ORDER

1. The only issue arising in this appeal is whether the sum of Rs. 1,86,000 received by the assessee on account of her performance in Canada can be taxed in India in view of the provisions of Article 18 of Indo-Canada Treaty.

2. Briefly stated, the facts of the case are that the assessee is a film artiste who participated in an entertainment show performed in Canada in the year under consideration and received a sum of US Dollars 6000. The tax was also deducted at source in Canada equal to the sum of US Dollars 900. The assessee claimed in the course of assessment proceedings that a sum of Rs. 1,86,000 (US dollars 6000) could not be taxed in India in view of Article 18 of Indo-Canada Treaty [wrongly mentioned as Article 17 by the Assessing Officer and the CIT(A)]. However, her contention was rejected by the Assessing Officer. It was found by the Assessing Officer that the assessee was a resident of India and consequently, it was held by him that her entire global income was taxable under the provisions of the Income-tax Act, 1961 ('the Act'). It was further observed by him that the assessee was entitled to relief under Article 23(3)(a) of the said Treaty. However, the Assessing Officer allowed deduction under section 80RR of the Act. On appeal, the CIT(A) confirmed the order of the Assessing Officer. Aggrieved by the same, the assessee is in appeal before the Tribunal.

3. The learned counsel for the assessee has assailed the order of the CIT(A) by contending that by virtue of the provisions of Article 18 of the Indo-Canada Treaty, the income derived by an artiste or an athlete by performing their shows/activities in Canada cannot be taxed in India since Article 18 permits only the other contracting State, i.e., the source country to tax such income. In support of this proposition, he relied on the decision of the Hon'ble Supreme Court in the case of CIT v. P.V.A.L. Kulandagan Chettiar [2004] 267 ITR 654 as well as the recent unreported decision in the case of Dy. CIT v. Torqouise Investment & Finance Ltd. [2008] 300 ITR 1 copy of which is placed on record. He has also relied on the decision of the Madras High Court in the case of CIT v. VR. S.R.M. Firm [1994] 208 ITR 400 wherein the expression "may be taxed" was interpreted to mean that the other contracting State was precluded from taxing the income. According to him this decision has been affirmed by the Supreme Court in the case reported as P.V.A.L. Kulandagan Chettiar (supra).

4. On the other hand, the learned Departmental Representative submitted before us that the decision of the Supreme Court in P.V.A.L. Kulandagan Chettiar's case (supra) was on the issue of domicile and the expression "may be taxed" was never construed by the court. According to her, the decision of the Madras High Court was affirmed on different reasoning and, therefore, the decision of the Supreme Court relied on by the assessee's counsel is quite distinguishable. On the contrary, she relied on the decision of the Authority for Advance Ruling (AAR) in the case of S. Mohan, In re [2007] 294 ITR 177 wherein the expression 'may be taxed' was construed and it was held that such words did not preclude the contracting States of residence to tax the same if the assessee was liable to tax under the domestic law. According to this judgment, the assessee was only entitled to double taxation relief if the tax has been paid in the source country. It was also submitted by her that the decision of the Supreme Court in P.V.A.L. Kulandagan Chettiar's case (supra) was held to be distinguishable by (AAR) by observing that the Supreme Court did not express any opinion regarding the scope of the expression "may be taxed". Proceeding further, it was submitted by her that Indo-Canada Treaty is similar to OECD Model Convention and, therefore, its meaning should be understood as per the OECD Commentary. Proceeding further, it was submitted that there are two categories of treaties. According to one category, the relief is provided by way of exemption from tax like India-Austria Treaty and the other category is where relief is given by way of credit in respect of tax paid in other country such as Indo-Canadian Treaty. Therefore, in the present case, the assessee is only entitled to credit tax paid in Canada as per the provisions of Article 23 of Indo-Canada Treaty. He referred to page 971 of the Commentary by Klaus Vogel to contend that the tax could be levied by both countries. Regarding the judgment of the Supreme Court, it was submitted by her that Indo-Malaysian Treaty considered by the Apex Court came into effect from 1-4-1973 when OECD Commentary was not in existence and, therefore, the court refused to look into the said commentary. However, in the present case, the OECD Commentary is very much in existence at the time of agreement between the two countries and, therefore, the provisions of treaty should be understood as per the OECD Commentary.

5. Rival submissions have been considered carefully. Admitted facts are that - (i) the assessee is a resident of India, (ii) she is an artiste who performed the entertainment show in Canada in the year under consideration for which she was paid US Dollars 6,000 equivalent to Indian Rupees 1,86,000, (iii) tax of 900 US Dollars was deducted at source in Canada. There is also no dispute that as per the domestic law, the assessee is liable to pay tax on its entire global income. In view of the above facts, the question arises whether liability to pay tax under the domestic law can be avoided in view of the provisions of the Article 18 of the Indo-Canada Treaty which reads as under:

ARTICLE 18

Artistes and athletes

1. Notwithstanding the provisions of Articles 7, 15 and 16, income derived by entertainers, such as theatre, motion picture, radio or television artistes and musicians, and by athletes, from their personal activities as such may be taxed in the Contracting State in which these activities are exercised.
2. Where income in respect of personal activities as such exercised in a Contracting State by an entertainer or athlete accrues not to that entertainer or athlete himself but to another person which provides the activities in that State, that income may, notwithstanding the provisions of Articles 7, 15 and 16, be taxed in that Contracting State.
3. The provisions of paragraphs 1 and 2 shall not apply if the visit to a Contracting State of the entertainer or the athlete is directly or indirectly supported, wholly or substantially, from the public funds of the other Contracting State, including any political sub-division, local authority or statutory body of that other State.

The perusal of the paragraph 1 which is relevant for disposal of this appeal shows that where an artist performs an entertainment show in the other contracting State then, the profits may be taxed in such contracting State.

6. The contention of the revenue is that the expression "may be taxed" in paragraph 1 in Article 18 gives only an option to the other contracting State to tax the income but it does not preclude the contracting State of residence to assess the said income. According to her, this contention finds support from the provisions of Article 23 which provides relief with reference to tax paid or deducted at source in the source State. Reliance is placed on the decision of the Authority for Advance Ruling in S. Mohan's case (supra). On the other hand, the contention of the assessee is that such expression authorizes only the contracting State of source to tax such income and by necessary implication the contracting State of residence is precluded from taxing such income. Reliance is placed on the judgments of the Hon'ble Supreme Court in the case of P.V.A.L Kulandagan Chettiar (supra) and Torqouise Investment & Finance Ltd. (supra).

7. After giving our due consideration to the above rival contentions, we are of the humble view that income derived by the assessee from the exercise of her activity in Canada is taxable only in source country, i.e., Canada for the reasons given hereafter. The scheme of taxation of income is contained in Chapter III of Double Taxation Avoidance Agreement (DTAA)/Indo-Canada Treaty. On an analysis of various Articles contained in Chapter III, we find that the scheme of taxation is divided in three categories. The first category includes Article 7 (Business profits without P.E. in the other State), Article 8 (Air transport), Article 9 (Shipping), Article 14 (capital gains on alienation of ships or aircrafts operated in international traffic), Article 15 (Professional services), Article 19 (Pensions) which provide that income shall be taxed only in the State of residence. The second category includes Article 6 (Income from immovable property), Article 7 (Business profits where PE is established in other contracting State), Article 15 (Income from professional services under certain circumstances), Article 16 (Income from dependent personal services where employment is exercised in other contracting State), Article 17 (director's fees), Article 18 (income of Artistes and Athletes), Article 20 (Govt. Service) which provide that such income may be taxed in the other contracting State, i.e., State of income source. The third category includes Article 11 (Dividends), Article 12 (Interest), Article 13 (Royalty and fee for technical services), Article 14 (capital gains on other properties) and Article 22 (Other income) which provide that such income may be taxed in both the contracting States. For example, paragraph 1 of Article 11 provides that dividend income may be taxed in other contracting State while paragraph 2 provides that dividend income may also be taxed in the State of residence. Similarly, Article 14(2) and Article 22 provide that income may be taxed in both the countries. The above analysis clearly shows that intention of parties to the DTAA is very clear. Wherever the parties intended that income is to be taxed in both the countries, they have specifically provided in clear terms. Consequently, it cannot be said that the expression "may be taxed" used by the contracting parties gave option to the other contracting States to tax such income. In our view, the contextual meaning has to be given to such expression. If the contention of the revenue is to be accepted then the specific provisions permitting both the contracting States to levy the tax would become meaningless. The conjoint reading of all the provisions of Articles in Chapter III of Indo-Canada Treaty, in our humble view, leads to only one conclusion that by using the expression "may be taxed in the other State", the contracting parties permitted only the other State, i.e., State of income source and by implication, the State of residence was precluded from taxing such income. Wherever the contracting parties intended that income may be taxed in both the countries, they have specifically so provided. Hence, the contention of the revenue that the expression "may be taxed in other State" gives the option to the other State and the State of residence is not precluded from taxing such income cannot be accepted.

8. The reliance of the revenue on Article 23 is also misplaced. It has been contented that Article 23 gives credit of tax paid in the other State to avoid double taxation in cases like the present one. In our opinion, such provisions has been made in the treaty to cover the cases falling under the third category mentioned in the preceding paragraph i.e., the cases where the income may be taxed in both the countries. Hence, the cases falling under the first or second categories would be outside the scope of Article 23 since income is to be taxed only in one state.

9. Reliance has also been placed by the revenue on the commentary by Klause Vogel at page 971. It is now the settled legal position that commentaries can be looked into as a guiding factor only where the language of the treaty is ambiguous. Reference can be made to the decision of the Supreme Court in the case of P.V.A.L. Kulandagan Chettiar (supra). In the present case, we have found, that intention of the contracting parties is very much clear from the treaty itself. Further, the commentaries are not binding on courts since the same are of persuasive value or indicative of contemporaneous thinking. The parties to the agreement are always at liberty to deviate from the same. Even assuming that the commentary supports the stand of the revenue, the same cannot be accepted since parties to the agreement had deviated from the same clearly indicating their intention in the treaty itself.

10. The view taken by us also stands fortified by the decision of Madras High Court in the case of VR. S.R.M Firm (supra) which has been affirmed by the Apex Court in the case of P.V.A.L Kulandagan Chettiar (supra) and again approved in the recent decision dated 20-2-2008 in the case of Torqouise Investment & Finance Ltd. (supra). In the case before the Hon'ble Madras High Court, the assessee was resident of India who had earned profit on sale of immovable property in Malaysia. Article 6 of Indo-Malaysia Treaty provided that such income may be taxed in the State in which such property was situated. The assessee claimed that he was not liable to pay tax on such income in view of Article 6 of the treaty. The revenue took the same stand as taken before us in the present case. The court rejected the same by observed as under:

"The contention on behalf of the Revenue that wherever the enabling words such as "may be taxed" are used there is no prohibition or embargo upon the authorities exercising powers under the Act, from assessing the category or class of income concerned cannot be countenanced as of substance or merit. As rightly pointed out on behalf of the assessees, when referring to an obvious position such enabling form of language has been liberally used and the same cannot be taken advantage of by the Revenue to claim for it a right to bring to assessment the income covered by such clauses in the agreement, and the mandatory form of language has been used only where there is room or scope for doubts or more than one view possible, by identifying and fixing the position and placing it beyond doubt."

Since the above decision has been affirmed by the Apex Court, there is no scope for taking a different view. We are aware of the fact that the Apex Court observed that the decision of the Madras High Court was being affirmed for different reason but the conclusion remains that income cannot be assessed in the State of residence where the agreement provides that income may be taxed in the source country. In this context, it is pertinent to observe that the identical issue arose before the Hon'ble Madhya Pradesh High Court in the case of Torqouise Investment & Finance Co. (supra) and the court, following the decision of the Madras High Court in the case of VR.S.R.M. Firm (supra), held that income arising on the sale of immovable property in Malaysia could not be taxed in India. The matter again reached the Supreme Court and the Apex Court has affirmed the view of the Hon'ble Madhya Pradesh High Court following its earlier decision in P.V.A.L. Kulandagan Chettiar (supra). Therefore, in our view, the decision of the Supreme Court cannot be distinguished for the reasons given by the Authority for Advance Ruling in the case of S. Mohan (supra).

11. Similar issue also arose before the Hon'ble Karnataka High Court in the case of Commissioner Of Income-Tax v. R.M Muthaiah. [1993] 202 ITR 508 . In that case also the assessee who was resident in India had earned income in Malaysia and claimed the same as exempt from tax in India in view of DTAA between India and Malaysia. The claim of the assessee was rejected by the Income-tax Officer but was accepted by the Tribunal. Before the High Court, the counsel for the Revenue submitted that by virtue of clause (1) of Article 6 of the DTAA read with section 5 of the Income-tax Act, 1961, it was clear that both the Government of India as well as the Government of Malaysia could levy the tax on such income and if so, clause 2(a) of Article 22 would govern the assessee's case for allowing the credit of tax paid in Malaysia. Such contention of the revenue was rejected by the High Court by observing as under:

"When a power is specifically recognized as vesting in one, exercise of such a power by others is to be read as not available; such a recognition of power with the Malaysian Government would take away the said power from the Indian Government; the agreement thus operates as a bar on the power of the Indian Government in the instant case. This bar would operate on sections 4 and 5 of the Income-tax Act, 1961, also."

The above observations of the High Court clearly support the view taken by us.

12. The decision of Authority for Advance Ruling in the case of S. Mohan (supra) is based on the interpretation of Article 16 in isolation i.e., without considering the scheme of taxation under the treaty. Perhaps, the attention of the Authority was not drawn to the other provisions of the treaty. Therefore, for the reasons given by us, we are unable to follow the said decision.

13. In view of the above discussion, it is held that the assessee cannot be taxed in respect to the sum of Rs. 1,86,000 under the provisions of the Income-tax Act, 1961 in view of the overriding provisions of DTAA between India and Canada. The order of the CIT(A) sustaining the addition is set aside and consequently, the Assessing Officer is directed to exclude the same from the total income of the assessee.

14. In the result, the appeal is allowed.