By Geeta Jani, Dhishat B. Mehta, Chartered Accountants
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Articles 4, 14 of India-UAE DTAA; Section 40(a)(i) – Mere right of a contracting state to tax a person is sufficient to treat him as resident even if no tax is paid in residence country
Facts The taxpayer had paid professional fee and had reimbursed expenses to ‘V’ who was the sole proprietor of a professional firm in UAE without withholding tax at source, since the payee had not stayed in India for more than 183 days and he did not have a fixed base in India in terms of Article 14 of India-UAE DTAA.
According to the AO, under Article 4(1) of India- UAE DTAA, only a person who paid tax in UAE could be treated as a resident of UAE and since ‘V’ was not liable to pay tax in UAE, he cannot be treated as resident of UAE and hence, he disallowed the payments under section 40(a)(i) of the Act.
Held
a) The term “liable to tax” in the contracting State does not necessarily imply that the person should actually pay the tax in that contracting State. Right to tax on such person is sufficient.
b) Taxability in one country is not sine qua non for availing relief under DTAA. What is necessary is that a person should be liable to tax by reason of domicile, residence, place of management, place of incorporation or any other similar criterion which refers to fiscal domicile of such person. If the fiscal domicile of a person is in the contracting State, he is to be treated as resident of that contracting State irrespective of whether that person is actually liable to pay tax in that country.
c) Since fiscal domicile of ‘V’ in UAE has not been doubted, he should be treated as resident of UAE.
