Courts in India have been taking a view that whenever the expression ‘may be taxed’ has been used in a tax treaty without anything else, it is the state of source that gets the exclusive taxation right and India, as the country of residence, loses the same. Recently, the Income Tax Appellate Tribunal gave a decision involving a Bollywood artist, resident in India, who had performed in Canada and from whose income, tax was withheld in Canada. The Tribunal, while interpreting the relevant tax treaty, came to the conclusion that India has no right to tax the income. According to the Tribunal, India by entering into a treaty with Canada has given away its right of taxation to Canada. This article analyses and comments on the decision; it looks at the genesis of the controversy, at previous case law and at the efforts of the Indian Revenue to deal with the issue, including the latest notification defining the expression ‘may be taxed’ issued by the Central Board of Direct Taxes.
Intertax