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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 ..... artment. 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 located in a notified jurisdictional area, then- (i) all the parties to the transaction shall be deemed to be associated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 the Powers conferred by Sub-Section (1) of Section 94-A of the Income Tax Act, 1961 (43 of 1996), the Central Government hereby specifies 'Cyprus' as the 'notified jurisdictional area' for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction 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 do so, the amount shall be deemed to be the income of the assessee [Section 94-A(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 [Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntative 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 Commissioner of Income Tax (Appeals). Simultaneously, the petitioners have come up with the above writ petitions challenging the validity of Section 94-A(1), the Notification dated 1.11.2013 and the press release dated 1.11.2013, in view of the fact that so long as these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.Arvind P.Datar, learned Senior Counsel appearing for the petitioners is that Section 94-A(1), in as much as it confers a power upon the Central Government to specify by notification, any country as a notified jurisdictional area, without reference to the existence of a Treaty with that co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for giving effect to international Agreements.- Notwithstanding anything in the foregoing provisions of this Chapter, Parliament has power to make any law for the whole or any part of the territory of India for implementing Treaty, Agreement or Convention with any other country or countries or any decision made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect 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 any Treaty, Agreement or Convention with another country or countries or any decision made at in international conference, association or other body, has to be read in conjunction with Entries 10, 12, 13 and 14 of List 1 of the 7th Schedule. 33. As we have already seen, Article 73 makes it clear that the executive power of the Union shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Civil and Political Rights, ratified by India. The Convention was taken note of by the Supreme Court for the purpose of giving an enlarged meaning to Article 21 of The Constitution. TWO THEORIES OF INTERNATIONAL LAW 38. Since the Supreme Court observed in Jolly George Varghese that India followed the dualistic doctrine, it may be necessary, before we proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les 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 technical experts should facilitate adoption of internationally unified rules by national legislation. It was further held as follows : "India has also not adopted the International Convention relating to the Arrest of Sea-going Ships, Brussels, 1952. Nor has India adopted the Brussels Conventions of 1952 on civil and penal jurisdiction in matters of collision; nor the Brusse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd [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 that in case of any inconsistency, the domestic legislation will prevail. The Court evolved six different purposes for which, it could make use of the international law. They are (i) as a means of interpretation (ii) justification or fortification of a stance taken (iii) to fulfill the spirit of international obligations, which India has entered into, when they are not in conflict with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idends 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 "Treaty shopping" by which, the resident of a third country takes advantage of the provisions of the bilateral Agreement, is illegal and necessarily forbidden (ii) that political expediency cannot be a ground for not fulfilling the Constitutional obligations reflected in Section 90 of the Income Tax Act and hence, any purpose other than the one contemplated by Section 90, however bona fide it is, would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een 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 Andolan is that if no legislative measure is needed to give effect to a Treaty that does not affect the rights of citizens or others (as indicated in paragraph 18), then a Treaty entered into by India, need not always be translated into an Act of Parliament (as reflected in paragraph 19). 59. In Azadi Bachao Andolan, the Supreme Court traced the legislative history of Section 90 of the Income Tax Act from parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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 provisions of the Income Tax Act. We approve of the reasoning in the decisions which we have noticed. If it was not the intention of the legislature to make a departure from the general principle of chargeability to tax under Section 4 and the general principle of ascertainment of total income under Section 5 of the Act, then there was no purpose in making those sections "subject to the provisions" of the Act". The very object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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. (2) Where the Central Government has entered into an Agreement with the Government of any country outside India or specified territory outside India, as the case may be, under Sub-Section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such Agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. (2A) Notwithstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provisions of the Act, simply directs attention to what is more beneficial to the assessee. If the provisions of the Income Tax Act are more beneficial to the assessee, to whom an agreement of the nature specified in Section 90(1) applies, those provisions would apply to him. If an option is given to choose between two alternatives, it cannot be said that one alternative is inconsistent with the other. Section 90(2) merely speaks about two options, one of which is more beneficial than t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpressly 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 has followed the dualistic model, as indicated by the Supreme Court in Jolly George Varghese, was reiterated by the Supreme Court in State of West Bengal Vs. Kesoram Industries Ltd. [2004 (10) SCC 201]. In paragraph 490 of the SCC report in Kesoram, the Supreme Court pointed out that the doctrine of "Monism" as prevailing in the European countries, does not prevail in India and that the doctrine of dualism is applicable. In paragraph 490, the Court pointed out that "a Treaty entered into by India cannot becom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Constitution" said about the role of the Judiciary, when it comes to the question of interpretation of Treaties : "Judiciary has no specific role in Treaty making as such, but if and when a question arises whether a Treaty concluded by the Union violates any of the Constitutional provisions, Judiciary come into the picture. It needs no emphasis that whether it is the Union Executive or the Parliament, they cannot enter into any Treaty or take any action towards its implementation, which transgresses any of the Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 disputed that the creation of the obligations undertaken in Treaties and the assent to their form and quality are the function of the Executive alone. Once they are created, while they bind the State as against the other contracting parties, Parliament may refuse to perform them and so, leave the State in default." Argument based on Vienna Convention : 86. The Vienna Convention on the Law of Treaties, which entered into force on 27.1.1980, obliges the Member States to treat every Treaty in force, as binding upon the parties thereto. Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia 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 under Section 90(1) is defeated by the lack of effective exchange of information, then Section 90(1)(c) is actually diluted by one of the contracting parties and not by Section 94A(1). Similarly, nothing turns on the absence of a non obstante clause in Sub-Section (1) of Section 94A in contrast to the inclusion of a non obstante clause in Sub-Sections (2) to (5) of Section 94A. As we have indicated earlier, any agreement entered into by the Central Government by virtue of the power conferred by Section 90(1) is in exercise of a delegated power. Similarly, any N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike 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 constitutes a global plan for recovery on an unprecedented scale. Restoring growth and jobs : 6. We are undertaking an unprecedented and concerted fiscal expansion, which will save or create millions of jobs which would otherwise have been destroyed, and that will, by the end of next year, amount to $5 trillion, raise output by 4 per cent, and accelerate the transition to a green economy. We are committed to deliver the scale of sustained fiscal effort necessary to restore growth. 7. Our central banks have also taken exceptional action. Interest rates have been cut aggressively in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies 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 until we rebuild trust in our financial system. We will take action to build a stronger, more globally consistent, supervisory and regulatory framework for the future financial sector, which will support sustainable global growth and serve the needs of business and citizens. 14. We each agree to ensure our domestic regulatory systems are strong. But we also agree to establish the much greater consistency and systematic cooperation between countries, and the framework of internationally agreed high standards, that a global financial system requires. Strengthened regulation and supervision must promote propriety, inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh 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 to the next meeting of our Finance Ministers in Scotland in November." 92. The portion of the above statement, highlighted in bold letters, would show that there was sufficient justification for the Parliament to insert Section 94A. In doing so, the Parliament did not show disrespect to any Treaty. The resolution passed by the G20 Nations, to take action against non cooperative jurisdictions, including tax havens, is what is sought to be given effect to, by the insertion of Section 94A. 93. The above position can be cross verified from the relevant portion of the Explanatory Notes to the provisions of the Finance Act, 2011. They are extracted as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant 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 that India is not the only country which took defensive measures, to prevent the abuse of the benefits conferred by treaties. Therefore, it would be useful to extract paragraph 29 of the counter affidavit, along with the tabular column furnished thereunder as follows:- "29) I therefore submit that Section 94A having been enacted to enforce transparency in cross border remittances does not suffer from any of the infringements as alleged by the petitioner hence is constitutionally valid. Further the aspect of 'defensive measures' as contemplated under sec.94A is resounded not just in India but in many other nations as such a few of the same are tabulated below: Sl. No. Country Measures 1 Arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs on (certain) income of a controlled foreign company. 2. The denial of benefits on income/capital gains associated with shares in certain companies. 3. Disallowing deductions or credits with respect to certain transactions. 4. Special withholding tax rules. 5. Increased information reporting requirements. Non-legislative 1. Increased audit risk for tax payers who engage in transactions with certain "high risk" jurisdictions. 9 Germany Legislative 1. The denial of benefits on income/capital gains associated with shares in certain companies. 2. Disallowing deductions or credits with respect to certain transactions. 3. Increased information reporting requirements. Non-legislative 1. Increased substantial requirements in respect of transactions involving certain jurisdictions. 10 Italy Legislative 1. The current taxation of domestic shareholders on (certain) income of a controlled foreign company. 2. The denial of benefits on income/capital gains associated with shares in certain companies. 3. Disallowing deductions or credits with respect to certain transactions. 4. Special withholding tax rules. 5. Increased information reporting requirements. 6. Other measur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain jurisdictions. The above list is merely illustrative and not exhaustive. For instance, in Finance defensive measures were applied to jurisdictions categorized as 'non-cooperative' i.e., British Virgin Islands, Jersey & Bermuda resulting in taxation of domestic shareholders on certain income of controlled foreign company, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant information such as details of the beneficial ownership of the persons making huge investments in India and the source of such funding. It is further stated in paragraph 8 of the counter as follows : "There is reasonable apprehension with the Indian Tax Authorities that the funds flowing into India from Cyprus represent 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange of information by Cyprus, which led to the Notification dated 1.11.2013 would fall under any of the two categories indicated in para 3(b) of Article 28 of the DTAA. The information relating to evasion of tax cannot fall under the category of information, which is not obtainable under 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 94A(2)]. -No deduction in respect 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [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. But all these three words are preceded by the expression "any". While Sub-Section (5) of Section 94-A is worded from the point of view of the recipient of any sum, income or amount, the Press Release is worded from the point of view of the person making the payment. When we speak from 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 expre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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