NR can’t be taxed u/s 69 unless it is proved that investments are made out of income generated in India: ITAT

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  • Last Updated on 25 November, 2021

Indo-UAE DTAA Unexplained investments

Case Details: ITO v. Rajeev Suresh Ghai - [2021] 132 234 (Mumbai - Trib.)

Judiciary and Counsel Details

    • Pramod Kumar, Vice-President and Ravish Sood, Judicial Member
    • Milind Chavan for the Appellant. 
    • Hiro Rai and Ritu Punjabi for the Respondent.

Facts of the Case

Assessee was a non-resident Indian settled in the United Arab Emirates (UAE) for the last three decades. As per information received from the investigation wing, the Assessing Officer (AO) noticed that the assessee had paid cash amounts aggregating to Rs 2,50,40,000 to Ahuja Builders as ‘on money’.

This amount was treated as an ‘unexplained investment’ under section 69. Aggrieved, the assessee carried the matter in appeal before the learned CIT(A). The CIT(A) deleted the impugned addition. The AO filed the instant appeal before the Mumbai Tribunal.
The Mumbai Tribunal held that the unexplained investment is not specifically taxed under any of the heads in the Indo UAE tax treaty. That brings into the picture the residuary head of income deals with ‘other income,’ which is covered by Article 22.

The trigger for taxation of an income in a source jurisdiction is either the economic activity or the linkage of an income with that jurisdiction. In the absence of such a linkage or economic activity nexus, there cannot be any source taxation.


In the given case, the assessee was an Indian national but a resident of the UAE. The taxing rights under Article 12 belong to the residence jurisdiction. Even if the rights can at best go to the source jurisdiction, by no stretch of logic, an unexplained investment could be taxed in India, which is neither residence nor source jurisdiction but is an investment jurisdiction.

Thus, unexplained investments could be taxed in India under section 69 only if it can be proved that the assessee made the unexplained investments out of his incomes earned in India.

The treaty does not cover the taxation of income of the nature, such as ‘unexplained investment’ and that is the end of the road. Since the said income is not even taxable under the residuary article 22, there cannot be any taxation of this income in the hands of the assessee under the Indo UAE tax treaty.

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