A tax is a government assessment or charge on the value of property, transactions such as transfers and sales, licenses granting a right, and/or income of a person or organization.
Due to the phenomenal growth of international trade and the increasing interactivity between nations, the residents of one country expand their sphere of business operations to other countries. The flow of capital, services and technology between countries is the order of the day, especially after our country embarked on the path of economic globalization.

This is generally defined as the imposition of comparable taxes in two (or more) countries on the same taxpayer with respect to the same matter and for identical periods. The presence of acts of double or multiple taxation as an important determining factor in decisions related to the location of the investment, technology, etc. as it affects the profits of a commercial enterprise. The effort is therefore to ensure that the heavy tax burden is not incurred as a result of double or multiple taxation. The objective is achieved when the Government enters into agreements with other countries whereby the respective jurisdiction is identified in such a way that a particular income is taxed in only one country or, in case it is taxed in both countries, relief is provided. appropriate in one country to mitigate difficulties caused by taxation in another jurisdiction.

Such agreements are known as “Double Taxation Agreements” (DTAAs), also known as “Tax Treaties”. The provisions contained in Section 90 of the Income Tax Act, under which, as at the end of March 2002, India has entered into 64 such agreements which are comprehensive in the sense that they are separate types of income that can be subject to double taxation.

It is not uncommon for a company or person resident in one country to make a taxable profit (profit, profit) in another. This person may find that they are required by domestic law to pay tax on that gain locally and pay again in the country in which the gain was made. Since this is not equitable, many nations sign bilateral double taxation treaties with each other. In some cases, this requires the tax to be paid in the country of residence and exempt in the country in which it is generated. India has such agreements with more than 60 countries. Here we will deal with their agreements with Mauritius and the United Arab Emirates.

Some of the important principles of the Agreement to avoid double taxation between India and Mauritius:

1. GBL1 companies can claim the benefits of the India-Mauritius Double Taxation Treaty which provides full tax exemption to tax residents of Mauritius in respect of capital gain income arising from the sale of shares of an Indian company.

2. No capital gains tax will be imposed in Mauritius which will allow tax residents of Mauritius to earn completely tax free capital gains income from the sale of shares of an Indian company.

3. The Supreme Court of India ruling in the Azadi Bachao Andolan case has established the clear law that where the Mauritian tax authorities have issued a “tax residency certificate” to a Mauritian entity, the tax treaty benefits Indo-Mauritian will be available.

This Agreement between India and the United Arab Emirates (UAE) has been plagued with controversy as to its applicability to persons residing in the UAE, since its inception. At the center of the controversy is the question of whether a person can be said to be a resident of the UAE and take advantage of the provisions of the tax treaty, given the fact that individuals are not subject to tax in the UAE. and given the fact that a person must be a resident of the UAE under the tax laws of that state to qualify as a resident of the UAE for tax treaty purposes. Some of the important principles of the India-UAE Double Taxation Agreement:

1. For the purposes of this Agreement, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of administration, place of constitution or any other criteria of a similar nature.

2. Under the Indo-UAE Double Taxation Treaty, no tax will be imposed in India on capital gains earned by a UAE resident from the alienation of shares of an Indian company.

3. There is no corporation tax or capital gains tax in the UAE.

4. For the purposes of this Agreement, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of administration, place of constitution or any other criteria of a similar nature.

Some of the emblematic cases of the Treaties to avoid the double taxation of India with the mentioned countries:

1. The MA Rafique case (1995): In the first ruling on the subject, the AAR (Advance Ruling Authority) in the MA Rafique case (213 ITR 317) held that the applicant was entitled to Indian benefits -UAE Tax Treaty and that the capital gains, in question, would not be subject to tax in India. The AAR, inter alia, noted the following: “Although there was no personal income or wealth tax in any of the UAE nations, the fact that a comprehensive agreement (tax treaty) was deemed necessary despite a clear knowledge that there was no such tax on persons in the UAE, it could only mean that the deal was intended to encourage funds from Dubai and other Emirates to flow into India for investment.” . Read in this context, Article 13 clearly left the UAE to deal with capital gains on movable property made by all UAE investors. In other words, the AAR held that the definition of the term ‘resident’ should be interpreted broadly and that the term ‘taxable’ does not connote an ‘actual tax measure’.

2. Pereira Case (1999): Subsequently, the AAR issued a contrary judgment in the Cyril Pereira case (239 ITR 650). In this ruling, the term ‘taxable’ as set forth in the definition of resident was narrowly interpreted and equated with the term ‘taxable’ or actual payment of tax. As individuals do not pay tax in the UAE, it was held that the applicant Cyril Pereira was not a tax resident of the UAE and was not entitled to the beneficial provisions of the India-UAE tax treaty.

3. Case of Andolan (2003): Furthermore, the Supreme Court in the case of Azadi Bachao Andolan (263 ITR 706) did not accept the contention that avoidance of double taxation can arise only when the tax is actually paid in one of countries. to the tax treaty. Unlike AAR rulings, Supreme Court orders set a precedent. The Supreme Court ruled that it was not convinced to accept the argument that avoidance can only occur when the tax is paid in one of the contracting states.

4. Abdul Razack A. Meman (2005): It’s all back to square one, as in the case of Abdul Razaq Memon, a UAE citizen, the AAR ruled that UAE investors must pay tax on profits from capital on your investments. In India. The AAR was of the opinion that the Double Taxation Agreements between India and the UAE were not useful for this purpose, as the UAE does not have a tax regime.

To conclude, as discussed, the courts have continued to indulge in a ping-pong of decisions, almost giving the impression that they cannot make up their minds on the issue. It is not necessary to emphasize the importance of foreign investment for the economy. Once and for all, the authorities have to come to a firm decision and stop acting capriciously.