The Income-Tax Appellate Tribunals recent decision not to tax non-resident Indians working in the United Arab Emirates (UAE), has found support among tax experts and courts abroad.
The Netherlands-based Professor Klaus Vogel, an international taxation guru, in his column Tax Monitor published in the Bulletin for International Taxation, mentioned the ITAT Mumbai decision, which arose in the case of Green Emirates Shipping and Travels, found a parallel in a Dutch courts decision.
The ITAT decision reversed an earlier decision by the Authority for Advanced Ruling (AAR) which held that since the UAE does not have an individual income tax regime in place, the taxpayer is not entitled to the provisions of the Double Taxation Avoidance Agreement.
The ITATs point was this the right to tax vests with the member states of the UAE and that right, whether exercised or not, remains the exclusive right and hence the taxpayer is entitled to the provisions of the treaty.
The decision provides relief to NRIs in UAE who remit about Rs 4,000 crore annually in India. The ITATs decision also removed confusion created by the Authority for Advance Ruling which decided in favour of the revenue.
The ITAT gave the ruling in the case of Green Emirate Shipping & Travels, a shipping company based in UAE. The assessing officers contention was that since UAE does not have a tax regime, the shipping company is liable to pay tax in India. The provisions of the Double Taxation Avoidance Agreement between both the countries, do not apply here.
The ITAT bench held that since the right to tax UAE residents vests with the UAE governemnt, that right, whether exercised at present or not, continued to remain the exclusive right of the UAE government. The exemption from tax is independent of whether the UAE at present levies tax or not, ITAT observed. The ITAT took the stand that a tax treaty takes into account not only the current taxation but potential double taxation.