Articles 22 and 23 of the India-UAE DTAA – On facts, unexplained investment taxed under sections 68 and 69 was not in nature of ‘Other Income’ contemplated under Article 22 and hence was not taxable in India – Article 23 deals with taxation of capital, whereas issue under consideration pertains to unexplained investment in immovable property and hence is not taxable in India

FACTS
The assessee was a non-resident Indian settled in the UAE for three decades. He invested a certain amount to purchase a residential flat from AB. In the course of search and seizure operations carried out by the investigation wing of the Income-Tax Department on AB, it found certain data. Relying on this data, the A.O. concluded that the assessee had paid cash amounts of Rs. 2.5 crores to AB. He treated the said amount as an ‘unexplained investment’ u/s 69. The A.O. further noted that a sum of Rs. 4.47 lakhs was probably interest on loan and brought it to tax as such u/s 68.On appeal the CIT(A) deleted the addition on the ground that income taxed under sections 68 and 69 falls under Article 22 – ‘Other Income’ of the India-UAE DTAA – which is not taxable in India.The aggrieved Revenue appealed before the ITAT.

HELD
Article 22 of the India-UAE DTAA – Other income
* Unexplained investments were in the nature of application of income and not income per se. Hence, they could not be taxed in India under Article 22(1) of the India-UAE DTAA.
* Article 22(2) provides for taxation of income arising from immovable property. The issue under consideration was not about income from immovable property, but income said to have been invested in immovable property.Article 23 of the India-UAE DTAA – Capital
* Article 23(1) deals with taxation of capital represented by immovable property. It deals with taxation of capital but does not provide for taxation of unexplained investment in immovable property.

Interest income
* There was no evidence of interest income as even the finding of the A.O. states that the related entry ‘probably’ refers to interest.