Taxation of rental income from properties held in UAE: Islamabad, Lahore ATIRs issue ‘opposite’ judgments

ISLAMABAD: Appellate Tribunal Inland Revenue, Islamabad and the Appellate Tribunal Inland Revenue, Lahore have issued opposite judgments on the taxation of rental income from properties held in the United Arab Emirates (UAE).

The Appellate Tribunal Inland Revenue, Lahore and Appellate Tribunal Inland Revenue, Islamabad have issued different judgments on the same issue of taxation of properties situated in other countries.

Appellate Tribunal Inland Revenue Inland Revenue, Islamabad declared that there is no bar under international law for the state of resident (Pakistan) to impose a tax on income from property situated in UAE.

On the other hand, Appellate Tribunal Inland Revenue, Lahore ruled that the order of the assessing officer against the taxpayer is annulled pertaining to the rental income from the properties held abroad.

The judgement of the Appellate Tribunal Inland Revenue, Lahore revealed that in the light of foregoing discussion, the order of the assessing officer against the taxpayer is annulled and as a consequence order of the Commissioner Inland Revenue (Appeals) is vacated.

The taxpayer’s authorized representative explained that the appellant taxpayer is a resident of Pakistan and had filed foreign income and assets statement besides filing return of total income. This income was shown as exempt from tax in the prescribed column of the declaration in view of Article 6.1 of the tax treaty between Pakistan and the UAE, wherein, taxing right in respect of income from property was given to the country where the property is located.

ATIR Islamabad verdict: State of residence can tax on income from property in UAE

If two interpretations are possible then one favoring the taxpayer will prevail far an overriding effect of the tax treaty is concerned. In this regard, the important aspect of the matter is the non-obstante clause of section 163(4) of the Ordinance which clearly postulates that such treaties for the avoidance of double taxation would be awarded preference and any tax which could be levied and charged against the respondent under the income tax law would be subject thereto.

The aforesaid judgement was in the context of section 163(4) of the Income Tax Ordinance, 1979 and said section is similar to section 107(2) of the Income Tax Ordinance, 2001 as far as the overriding effect is concerned as in both sections the words of “notwithstanding” has been used and hence tax treaty will prevail. In the light of foregoing discussion the order of the assessing officer is annulled and as a consequence order of the CIR-A is vacated, Appellate Tribunal Inland Revenue Lahore added.

On the other hand, Appellate Tribunal Inland Revenue Islamabad has declared that there is no bar under international law for the state of resident (Pakistan) to impose a tax on income from property situated in another country (UAE).

According to a judgement of the tribunal Islamabad, the tribunal is of the considered opinion that there is no bar under the state of resident to impose a tax on income from property situated in another state.

Copyright Business Recorder, 2022