R.S.Padvekar, Member (J) -
(1.) IN this appeal, the assessee has challenged the impugned order of the Ld. CIT(A) -IT/TP, Pune dated 19 -07 -2012 for the A.Y. 2006 -07. The assessee has taken the following grounds in the appeal:
"1. The Hon'ble CIT (Appeals) -IT/TP, Pune erred in not allowing the benefit of Double Taxation Avoidance relief to the appellant on the grounds of tax residency certificate not being produced.
(2.) THE Hon'ble CIT (Appeals) -IT/TP, Pune erred in not deciding the case on merits. The Hon'ble CIT (Appeals) -IT/TP, Pune did not ask for the tax residency certificate for 3 years after filing of appeal, despite the physical presence of the counsel for 3 hearings and many other personal visits and then disallows the appeal on that ground."
The facts which are revealed from the record as under. The assessee is an individual and filed his return of income for the A.Y. 2006 -07 declaring total income of Rs. 2,56,23,910/ - in the status as 'Non -Resident'. The assessee claimed that he is the resident of UAE and claimed of deduction of Rs. 28,65,463/ - as tax relief under the India -UAE Double Taxation Avoidance Agreement (DTAA). On the sale of shares of Customer First Services Private Ltd., Bangalore to Essar Investments Ltd., Mumbai on which the assessee realized Long Term Capital Gain of Rs. 2,55,38,881/ -. The assessee also declared the income from the other sources to the extent of Rs. 85,029/ -. On the total income declared by the assessee in the return was of Rs. 2,56,23,910/ - on which total tax payable was of Rs. 28,65,463/ - and but he claimed benefit of the DTAA between the India and UAE on the LTCG on transfer of shares. The Assessing Officer denied the relief to the assessee. The Assessing Officer asked the assessee whether he has paid any tax in UAE on the above mentioned LTCG, the assessee replied in negative. The Assessing Officer asked the assessee to submit the Tax Residence Certificate (TRC) from UAE authorities. There was a TDS to the extent of Rs. 28,65,463/ - in India. So far as the normal provisions of the Income -tax Act are concerned there is no dispute that the said capital gain is taxable. So far as the claim of the assessee for giving the benefit of the DTAA between the India and UAE is concerned the Assessing Officer referred to the ruling in the case of Cyril Eugene Pereira v. CIT [ : 1999] 105 Taxman 273 (AAR - New Delhi). The Assessing Officer declined to give the tax relief to the assessee mainly on the following two reasons:
"i. The assessee has not paid tax in UAE on the LTCG.
ii. The assessee failed to produce the tax resident certificate from UAE authority."
The assessee carried the issue before the Ld. CIT(A) but without successes. The Ld. CIT(A) confirmed the view taken by the Assessing Officer.
Now, the assessee is in appeal before us.
2. We have heard the parties and perused the record. The Ld. Counsel argues that the assessment year involved before us is 2006 -07 hence, the DTAA between India and UAE of 1993 is applicable. He argues that the assessee is in UAE since 1995 and he is enjoins status as NRI. He argues that in the 1993 DTAA between India and UAE, there is no requirement for production of the tax residence certificate. He submits that the decision in the case of Cyril Eugen Pereira (supra) by the AAR has been considered by the ITAT, Mumbai in the case of Asstt. DIT v. Green Emirates Shipping & Travels :  100 ITD 203 : 6 SOT 329 (Mum). He argues that the ruling given by the AAR in a particular case is only having the persuasive value but it is not binding on the appellate forum i.e. Tribunal. He argues that the ruling of the AAR is in nature of advance decision mechanism as on the specific given facts by the applicant the AAR gives the ruling. He argues that which legal position has been explained by the Hon'ble Supreme Court in the case of Union of India v. Azadi Bachao Andolan :  263 ITR 706 : 132 Taxman 373 (SC) in which their Lordships have considered the ruling in the case of Cyril Eugen Pereira (supra). He submits that there is no requirement that the assessee should be taxable in the contracting state of his residence. He argues that so far as DTAA is concerned, there is an amendment to Sec. 90 by insertion of Sub -sec. (4) w.e.f. 01 -04 -2013 and hence, so far as A.Y. 2006 -07 is concerned the view taken by both the authorities below are totally misplaced as requirement of TRC is only from A.Y. 2013 -14. He pleaded for allowing the relief to the assessee under the DTAA. We have heard the Ld. DR.
3. The issue in controversy in a narrow compass. In this case the assessee is NRI of the UAE. The assessee filed the chart showing his total stay in India as per the endorsement of his Passport in the A.Y. 2005 -06 and it is seen that his total stay in India in that Financial Year is in all 34 days. Hence, the assessee is nonresident as per Sec. 6 of the Act. Now the next question for our consideration is whether the decision relied on by the authorities below in the case of Cyril Eugen Pereira (supra) by the AAR is having the binding force. The said ruling has been considered and explained by the ITAT, Mumbai in the case of Green Emirates Shipping & Travels (supra). The operative part of the said decision is as under:
"5. As for the AO's reliance on ruling given by the Authority for Advance Ruling in Cyril Eugene Pereiria's case (supra), we deem it necessary to reproduce the following extracts from the judgment of Hon'ble Supreme Court in the case of Union of India v. Azadi Bachao Andolan :  184 CTR (SC) 450:  263 ITR 706 (SC), at p. 742 wherein Their Lordships of Hon'ble Supreme Court had an occasion to deal with the said AAR ruling:
"The respondents placed great reliance on the decision by the Authority for Advance Rulings constituted under s. 245 -O of the IT Act, 1961, in Cyril Eugene Pereira : (1999) 154 CTR 281 : (1999) 239 ITR 650 (AAR - New Delhi). Sec. 245S of the Act provides that the Advance Ruling pronounced by the Authority under s. 245R shall be binding only:
(a) on the applicant who had sought it;
(a) in respect to the transaction in relation to which the ruling had been sought; and
(a) on the CIT, and the IT authorities subordinate to him, in respect to the applicant and the said transaction.'
It is, therefore, obvious that, apart from whatever its persuasive value, it would be of no help to us. Having perused the order of the Advance Ruling Authority, we are not persuaded."
(emphasis, italicised in print, supplied by us now).
The judgments of Hon'ble Supreme Court are binding on us under Art. 141 of the Constitution of India; the rulings of Authority for Advance Rulings, whatever be their persuasive value, are not. The words of Hon'ble Supreme Court are clear, categorical and unambiguous. Once Hon'ble Supreme Court declines to be persuaded by the ruling given by the Authority for Advance Rulings in Cyril Eugene Pereira's case (supra), it cannot be open to us to follow the said ruling. In the case of Asstt. Collector of Central Excise v. Dunlop India Ltd. :  154 ITR 172 (SC) at p. 180, Hon'ble Supreme Court has, inter alia, observed as follows:
"We desire to add and as was said in the Cassell & Co. Ltd. v. Broome,  AC 1027 (HL), we hope it will never be necessary to say so again that 'in the hierarchical system of Courts' which exists in our country, 'it is necessary for each lower tier' 'to accept loyally the decisions of the higher tiers', 'it is inevitable in a hierarchical system of Courts that there are decisions of the supreme Tribunal which do not attract unanimous approval of all the members of the judiciary.... But judicial system works only if someone is allowed to have the last word and that last word, once spoken is loyally accepted', (See observations of Lord Hallsham and Lord Diplock in Broome v. Cassell). The wisdom of the Court below has to yield to the higher wisdom of the Court above."
We respectfully follow the higher wisdom of the Courts above and decline to approve AO's reliance upon the ruling given by the Authority for Advance Rulings in Cyril Eugene Pereira 's case (supra).
6. Undoubtedly, in Cyril Eugene Pereira's case (supra), Hon'ble Authority for Advance Rulings, deviating from the stand taken by it in the earlier rulings including ruling in Mohsinally Alimohammed Rafik, In re :  126 CTR (AAR) 311: (1995) 213 ITR 317 (AAR), concluded that,. "an individual who is not liable to pay tax under the UAE law cannot claim any relief from the only tax on income which is payable in India under the agreement" and that "the provisions of the Double Taxation Avoidance Agreement do not apply to any case where the same income is not liable to be taxed twice by the existing laws on both the Contracting States". However, in Azadi Bachao Andolan 's case (supra), Their lordships of Hon'ble Supreme Court, after referring to the said ruling and after elaborate discussions on the various aspects of this issue, concluded that "It is not possible for us to accept the contentions so strenuously urged by the respondents that the avoidance of double taxation can arise only when tax is actually paid in one of the Contracting States". The reasoning given by Their Lordships included the following:
"According to Klaus Vogel, 'Double Taxation Convention establishes an independent mechanism to avoid double taxation through restriction of tax claims in areas where overlapping tax claims are expected, or at least theoretically possible. In other words, Contracting States mutually bind themselves not to levy taxes or to tax only to a limited extent in cases when the treaty reserves taxation for the other Contracting State either entirely or in part, Contracting States are said to 'waive' tax claims or more illustratively, to divide 'tax sources', 'taxable objects', amongst themselves'. Double taxation avoidance treaties were in vogue even from the time of the League of Nations. The experts appointed in the early 1920s by the League of Nations describe this method of classification of items and their assignments to the Contracting States. While the English lawyers called it 'classification and assignment rules', the German jurists called it 'the distributive rules' (Verteilungsnormi), To the extent that an exemption is agreed to, its effect is in principle independent of both whether the other Contracting State imposes a tax in the situation to which the exemption applies, and irrespective of whether the State actually levies the tax. Commenting particularly on the German Double Taxation Convention with the United States, Vogel comments: "Thus, it is said that the treaty prevents not only 'current' but also merely 'potential' double taxation". Further, according to Vogel, "only in exceptional cases, and only when expressly agreed to by the parties, is exemption in one of the Contracting States dependent upon whether the income or capital is taxable in the other Contracting State, or upon whether it is actually taxed there."
It is, therefore, not possible for us to accept the contentions so strenuously urged by the respondents that the avoidance of double taxation can arise only when tax is actually paid in one of Clearly, therefore, there is no meeting ground between the ruling given by the Authority for Advance Rulings in Cyril Eugene" Pereira's case (supra) and the judgment delivered by the Hon'ble Supreme Court in Azadi Bachao Andolan's case (supra). The choice, however, poses no difficulty in the light of the elementary legal position that the judgments of Hon'ble Supreme Court have binding force on all of us. Much as we respect the Hon'ble Authority for Advance Rulings, we regret our inability to follow the ruling which, in our humble understanding, has been clearly disapproved by the Hon'ble Supreme Court. It is not even open to us, even in a case in which our understanding of the issue on merits concurs with that of the Hon'ble Authority for Advance Rulings in Cyril Eugene Pereira 's case, to follow that school of thought.
7. Learned Departmental Representative has invited our attention to the ruling given by the Authority for Advance Rulings in the case of Abdul Razak A. Neman, In re :  195 CTR (AAR) 534:  276 ITR 306 (AAR) which supports the case of the Revenue and is said to be on exactly the same material facts. We are, however, unable to accept this plea and we decline to treat this as a sort of, to use the phraseology employed in legal parlance/a covered matter. As Hon'ble Supreme Court has duly taken (note) of in Azadi Bachao Andolan 's case(supra), a ruling given by the Authority for Advance Rulings is not even binding on the CIT, and authorities subordinate thereto, in any case except in the case of that very assessee in which such a ruling is given and even in such a case it is binding in respect of transaction in respect of which the ruling is given. Whatever be the respect and deference judicial authorities indeed have for the rulings given by the Authority, the Authority for Advance Rulings, not being a part of the judicial hierarchy, cannot lay down a binding precedent for anyone -the Revenue, the assessees or the appellate authorities. By no stretch of logic, therefore, a ruling given by the Hon'ble Authority of Advance Rulings, has any precedence value in general. Therefore, learned Departmental Representative's reliance on the ruling given in Abdul Razak A. Neman's case (supra) by itself is not sufficient to decide the matter one way or the other. Learned Departmental Representative's contention is that as non -corporate entities are not taxable entities under the UAE Tax Decree 1969, such non -corporate entities, even though based in UAE, cannot be treated as 'resident' for the purposes of the India -UAE DTAA. Our attention is also invited to the learned AO's observations to the effect that "the provisions of the DTAA do not apply to any case which the same income is not liable to be taxed twice by the existing laws of both the Contracting States" and that "since the assessee has failed to prove that it is paying taxes in UAE, the DIT relief sought by the assessee is rejected"; but it is the very proposition underlying these observations which was rejected by the Hon'ble Supreme Court holding that "it is....not possible for us to accept the contentions so strenuously urged by the respondents that the avoidance of double taxation can arise only when tax is actually paid in one of the Contracting States". As we have noted earlier also, the Revenue is on record to have opposed the very argument that the Revenue has taken in the present case, as evident from the Hon'ble Supreme Court's following observation:
"The appellants (i.e., Union of India) contended that, acceptance of the respondent's submission that double taxation avoidance is not permissible unless the tax is paid in both the countries is contrary to the intendment of s. 90. It is urged that cl. (b) of sub -s. (1) of s. 90 applies to a situation where income -tax has been paid in both the countries, but cl. (b) deals with the situation of avoidance of double taxation of income, inasmuch as Parliament has distinguished between the two situations, it is not open to a Court of law to interpret cl. (b) of s. 90, sub -s. (1) as if it were the same as situations contemplated under cl. (a)."
The very contention which has been raised by the Revenue in this case was successfully challenged by the Union of India before the Hon'ble Supreme Court. It cannot be open to us to take any other view of the matter than the view so taken by the Hon'ble Supreme Court.
8. Although the AO's objection to applicability of India -UAE tax treaty was only on the ground that the provisions of DTAAs do not come into play unless it is established that the assessee is paying tax in both the countries in respect of the same income, in the grounds of appeal before us it is also contended that the assessee -company failed to produce any evidence to the effect that it was 'liable to pay taxes' in UAE. The question then arises whether an existing liability to pay taxes in UAE is a sine qua non to avail the benefit of India -UAE tax treaty in India. On this issue also, we find guidance from the judgment of Hon'ble Supreme Court in the case of Azadi Bachao Andolan (supra). Referring to the Klaus Vogel's Commentary on Double Taxation Conventions. Their Lordships, inter "In other words. Contracting States mutually bind themselves not to levy taxes or to tax only to a limited extent in cases when the treaty reserves taxation for the other Contracting State either entirely or in part. Contracting States are said to waive 'tax claims' or more illustratively to divide 'tax sources', 'taxable objects', amongst themselves". Double taxation avoidance treaties were in vogue even from the time of the League of Nations. The experts appointed in the early 1920s by the League of Nations describe this method of classification of items and their assignments to the Contracting States. While the English lawyers called it 'classification and assignment rule', the German jurists called it 'the distributive rule' (Verteilungsnormi). To the extent that an exemption is agreed to, its effect is in principle independent of both whether the Contracting State imposes a tax, in the situation to which the exemption applies, and irrespective of whether the State actually levies the tax. Commenting particularly on the German Double Taxation Convention with the United States, Vogel comments:
"Thus, it is said that the treaty prevents not only 'current' but also merely 'potential' double taxation".
It is thus clear that a tax treaty not only prevents current' but also potential' double taxation. Therefore, irrespective of whether or not the UAE actually levies taxes on non -corporate entities, once the right to tax UAE residents in specified circumstances vests only with the Government of UAE, that right, whether exercised or not, continues to remain exclusive right of the Government of UAE. As noted above, the exemption agreed to under the 'assignment' or 'distributive' rule, is independent of 'whether the Contracting State imposes a tax in the situation to which exemption implies'. In the case of John N. Gladden v. Her Majesty the Queen, 85 Tax Cases 5188, which was quoted with approval by the Hon'ble Supreme Court in Azadi Bachao Andolan's case (supra), Federal Court of Canada has observed that the non -resident can benefit from the exemption (under the treaty) regardless of whether or not he is taxable on that capital gain in his own country. If Canada or the US were to abolish the capital gains tax completely, while the other country did not, a resident of the country which has abolished the capital gains would still be exempt from capital gains in that other country". It is thus clear that taxability in one country is not sine qua non for availing relief under the treaty from taxability in the other country. All that is necessary for this purpose is that the person should be 'liable to tax in the Contracting State by reason of domicile, residence, place of management, place of incorporation or any other criterion of similar nature' which essentially refers to the fiscal domicile of such a person. In other words, if fiscal domicile of a person is in a Contracting State, irrespective of whether or not that person is actually liable to pay tax in that country, he is to be treated as resident of that Contracting State. The expression 'liable to tax' is not to read in isolation but in conjunction with the words immediately following it, i.e., 'by reason of domicile, residence, place of management, place of incorporation or any other criterion of similar nature'. That would mean that merely a person living in a Contracting State should not be sufficient, that person should also have fiscal domicile in that country. These tests of fiscal domicile which are given by way of examples following the expression 'liable to tax by reason of, i.e., domicile, residence, place of management, place of incorporation, etc., are no more than examples of locality -related attachments that attract residence type taxation. Therefore, as long as a person has such locality -related attachments which attract residence type taxation, that 'person' is to be treated as resident and this status of being a 'resident' of the Contracting State is independent of the actual levy of tax on that person. Viewed in this perspective, we are of the considered opinion that being 'liable to tax' in the Contracting State does not necessarily imply that the person should actually be liable to tax in that Contracting State by virtue of an existing legal provision but would also cover the cases where that other Contracting State has the right to tax such persons irrespective of whether or not such a right is exercised by the Contracting State. In our humble understanding, this is the legal position emerging out of Hon'ble Supreme Courts judgment in Azadi Bachao Andolan's case (supra). The plea taken by the Revenue that the assessee was not 'liable to tax', which was anyway not taken by the AO or before the CIT(A), is also not sustainable in law either."
(3.) THE decision in the case of Green Emirates Shipping & Travels (supra) has been also followed by the other Co -ordinate Benches in the case of ITO v. Ramesh kumar Goenka :  39 SOT 132 (Mum.) and Meera Bhatia v. ITO :  38 SOT 95 (Mum.). We, therefore, following the decision in the case of Green Emirates Shipping & Travels (supra) do not prefer to go with the ruling of the AAR in the case of Cyril Eugene Pereira (supra) on the proposition that as the Long Term Capital Gain on the transfer of shares is not taxable in UAE hence, the assessee is not eligible under the DTAA between the India and UAE to claim the benefits. We, accordingly, reverse the finding of the Ld. CIT(A) on this first reasoning. Now, the next reason is whether there is a requirement on the part of the assessee to produce the tax residence certificate (TRC) from the UAE authority. Sub -sec. (4) to Sec. 90 which has brought on the statute book by the Finance Act, 2012 w.e.f. 2013 which reads as under:
"Sec. 90(4) - An assessee, not being a resident, to whom an agreement referred to in sub -section (1) applies, shall not be entitled to claim any relief under such agreement unless a certificate, containing such particulars as may be prescribed, of his being a resident in any country outside India or specified territory outside India, as the case may be, is obtained by him form the Government of that country or specified territory.";