The Appellate Tribunal Inland Revenue Islamabad said that international law does not prohibit the state of residence (Pakistan) from taxing revenue from property located in another country (UAE).
According to the facts of the case, the appellant taxpayer is an individual who earns a salary and foreign source immovable property income. The case was chosen for audit under section 214D of the Income Tax Ordinance, and the appropriate Commissioner was notified. Following that, an information document request was submitted to the taxpayer via IRIS under section 177(1) of the Ordinance.
As a result, the appellant’s case was transferred to the AEOI Zone Islamabad. An information document request was sent to the appellant once more, in which the appellant was asked to provide different facts, documents, and other related information about the declaration made in the appellant’s income tax return for the tax year 2017. On December 25th, 2020, the appellant submitted a reply along with specific documentation.
The appellant’s authorized representative (AR) stated that there is no doubt that the appellant is a resident person and that the immovable property in question is located in Dubai and generates rental revenue.
Moreover, the learned AR used paragraph 1 of Article 6 of the double taxation avoidance agreement (DTAA) between Pakistan and the government of the UAE to argue that because income derived by a resident of one contracting state from immovable property located in the other contracting state can be taxed in that other state, the appellant’s rental income in Dubai could not be taxed in Pakistan.
In accordance with the AR, the phrase “may be taxed in” means “must be taxed exclusively in” a specific state, according to the interpretation given to it by various courts.
Furthermore, it was argued that after the two countries signed the treaty, the Ordinance could no longer be the law governing the taxability of such income in the two countries, but that only the treaty governed such taxability, and thus the provisions of sections 4, 10, 11, and 15 of the Ordinance could no longer be considered for this purpose.