July 2014
TS-343-ITAT-2014(Del) Karan Thapar vs. ACIT A.Ys: 2000-2001, 2002-2004, 2006-07, 2009-10 Dated: 09-05-2014
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Family pension received from the UK employer of deceased wife is duly covered under Article 23(3) of the India – UK DTAA; the phrase ‘may be taxed’ means that the income can be taxed only in source state.
Facts:
Taxpayer’s (Mr. A), wife was employed by a UK Co. On her demise, UK Co decided to pay family pension to Mr A as per UK Co’s family pension scheme. The family pension was to be paid to Mr. A until his death.
The Tax Authority contended that the family pension received by Mr. A was taxable in India under Article 23(1) of the DTAA between India and UK.
On Appeal the First Appellate Authority held that the family pension is not taxable in India in view of Article 23(3) of the India-UK DTAA which provided that the same ‘may be taxed’ in source state and hence country of residence had no right of taxation. Aggrieved the Tax Authority appealed before the Tribunal.
Held:
“Pension” is received from the ex-employer by the employee in his lifetime while “family pension” is received by the spouse or family members or legal dependent of the deceased employee from the employer of that deceased employee.
Article 20 of India-UK DTAA has no relevance in case of family pension which is generally received by the spouse or family members or legal dependent.
Article 23(1) of India-UK DTAA stipulates that the items of income beneficially owned by the residents of a contracting state (India) wherever arising shall be taxed in the resident state (India).
Article 23(2) is neither related to pension nor related to family pension. Article 23(3) covers items of income which are not included in the forgoing articles and arising in a contracting state (UK) “may be taxed in that other state”. The expression “may be taxed in that other state” mentioned in Article 23(3) authorises only the source state to tax such income and by necessary implication, the state of residence is precluded from taxing such income, especially when the tax has been deducted by the UK as source state.
Taxation by both residence as well as source state would render the object of double tax avoidance agreement infructuous and the provisions stipulated in the Indo-UK DTAA would be otiose.
Reliance was placed on Delhi ITAT decision in the case of Mideast India Ltd. (28 SOT 395) and Mumbai ITAT decision in the case of Ms. Pooja Bhatt (26 SOT 574).
