Expression ‘liable to tax’ used in the India-UAE tax treaty does not necessarily imply that person should actually be liable to tax in UAE

ITAT Mumbai has in the case of ITO Vs. Mahavirchand Mehta [2011] 11 taxmann.com 194 (Mum) held that the expression ‘liable to tax’ as used in Article 4(l) of India- UAE tax treaty (the tax treaty) does not mean that the person should actually be liable to tax in that contracting state by virtue of an existing legal provision. It will also cover cases where the other contracting state has the right to tax such person, whether or not such a right is exercised.

Facts of the case

• The taxpayer is an individual and a resident of UAE. During the previous year, he earned short term capital gain on sale of shares in India. The taxpayer contended that since it was a resident of UAE, it is only UAE which has a right to tax capital gain in view of Article 13(3) of the tax treaty.
• The Assessing Officer (AO) rejected the claim of the taxpayer on the ground that the taxpayer is not paying taxes in UAE. The AO relied upon the decision of the AAR in the case of Abdul Razak Meman (2005) 276 ITR 306 (AAR) and held that the taxpayer has failed to discharge the onus on it to prove that it is liable to pay tax in UAE.

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