He can be a resident of the UAE. The residence article does not ask an individual to be liable to tax there; it asks whether he was present in the UAE for at least 183 days in the calendar year, and the Tribunal has held that being 'liable to tax' does not require tax actually to have been paid. But the employment article will not by itself keep the salary out of India. It allows the State where the employment is exercised to tax, and leaves the State of residence taxing as well — so it helps only if residence has first moved away from India.
Take the two questions in order. Residence under the agreement is a different question from residence under s.6, and the second is not reached until the first is answered.
Article 4(1) defines a resident of a Contracting State separately for each State. The text read is: 'For the purposes of this Agreement the term "resident of a Contracting State" means: (a) in the case of India: any person who, under the laws of India, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. This term, however, does not include any person who is liable to tax in India in respect only of income from sources in India; and (b) in the case of the United Arab Emirates: an individual who is present in the UAE for a period or periods totaling in the aggregate at least 183 days in the calendar year concerned, and a company which is incorporated in the UAE and which is managed and controlled wholly in UAE.'
Read clause (b) carefully, because it disposes of the officer's first objection on its own terms. For an individual the UAE limb is a presence test in a calendar year. It does not require a liability to tax, and it does not require that any tax was paid. It also runs on the calendar year, not on the Indian previous year, so a person who left India in October has to count his UAE days over the calendar year concerned and not over the Indian financial year.
Where the liability point still arises — and it arises constantly, because officers put it whatever clause (b) says — the answer is that being liable to tax is a status and not a payment. The Delhi Tribunal so held in Saket Kanoi v. DCIT, allowing an individual resident in the UAE the benefit of the agreement on capital gains although he paid no tax there, and following a line of coordinate-bench orders beginning with ADIT v. Green Emirate Shipping & Travels, 286 ITR 60 (Mum.). The same proposition was settled at the highest level for a different treaty in Union of India v. Azadi Bachao Andolan, which treated liability to taxation as a legal situation distinct from payment; an earlier advance ruling to the contrary, Cyril Eugene Pereira, In re [1999] 239 ITR 650, is the authority officers occasionally still produce and it did not survive that reasoning. One statutory development sits over all of this and no decision applying it could be found: s.2(29A), inserted with effect from 1 April 2021, defines 'liable to tax' in relation to a person and with reference to a country as meaning 'that there is an income-tax liability on such person under the law of that country for the time being in force and shall include a person who has subsequently been exempted from such liability under the law of that country'.
Section 90(4) is the gate, and it is not optional. A person who is not a resident is not entitled to claim any relief under an agreement unless he obtains a certificate of his being a resident from the government of that country. A Gulf client who never applied to the UAE Ministry of Finance for a certificate for the year has nothing to argue with until he does, and the separate note in this library on the certificate and Form 10F sets out what the certificate does and does not establish.
Now the second question, which is where most files come apart. Article 15(1) reads: 'Subject to the provisions of Articles 16, 17, 18, 19, 20 and 21, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.' Article 15(2) then returns the taxing right to the State of residence alone where three conditions are all satisfied — presence in the other State not exceeding 183 days in the relevant previous year or year of income, remuneration paid by or on behalf of an employer who is not a resident of that other State, and remuneration not borne by a permanent establishment or fixed base there.
Apply that to a person the department says is resident of India. He is a resident of India for the purposes of Article 15(1), his employment is exercised in the UAE, and the article says the remuneration may be taxed in the UAE. It does not say it may not be taxed in India. The State of residence keeps its charge, and the double taxation is meant to be relieved by a credit — which is worth nothing where the UAE levied nothing, because a credit is given for tax suffered and not for its absence. So Article 15 is not an answer to an Indian residence finding. It becomes an answer only if the tie-breaker in Article 4(3) has first moved residence to the UAE for the period, and that requires the client to be a resident of the UAE under clause (b) and to hold the certificate.
The order of the argument therefore runs: the day count under s.6(1) first, because winning there ends the matter; then residence of the UAE under Article 4(1)(b) with the certificate; then the tie-breaker in Article 4(3) — permanent home, centre of vital interests, habitual abode, nationality, mutual agreement, Article 4(2) being the deeming rule for governments and Article 4(4) the place-of-effective-management rule for persons other than individuals; and only then the allocation articles. Running Article 15 before that sequence tells the officer that the earlier steps have been given up.
Almost every Gulf salary file is answered by the department with one sentence — you paid no tax there, so there is nothing to relieve — and that sentence is wrong for the residence article and right about the credit. Knowing which half is which decides whether the file is run on the day count and Article 4, where it can be won, or on Article 15, where it cannot.
I hold a Mauritius TRC. Can the department still deny me treaty relief on the capital gains?
We outsource back-office work to our Indian subsidiary. Does that give us a permanent establishment in India?
My protocol has an MFN clause and I applied the lower rate India later agreed with an OECD member. Was I entitled to?
The trustees of my settlement are being assessed on the trust income. The department has now also included the same income in my own assessment under s.64. Does s.161(2) stop it?
My closing stock is worth more than it cost me. Does the rise in value get taxed, and does it matter that the goods were lying outside the place where I trade?
The AO has taxed my advance licence and DEPB benefits in the year I exported. Is that the right year?
An arbitrator enhanced the compensation for my land, the State has appealed against the whole of it, and I have taken the money out of court against a security bond. Has that enhanced amount accrued to me?
I am a foreign company on a turnkey contract. I fabricated the platform abroad and only installed it in India. Can the Department tax the offshore fabrication profit because the contract was one indivisible whole?
Every page in this library links to what it was written from, so you can check it rather than take our word for it.
