DTAA art 4

DTAA art 4 — the law in short

What the courts have decided on section DTAA art 4, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• In re General Electric Pension Trust Advance RulingHelps departmentSuperseded by amendment
  We are a US pension trust, exempt from tax at home, investing a small part of our fund in Indian securities. Can we claim the India-US treaty, and are our gains business income?
  No on the treaty, and yes on business income - the trust lost. The Authority ruled that the profits arising to General Electric Pension Trust from the sale of its portfolio investments in India would be treated as its business income, given the continuous purchases and sales through Indian brokers. It then held that the trust was a resident of the United States for treaty purposes only so far as its income was subject to tax there; being tax-exempt, it was not a resident of a contracting State and could not claim the convention. The business income was therefore taxable in India under the Act. The ruling binds only that applicant.
• In re Gutal Trading Est Advance RulingCuts both waysSuperseded by amendment
  My UAE establishment wants an Indian liaison office to run seminars and pass enquiries back to Dubai. Will that be a business connection, and can I use the India-UAE treaty?
  It depends, and the answers split. The Authority ruled that the proposed liaison office would generate no income for the applicant and would not amount to a business connection in India under section 9(1)(i): it would only be a channel of communication, a cost centre reimbursed periodically, holding seminars, relaying enquiries to Dubai and passing product information to Indian customers, with no power to negotiate or conclude contracts or to collect payments. But it added a warning that enlarging the office's scope to negotiating imports or purchases by Indian customers would be a business connection. On the treaty the applicant lost: as a UAE individual establishment it could not claim the agreement.
• In re Cyril Eugene Pereira Advance RulingHelps departmentSuperseded by amendment
  I live and work in the UAE, where individuals pay no income tax. Can I claim the India-UAE treaty on my Indian dividends, interest and capital gains?
  No, on the Authority's 1999 view. It ruled that the applicant, permanently resident in Abu Dhabi, could not be treated as a resident of the UAE under article 4 of the India-UAE agreement, because article 4(1) requires liability to tax in that State and the UAE imposes no income tax on individuals. It followed that he could not claim the reduced rates on dividends and interest under articles 10(2)(b) and 11(2)(b), and that the capital gains protection in article 13(3) was unavailable, so the gains remained taxable in India under domestic law. The reasoning has not survived; the ruling bound only the applicant.
• DLJMB Mauritius Investment Company v CIT Advance RulingHelps taxpayerSuperseded by amendment
  We are a Mauritius company set up to channel US money into Indian securities. Are we entitled to the India-Mauritius treaty on our dividends, interest and capital gains?
  Yes, in substance. The Authority ruled that DLJMB Mauritius Investment Company was resident in Mauritius within the meaning of article 4 of the India-Mauritius agreement and entitled to the benefits flowing from it, notwithstanding that it had been placed in Mauritius partly for regulatory convenience and partly for the treaty. Capital gains on the transfer of securities, long-term and short-term, were not taxable in India by force of article 13. Income from units of mutual funds fell to the residuary article and was not taxable in India. Interest on approved debt instruments was exempt only so far as Indian law provided. Two questions were withdrawn or not pressed.
• Dr Rajnikant R. Bhatt v CIT Advance RulingHelps taxpayerSuperseded by amendment
  I work in Abu Dhabi but my family, my home and most of my assets are in India. Can I still be treated as a UAE resident under the treaty and get the concessional rates on my Indian dividends, interest and capital gains?
  Yes, on these facts. The Authority worked article 4 of the India-UAE agreement in order and found the applicant, a radiologist employed at a government hospital in Abu Dhabi, resident of both States under article 4(1), with a permanent home available in both, and a centre of vital interests that could not be determined because his personal ties were in India and his economic interests were in Abu Dhabi. That took the case to the habitual abode test, which pointed to Abu Dhabi, so he was treated as a resident of the UAE. Dividends from Indian companies, and income from Unit Trust of India units and s.10(23D) mutual funds, were taxable at 15 per cent under article 10; interest at 12.5 per cent under article 11; and capital gains on shares, debentures, units and like securities were exempt in India under article 13. The ruling binds only Dr Bhatt.
• In re Advance Ruling No. P-9 of 1995 Advance RulingHelps departmentSuperseded by amendment
  Two Mauritius companies my UK parent set up hold shares in an Indian bank. Can we get the India-Mauritius treaty rate on the dividends and exemption on the eventual share gains?
  No, and the Authority refused to rule at all. It accepted that the two Mauritius companies were residents of Mauritius under article 4, their effective management being there and not in India, so that on the face of the treaty article 13(4) would leave gains on the shares taxable only in Mauritius. But it then rejected both applications under clause (c) of the proviso to section 245R(2), holding the arrangement prima facie designed for the avoidance of income-tax: newly formed Mauritius subsidiaries wholly owned by a British bank served no purpose the bank could not serve by investing directly. The rejection binds only those applicants.
• In re Mohsinally Alimohammed Rafik Advance RulingHelps taxpayerSuperseded by amendment
  I am an Indian citizen who has lived in Dubai for years and I hold Indian shares and debentures. Can I claim the India-UAE treaty on my dividends, interest and capital gains?
  Yes. The Authority ruled that the applicant, a non-resident who had lived in Dubai for seventeen years, was a resident of the UAE for the India-UAE agreement. Article 4(1) asks whether a person is liable to tax under a State's laws because of a nexus with it, not whether tax is in fact collected; and on the tie-breaker his permanent home, his closer personal and economic relations and his habitual abode were all in Dubai. Gains on his Indian movable property were therefore taxable only in the UAE under article 13(3), dividends capped at 15 per cent under article 10 and interest at 12.5 per cent under article 11. When the assets were acquired made no difference.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.