IN THE ITAT, MUMBAI BENCH `L’, MUMBAI
Pooja Bhatt v. DCIT
ITA No. 7000/Mum/2005
October 20, 2008
6. The contention of the revenue is that the expression “may be taxed” in paragraph 1 in Article 18 gives only an option to the other contracting State to tax the income but it does not preclude the contracting State of residence to assess the said income. According to her, this contention finds support from the provisions of Article 23 which provides relief with reference to tax paid or deducted at source in the source state. Reliance is placed on the decision of the Authority for Advance Ruling in S. Mohan in re (supra). On the other hand, the contention of the assessee is that such expression authorizes only the contracting State of source to tax such income and by necessary implication the contracting State of residence is precluded from taxing such income. Reliance is placed on the judgments of the Hon’ble Supreme Court in the case of OH” v. P.V.A.L. Kulandagan Chettiar and DOT v. Torqouise Investment & Finance Ltd. (supra).
7. After giving our due consideration to the above rival contentions, we are of the humble view that income derived by the assessee from the exercise of her activity in Canada is taxable only in source country i.e. Canada for the reasons given hereafter. The scheme of taxation of income is contained in Chapter III of Double Taxation Avoidance Agreement ODTAA)/Indo- Canada Treaty. On an analysis of various Articles contained in Chapter III, we find that the scheme of taxation is divided in three categories. The first category includes Article 7 (Business profits with-out P.E. in the other State), Article 8 (Air transport), Article 9 (Shipping), Article 14 (capital gains on alienation of ships or aircrafts operated in international traffic), Article 15 (Professional services), Article 19 (Pensions) which provide that income shall be taxed only in the state of residence. The second category includes Article 6 (Income from immovable property), Article 7 (Business profits where PE is established in other contracting state), Article 15 (Income from professional services under certain circumstances) , Article 16 (Income from dependent personal services where employment is exercised in other contracting State), Article 17 (director’s fees), Article 18 (income of Artists and Athletes), Article 20 (Govt. Service) which provide that such income may be taxed in the other contracting State i.e. State of income source. The third category includes An 11 (Dividends), Article 12 (Interest), Article 13 (Royalty and fee for technical services), Article 14 (capital gains on other properties) and Article 22 (Other income) which provide that such income may be taxed in both the contracting States. For example, paragraph 1 of Article 11 provides that dividend income may be taxed in other contracting State while paragraph 2 provides that dividend income may also be taxed in the State of residence. Similarly, Article 14(2) and Article 22 provide that income may be taxed in both the countries. The above analysis clearly shows that intention of parties to the DTAA is very clear. Wherever the parties intended that income is to be taxed in both the countries, they have specifically provided in clear terms. Consequently, it cannot be said that the expression “may be taxed” used by the contracting parties gave option to the other contracting States to tax such income. In our view, the contextual meaning has to be given to such expression. If the contention of the revenue is to be accepted then the specific provisions permitting both the contracting States to levy the tax would become meaningless. The conjoint reading of all the provisions of Articles in Chapter III of Indo-Canada Treaty, in our humble view, leads to only one conclusion that by using the expression “may be taxed in the other State”, the contracting parties permitted only the other State i.e. State of income source and by implication, the State of residence was precluded.