13 Article 6 and 7 of India-Kenya DTAA; Indian bank earned rental income from house property in Kenya. Rental income not taxable in India as per Article 6 of DTAA. Notification or circular can neither override the provisions of tax treaty nor alter the nature of income

TS-515-ITAT-2017(Mum)

Bank of India vs. ITO

A.Y: 2009-10                                                                      

Date of Order: 8^th November, 2017

Article 6 and
7 of India-Kenya DTAA; Indian bank earned rental income from house property in
Kenya. Rental income not taxable in India as per Article 6 of DTAA.
Notification or circular can neither override the provisions of tax treaty nor
alter the nature of income

 FACTS

The Taxpayer,
an Indian public sector bank, had a branch in Kenya. During the relevant year
the Taxpayer earned business income from its branch in Kenya. Further, the
Taxpayer also earned rental income from a house property located in Kenya.
Taxpayer claimed that the business income and rental income earned by the Kenya
branch was not taxable in India as per Article 6 and Article 7 of India-Kenya
DTAA.

Relying on the
CBDT Notification No.91 of 2008, AO contended that the business income and
rental income is taxable in India¹. Aggrieved by the contention of
the AO, the Taxpayer appealed before CIT(A) who upheld the order of the AO.

Aggrieved, the
Taxpayer appealed before the Tribunal.

HELD

–  Relying on
its own order for earlier years in the case of the same Taxpayer, the Tribunal
held that business income from foreign branches was not taxable in India as per
Article 7 of India-Kenya DTAA. The earlier decision of the Tribunal relied on
SC ruling in the case of Kulandagan Chettiar (267 ITR 654) for arriving at such
conclusion.

–  AO had
treated the business income and rental income as one source of income. However,
the DTAA contains two different Articles i.e., Article 7 which governs business
income and Article 6 which governs income from immovable property.

–   Any
notification or circular cannot alter the nature of income that has been
specifically included in DTAA. Even amendment in a section of the Act would not
affect the provisions of tax treaties, unless same are not ratified by both the
countries.

–   Rental
income received by the Taxpayer is covered by Article 6 of India-Kenya DTAA. As
per Article 6, such rental income is not taxable in India.

P.S: The
meaning of “may be taxed” provided by Notification No. 91 of 2008 was not
applicable to the facts of the case. _

_____________________________________________________

 1   Notification No. 91 of 2008 provides that
where an DTAA is entered into by the Central Government of India with the
Government of any country outside India for granting relief of tax or as the
case may be, which provides that any income of a resident of India “may be
taxed” in the other country, such income shall be included in his total
income chargeable to tax in India in accordance with the provisions of the Act
a’nd relief shall be granted in accordance with the method for elimination or
avoidance of double taxation provided in such DTAA.