The expression ‘may also be taxed’ used in Article 7 permits only the State of Source to tax such income and the State of Residence is precluded from taxing such income

DCIT Vs M/S. Essar Oil Limited (ITAT Mumbai)- Whether the profits of Oman PE and the loss of Qatar PE of the taxpayer are to be excluded for tax purposes in India, as per Article 7 of respective DTAAs?

As far as exclusion of profits of the Oman PE are concerned, the revenue authorities admitted that the High Court has upheld the orders of the Tribunal on an identical issue for AYs 1999-00 to 2001-02 and therefore, the same was accepted. However, in context of the India-Qatar DTAA, the revenue pointed out that the India-Qatar DTAA uses the words „may also be taxed‟  as compared to the words „may be taxed‟ used in the India-Oman DTAA.  Regarding the profits of the Qatar PE, the Tribunal observed that the intention of the Countries entering into a DTAA has to be seen. Article 11 (dividends) and Article 12 (interest) of the India-Qatar DTAA clearly provides the right to tax such income to both, the state of source and the state of residence. Wherever the parties to a DTAA have intended that income is to be taxed in both countries, they have specifically provided in clear terms. In contrast, the expression „may also be taxed‟ in the other State, under article 7 permits only the State of Source to tax such income and the State of Residence is precluded from taxing such income. Hence the losses of Qatar PE of the taxpayer are to be excluded for tax purposes in India.

The DCIT 5(1), Vs. M/S. Essar Oil Limited,

ITAT Mumbai

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