Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether Resident Is Entitled To Claim Benefit Of Article 24(2) Of Indo-UK Treaty?

QUERY: Mr. X moved to UK in 2001 to work as a doctor in a reputed hospital over there. However, he again moved back to India in 2010. He bought a property in the UK which he had purchased from own funds which he saved while being in India and now he wants to sell it off. The money will be transferred to his Indian bank account. What taxes do Mr. X need to pay?
ANSWER: Mr. X was in UK from 2001 to 2010. Thereafter he moved to India. So far the fi-nancial year 2013/14 he was in India for more than 182 days. So as per S. 6 of the Income-tax Act, 1961 he is resident in India. Even u/s. 2(1)(v) of the Foreign Exchange Management Act (FEMA), he is a “Person residence in India”.

As per Regulation 3 of the Foreign Exchange Management (Acquisition And Transfer of Immovable Property Outside India) Regulations, 2000, no person resident in India shall acquire or transfer any immovable property situated outside India without general or special permission of the Reserve Bank of India (RBI)

Now, X being a resident in India is liable to tax on his world income. So, capital gains arising in UK on transfer of immovable property will be chargeable in India, despite capital gains taxable in UK. Article 14 of India-U.K. Treaty provides that “Except as provided in Article 8 (Air Transport) and a (shipping) of this conven-tion, each contracting state may tax capital gain in accordance with the provisions of its domestic law”.

However, Mr. X is entitled for credit in respect of tax paid in UK from Indian tax payable as per Article 24(2) of Indian-UK Treaty, which reads as under:

“Subject to the provisions of the law of India regarding the allowance as a credit against Indian tax of tax paid in a territory outside India (which shall not affect the general principle hereof), the amount of the United Kingdom tax paid, under the laws of the United Kingdom and in accordance with the provisions of this Convention, whether directly or by deduction, by a residence of India, in respect of income from sources within the United Kingdom which has been subjected to tax both in India and the United Kingdom shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax”

Posted in Income-tax

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