TDS: DTAA between India and UAE- Capital gains arising to resident of UAE from sale of Government securities in India is not taxable in India- No obligation to deduct tax at source-

The respondent-bank had allowed certain residents of UAE to open account in India with it, depositing in their accounts monies which were the income derived from sale of Government securities by them. The C. A.s certified that the capital gains had arisen to the concerned person on account of sale proceeds of Government securities and such gains being exempt under article 13 of the DTAA between India and UAE, no tax was liable to be deducted at source. The Assessing Officer held that the account holder or the constituent having earned the income from the sale of securities in India, that income had not been remitted from India to UAE and the bank was liable to deduct tax at source. The Tribunal accepted the assessee’s claim and held that there was no tax liability on the income by way of gains from sale proceeds of Government securities in India by the residents of UAE and accordingly, there is no liability to deduct tax at source.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“In view of the concurrent findings that there was no liability to tax on the capital gains arising to the individual constituent/investor on the transaction in the Government treasury bills undertaken through the bank, the bank was not obliged to deduct tax at source.”