Thursday, June 12, 2014

Family pension received from UK based bank would fall under residuary Article 23 of India-UK DTAA - taxable in UK only

Where the assessee received family pension from the employer of the deceased wife, i.e., from RBS, UK on which tax was deducted in the source country (i.e., UK), said income could not be taxed for a second time in India.


The issue before the Tribunal was:

Whether family pension received by assessee from the employer of his deceased wife (i.e., RBS, UK) on which tax was deducted in source country (i.e., UK) could be taxed again in India?

The Tribunal held as under:

1)Article 20 of India-UK DTAA (‘treaty’) was related to pensions, which means that the payment received by the employee in consideration of past employment. It had no relevance to the family pension, which is generally received by the spouse or family members or legal dependent of the deceased employee from the employer of deceased family member.

2)The Article 23(3) of treaty is related to the items of income which are not included in the foregoing articles of the treaty. Such income arising in the other contracting State may be taxed in that other State. Thus, 'family pension' which was not within the ambit of foregoing articles of India-UK Treaty and arose in the other contracting State, could be taxed in other state.

3)The expression ‘may be taxed’ mentioned in Article 23(3) of treaty authorizes only the State of source to tax such income. Accordingly, the family pension received by the assessee from the employer of his deceased wife was rightly taxed at source in UK and no amount of family pension was, thus, taxable in India.

4)In the instant case, the source country had deducted tax on family pension and, consequently, assessee had received amount after deduction of tax. Thus, the same income could not be taxed second time in the other contracting State, i.e., in India. – ACIT V. KARAN THAPAR [2014] 46 46 (Delhi - Trib.)