Dr. Rajnikant R. Bhatt Vs. Commissioner of Income-tax - Court Judgment

Excerpt:
for respondents/defendant: h.v. kalra, deputy commissioner of income-tax 1. this is an application under section 245qof the income-tax act, 1961 ("the act"), from a resident of abu dhabi seeking to know whether the income derived by him by way of interest, dividends and capital gains in india will be entitled to tax concessions in his hands by virtue of the agreement for avoidance of double taxation (dtaaj between india and the united arab emirates (u. a. e.). it is interesting to notice that each of the several applications, the authority has received on this issue from residents of u. a. e. has some special distinguishing features which need to be dealt with separately, though the broad questions posed before the authority are the same.2. the applicant, dr. rajnikant r. bhatt, originally filed an application under section 245q. on january 19, 1996, but this application was signed not by him but by his wife. it was, therefore, defective. thereafter, the applicant has rectified the position and filed a fresh application duly signed by him which has been received on july 5, 1996.3. it is stated by the applicant that he is a doctor specialising in radiology. he left india along with his family and went to the united arab emirates on january 2, 1977. he stayed there for about 11 years and returned to india on june 27, 1988. it is stated that his reasons for so doing were that proper educational facilities for his children were not available in the u. a. e. and the applicant was not willing to send his children to the united kingdom for studies. however, he did not stay long in india and went back once again, this time alone, to the u. a. e. in may, 1991, and he has been staying there since then. he has been working as a radiologist in the government hospital at abu dhabi drawing a monthly salary of 12,100 dirhams, equivalent to approximately rs, 14 lakhs per annum. he has, during the past several years, invested substantial sums in shares and debentures of indian companies, units of the unit trust of india (u. t. i.) and other mutual funds (m. f.), dividends and interest income wherefrom is to the tune of rs. 5 lakhs per annum. his assets in india are of the value of rs. 54 lakhs. at abu dhabi, he is residing in quarters allotted to him by his employer and does not (indeed, cannot) own any immovable property.his wealth in the u. a. e. comprises some assets valued at rs. 9.50 lakhs and other assets valued at about 2,30,000 dirhams. his source of income at abu dhabi consists of his salary from mafraq hospital, the interest on fixed deposits with the bank of baroda at abu dhabi and profits on the sale of certain portfolio investments.4. on the above facts, the questions posed by the applicant before the authority are as follows : "1. whether the assessee can claim the benefits of the agreement for avoidance of double taxation and prevention of fiscal evasion, entered between the government of the republic of india and the government of the united arab emirates (notification no. g. s. r. 710(e), dated november 18, 1993 (see [1994] 205 itr (st.) 49)), from the assessment year 1995-96 and onwards (a) whether dividend accrued and received by the assessee in india as a beneficial owner and taxable as per the provisions of section 56(2)(i) of the income-tax act, 1961, will be taxed at 15 per cent, of the gross amount of dividend according to article 10 of the above mentioned treaty also whether the dividend from the unit trust of india or from mutual fund specified under clause (23d) of section 10 will be given the same treatment and taxed at 15 per cent, of the gross amount (b) whether interest accrued and received by the assessee in india as a beneficial owner and taxable under section 56 of the income-tax act, 1961, will be taxed at 12.5 per cent, of the gross amount of interest according to article 11 of the abovementioned/treaty (c) whether capital gain (long-term as well as short-term capital gain), arising from the sale of shares, debentures, units and other like securities will be totally exempt from tax in india, according to article 13 of the abovementioned treaty whether the dividend income, interest received from government or an indian concern, and income received in respect of units of mutual funds specified under clause (23d) of section 10 or the unit trust of india will be taxable as per the provisions of section 115a or as per the provisions of section 115e ?" 5. a preliminary question that arises for consideration of the authority is whether the applicant is entitled to maintain the present application, since only non-residents are entitled to make applications under section 245q. from the details given by the applicant, it is seen that the total stay of the applicant in india has been as follows : 6. on the basis of this data, the applicant will be a resident but not ordinarily resident (r&oh) in the financial year 1994-95 but a non-resident in the financial year 1995-96. it has been held by this authority that, for maintaining an application under section 245q, the applicant should have been non-resident in the financial year preceding the date of his application. if, in the present case, the application is taken as having been filed on january 19, 1996, it will not be maintainable as the applicant was not a non-resident in the financial year 1994-95. however, if the revised application dated july 5, 1996, is taken into account, the application will be in order since the applicant is a non-resident in the financial year 1995-96. as already mentioned, the applicant's first application was invalid as it had not been properly signed in accordance with the rules by the applicant himself. the first valid application filed by the applicant was filed on july 5, 1996. the authority is, therefore, of the opinion that this application under section 245q, is maintainable.7. the applicant is seeking certain reliefs under the dtaa between india and the u.a.e. these reliefs will be available to him if he can be said to be a resident of u.a.e. within the meaning of article 4 of the dtaa. it will be convenient to set out, in its entirely, the relevant article. it reads (see [1994] 205 itr (st.) 52) : (1) for the purposes of this agreement, the term "resident of a contracting state" means any person who, under the laws of that state, is liable to tax therein by reason of his domicile residence, place of management, place of incorporation or any other criterion of a similar nature. (2) where by reason of the provisions of paragraph 1, an individual is a resident of both contracting states, then his status shall be determined as follows : (a) he shall be deemed to be a resident of the state in which he has a permanent home available to him ; if he has a permanent home available to him in both states, he shall be deemed to be a resident of the state with which his personal and economic relations are closer (centre of vital interests) ; (b) if the state in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either state, he shall be deemed to be a resident of the state in which he has an habitual abode ; (c) if he has an habitual abode in both states or in neither of them, he shall be deemed to be a resident of the state of which he is a national ; (d) if he is a national of both states or of neither of them, the competent authorities of the contracting states shall settle the question by mutual agreement. (3) where by reason of the provisions of paragraph 1, a person other than an individual, is a resident of both contracting states, then it shall be deemed to be a resident of the state in which its place of effective management is situated." 8. under article 4(1), the applicant will be a resident of india since he is liable to tax in india on his indian income even though his residential status is "non-resident". it is submitted on behalf of the applicant that though he is liable to tax in india, he is so liable only by reason of the fact that some income has accrued in india and not by reason of his residence in india and that, therefore, the provisions of article 4(1) will not make him a resident in india. this contention has been answered in the negative by this authority in mohsinally alimohammed rafik's case [1995] 213 itr 317 (aar), and the submission of the applicant is that this requires reconsideration. it is, however, not necessary to go into this question because for the reasons to be discussed later, it will make no difference to the applicant even if one proceeds on the footing that he is a "resident" of india within the meaning of article 4(1) of the dtaa, 9. on behalf of the department it is contended that, in any event, the applicant is not a resident in the u.a.e. within the meaning of article 4(1) of the dtaa. it is said that, on the information available with the department, there is no income-tax on individuals in the emirate of abu dhabi. the applicant has only filed a copy of the dubai income-tax ordinance but even there no income-tax is payable by an individual. the position is presumably similar in abu dhabi as well. this aspect has also been dealt with by the authority in mohsinally alimohammed rafik's case [19951 213 itr 317 (aar) where it has been pointed out that, even though there is no income-tax in dubai, persons residing in dubai should be treated as residents within the meaning of article 4(1) of the dtaa. the reasons for this conclusion have been given at length in the order in that case and it is not necessary to reiterate the same.the departmental representative faintly suggested that this aspect of mohsinally alimohammed rafik's case [1995] 213 itr 317 (aar) also requires reconsideration but the authority sees no reason to change its views in the matter.10. the result of the above discussion is that the applicant is a resident of india as well as the u.a.e. within the meaning of article 4(1) of the dtaa. in this situation, the other clauses of article 4 provide rules for determination of one of the two states as the state to which the residence of the applicant is to be attributed. to take up first sub-clause (a) of clause 2, a person is treated as a resident of that state in which he has a permanent home available to him. the applicant here has a permanent home in abu dhabi where he is employed for an indefinite period and where he resides continuously during his stay in abu dhabi making his home there. the mere fact that the duration of his stay in abu dhabi is not certain and that he may return to india eventually will not render his home in abu dhabi any less a permanent home available to the applicant. "permanent", in this connection, should be understood in an objective sense to be the opposite of "for a limited period". a house taken up for the length of the applicant's stay in abu dhabi which may last several years, if not permanently, cannot be said to be a house taken for a limited period.it is also common ground that the applicant has a permanent home available to him in india where his wife and children are staying, in fact, there is also a clinic in india previously run by the applicant, which is apparently run now by his wife who is also a doctor, though it is stated that it is now in a dormant state. in the result, the applicant must be considered to have a permanent home available to him in both the states.11. this takes one to a consideration of the second part of sub-clause (a) of clause (2). under this part of the sub-clause, a person will be considered to be a resident of that state with which his personal and economic ties are closer. in the present case, the personal ties of the applicant in india are clearly more dominant, even according to him, he does not wish to take his family to the u.a.e. and has got reasons for keeping them here. so far as economic ties are concerned, he has income and property in both the places. on behalf of the department it is pointed out that the value of the assets and income in india far outweigh the value of assets and income at abu dhabi. this is true but, in the opinion of the authority, the closeness of economic ties cannot be determined entirely on the basis of an arithmetical comparison of the value of the assets or the quantum of income. here, clearly, is an applicant whose vital interests are divided between the two states. his economic interests lie in his professional work at abu dhabi. however, since, for the reasons mentioned already, he is not able to take his family with him, he does make investments in india. it is no doubt possible that, at a future date, he may be returning to india. but for the present, it is very difficult to say which of the two states is closer to him from the point of view of personal and economic ties. in this state of the facts, the authority is inclined to hold that it is very difficult to determine precisely the centre of vital interest of the applicant within the meaning of sub-clause (a) of clause 2 of article 4. in double taxation conventions and international law by philip baker (2nd edition), certain cases have been referred to at pages 130 to 131, where personal and economic interests point in different directions. in two dutch cases, both concerning individuals whose families were living in holland but whose work was in germany, the amsterdam court gave preference to the personal interest in holland over the economic interests in germany. on the other hand, cases have also been cited where the taxpayer having permanent homes in france and spain and income from both countries, the court found itself unable to determine in which state he has his centre of vital interest. this determination must mainly be a question of fact. on the facts and circumstances of the case, the authority is of the opinion that this is a case in which it is not possible to determine in which of the two countries the applicant has his centre of vital interest.12. in view of the above conclusions, one has to turn to the terms of sub-clause (b) of clause 2 of article 4. according to this clause, a person has to be treated as a resident of the state in which he has his habitual abode. that, in the present case, there can be no doubt, is abu dhabi. the authority is, therefore, of the opinion that the applicant should be treated as a resident of the u.a.e. for the purposes of the dtaa.13. turning now to the questions raised by the applicant, they have to be answered with reference to articles 10, 11 and 13 of the dtaa. under article 10, dividends accruing to, and received by, a resident of the u.a.e. from indian companies will be taxable at a rate of 15 per cent, on their gross amount if the applicant is the beneficial owner thereof.in the present case, this condition is fulfilled and hence such dividend income will be taxed at 15 per cent. that is the answer to the first part of the second question.14. the second part of the second question raises a slight difficulty.for the purposes of article 10, the expression "dividend" is defined at (see [1994] 205 itr (st.) 57) : "... income from shares or other rights, not being debt claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the contracting state of which the company making the distribution is a resident." 15. though the u.t.i, has been declared, by section 32(3) of the unit trust of india act, 1963, to be a company for the purposes of the income-tax act, and income distributions by it treated as "dividends" for the purposes of certain provisions of the act such as section 80l [vide c.b.d.t. circular no. 567 dated july 19, 1990, printed in [1990] 184 itr (st.) 164], the act refers to income from units separately from "dividends" at several places and it is also not certain that the "units" can be said to be "shares" within the meaning of the above definition. they are, however, other rights participating in profits and will fall within the definition if the income from them is accorded the same tax treatment by the act as "dividend" income from shares. on this aspect, it is found that the act accords the same tax treatment to income from units of the u.t.i, and from mutual funds covered by section 10(23d) of the act : see sections 80cc, 80l, 88a, 115a. section 115ab and section 115ac provide for analogous concessions in respect of units and dividends, respectively. section 80m seems to be an exception to this rule in that, while income from dividends received by one domestic company from another is deducted, within limits, from the total income, this deduction is now not available in respect of income from units and mutual funds. but the present applicant, not being a domestic company, is not eligible for that relief whatever be the type of income and this exception is not, therefore, relevant to be taken into account in considering the effect of article 10 for the purposes of this case. the income from units of the u.t.i, and mutual funds specified in section 10(23d) should, therefore, be treated as dividend income falling under article 10 of the dtaa and so this category of income also will be liable to tax at the rate of 15 per cent, under that article.16. article 11 of the agreement provides for levy of tax at 12.5 per cent. on interest income accruing' to a resident of the u.a.e. from indian sources. on the basis of this article, the interest income received by the applicant will be liable to tax at 12.5 per cent.17. article 13 deals with the capital gains earned by the applicant.under this article, capital gains on sale of movable assets like shares, debentures, units and other securities will be liable to tax only in the u.a.e. and not in india.18. on the basis of the above discussion, the authority pronounces the following ruling on the present application : question no. 1--yes ; the applicant can claim the benefits of the dtaa from the assessment year 1995-96 onwards. question no. 2(a)--the dividend income from companies, the unit trust of india and mutual funds specified in section 10(23d) of the act will be liable to tax at 15 per cent. question no. 2(b)--the interest income derived from india will be liable to tax at 12.5 per cent. question no. 2(c)--the capital gains arising from the sale of movable assets will be exempt from income-tax in india. question no. 3-in view of the affirmative answer to question no. 1, this question does not arise.

Judgment:
For Respondents/Defendant: H.V. Kalra, Deputy Commissioner of Income-tax 1. This is an application under Section 245Qof the Income-tax Act, 1961 ("the Act"), from a resident of Abu Dhabi seeking to know whether the income derived by him by way of interest, dividends and capital gains in India will be entitled to tax concessions in his hands by virtue of the Agreement for Avoidance of Double Taxation (DTAAJ between India and the United Arab Emirates (U. A. E.). It is interesting to notice that each of the several applications, the authority has received on this issue from residents of U. A. E. has some special distinguishing features which need to be dealt with separately, though the broad questions posed before the authority are the same.

2. The applicant, Dr. Rajnikant R. Bhatt, originally filed an application under Section 245Q. on January 19, 1996, but this application was signed not by him but by his wife. It was, therefore, defective. Thereafter, the applicant has rectified the position and filed a fresh application duly signed by him which has been received on July 5, 1996.

3. It is stated by the applicant that he is a doctor specialising in radiology. He left India along with his family and went to the United Arab Emirates on January 2, 1977. He stayed there for about 11 years and returned to India on June 27, 1988. It is stated that his reasons for so doing were that proper educational facilities for his children were not available in the U. A. E. and the applicant was not willing to send his children to the United Kingdom for studies. However, he did not stay long in India and went back once again, this time alone, to the U. A. E. in May, 1991, and he has been staying there since then. He has been working as a radiologist in the Government hospital at Abu Dhabi drawing a monthly salary of 12,100 dirhams, equivalent to approximately Rs, 14 lakhs per annum. He has, during the past several years, invested substantial sums in shares and debentures of Indian companies, units of the Unit Trust of India (U. T. I.) and other mutual funds (M. F.), dividends and interest income wherefrom is to the tune of Rs. 5 lakhs per annum. His assets in India are of the value of Rs. 54 lakhs. At Abu Dhabi, he is residing in quarters allotted to him by his employer and does not (indeed, cannot) own any immovable property.

His wealth in the U. A. E. comprises some assets valued at Rs. 9.50 lakhs and other assets valued at about 2,30,000 dirhams. His source of income at Abu Dhabi consists of his salary from Mafraq Hospital, the interest on fixed deposits with the Bank of Baroda at Abu Dhabi and profits on the sale of certain portfolio investments.

4. On the above facts, the questions posed by the applicant before the authority are as follows : "1. Whether the assessee can claim the benefits of the agreement for avoidance of double taxation and prevention of fiscal evasion, entered between the Government of the Republic of India and the Government of the United Arab Emirates (Notification No. G. S. R. 710(E), dated November 18, 1993 (see [1994] 205 ITR (St.) 49)), from the assessment year 1995-96 and onwards (a) Whether dividend accrued and received by the assessee in India as a beneficial owner and taxable as per the provisions of Section 56(2)(i) of the Income-tax Act, 1961, will be taxed at 15 per cent, of the gross amount of dividend according to article 10 of the above mentioned treaty Also whether the dividend from the Unit Trust of India or from mutual fund specified under Clause (23D) of Section 10 will be given the same treatment and taxed at 15 per cent, of the gross amount (b) Whether interest accrued and received by the assessee in India as a beneficial owner and taxable under Section 56 of the Income-tax Act, 1961, will be taxed at 12.5 per cent, of the gross amount of interest according to article 11 of the abovementioned/treaty (c) Whether capital gain (long-term as well as short-term capital gain), arising from the sale of shares, debentures, units and other like securities will be totally exempt from tax in India, according to article 13 of the abovementioned treaty Whether the dividend income, interest received from Government or an Indian concern, and income received in respect of units of mutual funds specified under Clause (23D) of Section 10 or the Unit Trust of India will be taxable as per the provisions of Section 115A or as per the provisions of Section 115E ?" 5. A preliminary question that arises for consideration of the authority is whether the applicant is entitled to maintain the present application, since only non-residents are entitled to make applications under Section 245Q. From the details given by the applicant, it is seen that the total stay of the applicant in India has been as follows : 6. On the basis of this data, the applicant will be a resident but not ordinarily resident (R&OH) in the financial year 1994-95 but a non-resident in the financial year 1995-96. It has been held by this authority that, for maintaining an application under Section 245Q, the applicant should have been non-resident in the financial year preceding the date of his application. If, in the present case, the application is taken as having been filed on January 19, 1996, it will not be maintainable as the applicant was not a non-resident in the financial year 1994-95. However, if the revised application dated July 5, 1996, is taken into account, the application will be in order since the applicant is a non-resident in the financial year 1995-96. As already mentioned, the applicant's first application was invalid as it had not been properly signed in accordance with the rules by the applicant himself. The first valid application filed by the applicant was filed on July 5, 1996. The authority is, therefore, of the opinion that this application under Section 245Q, is maintainable.

7. The applicant is seeking certain reliefs under the DTAA between India and the U.A.E. These reliefs will be available to him if he can be said to be a resident of U.A.E. within the meaning of article 4 of the DTAA. It will be convenient to set out, in its entirely, the relevant article. It reads (see [1994] 205 ITR (St.) 52) : (1) For the purposes of this agreement, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile residence, place of management, place of incorporation or any other criterion of a similar nature.

(2) Where by reason of the provisions of paragraph 1, an individual is a resident of both Contracting States, then his status shall be determined as follows : (a) he shall be deemed to be a resident of the State in which he has a permanent home available to him ; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests) ; (b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode ; (c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national ; (d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

(3) Where by reason of the provisions of paragraph 1, a person other than an individual, is a resident of both Contracting States, then it shall be deemed to be a resident of the State in which its place of effective management is situated." 8. Under Article 4(1), the applicant will be a resident of India since he is liable to tax in India on his Indian income even though his residential status is "non-resident". It is submitted on behalf of the applicant that though he is liable to tax in India, he is so liable only by reason of the fact that some income has accrued in India and not by reason of his residence in India and that, therefore, the provisions of Article 4(1) will not make him a resident in India. This contention has been answered in the negative by this authority in Mohsinally Alimohammed Rafik's case [1995] 213 ITR 317 (AAR), and the submission of the applicant is that this requires reconsideration. It is, however, not necessary to go into this question because for the reasons to be discussed later, it will make no difference to the applicant even if one proceeds on the footing that he is a "resident" of India within the meaning of Article 4(1) of the DTAA, 9. On behalf of the Department it is contended that, in any event, the applicant is not a resident in the U.A.E. within the meaning of Article 4(1) of the DTAA. It is said that, on the information available with the Department, there is no income-tax on individuals in the Emirate of Abu Dhabi. The applicant has only filed a copy of the Dubai Income-tax Ordinance but even there no income-tax is payable by an individual. The position is presumably similar in Abu Dhabi as well. This aspect has also been dealt with by the authority in Mohsinally Alimohammed Rafik's case [19951 213 ITR 317 (AAR) where it has been pointed out that, even though there is no income-tax in Dubai, persons residing in Dubai should be treated as residents within the meaning of Article 4(1) of the DTAA. The reasons for this conclusion have been given at length in the order in that case and it is not necessary to reiterate the same.

The Departmental Representative faintly suggested that this aspect of Mohsinally Alimohammed Rafik's case [1995] 213 ITR 317 (AAR) also requires reconsideration but the authority sees no reason to change its views in the matter.

10. The result of the above discussion is that the applicant is a resident of India as well as the U.A.E. within the meaning of Article 4(1) of the DTAA. In this situation, the other clauses of Article 4 provide rules for determination of one of the two States as the State to which the residence of the applicant is to be attributed. To take up first Sub-clause (a) of Clause 2, a person is treated as a resident of that State in which he has a permanent home available to him. The applicant here has a permanent home in Abu Dhabi where he is employed for an indefinite period and where he resides continuously during his stay in Abu Dhabi making his home there. The mere fact that the duration of his stay in Abu Dhabi is not certain and that he may return to India eventually will not render his home in Abu Dhabi any less a permanent home available to the applicant. "Permanent", in this connection, should be understood in an objective sense to be the opposite of "for a limited period". A house taken up for the length of the applicant's stay in Abu Dhabi which may last several years, if not permanently, cannot be said to be a house taken for a limited period.

It is also common ground that the applicant has a permanent home available to him in India where his wife and children are staying, In fact, there is also a clinic in India previously run by the applicant, which is apparently run now by his wife who is also a doctor, though it is stated that it is now in a dormant state. In the result, the applicant must be considered to have a permanent home available to him in both the States.

11. This takes one to a consideration of the second part of Sub-clause (a) of Clause (2). Under this part of the sub-clause, a person will be considered to be a resident of that State with which his personal and economic ties are closer. In the present case, the personal ties of the applicant in India are clearly more dominant, Even according to him, he does not wish to take his family to the U.A.E. and has got reasons for keeping them here. So far as economic ties are concerned, he has income and property in both the places. On behalf of the Department it is pointed out that the value of the assets and income in India far outweigh the value of assets and income at Abu Dhabi. This is true but, in the opinion of the authority, the closeness of economic ties cannot be determined entirely on the basis of an arithmetical comparison of the value of the assets or the quantum of income. Here, clearly, is an applicant whose vital interests are divided between the two States. His economic interests lie in his professional work at Abu Dhabi. However, since, for the reasons mentioned already, he is not able to take his family with him, he does make investments in India. It is no doubt possible that, at a future date, he may be returning to India. But for the present, it is very difficult to say which of the two States is closer to him from the point of view of personal and economic ties. In this state of the facts, the authority is inclined to hold that it is very difficult to determine precisely the centre of vital interest of the applicant within the meaning of Sub-clause (a) of Clause 2 of Article 4. In Double Taxation Conventions and International Law by Philip Baker (2nd edition), certain cases have been referred to at pages 130 to 131, where personal and economic interests point in different directions. In two Dutch cases, both concerning individuals whose families were living in Holland but whose work was in Germany, the Amsterdam Court gave preference to the personal interest in Holland over the economic interests in Germany. On the other hand, cases have also been cited where the taxpayer having permanent homes in France and Spain and income from both countries, the court found itself unable to determine in which State he has his centre of vital interest. This determination must mainly be a question of fact. On the facts and circumstances of the case, the authority is of the opinion that this is a case in which it is not possible to determine in which of the two countries the applicant has his centre of vital interest.

12. In view of the above conclusions, one has to turn to the terms of Sub-clause (b) of Clause 2 of Article 4. According to this clause, a person has to be treated as a resident of the State in which he has his habitual abode. That, in the present case, there can be no doubt, is Abu Dhabi. The authority is, therefore, of the opinion that the applicant should be treated as a resident of the U.A.E. for the purposes of the DTAA.13. Turning now to the questions raised by the applicant, they have to be answered with reference to Articles 10, 11 and 13 of the DTAA. Under article 10, dividends accruing to, and received by, a resident of the U.A.E. from Indian companies will be taxable at a rate of 15 per cent, on their gross amount if the applicant is the beneficial owner thereof.

In the present case, this condition is fulfilled and hence such dividend income will be taxed at 15 per cent. That is the answer to the first part of the second question.

14. The second part of the second question raises a slight difficulty.

For the purposes of Article 10, the expression "dividend" is defined at (see [1994] 205 ITR (St.) 57) : "... income from shares or other rights, not being debt claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the contracting State of which the company making the distribution is a resident." 15. Though the U.T.I, has been declared, by Section 32(3) of the Unit Trust of India Act, 1963, to be a company for the purposes of the Income-tax Act, and income distributions by it treated as "dividends" for the purposes of certain provisions of the Act such as Section 80L [vide C.B.D.T. Circular No. 567 dated July 19, 1990, printed in [1990] 184 ITR (St.) 164], the Act refers to income from units separately from "dividends" at several places and it is also not certain that the "units" can be said to be "shares" within the meaning of the above definition. They are, however, other rights participating in profits and will fall within the definition if the income from them is accorded the same tax treatment by the Act as "dividend" income from shares. On this aspect, it is found that the Act accords the same tax treatment to income from units of the U.T.I, and from mutual funds covered by Section 10(23D) of the Act : See Sections 80CC, 80L, 88A, 115A. Section 115AB and Section 115AC provide for analogous concessions in respect of units and dividends, respectively. Section 80M seems to be an exception to this rule in that, while income from dividends received by one domestic company from another is deducted, within limits, from the total income, this deduction is now not available in respect of income from units and mutual funds. But the present applicant, not being a domestic company, is not eligible for that relief whatever be the type of income and this exception is not, therefore, relevant to be taken into account in considering the effect of Article 10 for the purposes of this case. The income from units of the U.T.I, and mutual funds specified in Section 10(23D) should, therefore, be treated as dividend income falling under Article 10 of the DTAA and so this category of income also will be liable to tax at the rate of 15 per cent, under that article.

16. Article 11 of the agreement provides for levy of tax at 12.5 per cent. on interest income accruing' to a resident of the U.A.E. from Indian sources. On the basis of this article, the interest income received by the applicant will be liable to tax at 12.5 per cent.

17. Article 13 deals with the capital gains earned by the applicant.

Under this article, capital gains on sale of movable assets like shares, debentures, units and other securities will be liable to tax only in the U.A.E. and not in India.

18. On the basis of the above discussion, the authority pronounces the following ruling on the present application : Question No. 1--Yes ; the applicant can claim the benefits of the DTAA from the assessment year 1995-96 onwards.

Question No. 2(a)--The dividend income from companies, the Unit Trust of India and mutual funds specified in Section 10(23D) of the Act will be liable to tax at 15 per cent.

Question No. 2(b)--The interest income derived from India will be liable to tax at 12.5 per cent.

Question No. 2(c)--The capital gains arising from the sale of movable assets will be exempt from income-tax in India.

Question No. 3-In view of the affirmative answer to question No. 1, this question does not arise.