(which has clarificatory
effect)- Business income from the P.E. in Oman and Qatar and also the capital
gain from sale of assets
in these countries will be chargeable to tax in India.
The assessee, an
Indian company, had a P.E. in Oman and Qatar. The net business profits of the
said
Oman & Qatar Branch was Rs. 2.30
crore. The assessee also earned long term capital gains on sale of
assets of the said P.E. in Oman and
Qatar. The assessee claimed that as the said business profits and
LTCG were taxed in accordance with the
taxation laws of Oman & Qatar, they were not chargeable to tax in India.
The assessee relied on the judgement of the Tribunal and High Court in its own
case where the view was taken that as the DTAA provided that the business
profits & capital gains of the PE “may be taxed in the other Contracting
State”, the Country of residence i.e., India loses its right to tax if the Country
of source has taxed the income. This view was based on the verdicts of the
Supreme Court in CIT v. P.V.A.L. Kulandagan Chettiar (2004) 267 ITR 654(SC) and
that of the High Courts in CIT v. R.M. Muthaiah(1993) 202 ITR 508 (Kar) &
CIT v. S.R.M. Firm and Ors.(1994) 208 ITR 400 (Mad). The department argued that
the aforesaid law was no longer good law in view of s. 90 (3) inserted by the Finance
Act, 2003, which provides that any term used but not defined in the Act or the
DTAA shall have the same meaning as assigned to it in the notification issued
by the Central Government. Pursuant thereto, the Central Government has issued
a Notification No. 91/2008, dated 28.08.2008, wherein it has been expressly
provided that where the tax treaty provides that any income of a resident of
India “may be taxed” in other country, such income shall be included in his
total income chargeable to tax in India in accordance with the provisions of
the Act and relief shall be granted in accordance with the method of elimination
or avoidance of double taxation provided in the DTAA. HELD by the Tribunal:
The law laid down by the Courts on the
interpretation of the expression “may be taxed” that once the tax is payable or
paid in the country of source, then the country of residence is denied of the
right to levy tax on would no longer apply after the insertion of s. 90 (3)
w.e.f. 1.4.2004, i.e. AY 2004-05 pursuant to which Notification dated
28.08.2008 has been issued. The said Notification is clarificatory in nature
and hence the interpretation given by the Central Government through the
Notification is effective from 1.4.2004. Also, as the phrase “may be taxed” is
not appearing in the statute but is appearing in the DTAA, the interpretation
as understood and intended by the negotiating parties should be adopted. Here
one of the parties i.e., Government of India has clearly specified the intent
and the object of this phrase and the meaning assigned by the Government of
India for a phrase or term used in the DTAA notification will prevail. The
result is that the business income from the P.E. in Oman and Qatar and also the
capital gain from sale of assets in these countries will be chargeable to tax
in India.( ITA No. 2428/Mum/2007 dt 28/08/2013.) , (A. Y. 2004-05)
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