Saket Kanoi Vs DCIT (ITAT Delhi)
In a recent ruling, the Income Tax Appellate Tribunal (ITAT) Delhi addressed a significant dispute involving a UAE-based individual, Saket Kanoi, and the Deputy Commissioner of Income Tax (DCIT) regarding the applicability of the India-UAE Double Taxation Avoidance Agreement (DTAA). The core issue revolved around whether a resident of the UAE, who is not subject to personal income tax in that country, can claim tax exemption on capital gains earned in India by invoking the DTAA. The tribunal ultimately sided with the taxpayer, upholding the principle that the right to tax, rather than the actual payment of tax, is the determining factor for claiming DTAA benefits.
The case originated from the assessment of Saket Kanoi’s income for the relevant financial year. Kanoi, a resident of the UAE, had received capital gains amounting to over Rs. 1.54 crore from the sale of debt mutual funds in India. While filing his income tax return, he did not offer this income for taxation, relying on Article 13(5) of the India-UAE DTAA, which stipulates that capital gains from the alienation of movable property are taxable only in the contracting state where the alienator is a resident.
The Assessing Officer (AO) challenged this claim, arguing that the DTAA was not applicable. The AO’s primary contentions were that since there is no personal income tax law in the UAE for individuals, Kanoi was not a “person liable to tax” under the UAE’s tax laws. The AO highlighted that the UAE Tax Decree of 1969, which was the existing tax law at the time the DTAA was signed, defined a “person” to mean a “body corporate,” effectively excluding individuals. Consequently, the AO concluded there was no event of “double taxation” to be avoided, as the income was not taxed in the UAE. The AO’s position was that the DTAA’s purpose is to grant relief for income that has been taxed or is chargeable to tax under the laws of both countries.
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