AAR : This is an application filed under s. 245Q(1) of the IT Act, 1961. The applicant, Mr. Mohsinally Alimohammed Rafik, is an Indian national but a non-resident individual for Indian income-tax purposes.

Authority For Advance Rulings

Mohsinally Alimohammed Rafik, In Re

Sections 90, 245Q

S. Ranganathan, J. (Chairman)

A.A.R. No. 206 of 1994

23rd December, 1994

Counsel Appeared

Dinesh Kanabar, for the Applicant

S. RANGANATHAN, J. (CHAIRMAN) :

This is an application filed under s. 245Q(1) of the IT Act, 1961. The applicant, Mr. Mohsinally Alimohammed Rafik, is an Indian national but a non-resident individual for Indian income-tax purposes. He has been away at Dubai for the past seventeen years where he has his residence and lives along with his wife and children and where he is working as the manager of the firm of M/s Ratan Mama & Co. (UAE), Chartered Accountants, Dubai.

2. The applicant is a non-working partner in M/s Ratan S. Mama & Co. (India) and Ratan S. Mama & Co. (Oman) which are assessed as registered firms in India. The share income derived by him from these two firms is exempt from Indian income-tax by virtue of s. 10(2A) of the IT Act, 1961 (“the Act”). He is also the owner of a house property in India, but the income from this is also not liable to tax, as the property is retained for purposes of his residence but actually unoccupied since the applicant is away at Dubai almost throughout the year. The applicant makes occasional visits to India almost every year but not for periods long enough to make him a resident within the meaning of the Act. His only other income derived in India comprises interest and dividends derived by him from shares, bonds, debentures and other like securities of movable nature held by him in India. The short question on which the applicant seeks an advance ruling is about the rate of income-tax that would be applicable : (i) to the interest and dividend income derived by him from investments already made and further investments proposed to be made out of his various nonresident accounts, and (ii) to the capital gains (long-term or short-term, as the case may be), which he may derive on alienations of these investments from time to time, if any.

3. There is an agreement between India and the United Arab Emirates (“UAE”, for short), of which Dubai is one, for the avoidance of double taxation (hereinafter briefly referred to as “the DTAA”). The agreement between these two “Contracting States” is dt. 29th April, 1992, but “entered into force”, by virtue of Art. 30(1) of the Agreement on 22nd Sept., 1993. Articles 10, 11 and 13 of the DTAA have a bearing on the issues raised and so the relevant portions of these articles are extracted here: “Art 10—Dividends : (1) Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. (2) However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed : (a) five per cent of the gross amount of the dividends if the beneficial owner is a company which owns at least ten per cent of the shares of the company paying the dividend; (b) 15 per cent of the gross amount of the dividends in all other cases. Art. 11—Interest : (1) Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. (2) However, such interest may be taxed in the Contracting State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed,— (a) five per cent of the gross amount of the interest if such interest is paid on a loan guaranteed by a bank carrying on bona fide banking business or by a similar institution; and (b) 12.5 per cent of the gross amount of the interest in all other cases. Art. 13—Capital gains : (1) Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in paragraph 2 of Art. 6 situated in the other Contracting State may be taxed in that other State. (2) Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such fixed base may be taxed in that other State. (3) Gains from the alienation of any property other than that mentioned in paragraphs 1 and 2 shall be taxable only in the Contracting State of which the alienor is a resident.”

3. Based on these provisions, the substantial contention urged on behalf of the applicant before the Authority is that he is taxable at 15 per cent, 12.5 per cent, and nil per cent, respectively, on the income derived by him by way of dividend, interest and capital gains in respect of the Indian investments made by him. The applicant has, however, posed six questions for the Authority’s ruling in his application. These are : “(1) Whether the applicant, an individual residing in the UAE is entitled to claim the benefit of the provisions of the tax treaty entered into between India and UAE. (2) Whether in terms of Art. 13(3) and Art. 4 of the tax treaty between India and UAE, the applicant, an individual Indian national residing in UAE, is liable to capital gains tax on the transfer effected in India of movable assets in the nature of shares, debentures and other securities ? (3) Whether the applicant is liable to capital gains tax on the transfer effected in India of movable assets in the nature of shares, debentures and other securities read with s. 112 of the IT Act, 1961, and the provisions of the tax treaty between India and UAE ? (4) Whether in terms of the tax treaty between India and UAE, the applicant is liable to capital gains tax on the transfer effected in India of movable assets in the nature of shares, debentures and other securities : (a) acquired prior to the coming into effect of the tax treaty between India and UAE; (b) acquired prior to his becoming a non- resident; (c) after his becoming a non-resident but from out of non repatriable funds in India. (5) Whether in terms of Art. 10 of the tax treaty between India and the UAE, the income received/receivable by applicant in India by way of dividend is liable to tax in India at 15 per cent ? (6) Whether in terms of Art. 11 of the tax treaty between India and the UAE, the income received/receivable by the applicant in India by way of interest on debentures/bonds/balance in the capital account in partnership-firm is liable to tax in India at 12.5 per cent ?” It will be seen that while the first question relates generally to the applicability of the treaty to the applicant the other questions are specific. Questions Nos. (2) to (4) pertain to the capital gains, question No. (5) to dividend income and question No. (6) to interest income.

4. Art. 1 of the DTAA is emphatic that the agreement shall apply to persons who are residents of one or both of the Contracting States. However, Art. 4 (which will be considered a little later) provides a mechanism by which a person who invokes the treaty is to be treated as a resident of only one of the two Contracting States and on this determination will depend the relief available to him on the terms of the agreement. In particular, for the purposes of this case, a perusal of the clauses of the DTAA, which have been extracted earlier, will show that a sine qua non for these clauses to be applicable is that the person to whom the Indian income accrues or who receives the Indian income or by whom the Indian income is receivable should be a resident of the other Contracting State (the UAE in this case). This is the operative word in each one of the three Arts. 10, 11 and 13 and the benefit of these articles will be available only if the applicant can be termed a resident of the UAE within the meaning of the agreement. The topic of “residence” is dealt with in three paragraphs of Art. 4 of the agreement and it is necessary to set them out here. The article runs : “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 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 in 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 the States or in either of them he shall be deemed to be a resident of the State of which he is a national; (d) if he is national of both States or 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 should be deemed to be a resident of the State in which its place of effective management is situated.”

5. On behalf of the applicant, it is contended that he is a resident only of the UAE and not of India under paragraph 1 of Art. 4. Alternatively, it is contended that even if he is held to be a resident of both the Contracting States by reason of the provisions of paragraph 1 above, cl. (a) and, if necessary, cl. (b) of paragraph 2 would become operational and make him only a resident of the UAE. The opposite view put forward on behalf of the CIT is that the applicant’s claim to be a resident of the UAE by virtue of paragraph 1 above is not sustainable and that, even if he is taken to be a resident of both the States within the meaning of paragraph 1, he should be taken to be only a resident of India for the purposes of the agreement as it is cl. (c) of paragraph 2 that will be attracted to the present case. Paragraph 1 of Art. 4 is so cumbrously worded that the applicant seeks to make use of its language to argue that he is not a resident of India though, admittedly, he is liable to tax in India and has also been so taxed. It is pointed out that the words “domicile” and “residence” used in the paragraph are appropriate to the case of an individual while the expressions “place of management” and “place of incorporation” are appropriate to the case of firms, companies or other associations. The argument runs that an individual, on the terms of this paragraph, will be resident in India only if his liability to tax therein arises by reason of either his domicile or his residence in India or some other like criterion. Since the applicant’s liability to India does not so arise, it is said, he should be considered not to be resident in India. At the outset, it may be pointed out that the argument even if accepted, will not really help the applicant. It is not sufficient for him to say that he is not a resident in India. He can derive the benefits sought from the DTAA, as already pointed out, only if he is resident in the UAE within the meaning of Art. 4. But, this consideration apart, the argument is not well-founded. It is true that if the words “or any other criterion of a similar nature” are given a very narrow meaning as contended for and construed as applicable only where the liability of the person concerned to tax arises out of his continued presence or activity in the country in question, it may be possible to say that the present applicant is not a resident in India. But it appears to the Authority that such a narrow interpretation would not be correct. What the paragraph contemplates is that the liability to taxation for its purposes should arise out of some nexus between India (or the other country) and the claimant. The four words, “resident”, “domicile”, “place of incorporation” and “place of management” have been used only to indicate the need for the existence of some nexus between the applicant and the State concerned which can justify the imposition, by that State, of the tax on the income sought to be taxed. The applicant in this case is, admittedly, liable to tax under the Act on the income that accrues or arises or is deemed to accrue or arise to him in India and the income that is received or deemed to be received by him in India. The nexus for the taxability is the locus of the income which, in international law, can justify the taxation even though the applicant may be a non-resident under the Indian tax laws. This, in the opinion of the Authority, is sufficient to make the applicant a resident of India within the meaning of paragraph 1 of Art. 4. Hence, the applicant is certainly entitled to claim the benefit of the agreement as Art. 1 of the agreement clearly declares that it will apply where the person claiming benefits under it is a resident of one of the two Contracting States. Art. 1, however, does not decide the extent of the benefit available to the claimant. That depends on the other terms of the agreement. The applicant claims benefit under Art. 10, 11 and 13 of the agreement and, as already pointed out, he will be entitled to it only if he is a resident of the UAE within the meaning of Art. 4 of the agreement. It is this question that poses a real difficulty for the object, background and language of the DTAA is such as to lend itself open to two possible types of construction. The straightforward and literal interpretation of Art. 4(1) would seem to be that an applicant can claim to be a resident of the UAE only if he is actually subjected to income-tax in the UAE under its tax laws. There is also good logic in this interpretation, for a question of any benefit under the DTAA can normally arise only if, but for the provisions of the agreement, the person seeking relief has income which would be taxed in both the countries. To turn then to the Dubai law, there is some difficulty in ascertaining the precise scope of the income-tax law presently in force in Dubai but the position seems to be as follows : (1) An earlier DTAA has been entered into between India and the UAE on 3rd March, 1989. It was, however, restricted to “income derived from international air transport” and has not been superseded by the DTAA presently under consideration. It does not appear that the said agreement has been terminated in accordance with the terms of Art. 7 thereof and hence presumably continues to be in force till today. That agreement is of no relevance for the present purposes except

for a narration in Art. 3 thereof. That article refers to the income-tax “as imposed by the Federal Government of the UAE”. Unfortunately, the provisions of no such law have been placed before the Authority and the scope of such law, if any, is not known. On the other hand, it has been asserted by the applicant that there is no levy of income-tax on individuals either under any federal law or under the law of any of seven Emirates, and hence, the issue before the Authority has to be decided on this assumption. (2) The applicant stated before us that though income-tax is levied in all the Emirates, in Dubai and two other Emirates, it is restricted only to foreign banks and foreign oil exploration companies. The Dubai Income-tax Ordinance of 1969 a copy of which has been filed has, however, a much wider scope. Art. 1 of the Ordinance declares that “an annual income-tax shall be imposed on all `taxable income’—i.e., net income after permissible allowances—of every person liable from 1st Jan., 1969, at the rates set out therein. The expression “person liable” is defined by Art. 2(3) as meaning all bodies corporate wherever established—unless specifically exempted—and branches thereof, which conduct trade or business at any time during the income-tax year through a permanent organisation based in Dubai, either directly or through the agency of any other body corporate. The expression “conduct of trade or business” means [Art. 2(6)] : “(a) The sale of goods and other related rights in Dubai; (b) The management of any industrial or commercial projects in Dubai; (c) The leasing of any real estate in Dubai; (d) The rendering of services in Dubai; (c) The production of petroleum and other hydrocarbon materials in Dubai. Except that this does not include the mere purchase of goods or related rights thereof in Dubai.”

It will at once be seen that tax liability is not restricted merely to banking or oil exploration companies though there are some special provisions in the ordinance in regard to the latter. Under the ordinance, companies of all descriptions carrying on trade and business in Dubai will be liable to tax and hence will be “resident” in UAE within the meaning of Art. 4(1) of the DTAA. (3) The applicant has also placed before the Authority the position regarding the income-tax law in the UAE as explained in a publication of the International Bureau of Fiscal Documentation updated till October, 1993. This throws considerable light in the matter. It confirms the position that the only tax imposed in the UAE is the tax on income of corporate bodies and that though each Emirate has its own income-tax decree, the decrees are similar. The provisions of the Dubai law are described in the terms already set out above. There is, however, a general reservation made which is of some interest. It says : “In practice, income-tax is only enforced on oil companies and banks for which special provisions exist (see 11.2 and 11.3), although it is possible for the tax to be enforced retroactively. It is understood that, instead of relying on general practice, companies may obtain an express exemption from payment of income-tax. The description that follows is written as though the tax was generally enforced. The decrees leave many questions unanswered and as no one has had any experience of their practical appreciation, the gaps remain.” It seems from later passages in the publication, that construction activities are generally granted exemption from income-tax, but that oil companies and foreign banks are taxed on their income subject to certain deductions under the rules. The Dubai Ordinance specifies a rate of 55 per cent on oil companies but in practice it would be much less in individual cases. Tax is paid by foreign banks at 20 per cent.

The resultant position thus is that though the Dubai Statute levies income-tax on companies carrying on all types of trade and business in Dubai, only foreign oil companies and banks are in practice subjected to tax. However, it is clear that individuals like the applicant, are not liable to tax under the Dubai law. This being so, it can be said, the applicant cannot claim to be a resident of the UAE entitled to the benefit of Arts. 10, 11 and 13 of the DTAA. While, ex facie, the above seems to be a simple way of reading the DTAA, a more liberal interpretation is suggested by other circumstances. The most crucial circumstance to be taken note of is that there is no income-tax or wealth-tax on individuals in any of the Emirates. There was no such tax there when the earlier limited agreement of 1989 was entered into which provided the occasion for discussion on a more comprehensive tax treaty and there can be no doubt that both the States were fully aware of this position. The fact that such a comprehensive DTAA was considered necessary in spite of a clear knowledge that there was no such tax in the UAE can only mean that the DTAA was intended to encourage the inflow of funds from Dubai to India for investment. In this context, it is necessary to remember that UAE provides one of the largest export markets for India in West Asia. Thanks to their oil resources, the Emirates of UAE represent a very prosperous region in West Asia, and in that sense, can be considered to be developed countries. But they are really developing countries in the true sense of the term. They have no industries and there is not much prospect of joint ventures with other countries or of flow of technology either way. There is not much possibility of Indian companies carrying on trade or business in or of foreign companies carrying on trade in Dubai having income in India. The attraction of the UAE lies in the vast surplus funds it has available for investment outside the country. It is common knowledge that there is a competition for its surplus funds from the USSR as well as several European and Asian countries. India is also in the process of looking out for foreign countries interested in investing in India and must have considered the DTAA as providing an opportunity to improve the economic relations between the two countries and encourage the flow of funds from Dubai to India. There could be no better way of doing this than by the offer of some tax incentives to attract investment in India of Dubai capital. Any incentive offered in respect of Dubai would also attract investment from the other countries in the region which could hope for a DTAA on similar line. The UAE has a sizeable expatriate population of Indians and a little concession could go a long way in inducing flow of substantial funds to India. The preamble to the DTAA is indicative of these considerations. Given the clear knowledge on the part of India that individual Indian investors in UAE have to pay no, or only a nominal, income-tax on their income, the only purpose of the DTAA was clearly to provide some benefits to all UAE investors in India. Read in this background, Art. 10 and 11 clearly envisage a lower rate of income-tax to all UAE investors on such investments and Art. 13 clearly leaves it to the UAE to deal with the capital gains on movable property realised by all UAE investors.

It could perhaps be argued that as the DTAA is to be an agreement indefinite in its period of operation, it will be appropriate to consider it as applicable to entities liable to tax under the existing law at any point of time during its subsistence. Thus, it can be said, corporate bodies are now liable to tax and hence will be residents of UAE entitled to avail of the benefits of the agreement. Individuals, not being now liable to tax, cannot claim to be residents but, if at a future date, income-tax is levied on individuals too in UAE, they will become entitled to invoke the terms of the DTAA. Though this argument may be consistent with the narrow interpretation of Art. 4 earlier set out, there are difficulties in accepting this construction of the DTAA. It is too artificial and far-fetched to say that India, with the full knowledge of the absence of any income-tax in Dubai in respect of individuals, proceeded to enter into a DTAA on the off chance, or to provide against a future contingency, of the UAE imposing an income-tax on individuals also at a future date. In the first place, there was no urgency for a DTAA in anticipation of future possibilities. There was no reason to expect that Dubai, where there is no organised tax system at present, would be able to draw up a comprehensive tax law in the near future. Secondly, the presence of a number of articles in the agreement solely concerning themselves with individuals (see, in particular, Arts. 14 to 21) militate against this suggestion. In fact, even Art. 4, crucial to the application of the agreement, concerns itself with individuals in paragraphs 1 and 2 and deals with other categories of persons in paragraph 3 only as a residuary class. These are clear indications that the DTAA was an agreement intended to be applicable to individuals from the very date of its coming into force and was not intended to be a dead letter qua individuals until appropriate UAE legislation brought them within the tax net in that country. It should also be noted that though there is no term of operation provided for in the agreement, it cannot be described as an agreement of permanent duration. On the other hand, Art. 31 makes the agreement liable to termination by either side at short notice. The argument suggested, therefore, though plausible, is not acceptable. If we now turn to interpret Art.

4(1) of the agreement in the above background, it will be seen that it takes on a different complexion altogether. The reference to a person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of incorporation or place of management or any other criterion of a similar nature will then connote not the existence of an actual taxation measure in the State under which the person in question is factually charged to tax in that State but will connote a person who is liable to be subjected to tax by the taxation laws of that State because of a nexus existing between him and the State, of one of the kinds mentioned in the article. The mention, in the article, of the four kinds of nexus reinforces this interpretation. For, if the relevant criterion was only to be whether the person in question is actually subject to tax in the State or not, the article would have used the words “a person who is subjected to tax in that State” or stopped with the words “liable to tax in that State under the laws of that State”. The further words in the paragraph would then be pure surplusage. Secondly, as already pointed out, the several articles in the DTAA which specifically concern individuals would make no sense at all, if individuals living in UAE are treated as excluded from the benefits of the agreement because they are not currently subjected to any tax in UAE. It is difficult to conceive of a large number of such provisions being inserted in the agreement merely to meet a situation which does not arise on the date of the agreement but may possibly arise in future. These provisions are consistent only with the interpretation that certain benefits qua Indian tax are intended to be conferred on individuals resident in the UAE even though they are not liable to tax in their State. Thirdly, if one accepts the stricter interpretation, all corporate bodies will be residents entitled to the benefits of the agreement, they being liable to tax under the Dubai Ordinance although as pointed out earlier those

provisions are not actually enforced against several categories of companies. In other words, even companies which are not called upon to pay any tax in Dubai will be entitled to claim benefits under the agreement. If this be so, logically, there is no reason why individuals should not also be permitted to avail of the benefits of the agreement for the reason that they are not actually subject to tax in Dubai. Fourthly, the structure of the agreement also indicates that it is more a tax avoidance agreement than a tax relief agreement. Many of the articles are so structured as to ensure that the income arising to a person out of activities in both States is taxed in one or the other State but not both (see Arts. 6, 7, 8, 13, 15, 18, 19, 22). It is only in regard to items like dividends, interest and royalty (Arts. 10, 11, 12) that, while the general practice of having them taxed in both countries is retained, the rate of tax in the source country is pegged at a low figure so as to attract more capital. In this view of the matter, the agreement clearly voices the intention that income of certain types should be taxed only at a concessional rate in its country of source.

It will thus be seen that the language of paragraph 1 of Art. 4 lends itself to two equally plausible interpretations. One of them seems to give effect to the natural meaning of some of the words employed in the paragraph. However, it not only results in certain other words becoming an unnecessary surplusage but also renders the agreement practically devoid of all contemporary relevance. On that interpretation, only companies can take advantage of the agreement and all other categories of assessees would be excluded from its benefits for the present. The second interpretation perhaps places some strain on some of the words but gives a meaning to all the words employed, fully accords with the intention and objective of the agreement and gives immediate effect to all its terms. In this situation, the Authority is of the opinion that the second interpretation is the more preferable one and that an individual like the applicant, though at present not actually liable to pay any income-tax in Dubai, should also be considered to be a resident of Dubai for the purposes of the DTAA as, being a person living in Dubai and having sources of income there, he is certainly liable to be called upon to pay income-tax under the tax laws of that country. If the applicant is a resident of both the Contracting States within the meaning of paragraph 1 of Art. 4, the agreement requires a status to be assigned to him as a resident of one of these two States and this has to be determined in accordance with cls. (a) to (d) of paragraph 2 of Art. 4. The contention of the applicant is that he has to be considered as a resident of Dubai either under cl. (a) or under cl. (b). There is substance in this contention. The applicant, no doubt, has a permanent home available to him both in Dubai and in India. However, his personal and economic relations are closer with Dubai rather than with India. In this context, the attention of the Authority has been drawn to a return filed on behalf of the Dubai company in India in Form No. 3CE for the asst. yr. 1994-95. This shows that the total remuneration drawn by the applicant and his share of profit by way of salary and commission from the Dubai firm amounts to over Rs. 23 lakhs whereas the Indian income, comparatively speaking, is definitely small. Quite apart from the actual figures of income, it is clear that the applicant has left India for Dubai several years back. In India, he only derives a small income as a sleeping partner in two firms and from a property which he is retaining in India as a permanent home in the eventuality of his having to return to India sooner or later. He has been carrying on his income-earning activities in Dubai and is practically staying in Dubai throughout the year along with his wife and other members of the family. His children have been admitted to schools in Dubai and are educated there. These facts leave no doubt that the personal and economic ties of the applicant are closer with Dubai than with India and that the centre of his vital interests is Dubai, not India. On behalf of the Department an objection is taken that the figures mentioned above have been furnished only at the stage of hearing before the Authority and that these figures cannot be accepted at their face value without further investigation. But even assuming that there is some force in this contention and that it is not possible to determine the applicant’s centre of vital interests, one has to turn to cl. (b) of paragraph 2 of Art. 4. This clause defines a person as a resident of the State in which he has a habitual abode. There can be no doubt whatsoever that the country answering this description vis-a-vis the applicant is UAE and not India. The applicant has left India, as already pointed out, as early as 1976 and has only retained a house in India which can be treated as a house available to him in the event of his return to this country and a place to stay in during his occasional visits to India. But his habitual abode is certainly in Dubai. He has a house there. He is based and settled there with his family. His children are studying there. He lives there year after year for several months in the year. It is, therefore, clear that the habitual abode of the applicant is in Dubai and that, if not under cl. (a) then, at least under cl. (b) of paragraph 2 of Art. 4, the applicant has to be treated as a resident of the U.A.E. He will, therefore, be entitled to take advantage of cls. 10, 11 and 13 of the DTAA.The above discussion practically answers all the questions which the applicant seeks, except perhaps question No. (4). So far as question No. (4) is concerned, it seeks to make a distinction between income arising out of three categories of assets held by the applicant : (i) those acquired prior to the coming into effect of the tax treaty between India and UAE; (ii) those acquired prior to his becoming a non-resident; and (iii) those acquired after his becoming a non-resident but from out of non-repatriable funds in India. This type of distinction, however, is irrelevant for the purposes of the DTAA. Under Art. 30, once the agreement comes into force, it shall have effect in India in respect of income arising in any previous year beginning on or after 1st April, next following the calendar year in which the agreement entered into force. In this case, the agreement entered into force, as already mentioned, on 29th Sept., 1993. It, therefore, follows that all income arising to the applicant on or after the 1st April, 1994, will be governed by the agreement. The only relevant question is the date of accrual of income of various categories referred to in the DTAA. The date of acquisition of the assets which yielded the income or the status of the applicant at the time when he acquired the assets or the nature of the moneys with which those assets were acquired are all irrelevant for the purposes of applying the agreement. It is, therefore, clear that all income arising to the applicant on or after 1st April, 1994, will be governed by the DTAA irrespective of whether they fall under one or the other of the three categories set out by the applicant.

6. For the reasons stated above, the Authority pronounces the following ruling on the questions raised by the applicant : assets giving rise to the income is of no relevance in this regard. Question No. (5) Yes. Question No. (6) Yes.

[Citation : 213 ITR 317]

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