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TMI Blog2016 (4) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... om the point of view of the recipient of an amount, the word "payment" will not normally be used. The Press Release is not a legal document, but a note intended for the benefit of the common man. Therefore, the words and expressions used therein cannot be tested on the strength of Law Lexicons. Moreover, as rightly pointed out by Mr.T.Pramod Kumar Chopda, learned Standing Counsel for the Department, the Supreme Court made it clear in para 44 of the report in Azadi Bachao Andolan that though the Circulars issued by CBDT under Section 119 of the Act, have statutory force, the Press Releases issued by CBDT for the information of the public, do not have the same force. Therefore, the question of assailing the Press Release does not arise. Clause 6.4 of the Securities Purchase Agreement reads as follows:- "6.4 Skyngelor represents, warrants and covenants that the First Tranche Securities are being transferred hereunder at a loss and, thus, there is no obligation on the Buyers to withhold any Tax on the First Tranche Consideration being remitted to Skyngelor for the transfer of the First Tranche Securities. If despite such representation, any tax should be levied, the same shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el appearing for the petitioners and Mr.T.Pramod Kumar Chopda, learned Standing Counsel for the Income Tax Department. 3. Since there are three writ petitions challenging the Constitutional validity of Section 94-A(1), there are three writ petitions challenging the validity of the Notification bearing No.86/2013 and three writ petitions challenging the press release, we deem it fit to extract Section 94-A in entirety, the Notification dated 1.11.2013 as well as the press release in entirety before we proceed to consider the grounds of challenge. 4. Section 94-A of the Income Tax Act reads thus : 94-A. Special measures in respect of transactions with persons located in notified jurisdictional area.- (1) The Central Government may, having regard to the lack of effective exchange of information with any country or territory outside India, specify by notification in the Official Gazette such country or territory as a notified jurisdictional area in relation to transactions entered into by any assessee. (2) Notwithstanding anything to the contrary contained in this Act, if an assessee enters into a transaction where one of the parties to the transaction is a person l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of this Act, where any person located in a notified jurisdictional area is entitled to receive any sum or income or amount on which tax is deductible under Chapter XVII-B, the tax shall be deducted at the highest of the following rates, namely:- (a) at the rate or rates in force; (b) at the rate specified in the relevant provisions of this Act; (c) at the rate of thirty per cent. (6) In this Section,- (i) person located in a notified jurisdictional area shall include,- (a) a person who is resident of the notified jurisdictional area; (b) a person, not being an individual, which is established in the notified jurisdictional area; or (c) a permanent establishment of a person not falling in Sub-Clause (a) or Sub-Clause (b), in the notified jurisdictional area; (ii) permanent establishment shall have the same meaning as defined in Clause (iiia) of Section 92F. 5. The Notification dated 1.11.2013 reads as follows : Ministry of Finance (Department of Revenue) (Central Board of Direct Taxes) Notification New Delhi the 1st November 2013 No.86/2013 [Income Tax] S.O.3307(E) - In exercise of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The implications of such a Notification are summarized as under: If an assessee enters into a transaction with a person in Cyprus, then all the parties to the transaction shall be treated as associated enterprises and the transaction shall be treated as an international transaction resulting in application of transfer-pricing regulations including maintenance of documentations [Section 94-A(2)]. No deduction in respect of any payment made to any financial institution in Cyrus shall be allowed unless the assessee furnishes an authorization allowing for seeking relevant information from the said financial institution [Section 94-A(3)(a) read with Rule 21AC and Form 10FC]. No deduction in respect of any other expenditure or allowance arising from the transaction with a person located in Cyprus shall be allowed unless the assessee maintains and furnishes the prescribed information [Section 94-A(3)(b) read with Rule 21AC]. If any sum is received from a person located in Cyprus, then the onus is on the assessee to satisfactorily explain the source of such money in the hands of such person or in the hands of the beneficial owner, and in case of his failure to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as an assessee in default, warranting the initiation of proceedings under Section 201(1)/201(1A) of the Income Tax Act. 10. In response to the show cause notices, the petitioners appeared before the Assessing Officer through their authorised representative and filed written submissions along with a legal opinion that they claimed to have obtained on 16.10.2014, the date on which, they entered into the Securities Purchase Agreement. 11. The main contention of the writ petitioners before the Income Tax Officer was that they would have had an obligation to deduct tax at source, only if there was chargeability of a payment under Section 195. The petitioners claimed that they had in fact purchased the securities at a rate below their face value and that the Cyprus company had in fact suffered a loss. 12. But, overruling the objections, the Income Tax Officer passed three separate orders dated 27.4.2015 under Section 201(1)/201(1A), directing the petitioners to pay tax and interest, as determined. A notice of demand under Section 156 was also issued. 13. It appears that the petitioners immediately filed statutory appeals under Section 246A of the Act before the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital', with the Republic of Cyprus in December 1994. The Agreement entered into force on 21.12.1994 and the Central Government also issued a notification bearing No.G.S.R. 805(E) dated 26.12.1995 in exercise of the powers conferred by Section 90 of the Income Tax Act, 1961. The Agreement also contains a provision in Article 28 for 'Exchange of Information' and a provision in Article 27 prescribing a 'Mutual Agreement Procedure' to address any difficulties or doubts arising as to the interpretation or application of the Agreement. 19. Therefore, the contention of Mr.Arvind P.Datar, learned Senior Counsel appearing for the petitioners is that once India has entered into a Treaty with another country and such Treaty has also been notified under Section 90 of the Income Tax Act, 1961, the Treaty becomes a law under Article 253. Therefore, the Parliament is not competent to enact any law by invoking Article 245(1), as the power under Article 245(1) is subordinate to the power under Article 253. 20. In other words, the contention of Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme of Chapter I of Part XI of The Constitution, contained in Articles 245 to 255, (excluding those relating to repugnancy and the one relating to Article 253) can be best understood in simple terms as follows : (i) Parliament has exclusive power to make laws with respect to matters enumerated in List I of the Seventh Schedule. (ii) Parliament also has the exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List. (iii) Both Parliament as well as the State Legislature would have power to make laws with respect to any of the matters enumerated in List III. (iv) The Legislature of a State will have the exclusive power to make laws for the State, with respect to any of the matters enumerated in List II. (v) The Parliament would also have the power to legislate with respect to a matter enumerated in the State List, subject to the fulfillment of certain conditions stipulated in Article 249. The Parliament would have a similar power whenever a Proclamation of Emergency is in operation. 27. Keeping in mind the scheme of Chapter I of Part XI, let us have a look at Article 253, which reads as follows : Legislation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exercise of such rights, authority and jurisdiction as are exercisable by the Government of India by virtue of any Treaty or Agreement: Provided that the executive power referred to in Sub-Clause (a) shall not, save as expressly provided in this Constitution or in any law made by Parliament, extend in any State to matters with respect to which the Legislature of the State has also power to make laws. 31. The law making power of the Parliament in relation to international Treaties, Agreements and Conventions can be traced to Entries 10, 12, 13 and 14 of List I of the 7th Schedule to The Constitution. Entry 10 relates to foreign affairs and all matters, which bring the Union into relation with any foreign country. Entry 12 deals with United Nations Organisation. Entry 13 relates to participation in international conferences, associations and other bodies and implementing of decisions made there at. Entry 14 relates to 'entering into Treaties and Agreements with foreign countries and implementing of Treaties, Agreements and Conventions with foreign countries'. 32. Hence, Article 253 of The Constitution, empowering the Parliament to make any law for implementing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinction between (i) an international Treaty or Convention ratified by India and (ii) a bilateral or multilateral Treaty or Agreement entered into by India with one or more specific countries on one-to-one basis is understood clearly, the legal implications of these two types of Treaties cannot be understood. This point can be well understood, if we have a look at the case law that has developed on the question of enforcement of the rights arising out of Conventions or Treaties ratified by India. 37. In Jolly George Varghese Vs. The Bank of Cochin [AIR 1980 SC 470], the Supreme Court held that the executive power of the Government of India to enter into international Treaties does not mean that international law, ipso facto, is enforceable upon ratification. The Supreme Court observed that the Indian Constitution followed the 'dualistic' doctrine with respect to international law. Consequently, the Court held that international Treaties do not automatically form part of international law, unless incorporated into the legal system by a legislation made by the Parliament. In that case, the Court was actually dealing with Article 11 of the International Covenant on Civi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d: It seems to me that in view of Article 51 of the Directive Principles, this Court must interpret the Constitution, if not intractable, which is after all, an intractable law, in the light of the United Nations Charter and the solemn declaration subscribed to by India. In A.D.M., Jabalpur Vs. Shivakant Shukla [AIR 1976 SC 1207], the Supreme Court referred to Articles 862 and 963 of the Universal Declaration of Human Rights, for projecting the scope of Article 21. 42. In M.V.Elizabeth Vs. Harwan Investment Trading Private Limited [1993 Supp. (2) SCC 433], the Supreme Court was concerned with a very tricky situation relating to the Admiralty Jurisdiction of a High Court. Though several international Conventions were relied upon, some of them had not even been ratified by India. But, the Supreme Court pointed out that such international Conventions contained the unified rules of law drawn from different legal systems and that they embody the principles of law recognized by States. As a consequence, those Conventions were held by the Supreme Court to be regarded as part of the common law. Nevertheless, the Supreme Court pointed out that a specialised body of legal and technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... human dignity in Articles 14, 15, 19(1)(g) and 21 of The Constitution. The Court further held that any international Convention not inconsistent with the fundamental rights and in harmony with its spirit must be read into those provisions to enlarge the meaning and content thereof to promote the object of the Constitutional guarantee. 46. In Pratap Singh Vs. State of Jharkhand [2005 (3) SCC 551], the Supreme Court reiterated that the Courts can refer to and follow international Treaties, Covenants and Conventions, to which, India is a party, although they may not be part of our municipal law. In this case, the Court held that the Juvenile Justice (Care and Protection of Children) Act, 2000 should be interpreted in the light of the Universal Declaration of Human Rights as well as the United Nations Standard Minimum Rules for the Administration of Juvenile Justice 1985 (Beijing Rules). 47. In Entertainment Network (I) Ltd. Vs. Super Cassette Industries [2008 (9) Scale 69], the Court once again affirmed that international Covenants can be pressed into service for interpreting domestic legislation, if the domestic law will not be breached as a result. The Court also held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itius according to the tax laws of that country. This resulted in a large number of foreign institutional investors, resident in Mauritius, investing large amounts of capital in Indian companies. But, after finding that most of those companies incorporated in Mauritius happened to be mere shell companies, the Income Tax Authorities started issuing show cause notices for taxing the profits and dividends accrued to them in India. When the Mauritius companies retaliated by withdrawing their investments, political compulsions made the Central Board of Direct Taxes to issue a clarificatory circular bearing No.789 dated 13.4.2000. 52. The above circular was challenged before the High Court of Delhi, by a non governmental organisation by name Azadi Bachao Andolan, by way of a public interest litigation. In a second writ petition, they also prayed among other things, for declaring and delimiting the powers of the Central Government under Section 90 of the Income Tax Act, in the matter of entering into an Agreement with the Government of any country outside India. 53. The High Court of Delhi allowed the writ petitions and quashed the circular holding among other things (i) that Treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties could be of two types, one restricting the rights of citizens or modifying the law of the State and the other not affecting the rights of citizens. Treaties, which fall under the first type, require legislation, to have binding force upon the citizens and those, which fall under the second type, do not require any legislation. 57. Having identified two types of Treaties and the essential difference between them, the Supreme Court held in paragraph 19 that though in the United States, a Treaty becomes part of the municipal law upon ratification by the Senate and though in the United Kingdom, such a Treaty would have to be endorsed by an order made by the Queen-in-Council, the position in India is that such a Treaty would have to be made into an Act of Parliament. The Court also held in paragraph 19 of the report in Azadi Bachao Andolan that since the procedure of translating a Treaty into an Act of Parliament would be time consuming and cumbersome, a special procedure was evolved by enacting Section 90 of the Income Tax Act. 58. But, the difficulty in reconciling the opinion contained in paragraph 18 with the opinion contained in paragraph 19 of the report in Azadi Bachao ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... country at a disadvantage vis- -vis other taxpayers, Section 90 of the Income-tax Act has been amended to clarify that any beneficial provision in the law will not be denied to a resident of a contracting country merely because the corresponding provision in the tax Treaty is less beneficial. 61. In paragraphs 21 and 22 of its decision in Azadi Bachao Andolan, the Supreme Court indicated that the provisions of Sections 4 and 5 of the Income Tax Act, are expressly made subject to the provisions of the Act. As a consequence, they are subject to Section 90 and by necessary implication, they are also subject to the terms of Double Taxation Avoidance Agreement. After having pointed out the same, the Supreme Court held in paragraphs 28 and 29 as follows : A survey of the aforesaid cases makes it clear that the judicial consensus in India has been that Section 90 is specifically intended to enable and empower the Central Government to issue a notification for implementation of the terms of a Double Taxation Avoidance Agreement. When that happens, the provisions of such an Agreement, with respect to cases to which where they apply, would operate even if inconsistent with the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utside India or specified territory outside India,- (a) for the granting of relief in respect of- (i) income on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be, or (ii) income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or (b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, or (c) for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country or specified territory, as the case may be, or investigation of cases of such evasion or avoidance, or (d) for recovery of income-tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be, and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the Agreement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her words, the Parliament empowered the Central Government under Sub-Section (1) to enter into an agreement and simultaneously it conferred a benefit upon the assessee under Sub-Section (2). This Section 90 did not say either expressly or by necessary implication, that the law made by Parliament would stand eclipsed or excluded, to the extent it is inconsistent with the terms of the Agreement. 68. As a matter of fact, the observation made by the Supreme Court in paragraph 28 (shown by us in bold letters in the extract given in para 61 above) that the provisions of such an Agreement, with respect to cases to which where they apply, would operate even if inconsistent with the provisions of the Income Tax Act, cannot be viewed in isolation. If viewed in isolation, it would result in mutually inconsistent results. This can be demonstrated in the following paragraph. 69. First of all, Section 90(2) does not use a non obstante clause to say that the provisions of an agreement entered into by the Central Government under Section 90(1) would prevail over the other provisions of the Act. Secondly, Sub-Section (2) of Section 90, instead of ousting the application of the other provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be translated into legislation, so as to have binding force : (a) Treaties involving cession of territory; (b) Treaties, whose implementation requires addition to, or alteration of, the existing law; (c) Human rights Covenants and other instruments (d) If the Treaty calls for any legislation to facilitate its implementation within the country or any specific allocation of financial resources; (e) Treaties affecting private rights (f) Further, where the Constitution expressly mandates that a particular act can be done by legislation only, the Executive cannot transgress upon that competence of the legislature; (g) Also, the Executive cannot act contrary to the provisions of the law or cause prejudice to a person except by some legislative authority. 74. It is needless to point out that the Executive cannot acquire new rights against citizens merely by concluding Treaties. No new offences can be created merely by concluding a Treaty, without statutory sanction. Though few jurists are of the opinion that the views of Alexandrowicz has come to prevail over the views of Basu, there is no unanimity of opinion. 75. The fact that our country ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to either for reducing the tax liability or for altogether avoiding the liability. 78. There cannot be a quarrel with the proposition of law laid down in paragraph 8 of Kulandagan Chettiar. But, as we have indicated earlier, Section 90(2) does not deal with the question of conflict between a Treaty and the provisions of a statute. It merely deals with the option given to an assessee, to whom an agreement referred to in Section 90(1) applies, to choose either the provisions of the Treaty or the provisions of the Act, whichever is more beneficial to him. 79. No question arose directly either in Azadi Bachao Andolan or in Kulandagan Chettiar as to whether or not the Parliament has the power to make a law in respect of a matter covered by a Treaty. Therefore, the observations found in these two decisions, to the effect that the provisions of the Treaty will have effect even if they are in conflict with the provisions of the statute, cannot be stretched too far to conclude that the Parliament does not have the power to make a law in respect of a matter covered by a Treaty. 80. It will be useful at this juncture to quote what the National Commission to Review the Working of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to, even if they do not carry out the Treaty obligations. 85. As pointed out by the Supreme Court in Azadi Bachao Andolan, Section 90 of the Income Tax Act, 1961 (as it was originally adopted) was a reproduction of Section 49A of the 1922 Act. The 1922 Act was a colonial Act. Therefore, it would be useful to look at the views of the Privy Council, as propounded in Attorney General of Canada Vs. Attorney General of Ontario [AIR 1937 P.C. 82], which read as follows : Within the British Empire, there is a well established rule that the making of a Treaty is an Executive act while the performance of its obligations, if they entail alteration of the existing domestic law, requires legislative action. Unlike some other countries, the stipulations of a Treaty duly ratified, do not within the Empire, by virtue of the Treaty alone, have the force of law. If the National Executive, the Government of the day decide to incur the obligations of a Treaty, which involve alteration of law, they have to run the risk of obtaining the assent of the Parliament to the necessary statute or statutes. Parliament no doubt, has a Constitutional control over the Executive, but it cannot be dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficiary of such a breach of obligation by one of the contracting parties (like the assessee herein) cannot invoke the Vienna Convention to prevent the other contracting party (India in this case) from taking recourse to internal law, to address the issue. 89. It will be of interest to note that in Ram Jethmalani, the Supreme Court took note of the Vienna Convention as well as the decision in Azadi Bachao Andolan and came to a conclusion towards the end of paragraph 70 of the SCC report, which reads as follows : The Government cannot bind India in a manner that derogates from the Constitutional provisions, values and imperatives. The above observation, in our considered view, is a complete answer to the challenge of the petitioners to the power of the Parliament to enact Section 94A, despite the existence of an agreement entered into under Section 90(1). 90. Therefore, we are of the considered view that the challenge to the Constitutional validity of Section 94A(1) is without any merit. The argument that Section 90(1)(c) cannot be diluted by Section 94A(1) overlooks the fundamental fact that if the purpose of the Central Government entering into an agreement und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore pledged to do whatever is necessary to: . restore confidence, growth, and jobs; . repair the financial system to restore lending; . strengthen financial regulation to rebuild trust; . fund and reform our international financial institutions to overcome this crisis and prevent future ones; . promote global trade and investment and reject protectionism, to underpin prosperity; and . build an inclusive, green, and sustainable recovery. By acting together to fulfil these pledges we will bring the world economy out of recession and prevent a crisis like this from recurring in the future. 5. The Agreements we have reached today, to treble resources available to the IMF to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs, to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy. Together with the measures we have each taken nationally, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gularly the actions taken and the global actions required. 11. We are resolved to ensure long-term fiscal sustainability and price stability and will put in place credible exit strategies from the measures that need to be taken now to support the financial sector and restore global demand. We are convinced that by implementing our agreed policies we will limit the longer-term costs to our economies, thereby reducing the scale of the fiscal consolidation necessary over the longer term. 12. We will conduct all our economic policies cooperatively and responsibly with regard to the impact on other countries and will refrain from competitive devaluation of our currencies and promote a stable and well-functioning international monetary system. We will support, now and in the future, to candid, even-handed, and independent IMF surveillance of our economies and financial sectors, of the impact of our policies on others, and of risks facing the global economy. Strengthening financial supervision and regulation: 13. Major failures in the financial sector and in financial regulation and supervision were fundamental causes of the crisis. Confidence will not be restored u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture, regulation must prevent excessive leverage and require buffers of resources to be built up in good times; . to take action against non cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by Global Forum against the international standard for exchange of tax information. . to call on the accounting standard setters to work urgently with supervisors and regulators to improve standards on valuation and provisioning and achieve a single set of high quality global accounting standards; and . to extend regulatory oversight and registration of Credit Rating Agencies to ensure they meet the international code of good practice, particularly to prevent unacceptable conflicts of interest. 16. We instruct our Finance Ministers to complete the implementation of these decisions in line with the timetable set out in the Action Plan. We have asked the FSB and the IMF to monitor progress, working with the Financial Action Taskforce and other relevant bodies, and to provide a report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a person located in a notified jurisdictional area shall be allowed under any provision of the Act unless the assessee maintains such other documents and furnishes the information as may be prescribed: (v) that if any sum is received from a person located in the notified jurisdictional area, then, the onus is on the assessee to satisfactorily explain the source of such money in the hands of such person or in the hands of the beneficial owner, and in case of his failure to do so, the amount shall be deemed to be the income of the assessee; (vi) that any payment made to a person located in such area shall be liable to deduction of tax at the higher of the rates specified in the relevant provision of the Act or rate or rates in force or a rate of 30 per cent. Applicability - These amendments have been made effective from 1st June, 2011. Therefore, in the light of the foregoing, we find no merit in the challenge to the Constitutional validity of Section 94A(1). 94. The circumstances leading to the enactment of Section 94-A, are explained in paragraph 29 of the counter affidavit filed on behalf of the Union of India. It is indicated in the said paragraph th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f transactions involving certain jurisdictions. 4 Brazil Legislative 1. Disallowing deductions or credits with respect to certain transactions. 2. Special withholding tax rules. 5 Colombia Legislative 1. Disallowing deductions or credits with respect to certain transactions. 2. Special withholding tax rules. 3. The application of transfer pricing rules to transactions between unrelated parties/increased transfer pricing documentation requirements. 4. Increased information reporting requirements. 5. Other measures -Colombian citizens tax resident in a tax haven considered tax resident in Colombian, unless at least 50% of their income sourced or assets located in that jurisdiction. 6 Czech Republic Legislative 1. Special withholding tax rules. 7 Denmark Legislative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Italy but instead in a blacklisted jurisdiction are deemed resident in Italy. Trust (or entries similar to trusts) established in blacklisted jurisdictions where a settlor or beneficiary is resident in Italy. Specific measures in relation to associated companies with a registered office in blacklisted jurisdiction. Specific measures in relation to individuals with undeclared financial activities in a blacklisted jurisdiction. 11 Netherlands Legislative 1. The denial of benefits on income/capital gains associated with shares in certain companies. Non legislative 2. Additional question(s) on tax returns to the ownership of foreign assets. 12 Norway Legislative 1. Special withholding tax rules 2. The application of transfer pricing rules to transactions between unrelated parties/increased transfer pricing documentation requirements. Other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, denial of benefits of income/capital gains associated with shares in certain companies, disallowing deductions or credits, levy of special withholding tax rules, increased information reporting requirements etc., it is to be noted that with all the 3 countries noted above, France had a Tax Information Exchange Agreement (TIEA) and despite that defensive measures as stated supra were taken as no information as sought for by the French tax authorities was forthcoming from the non-cooperative jurisdictions. It is further submitted that similarly Spain Russian had also notified (blacklisted) Cyprus and in view of the above, Cyprus has started cooperating with those countries for exchange of information. Due to positive development on the part of Cyprus, Spain Russia have subsequently withdrawn their notification in 2012 2015 respectively. Therefore, these are a few examples which show the resolve of the transparent countries to take action against those who promote tax evasion by not providing the requisite tax information. 95. Therefore, it would be clear from the above that many countries have become guarded in their approach towards Double Taxation Avoidance Agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present the unaccounted money of Indian nationals and hence, to check tax evasion, a number of requests on specific cases was made to Cyprus. In spite of the existence of DTAA, no information sought for was forthcoming from Cyprus, which prompted the impugned Notification.... 101. As we have pointed out earlier, both contracting parties are obliged to perform their obligations under the Treaty in good faith. When one of the parties commits a default by failing to provide information, it is not open to the beneficiary of such a default to contend that the other contracting party should honour their obligations. 102. Article 28 of the DTAA dated 21.12.1994, which provides for exchange of information, reads as follows : 1. The competent authorities of the Contracting States shall exchange such information (including documents) as is necessary for carrying out the provisions of the Agreement or of the domestic laws of the Contracting States concerning taxes covered by the Agreement, insofar as the taxation thereunder is not contrary to the Agreement, in particular for the prevention of fraud or evasion of such taxes. Any information received by a Contracting State shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the laws or in the normal course of administration. 105. Yet another argument is advanced on the basis of para 3 of Article 27 of the DTAA, which prescribes a Mutual Agreement Procedure , in case of disputes. This paragraph 3 reads as follows : The Competent Authorities of the contracting State shall endeavour to resolve by mutual agreement. Any difficulties or doubts arising as to the interpretation or application of the agreement. They may also consult together for the elimination of double taxation in cases not provided for in the agreement. 106. On the basis of the above paragraph, it is contended by Mr.Arvind P.Datar, learned Senior Counsel that when the DTAA itself provides a procedure for dispute resolution, the Government of India could not have taken recourse to Section 94A(1). 107. But, we are unable to sustain the above contention. Paragraph 3 of Article 27 deals only with difficulties or doubts arising as to the interpretation or application of the DTAA. It does not deal with the failure of one of the contracting parties to honour its commitment under the DTAA. In any case, a clause relating to Mutual Agreement Procedure, contained in an agreement, can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any payment made to any financial institution in Cyprus shall be allowed unless the assessee furnishes an authorisation allowing for seeking relevant information from the said financial institution [Section 94A(3)(a) read with Rule 21AC and Form 10FC]. -No deduction in respect of any other expenditure or allowance arising from the transaction with a person located in Cyprus shall be allowed unless the assessee maintains and furnishes the prescribed information [Section 94A(3)(b) read with Rule 21AC]. -If any sum is received from a person located in Cyprus, then the onus is on the assessee to satisfactorily explain the source of such money in the hands of such person or in the hands of the beneficial owner, and in case of his failure to do so, the amount shall be deemed to be the income of the assessee [Section 94A(4)]. -Any payment made to a person located in Cyprus shall be liable for withholding tax at 30 per cent or a rate prescribed in Act, whichever is higher [Section 94A(5)]. 112. The challenge of the petitioners to the Press Release is that in the last paragraph, the Press Release makes any payment made to a person located in Cyprus, to be liable f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dian Company] 194LD [Interest on Certain Bonds and Government Securities] 195 [Other Sums] 196A [Units of Non Residents] 196B [Units] 196C [Foreign Currency Bonds or shares of Indian company] 196D [FIIs from securities] Amount 192(1) [Salary] 192A [Accumulated Balance to Employee] 194 [Dividends] 194EE [National Savings Scheme] 194F [Repurchase of Units by Mutual Fund or UTI] 115. We agree that from the point of view of linguistics, the words sum and amount are synonyms. But under the Income Tax Act, each of the words sum , amount , income and payment have different connotations. But the argument advanced on the basis of the same, to assail the Press Release dated 1.11.2013, doest not hold water. 116. Sub-Section (5) of Section 94-A uses the words sum , income and amount with the disjunction or in between. Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fought a legal battle with the Department for refund. If the petitioners had taken a calculated risk by making the payments, they cannot later turn around and find fault with the statutory prescription and with the Notification and Press Release. Conclusion: 121. Therefore, we are of the considered view that the challenges to Section 94-A (1), the Notification dated 1.11.2013 and the Press Release dated 1.11.2013 are not sustainable in law. 122. The ordinary dictionary meaning of the word haven is harbour or anchorage . By extension, the word also denotes a place of safety, a refuge or sanctuary. In association with the word tax , the word haven has assumed different connotations in the recent past and Panama appears to have followed Cyprus. Therefore, Section 94A was the need of the hour and we do not find the same to suffer from unconstitutionality. Hence, all the writ petitions are dismissed. However, there will be no order as to costs. Consequently, connected Miscellaneous Petitions are closed. ORDER (Made by V.Ramasubramanian,J) Immediately after we pronounced orders, Mr.P.Giridharan, learned counsel appearing for the petitioners made an oral req ..... X X X X Extracts X X X X X X X X Extracts X X X X
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