MANDIRA KANOI,HARYANA vs. ITO(INTERNATIONAL-TAXATION) GURGOAN, HARYANA

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ITITA 71/DEL/2025Status: DisposedITAT Delhi25 March 2026AY 2023-249 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee is entitled to the benefit of Article 13(5) of the India-UAE DTAA, and the capital gains arising from the sale of mutual funds are not taxable in India. The reasoning followed the decision of a coordinate bench in the assessee's own case for AY 2021-22. The Tribunal emphasized that the expression 'liable to tax' in a DTAA refers to residence-based tax jurisdiction and not necessarily the actual payment of tax. Citing the Supreme Court's judgment in UOI vs. Azadi Bachao Andolan and commentary on Double Taxation Conventions, the Tribunal concluded that a tax treaty prevents not only current but also potential double taxation. Therefore, irrespective of whether the UAE actually levies taxes on such income, if the UAE has the right to tax UAE residents by reason of domicile, residence, etc., the assessee is considered 'liable to tax' in the UAE for treaty purposes. The benefit of the treaty is available even if the assessee is not actually taxable in the other contracting state. The capital gains were therefore deleted from the assessed income. The appeals were allowed.

What were the facts?

The appeals by Mandira Kanoi and Saket Kanoi (the assessees) challenge the Final Assessment Orders dated 31.10.2025 passed by the Assessing Officer (AO) under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961. These orders were in line with the Dispute Resolution Panel's (DRP) directions dated 15.09.2024. The assessment years are 2023-24. The assessees, NRIs, reported capital gains of Rs. 78,83,464/- from the sale of debt mutual funds in India but did not offer them for tax, relying on Article 13(5) of the India-UAE Double Taxation Avoidance Agreement (DTAA). The AO proposed to add this amount, considering the assessee was not covered under Article 2 of the DTAA and it was not a case of double taxation. The DRP, following its prior order for AY 2021-22, directed the addition of these capital gains.

What were the issues?

1. Whether the assessee is eligible for the benefit of Article 13(5) of the India-UAE DTAA on capital gains arising from the sale of debt mutual funds amounting to Rs. 78,83,464/-, despite the assessee being a tax resident of the UAE under Article 4 and fully eligible for treaty protection? (Question of law and fact, concerning Article 13(5) and Article 4 of the India-UAE DTAA). Assessee's contentions: The assessee argued that the capital gains are not taxable in India as the taxing rights are allocated to the UAE under Article 13(5) of the India-UAE DTAA. They relied on their own case for AY 2021-22, where an identical issue was decided in their favour, citing the Supreme Court's judgment in UOI vs. Azadi Bachao Andolan. They also contended that the DRP and AO erred in holding that the assessee is not 'liable to tax' in the UAE merely because the UAE does not levy personal income tax, asserting that 'liable to tax' refers to residence-based tax jurisdiction, not actual payment of tax. Revenue's contentions: The Revenue relied on the AO's order. However, the CIT(DR) fairly accepted that the issue is covered by the coordinate bench's order in the assessee's own case for AY 2021-22.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 144C(1),Section 144C(5)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI

Before: SHRI VIKAS AWASTHY, HON’BLE & SMT. RENU JAUHRI, HON’BLE

For Appellant: CA [VC], Ms. Shruti Khandelwal, Adv. [VC]
Hearing: 18.03.2026Pronounced: 18.03.2026

Heard together (2 matters)

ITA No. 71/DEL/2025
ITA No. 72/DEL/2025

Read from the judgment's own cause title. This page is filed under one of them.

IT ITA_71_72_Del_2025_Mandira Kanoi IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI BEFORE SHRI VIKAS AWASTHY, HON’BLE JUDICIAL MEMBER & SMT. RENU JAUHRI, HON’BLE ACCOUNTANT MEMBER

ITA No. 71/DEL/2025; Assessment Year: 2023-24 Mandira Kanoi ITO [International Taxation] E-702 Caitriona Apartment, N.H. Gurgaon 8, Ambience Island Gurgaon-122002 Haryana (APPELLANT) (RESPONDENT) PAN No. AANPK6019N & ITA No. 72/DEL/2025; Assessment Year: 2023-24 Saket Kanoi ITO [International Taxation] E-702 Caitriona Apartment, N.H. Gurgaon 8, Ambience Island Gurgaon-122002 Haryana (APPELLANT) (RESPONDENT) PAN No. AFTPK1512M

Assessee Represented by: Sh. Parikshit Agarwal, CA [VC] Ms. Shruti Khandelwal, Adv. [VC] Revenue/Department Represented by: Sh. Saroj Kumar Dubey, CIT (DR) Date of Hearing: 18.03.2026 Date of Pronouncement: 18.03.2026

ORDER PER RENU JAUHRI :

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IT ITA_71_72_Del_2025_Mandira Kanoi These appeals are filed by the assesses against the Final Assessment Orders dated 31.10.2025 passed by the Assessing Officer [for short, AO] u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 [hereinafter referred to as, “Act”] for A.Y. 2023-24 in consonance with the orders dated 15.09.2024 passed by the Dispute Resolution Panel (DRP) u/s 144C(5) of the Act.

2.

Since identical grounds are involved in both the appeals, these appeals are being disposed off vide a common order and ITA No. 72/DEL/2025 is being taken as the lead case wherein the grounds of appeal raised by the assessee are as under: “1. That on facts, circumstances and legal position of the case, Hon'ble DRP-1 has erred in confirming the Draft Assessment Order u/s 144C(1) dtd. 27.02.2025 passed by the Ld. AO and then the Ld. AO has erred in passing the impugned final assessment order.

2.

That on facts, circumstances and legal position of the case, the Ld. AO has erred in Draft and final assessment order and the Hon'ble DRP has erred in their order, in denying the benefit of Article 13(5) of the India-UAE DTAA on capital gains arising from sale of debt mutual funds amounting to Rs. 78,83,464/-, despite the appellant being an undisputed tax resident of the UAE under Article 4 and fully eligible for treaty protection.

3.

That on facts, circumstances and legal position of the case, the Hon'ble DRP as well as the ld. AO erred in holding that the assessee is not "liable to tax" in the UAE merely because the UAE does not levy personal income tax, contrary to the fact that liable to tax refers to residence-based tax jurisdiction, not actual payment of tax.

4.

That on facts, circumstances and legal position of the case, the Hon'ble DRP has erred in law in refusing to follow the binding judgment of the Hon'ble ITAT, Delhi, in the appellant's own case for AY 2021-22, where identical facts and the same treaty provisions were examined and the same issue of non-taxability of capital gains from sale of debt mutual funds was decided in appellant's favour. 5. That on facts, circumstances and legal position of the case, the Ld. AO has erred in making addition to the returned income by taxing capital gains from debt mutual funds-despite the explicit allocation of taxing rights to the UAE under Article 13(5). 2 | P a g e

IT ITA_71_72_Del_2025_Mandira Kanoi

6.

That on facts, circumstances and legal position of the case, the impugned draft assessment order passed by the Ld. AO u/s 144C(1), then the order passed by Hon’ble DRP and then the impugned final assessment order u/s 143(3) r.w.s 144C(13) passed with the directions of Hon'ble DRP, all deserves to be quashed since all these orders have been passed in extreme haste without affording reasonable opportunity of being heard to the appellant. 7. That on facts, circumstances and legal position of the case, the impugned final assessment order passed u/s 143(3) r.w.s 144C(13) deserve to be quashed since the same has been passed beyond statutory limitation period.

8.

That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same.”

3.

Although, as many as 8 grounds have been raised, Ld. AR submitted that only ground no. 2 is being pressed. He further submitted that the issue is covered in asseesses’s favour in his own case for A.Y. 2020-21, whereby this very ground has been decided.

3.1 Brief facts are that the assessee, an NRI, filed his return for A.Y. 2023-24

on 14.07.2023, declaring income of Rs 2,14,23,440/-. The case was selected for

scrutiny during the course of which it was noted that the assessee had made

capital gains of Rs. 78,83,464/- from sale of mutual funds in India but the same

was not offered for tax relying on the Article 13(5) of the India - UAE DTAA.

Ld. AO observed that the assessee was not covered under Article 2 of the DTAA

and it was also not a case of double taxation. He, accordingly, proposed to add

Rs. 78,83,464/- on account of capital gains from sale of mutual funds. 3 | P a g e

IT ITA_71_72_Del_2025_Mandira Kanoi 3.2 Aggrieved, the assessee filed objections before the Disputes Resolution Panel (for short, DRP). Vide order dated 15.09.2025, the DRP observed that the issue remains the same as in AY 2021-22 whereby detailed findings on the issue had been given. Accordingly, following its own order for A.Y. 2021-22, Ld. DRP held that capital gains from sale of mutual friends should be added to the income of the assessee. In accordance with these directions, final assessment was completed vide order u/s 143(3) rws 144C (13) dated 31.10.2025 at an assessed income of Rs. 2,93,06,904/- after adding Rs. 78,83,464/- on account of capital gains from sale of mutual funds. Aggrieved with this order, the assessee has filed the present appeal before the tribunal.

4.

Before us, Ld. AR submitted that this issue already stands decided in favour of the assessee (Sh. Saket Kanoi) vide order dated 23.10.2024 of the co- ordinate bench in ITA No. 3243/Del/2023 in his own case for A.Y. 2021-22. Ld. AR has placed on record a copy of the order of the co-ordinate bench wherein the issue has been decided in asseesses’s favour. After quoting in detail, from the relevant decisions of the co-ordinate benches in the light of the judgement of the Hon’ble Supreme Court of India in the case of UOI vs. Azadi Bachao Andolan [2023] 263 ITR 7061, the co-ordinate Bench has held that the capital gains arising out of sale of mutual funds is not taxable in India.

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IT ITA_71_72_Del_2025_Mandira Kanoi 4.1 On the other hand, Ld. DR strongly relied on the order of the Ld. AO but fairly accepted that the issue is covered by the order of the co-ordinate bench in assessee’s own case for A.Y. 2021-22.

5.

We have heard the rival submissions and perused the material on record. We note that the identical issue has been decided in A.Y. 2021-22 in assessee’s own case after elaborate discussion of the facts of the case in the light of various decisions of the co-ordinate benches. A portion of the relevant part of the order is reproduced below: “    6. The issue before us is whether the assessee is eligible for exemption from tax in India or not when the UAE authorities choose not to tax the assessee owing to DTAA wherein the capital gains are to be taxed by the UAE. 7. On this issue, we are guided by the settled principles laid down by the Tribunal and the Hon’ble High Courts. 8. In the case of Addl. DIT vs Frate Line, Dubai in ITA NO. 2439/Mum/2008, vide order dated 29.10.2010, the Co-ordinate Bench of ITAT held as under:     11. In the case of ADIT vs. Green Emirate Shipping and Travels (286 ITR 60) (Mum.) vide order dated 30.11.2005, the Co-ordinate Bench of ITAT held as under:   

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IT ITA_71_72_Del_2025_Mandira Kanoi 8. Although the AO's objection to applicability of India- UAE tax treaty was only on the ground that the provisions of DTAAS do not come into play unless it is established that the assessee is paying tax in both the countries in respect of the same income, in the grounds of appeal before us it is also contended that the assessee-company failed to produce any evidence to the effect that it was 'liable to pay taxes' in UAE. The question then arises whether an existing liability to pay taxes in UAE is a sine qua non to avail the benefit of India-UAE tax treaty in India. On this issue also, we find guidance from the judgment of Hon'ble Supreme Court in the case of Azadi Bachao Andolan (supra). Referring to the Klaus Vogel's Commentary on Double Taxation Conventions. Their Lordships, inter alia, observed as follows: In other words, Contracting States mutually bind themselves not to levy taxes or to tax only to a limited extent in cases when the treaty reserves taxation for the other Contracting State either entirely or in part. Contracting States are said to waive 'tax claims' or more illustratively to divide 'tax sources', taxable objects', amongst themselves". Double 'taxation avoidance treaties were in vogue even from the time of the League of Nations. The experts appointed in the early 1920s by the League of Nations describe this method of classification of items and their assignments to the Contracting States. While the English lawyers called it 'classification and assignment rule', the German jurists called it 'the distributive rule' (Verteilungsnormi). To the extent that an exemption is agreed to, its effect is in principle independent of both whether the Contracting State imposes a tax, in the situation to which the exemption applies and irrespective of whether the State actually levies the tax. Commenting particularly on the German Double Taxation Convention with the United States, Vogel comments: "Thus, it is said that the treaty prevents not only 'current' but also merely 'potential' double taxation. It is thus clear that a tax treaty not only prevents current' but 'also potential' double taxation. Therefore, irrespective of It is thus clear that a tax treaty not only prevents current' whether or not the UAE actually 6 | P a g e

IT ITA_71_72_Del_2025_Mandira Kanoi levies taxes on non-corporate circumstances vests only with the Government of UAE, that entities, once the right to tax UAE residents in specified right, whether exercised or not, continues to remain exclusive right of the Government of UAE. As noted above, the exemption agreed to under the 'assignment' or 'distributive a tax in the situation to which exemption implies'. In the case rule, is independent of 'whether the Contracting State imposes of John N. Gladden v. Her Majesty the Queen 85 Tax Cases 5188, which was quoted with approval by the Hon'ble Supreme Court in Azadi Bachao Andolan's case (supra), Federal Court of Canada has observed that the non-resident can benefit from the exemption (under the treaty) regardless of whether or not he is taxable on that capital gain in his own country. If Canada or the US were to abolish the capital gains tax completely, while the other country did not, a resident of the country which has abolished the capital gains would still be exempt from capital gains in that other country". It is thus clear that taxability in one country is not sine qua non for availing relief under the treaty from taxability in the other country. All that is necessary for this purpose is that the person should be 'liable to tax in the Contracting State by reason of domicile, residence, place of management, place of incorporation or any other criterion of similar nature' which essentially refers to the fiscal domicile of such a person. In other words, if fiscal domicile of a person is in a Contracting State, irrespective of whether or not that person is actually liable to pay tax in that country, he is to be treated as resident of that Contracting State. The expression 'liable to tax' is not to read in isolation but in conjunction with the words immediately following it, i.e., 'by reason of domicile, residence, place of management, place of incorporation or any other criterion of similar nature’ of That would mean that merely a person living in a Contracting State should not be sufficient, that person should also have fiscal domicile in that country. These tests of fiscal domicile which are given by way of examples following the expression liable to tax by reason of, i.e., domicile, residence, place of management, place of incorporation, etc., are no more than examples locality-related attachments that attract residence type 7 | P a g e

IT ITA_71_72_Del_2025_Mandira Kanoi taxation. Therefore, as long as a person has such locality-related attachments which attract residence type taxation, that 'person is to be treated as resident and this status of being a 'resident' of the Contracting State is independent of the actual levy of tax on that person. Viewed in this perspective, we are of the considered opinion that being 'liable to tax' in the Contracting State does not necessarily imply that the person should actually be liable to tax in that Contracting State by virtue of an existing legal provision but would also cover the cases where that other Contracting State has the right to tax such persons irrespective of whether or not such a right is exercised by the Contracting State. In our humble understanding, this is the legal position emerging out Hon'ble Supreme Courts judgment in Azadi Bachao Andolan's case (supra). The plea taken by the Revenue that the assessee was not liable to tax', which was anyway not taken by the AO or before the CIT(A), is also not sustainable in law either. ………………….. ” 12. Hence, keeping in view, the parity of the facts, the judicial proposition laid down and in the absence of any contrary judgments brought to our notice, we hold that the assessee is eligible to get benefit of the India- UAE DTAA.”

6.

Thus, respectfully following the decision of the bench, we hold that the assessee is entitled to get benefit of the Article 13(5) of India UAE DTAA and the capital gains arising from sale of mutual funds is not taxable in India. Hence, the appeal of the assessee is allowed.

7.

As the issues involved and the facts and circumstances in ITA No. 71/Del/2025 in the case of Mandira Kanoi are identical, the above decision will apply mutatis mutandis to this appeal also.

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IT ITA_71_72_Del_2025_Mandira Kanoi

8.

In the result, both the appeals are hereby allowed.

Order pronounced in the Open Court on 18-03-2026.

Sd/- Sd/- (VIKAS AWASTHY) (RENU JAUHRI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 25.03.2026 Pooja Mittal, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi

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