTIFIED WITH NO. 282 OF 2007 DATED 28 TH NOVEMBER 2007 CANNOT BE CONSIDERED AT THIS STAGE. FURTHER IT WAS PLACED ON RECORD THE PROTOCOL MADE EFFECTIVE SUBSEQUENTLY WHERE THE LIABILITY TO CAPITAL GAINS BY ARTICLE 4 OF THE PROTOCOL AMENDING THE DTAA TO SUBMIT THAT THERE IS NO TAX LIABILITY IN THE IMPUGNED YEARS ON THE CAPITAL GAINS AND THEREFORE BANK IS NOT LIABLE TO DEDUCT ANY TAX. SH E RELIED ON THE ORDER OF THE CIT(A). SHE ALSO RELIED ON THE ORDERS OF THE ITAT I N GREEN EMIRATES SHIPPING ITA NO. 645 & 2306/MUM/2007 ICICI BANK LTD. 7 & TRAVEL 100 ITD 203 AND ITO VS. RAMESH KUMAR GOENK A 39 SOT 132 (MUM). 9. WE HAVE CONSIDERED THE ISSUE. AS BRIEFLY STATED ABO VE THE ISSUE IS OF LIABILITY TO CAPITAL GAINS IN THE CASE OF THE INDIV IDUAL RESIDENTS OF UAE WHO TRANSACTED IN THE GOVERNMENT T-BILLS THROUGH THE AC COUNT MAINTAINED WITH THE BANK. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ALL THESE CONSTITUENTS/INVESTORS ARE RESIDENTS OF UAE. THE A. O. ALSO GIVES A FINDING THAT THEY ARE RESIDENTS OF UAE. THERE IS ALSO NO DI SPUTE THAT DURING THE YEAR THE VARIOUS CONSTITUENTS/INVESTORS EARNED SHORT TER M CAPITAL GAINS AS STATED IN THE ANNEXURE TO THE AOS ORDER BY TRANSACTING IN GOVERNMENT T-BILLS. IT WAS THE CONTENTION THAT THOSE RESIDENTS OF UAE ARE NOT LIABLE TO TAX IN VIEW OF ARTICLE 13(3) OF THE INDO-UAE DTAA. SINCE THE CO NSTITUENTS WERE RESIDENTS OF UAE IT IS ONLY THE UAE WHICH HAS RIGHT TO TAX C APITAL GAINS 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 THE RE SIDENTS OF UAE. IT READS AS UNDER: - ARTICLE 13: CAPITAL GAINS: (1) GAINS DERIVED BY A RESIDENT OF A CONTRACTING STATE FORM THE ALIENATION OF IMMOVABLE PROPERTY REFERRED TO IN PAR AGRAPH 2 OF ARTICLE 6 AND SITUATED IN THE OTHER CONTRACTING STA TE MAY BE TAXED IN THAT OTHER STATE. (2) GAIN FROM THE ALIENATION OF MOVABLE PROPERTY FORMIN G PART OF THE BUSINESS PROPERTY OF A PERMANENT ESTABLISHMENT WHIC H 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 THE CONTRACTING STATE IN THE OTHER CONTRACTING STATE FOR THE PURPOSE OF PERFORMING INDEPENDENT PER SONAL 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 ST ATE. (3) GAINS FROM THE ALIENATION OF ANY PROPERTY OTHER THA N THAT MENTIONED IN PARAGRAPHS 1 AND 2 SHALL BE TAXABLE ON LY IN THE CONTRACTING STATE OF WHICH THE ALIENATOR IS A RESID ENT. ARTICLE 4 OF THE INDIA-UAE DTAA DEFINES RESIDENT OF A CONTRACTING STATE AS ANY PERSONS WHO UNDER THE LAWS OF THE STAT E IS LIABLE TO TAX THEREIN. ITA NO. 645 & 2306/MUM/2007 ICICI BANK LTD. 8 10. VIDE ARTICLE 13(3) IT IS VERY CLEARLY STATED THAT G AINS FROM ALIENATION OF ANY PROPERTY OTHER THAN MENTIONED IN PARAGRAPHS 1 A ND 2 SHALL BE TAXABLE ONLY IN THE CONTRACTING STATE OF WHICH THE ALIENATO R IS A RESIDENT. PARAGRAPH 1 REFERS TO ALIENATION OF IMMOVABLE PROPERTY AND PA RAGRAPH 2 REFERS TO ALIENATION OF MOVABLE PROPERTY FORMING PART OF BUSI NESS PROPERTY AND PERMANENT ESTABLISHMENT. THE PROPERTY IN QUESTION I S GOVERNMENT T-BILLS WHICH ARE MOVABLE PROPERTY NOT COVERED BY ARTICLE 1 3(1) & (2). THEREFORE UNDER ARTICLE 13(3) IT IS TAXABLE ONLY IN THE CONTR ACTING STATE OF WHICH ALIENATOR IS A RESIDENT. THERE IS NO DISPUTE IN THI S CASE AS TO THE FACT THAT THE CONSTITUENTS ARE RESIDENTS OF UAE THEREFORE THE R IGHT TO TAX THE AMOUNT BY THE VIRTUE OF DTAA IS WITH THE COUNTRY IN WHICH TH E ALIENATOR IS A RESIDENT AND IN THIS CASE THE CONSTITUENTS/INVESTORS BEING A LIENATORS ARE RESIDENTS OF UAE THEREFORE WITH UAE. 11. BY VIRTUE OF DTAA THE RIGHT WAS ARISING TO THE COUN TRY IN WHICH ALIENATOR IS A RESIDENT. SINCE THE ALIENATORS ARE R ESIDENTS OF UAE THERE IS NO RIGHT TO TAX THE CAPITAL GAINS FROM ALIENATION OF T - BILLS IN INDIA. THIS BEING THE CASE WE ARE UNABLE TO UNDERSTAND ON WHAT BASIS THE A.O. RAISED THE DEMAND HOLDING THAT THE CAPITAL GAIN IS TAXABLE IN INDIA. 12. THE CASE OF REVENUE IS THAT THERE IS NO TAX LIABILI TY ON THIS IN UAE. THIS ISSUE WAS ALREADY DECIDED BY THE COORDINATE BE NCH IN THE CASE OF GREEN EMIRATES SHIPPING AND TRAVELS 100 ITD 203 WH EREIN THE TRIBUNAL HAD AN OCCASION TO DEAL WITH AN IDENTICAL ISSUE AND HELD AS UNDER: - 8. ALTHOUGH THE ASSESSING OFFICERS OBJECTION TO A PPLICABILITY OF INDIA-UAE TAX TREATY WAS ONLY ON THE GROUND THAT TH E PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREEMENTS DO NOT COME IN TO PLAY UNLESS IT IS ESTABLISHED THAT THE APPELLANT BANK IS PAYING TA X IN BOTH THE COUNTRIES IN RESPECT OF THE SAME INCOME IN THE GRO UND OF APPEAL BEFORE US IT IS ALSO CONTENDED THAT THE ASSESSEE-CO MPANY FAILED TO PRODUCE ANY EVIDENCE TO THE EFFECT THAT IT WAS LIA BLE TO PAY TAXES IN UAE. THE QUESTION THEN ARISES WHETHER AN EXISTING L IABILITY TO PAY TAXES IN UAE IS A SINE QUA NON TO AVAIL THE BENEFIT OF INDIA-UAE TAX TREATY IN INDIA. ON THIS ISSUE ALSO WE FIND GUIDAN CE FROM THE JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF A ZADI BACHAO ANDOLAN (SUPRA). REFERRING TO THE KLAUS VOGELS COM MENTARY ON DOUBLE TAXATION CONVENTIONS THEIR LORDSHIPS INTER ALIA OBSERVED AS FOLLOWS: ITA NO. 645 & 2306/MUM/2007 ICICI BANK LTD. 9 IN OTHER WORDS CONTRACTING STATES MUTUALLY BIND T HEMSELVES NOT TO LEVY TAXES OR TO TAX ONLY TO A LIMITED EXTENT IN CA SES WHEN THE TREATING RESERVES TAXATION FOR THE OTHER CONTRACTING STATE E ITHER ENTIRELY OR IN PART. CONTRACTING STATES ARE SAID TO WAIVE TAX CLA IMS OR MORE ILLUSTRATIVELY TO DIVIDE TAX SOURCES TAXABLE OB JECTS 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 TH E CONTRACTING STATES. WHILE THE ENGLISH LAWYERS CALLED IT CLASSI FICATION 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 E XEMPTION APPLIES AND IRRESPECTIVE OF WHETHER THE STATE ACTUALLY LEVI ES THE TAX. COMMENTING PARTICULARLY ON THE GERMAN DOUBLE TAXATI ON 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 PREVE NTS CURRENT BUT ALSO POTENTIAL DOUBLE TAXATION. THEREFORE IRRESPECTIV E OF WHETHER OR NOT THE UAE ACTUALLY LEVIES TAXES ON NON-CORPORATE ENTI TIES ONCE THE RIGHT TO TAX UAE RESIDENTS IN SPECIFIED CIRCUMSTANCES VES TS 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 DIST RIBUTIVE RULE IS INDEPENDENT OF WHETHER THE CONTRACTING STATE IMPOSE S 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 QUOT ED WITH APPROVAL BY THE HON'BLE SUPREME COURT IN AZADI BACH AO ANDOLANS CASE (SUPRA) FEDERAL COURT OF CANADA WAS OBSERVED THAT THE NON- RESIDENT CAN BENEFIT FROM THE EXEMPTION (UNDER THE TREATY) REGARDLESS OF WHETHER OR NOT HE IS TAXABLE ON THAT CAPITAL GAI N IN HIS OWN COUNTRY. IF CANADA OR THE US WERE TO ABOLISH THE CA PITAL GAINS TAX COMPLETELY WHILE THE OTHER COUNTRY DID NOT A RESI DENT OF THE COUNTRY WHICH HAS ABOLISHED THE CAPITAL GAINS WOULD STILL B E EXEMPT FROM CAPITAL GAINS IN THAT OTHER COUNTRY. IT IS THUS CLEAR THAT TAXABILITY IN ONE COUNTRY IS NOT SINE QUA NON FOR AVAILING RELIEF UNDER THE TREATY FROM TAXABILITY IN THE OTHER COUNTRY. ALL THAT IS N ECESSARY FOR THIS PURPOSE IS THAT THE PERSON SHOULD BE LIABLE TO TAX IN THE CONTRACTING STATE BY REASON OF DOMICILE RESIDENCE PLACE OF MA NAGEMENT PLACE OF INCORPORATION OR ANY OTHER CRITERION OF SIMILAR NAT URE WHICH ESSENTIALLY REFERS TO THE FISCAL DOMICILE OF SUCH A PERSON. IN OTHER WORDS IF FISCAL DOMICILE OF A PERSON IS IN A CONTR ACTING STATE IRRESPECTIVE OF WHETHER OR NOT THAT PERSON IS ACTUA LLY LIABLE TO PAY TAX IN THAT COUNTRY HE IS TO BE TREATED AS RESIDENT OF THAT CONTRACTING STATE. THE EXPRESSION LIABLE TO TAX IS NOT TO REA D IN ISOLATION BUT IN CONJUNCTION WITH THE WORDS IMMEDIATELY FOLLOWING IT I.E. BY REASON OF DOMICILE RESIDENCE PLACE OF MANAGEMENT PLACE OF INCORPORATION OR ITA NO. 645 & 2306/MUM/2007 ICICI BANK LTD. 10 ANY OTHER CRITERION OF SIMILAR NATURE. THAT WOULD MEAN THAT MERELY A PERSON LIVING IN A CONTRACTING STATE SHOULD NOT BE SUFFICIENT THAT PERSON SHOULD ALSO HAVE FISCAL DOMICILE IN THAT COU NTRY. THESE TESTS OF FISCAL DOMICILE WHICH ARE GIVEN BY WAY OF EXAMPLES FOLLOWING THE EXPRESSION LIABLE TO TAX BY REASON OF I.E. DOMI CILE RESIDENCE PLACE OF MANAGEMENT PLACE OF INCORPORATION ETC. ARE NO MORE THAN EXAMPLES OF LOCALITY RELATED ATTACHMENTS THAT ATTRA CT RESIDENCE TYPE TAXATION. THEREFORE AS LONG AS A PERSON HAS SUCH L OCALITY RELATED ATTACHMENTS WHICH ATTRACT RESIDENCE TYPE TAXATION THAT PERSON IS TO BE TREATED AS RESIDENT AND THIS STATUS OF BEING A RESIDENT OF THE CONTRACTING STATE IS INDEPENDENT OF THE ACTUAL LEVY OF TAX ON THAT PERSON. VIEWED IN THIS PERSPECTIVE WE ARE OF THE C ONSIDERED OPINION THAT BEING LIABLE TO TAX IN THE CONTRACTING STATE DOES NOT NECESSARILY IMPLY THAT THE PERSON SHOULD ACTUALLY BE LIABLE TO TAX IN THAT CONTRACTING STATE BY THE VIRTUE OF AN EXISTING LEGA L PROVISION BUT WOULD ALSO COVER THE CASES WHERE THAT OTHER CONTRAC TING STATE HAS THE RIGHT TO TAX SUCH PERSONS IRRESPECTIVE OF WHE THER OR NOT SUCH A RIGHT IS EXERCISED BY THE CONTRACTING STATE. IN OUR HUMBLE UNDERSTANDING THIS IS THE LEGAL POSITION EMERGING OUT OF HON'BLE SUPREME COURTS JUDGEMENT IN AZADI BACHAO ANDOLANS CASE (SUPRA). THE PLEA TAKEN BY THE REVENUE THAT THE ASSESSEE WAS NOT LIABLE TO TAX WHICH WAS ANYWAY NOT TAKEN BY THE ASSESSING O FFICER OR BEFORE THE CIT(A) IS ALSO NOT SUSTAINABLE IN LAW EITHER. 13. IN OUR VIEW THE DECISION IN THE CASE OF GREEN EMIRA TES SHIPPING AND TRAVELS (SUPRA) IS CLEARLY APPLICABLE TO THE FACTS OF THE CASE. AS HELD IN THE AFORESAID CASE THE EXPRESSION LIABLE TO TAX IN THE CONTRACTING STATE AS USED IN ARTICLE 4.1 OF INDO-UAE DTAA DOES NOT NECESSARIL Y IMPLY THAT THE PERSON SHOULD ACTUALLY BE LIABLE TO TAX IN THE CONTRACTING SATE BUT WOULD ALSO COVER THE CASES WHERE THAT OTHER CONTRACTING STATE HAS TH E RIGHT TO TAX SUCH PERSON WHETHER OR NOT SUCH A RIGHT IS EXERCISED. 14. WE ARE ALSO IN AGREEMENT WITH THE OBSERVATION OF TH E CIT(A) VIDE PARA 5(C). IF THE TREATY IS NOT APPLICABLE TO THE INDIVI DUAL PERSONS LIVING IN UAE THEN THE SAME INDIVIDUAL WILL NOT BE RESIDENT OF IN DIA AND ALSO NOT A RESIDENT OF UAE AND HENCE CAPITAL GAINS ARISING FROM SALE OF SUCH SERUCITIES CANNOT BE TAXED IN ANY OF THE COUNTRY BECAUSE ARTICLE 13(3 ) OF THE TREATY SAYS THAT CAPITAL GAINS SHALL BE TAXABLE ONLY IN THE CONTRACT ING STATE OF WHICH THE ALIENATOR IS A RESIDENT. IN THIS CASE AS PER THE I NTERPRETATION ADVOCATED BY THE A.O. THE INDIVIDUAL WILL NOT BE A RESIDENT OF U AE AS WELL AS INDIA. IN VIEW OF THIS ALSO THE CASE OF THE REVENUE FAILS ON THIS POINT. ITA NO. 645 & 2306/MUM/2007 ICICI BANK LTD. 11 15. BE THAT AS IT MAY THE GOVERNMENT OF INDIA ENTERED INTO A FURTHER PROTOCOL VIDE 15 TH DAY OF JUNE 2006 WHICH WAS NOTIFIED VIDE NOTIFICA TION NO. 282 OF 2007 DATED 28 TH NOVEMBER 2007. THIS PROTOCOL AMENDED THE DTAA AND VIDE ARTICLE 4 OF THE PROTOCOL THE FOLLOWING WE RE MODIFIED: - ARTICLE 4 PARAGRAPH 3 OF ARTICLE 13 (CAPITAL GAINS) OF THE AG REEMENT SHALL BE REPLACED BY THE FOLLOWING: 3. GAINS FROM THE ALIENATION OF SHARES OF THE CAPI TAL STOCK OF A COMPANY THE PROPERTY OF WHICH CONSISTS DIRECTLY OR INDIRECTLY PRINCIPALLY OF IMMOVABLE PROPERTY SITUATED IN A CON TRACTING STATE MAY BE TAXED IN THAT STATE. 4. GAINS FROM THE ALIENATION OF SHARES OTHER THAN T HOSE MENTIONED IN PARAGRAPH 3 IN A COMPANY WHICH IS A RESIDENT OF A C ONTRACTING STATE MAY BE TAXED IN THAT STATE. 5. GAINS FROM THE ALIENATION OF ANY PROPERTY OTHER THAN THAT REFERRED TO IN PARAGRAPHS 1 2 3 AND 4 ABOVE SHALL BE TAXAB LE ONLY IN THE CONTRACTING STATE OF WHICH THE ALIENATOR IS A RESID ENT. 16. AS CAN BE SEEN FROM THE ABOVE THE AMENDED ARTICLE 1 3 (AFTER INSERTION OF MODIFIED ARTICLE 13(3) 13(4) AND 13(5) ) GIVES RISE TO A SITUATION WHERE THE GAINS FROM ALIENATION OF SHARES OF THE CAPITAL STOC K OF A COMPANY IS ALSO TAXED IN THE CONTRACTING STATE WHERE THE PROPERTY O F WHICH CONSISTS DIRECTLY OR INDIRECTLY OF IMMOVABLE PROPERTY SITUATED IN A C ONTRACTING STATE. THEREFORE THE EARLIER UNCERTAINTY IN TAXING THE CAP ITAL GAINS ARISING FROM ALIENATION OF SHARES ON THE CAPITAL STOCK OF THE CO MPANY OR ALIENATION OF SHARES ARE PERMITTED TO BE TAXED IN THE STATE WHERE THE PROPERTY IS SITUATED OR THE COMPANY IS A RESIDENT OF THE CONTRACTING STA TE. BUT AS SEEN FROM THE FACTS OF THE CASE THE CONSTITUENTS/INVESTORS DID N OT ALIENATE ANY PROPERTY COVERED BY EVEN THE AMENDED ARTICLE 13(3) AND 13(4) AS THE TRANSACTION IS WITH REFERENCE TO GOVERNMENT OF INDIA T-BILLS. GOVE RNMENT T-BILLS ARE NOT SHARES IN A COMPANY. THESE ARE SOVEREIGN BONDS ISSU ED BY GOVERNMENT OF INDIA THROUGH RBI. THEREFORE IT IS AGAIN COVERED B Y ARTICLE 13(5) WHEREIN THE POWER TO TAX WAS WITH THE CONTRACTING STATE OF WHIC H THE ALIENATOR IS A RESIDENT. EVEN AFTER THE AMENDED PROTOCOL THE CAPI TAL GAINS IN THE CASE OF GOVERNMENT T-BILLS ARE NOT TAXABLE IN INDIA AS THE POWER TO TAX THEM HAS ITA NO. 645 & 2306/MUM/2007 ICICI BANK LTD. 12 BEEN ASSIGNED TO UAE BY VIRTUE OF AMENDED PROTOCOL WHEREIN THOSE PERSONS ARE RESIDENTS. 17. THE TERM RESIDENT HAS BEEN DEFINED IN THE NOTIFI CATION AS INDIVIDUAL WHO IS PRESENT IN THAT UAE FOR A PERIOD OR PERIODS TOTALLING IN THE AGGREGATE AT LEASE 183 DAYS IN THE CALENDAR YEAR CONCERNED. IN THIS CASE THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT THESE PERSO NS ARE RESIDENTS OF UAE. THEREFORE WE ARE OF THE OPINION THAT THERE IS NO L IABILITY TO TAX THE CAPITAL GAINS ARISING TO THE INDIVIDUAL CONSTITUENTS/INVEST ORS ON THE TRANSACTIONS IN GOVERNMENT TREASURY BILLS UNDERTAKEN THROUGH THE BA NK. SINCE THERE IS NO LIABILITY TO TAX IN INDIA OBVIOUSLY THE BANK IS NO T COVERED BY THE PROVISIONS OF TDS. IN VIEW OF THIS THE ORDER OF THE CIT(A) IS UPHELD AND THE REVENUE GROUNDS ARE DISMISSED. 18. IN THE RESULT REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER 2011. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 16 TH SEPTEMBER 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXIII MUMBAI 4. DIT (INTERNATIONAL TAXATION) 3(2) MUMBAI 5. THE DR L BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.