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Tax Publishers Foreign rental income from property for a resident - Taxability - Interplay of DTAA - Indo-Australian DTAA *Facts:* Assessee a resident was in receipt of rental income from two properties in Australia which was offered to tax in Australia as per Australian tax laws and taxes duly paid. The same rental income was not offered to income in India citing Article 6 of the DTAA wherein the income from renting of property was only taxable in Australia and thus India does not have a right to tax the same. In other words, exclusive right of a state to tax a topic like rental income under Indo-Australian DTAA based on situs of property meant that the other state (India) looses its right to tax the same income. On appeal CIT(A) went with the AO who held the rental income was taxable in India. On further appeal - Held against the assessee that the rental income was indeed taxable in India post facto amendment in section 90(3). Scope of income under section 5(1) will override the DTAA. The reading of the DTAA that once one state taxes an income then the other state (be it source or residence state) looses its right to tax the same is also no longer correct. *Applied:* Essar Oil Ltd. v. Addl. CIT (2013) 42 taxmann.com 21 (Mum) : 2013 TaxPub(DT) 2798 (Mum-Trib) Shah Rukh Khan v. CIT (2017) 79 taxmann.com 227 (Mum) : 2017 TaxPub(DT) 0813 (Mum-Trib) Technimont (P.) Ltd. v. Asstt. CIT (2020) 116 taxmann.com 996/184 ITD 474 (Mum-Trib) : 2020 TaxPub(DT) 1480 (Mum-Trib) *Dissented:* Bank of India v. ACIT (2020) 122 taxmann.com 247 (Mumbai-Trib.) : 2020 TaxPub(DT) 5570 (Mum-Trib) Natasha Chopra v. DCIT (2022) 196 ITD 185 (Del-Trib) : 2022 TaxPub(DT) 5042 (Del-Trib) Ms. Pooja Bhatt v. DCIT (2009) 22 DTR 458 (Mum-Trib) : 2009 TaxPub(DT) 0951 (Mum-Trib) Decision of Apex court in PAVL Kulandagan Chettiar's case (2004) 267 ITR 654 (SC) : 2004 TaxPub(DT) 1681 (SC) is no longer valid post facto insertion of section 90(3). The phrase "may be taxed" in a DTAA needs to be read as though not compelling a state to tax the same. Thus once one state gets the right to tax an income the other state looses the right to tax the same income. This reading was not found acceptable by the ITAT. "Section 90 (3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf". *Case:* Irvind Gujral v. ITO 2023 TaxPub(DT) 6996 (JP-Trib)

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Foreign rental income from property for a resident - Taxability - Interplay of DTAA - Indo-Australian DTAA

Facts:

Assessee a resident was in receipt of rental income from two properties in Australia which was offered to tax in Australia as per Australian tax laws and taxes duly paid. The same rental income was not offered to income in India citing Article 6 of the DTAA wherein the income from renting of property was only taxable in Australia and thus India does not have a right to tax the same. In other words, exclusive right of a state to tax a topic like rental income under Indo-Australian DTAA based on situs of property meant that the other state (India) looses its right to tax the same income. On appeal CIT(A) went with the AO who held the rental income was taxable in India. On further appeal -

Held against the assessee that the rental income was indeed taxable in India post facto amendment in section 90(3). Scope of income under section 5(1) will override the DTAA. The reading of the DTAA that once one state taxes an income then the other state (be it source or residence state) looses its right to tax the same is also no longer correct.

Applied:

Essar Oil Ltd. v. Addl. CIT (2013) 42 taxmann.com 21 (Mum) : 2013 TaxPub(DT) 2798 (Mum-Trib)

Shah Rukh Khan v. CIT (2017) 79 taxmann.com 227 (Mum) : 2017 TaxPub(DT) 0813 (Mum-Trib)

Technimont (P.) Ltd. v. Asstt. CIT (2020) 116 taxmann.com 996/184 ITD 474 (Mum-Trib) : 2020 TaxPub(DT) 1480 (Mum-Trib)

Dissented:

Bank of India v. ACIT (2020) 122 taxmann.com 247 (Mumbai-Trib.) : 2020 TaxPub(DT) 5570 (Mum-Trib)

Natasha Chopra v. DCIT (2022) 196 ITD 185 (Del-Trib) : 2022 TaxPub(DT) 5042 (Del-Trib)

Ms. Pooja Bhatt v. DCIT (2009) 22 DTR 458 (Mum-Trib) : 2009 TaxPub(DT) 0951 (Mum-Trib)

Decision of Apex court in PAVL Kulandagan Chettiar's case (2004) 267 ITR 654 (SC) : 2004 TaxPub(DT) 1681 (SC) is no longer valid post facto insertion of section 90(3). The phrase "may be taxed" in a DTAA needs to be read as though not compelling a state to tax the same. Thus once one state gets the right to tax an income the other state looses the right to tax the same income. This reading was not found acceptable by the ITAT.

"Section 90 (3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf".

Case: Irvind Gujral v. ITO 2023 TaxPub(DT) 6996 (JP-Trib)