9911796707
TMI Blog2024 (5) TMI 1172X X X X Extracts X X X X X X X X Extracts X X X X ..... under Clause (ii) of Section 2 (17) of the Act, 1961. As per the Act, 1961 there are two class of companies, namely Domestic Company defined u/s 2 (22A) and Company other than Domestic Company . It is admitted case of the appellant that it is not a Domestic Company rather it is a foreign company i.e. Company other than Domestic Company as defined in Section 2 (23A) of the Act 1961. Thus, the appellant company is not a domestic company but it is company other than a domestic company. Applicable rate of Income Tax And Classification of Companies for rate of Tax - The first category is domestic company . The second category is Company other than a domestic Company . Undisputedly the appellant s company is not a domestic company. Therefore, the appellant s company falls under the other class i.e. a company other than a domestic company as classified in paragraph E of the Finance Act. In ground no. (IV) of the Memorandum of Appeal (afore-quoted) the appellants have admitted themselves to be a foreign company i.e. company other than a domestic company . Thus, it is admitted case of the appellant that it is not a domestic company as it is neither an Indian Company nor any other Company a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 2 (12) (a) and Paragraph E' of Part I of the First Schedule of the Finance Act, which provisions existed even prior to the DTAA in question and the clarificatory retrospective insertion of the Explanation in Section 90 by the Finance Act, 2001. Thus, there is no conflict between the Explanation to Section 90 of the Act, 1961 and Article 24 (2) of the DTAA. The rate of tax has been provided by the Finance Act which also defines domestic company . It classified companies in two categories for rate of tax, namely (I) domestic company and (II) a company other than a domestic company. Thus even without explanation appended to Section 90 of the Act 1961, the appellant company is liable to tax as a company other than a domestic company at the rate prescribed in paragraph E of Part I of the First Schedule to the Finance Act. The Explanation has merely clarified the existing position of law. Thus explanation to Section 90 is not in conflict with the provision of DTAA and that there is no conflict between the provision of the DTAA and the Income Tax Act 1961 in regard to non-discrimination. Effect of circular number 333 dated 02.04.1982 issued by CBDT and the letter of the CBDT d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e language employed in it. If the terms of the legislative enactment do not suffer from any ambiguity or lack of clarity they must be given effect to even if they do not carry out the treaty obligations. But the treaty or the Protocol or the convention becomes important if the meaning of the expressions used by the Parliament is not clear and can be construed in more than one way. Since the expressions used in the aforesaid provisions of the Act 1961 and the Finance Act are clear and capable of only one construction as discussed and there is no ambiguity or lack of clarity, therefore, the provision of the Act 1961 and the provision of the Finance Act, as discussed above, are bound to be given full effect. Accordingly it is held that the appellant is liable to tax at the rate applicable to a company other than a domestic company as provided in the Finance Act. - HON BLE MR. JUSTICE SURYA PRAKASH KESARWANI AND HON BLE MR. JUSTICE RAJARSHI BHARADWAJ Appearance: For the Appellant : Sri Percy Pardiwalla, Sr. Adv. Sri Akhilesh Kumar Gupta, Adv. Sri Asit Kumar De, Adv. For the Respondent : Smt. Smita Das De, Adv. Sri Smarajit Roy Chowdhury, Adv. JUDGMENT SURYA PRAKASH KESARWANI, J.:- 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in (i) ITA No. 1738/Kol/2009 (Assessment year 2005-06). Income Tax Appeal No. 22 of 2017 arises from the aforesaid common impugned order of the ITAT dated 13.04.2016 passed in (i) ITA No. 1805/Kol/2012 (Assessment year 2008-09). Facts;- 5. Since common substantial question of law is involved in all the above noted Income Tax Appeals, therefore, with the consent of the learned counsel for the parties, the facts of leading Income Tax Appeal No. 155 of 2005 are being noted. 6. Appellant is a branch of ABN Amro Bank NV (Now The Royal Bank of Scotland N.V.) incorporated in the Netherlands with limited liabilities having its original office at Singapore. In India, the appellant is registered as scheduled bank in terms of Schedule-II of the Reserve Bank of India (RBI) Act, 1934. The main activities of the appellant in India are accepting deposits, giving loans, discounting/collection of bills, issue of letters of credit/ guarantees, executing forward transaction of foreign currencies for importers/exporters, money market lending /borrowings, investment in societies, ect. In terms of the existing rules and regulations governing such transaction. There is an agreement between India and Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee company cannot be subjected to taxation in a less favourable manner than an Indian Banking Company. We have already noted above that atleast some of the private Indian Banks are subjected to the lower rate of tax @ 46%) applicable to the domestic companies. Furthermore, the assessee company itself is being subjected to this lower rate of tax by virtue of the non-discrimination provision in the DTAA right from the assessment year 1991-92 onwards. There is no plausible reason to depart from this accepted position when no new facts in this regard have been discovered. The AO himself allowed the lower rate in the assessment order. We feel that the CIT(A) did not have any occasion to disturb the same by directing to apply the higher rate and in disturbing the position accepted even by the CBDT in that way. Finally, therefore, we knock down the enhancement, as directed by the CIT (A) in this case and on the other hand, order that the rate of tax as considered in the assessment be adopted. 47. The decision of the Tribunal has been arrived at after consideration of the detailed arguments advanced on behalf of the assesee which have been reiterated before us. We would have no dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1.4.1962, we consider it useful to keep in mind the applicability of the Indian Tax Laws vis-a-vis DTAA with the foreign country. In this connection reference to the decision of the Hon'ble Supreme Court in the case of Gramophone Co. of India Ltd. -Vs- Birendra Bahadur Pandey Ors. [AIR 1984 (SC) 6671] is relevant. In this case their Lordships of the Supreme Court held that in the event of conflict between international law, the Court must follow Municipal Law. The relevant para-5 is quoted hereunder for the sake of reference :- 5 There can be no question that nations must march with any international community and the Municipal Law must respect rules of International Law each as nations respect international opinion. The comity of Nations requires the Rules of International law may be accommodated in the Municipal Law even without express Legislative sanction provided they do not run into conflict with Acts of Parliament. But when they do run into such conflict, the sovereignty and the integrity of the Republic and the supremacy of the constituted Legislature in making the laws may not be subjected to external rules except to the extent legitimacy accepted by the constituted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement is not given by the assessing officers when they find that the portions of the agreement are not in conformity with the provisions of the Income Tax Act, 1961. 2. The correct legal position is that where a specific provision is made in the double taxation avoidance agreement, that provision will prevail over the general provisions contained in the Income Tax Act, 1961. In fact the Double Taxation Avoidance Agreements which have been entered into by the Central Government under Section 90 of the Income-tax Act, 1961, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective country except where provisions to the contrary have been made in the Agreement. 3. Thus, where a Double Taxation Avoidance Agreement provides for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income Tax Act. Where there is no specific provision in the agreement, it is the basic law, i.e. the Income Tax Act, that will govern the taxation of income. 52. As pointed out an agreement for avoidance of double taxation and prevention of fiscal evasion with Nederland was exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to its own residents. 4. Except where the provisions of paragraph 1 of Article 9 paragraph 9 of Article 11 paragraph 9 of Article 12 apply, interest, royalties and other disbursements paid by an enterprise one of the States to a resident of the other State shall for the purpose of determining the marginal profits of such enterprise, be deductible under the same conditions as if they had been paid to resident of the first mentioned State. Similarly, any debts of an enterprise of one of the States resident of the other State shall, for the purpose of determining the taxable capital of such enterprise, be deductible under the same conditions as if they had been contracted to a resident the first mentioned State. 5. Enterprises of one of the States, the capital of which is wholly or partly owned or controlled directly or indirectly, by one or more residents of the other State shall not be subjected in the first mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprise of the first mentioned State are or may be subjected. 53. The Tribunal in the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in our view provides for two eventualities. One is the charge of tax in respect of a foreign company vis-a-vis an Indian Company (i.e. a Domestic Company). the second category as per Explanation is the foreign Company vis-a-vis the domestic company other than Indian company. It is non note worthy that the Domestic Company is defined under the Finance Act. For the sake of reference we may quote the definition of the domestic company as per the Finance (No. 2) Act, 1996. domestic company means an Indian Company, or any other company which in respect of its income liable to income-tax under the Income-tax Act for the assessment year commencing on the 1st day of April, 1996, has made the prescribed arrangements for the declaration and payment within India of the dividends (including dividends on preference shares) payable out of such income in accordance with the provisions of Section 194 of the Act. [Emphasis supplied]. This even under the Finance Act the domestic company is recognized as Indian company and any other company having made arrangement for declaration of dividends payable on such income. We, therefore, do not find the language of the Explanation to Section 90 as ina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (SC)], their Lordships of the Supreme Court held that the circular offshore Board issued u/s. 119 cannot override or be detracted from the Act, inasmuch as what Section 119 has empowered is to issue orders, instructions or directions for the proper administration of the Act or for such other purposes specified in sub-section (2) of that section. (Illegible) Order, instruction or direction cannot override the provision of the Act, that would be destructive of all the known principles of law as the same would really amount to giving power to a delegated authority to even amend the provision of law enacted by Parliament. This principle has been further reiterated in the case of Shanmuga Traders - Vs- State of Tamil Nadu [(1998) 5 SCC 349 at page 354]. In the case of Union of India -Vs- M. Bhaskar, JT [1996 (5) SC 500 at page 503], their Lordships held that there is no dispute in law that statutory provision cannot be changed by administrative instructions. 60. Thus, from the decisions of the Supreme Court referred to above, it becomes abundantly clear that when the law is amended, any circular issued earlier automatically gets superseded. Since in this case the law was amended retro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting with the earlier UK - Ceylon treaty. 63. In the light of the above position of law, we are of the view that the Explanation to Section 90 is attracted in this case and the letters issued by the CBDT have been superseded by the said Explanation w.e.f. 1.4.1962. We, accordingly, uphold the decision of the C.I.T. (A) in regard to the applicability of the rate of tax as applicable in the case of foreign companies in the case of the appellant. Before parting with this issue we would like to point out that Article 25 of the DDTA is not attracted in this. The said Article is reproduced hereunder :- ARTICLE 25 - Mutual agreement procedure-1. Where a person considers that the actions of one or both of the States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those states present his case to the competent authority of the State of which he is a resident or, if his Case comes under paragraph 1 of Article 24 to that of the State of which he is a national. The case must be presented within three years from the first notification of the action resulting in taxation not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the rates provided for in the annual Finance Act. The Finance Act of each year in Part A of the First Schedule provides for the rates at which different categories of persons are liable to pay tax. There is a separate rate provided for individuals, Hindu Undivided Families, association of persons, body of individuals and artificial juridical persons in Para A. Para B deals with rates applicable to cooperative societies and provides for a slab rate taxation. Para C provides for rates applicable to firms and para D for local authorities. Finally para E. provides for rates at which domestic companies and companies other than domestic companies are taxable. Section 5 of the Act delineates the scope of total income. However, both section 4 and section 5 of the Act have been made subject to the other provisions of the Act, which would also include section 90 of the Act. Reliance in this behalf is placed on the following judgment- a. Union of India Anr. v. Azadi Bachao Andolan Anr. reported in (2003) 263 ITR 706 (Supreme Court) at Pgs. 724-725 of the Report. 2. Undisputedly in accordance with the provisions of the Act the Appellant would be assessed at the rate provided for in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Department of Revenue Ors., reported in (2013) 354 ITR 316 (Andhra Pradesh High Court) at Para 34 Pg. 354, Para 96 Pg. 420 @ Para 103 Pg. 424 to Para 107 Pg. 428, Para 119 Pg. 432 to Para 121 Pg. 433 of the Reports. 3. The Vienna Convention on the Law of Treaties, 1969 encapsulates the customary rules for interpretation of treaties. Article 31 thereof lays down that a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. Article 39 postulates that a multi-lateral treaty cannot be amended unilaterally. Thus, unilaterally overriding a DTAA by merely amending the domestic law without a corresponding amendment in the DTAA would be a direct violation of the said customary principle. 4. By virtue of Article 24 (2) of the DTAA between India and Netherlands (Pg. 495 of the Paper Book), it is clear that if a permanent establishment of a Netherlands' entity is subjected to a tax treatment that is less favourable enterprise that is carrying on similar activities, the same would than an Indian tantamount to prohibited. The levy discrimination of the Netherlands& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id Explanation is not clarificatory in nature as it seeks to enlarge the levy of tax by effectively taking away the benefit provided to the appellant by way of section 90 (2) of the Act read with para (2) of Article 24 of the India-Netherlands DTAA. This would be evident from the stand taken by the Central Government on November 21, 1994 that the rate of tax applicable in the case of the appellant would be the same as for an Indian company (Pg. 222/509A of the Paper Book). Further, on March 30, 2001, when the decision of the Tribunal in the appellant's own case for the assessment year 1996-97 (supra) was rendered in favour of the appellant, the Finance Bill, 2001 was pending consideration before the Parliament. As on the said date, the Finance Bill, 2001 as originally introduced did not contain a proposal for insertion of the said Explanation. It would thus be evident that the insertion of the said Explanation below section 90 of the Act was thus effected by the Finance Act, 2001 (which was passed subsequently) only with a view to reverse the decision of the Tribunal in the appellant's own case for the assessment year 1996-97 with retrospective effect. Such an action is imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid legislations, indisputable that the appellant and co-operative banks both carry on similar activities and are subject to similar regulations, and thus, taxing the Appellant at a rate applicable to a company other than a domestic company will be breach of article 24 (2). 12. DTAAs are entered into between two sovereign states after elaborate negotiations (a fact of which judicial recognition is taken in the case of Azadi Bachao (supra) and Sanofi Pasteur SA (supra)). Hence, the use of a varied phraseology in the various Articles of the different DTAAs which India has entered into is reflective of the singularity each such DTAA possesses which flows from the economic and political relations as well the bargains made between India and each of its treaty partners in order to arrive at a compromise regarding their concurrent tax jurisdiction. While on the one hand, India did not re-negotiate with Netherlands for the purposes of amending Article 24 of the DTAA to bring it in consonance with the said Explanation, on the other hand, India incorporated a clause similar to the said Explanation in its DTAAS with other countries, in varied phraseology and methodology, both before as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) and, hence, the unilateral amendment of the domestic law cannot set at naught an express provision in the relevant DTAA. 14. It is submitted that in interpreting the provisions of a DTAA it would be permissible to have regard to the language used in DTAAS with other countries that India has entered into. The Supreme Court has also placed reliance on the different language employed in the different treaties while interpreting the DTAAS they were called upon to consider in the case of Engineering Analysis (supra). [Para 156 Pg. 110 to Para 158 Pg. 111]. 15. The observation of the Supreme Court in the case of Gramophone Company of India Ltd. v. Birendra Bahadur Pandey, reported in AIR 1984 SC 667 , that in case of a conflict between domestic law and international law, the latter must yield, which judgment has been relied upon by the Tribunal in the impugned order (Pg. 87 of the Paper Book), has no application to the facts of the instant case. Such observation was given with respect to a situation in which an international convention and a bilateral treaty was being given effect to in the absence of any enabling provisions for such convention and bilateral treaty to override the dom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year commencing on or before the 1st day of April, 1970, or (iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company : Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971 or on or after that date) as may be specified in the declaration ; (ii) Section 2 (22A) of the Income Tax Act, 1961 Section 2 (22A) domestic company means an Indian company, or any other company which , in respect of its income liable to tax under this Act, has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income; [Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.] (ii) Section 2 (23A) of the Income Tax Act, 1961 (23A) foreign company means a company which is not a domestic company [Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989] (iii) Section 2 (26) of the Income Tax Act, 1961 (26) Indian comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year; or (c) accrues or arises to him outside India during such year: Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1. - Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2. - For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 1. - For the removal of doubts, it is hereby declared that the charge of tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company.] *[Inserted by the Finance Act, 2001, w.r.e.f. 1-4-1962.] (vii) Explanatory notes number 54, 54.1 and 54.2 in Explanatory Notes on the provisions of Finance Act of 2001 F. No. 153/88/2001/-TPL, Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes;- 54. Amendment in Section 90 relating to agreement with foreign countries 54.1 Though Finance Act, 2001 an Explanation has been inserted in Section 90 of the Income Tax Act to clarify that the charge of the tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company, where such foreign company has not made the prescribed arrangement for declaration and payment within India, of the dividends, (including dividends on preference shares) payable out of its income in India. 54.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable rate of tax. Therefore, the aforesaid provisions of the Finance Act 2004 have been reproduced for considering whether rate of tax provided in Clause (a) shall be applicable or the rate of tax as provided in clause (b) shall be applicable to the appellant/assessee? 11. In the memorandum of appeal, the appellant had taken only five grounds with regard to the applicable rate of Income Tax, as under;- GROUNDS (I) The Learned Tribunal erred in holding that your petitioner is chargeable at the Income tax rate applicable to a foreign company as against the rate of tax applicable to a domestic company. (II) The Learned Tribunal erred in confirming the applicability of a higher rate of tax based on the Explanation to section 90 of the Income-tax Act, 1961 ( the Act ) (inserted by the Finance Act, 2001 with retrospective effect from 1 April 1962), disregarding the express provisions of Article 24 (2) of the Double Tax Avoidance Agreement between India and Netherlands dated 27 March 1989 (hereinafter referred to as the DTAA ) read with section 90 (2) of the Act and the Central Board of Direct Taxes ( CBDT ) Circular No. 333 dated 2 April 1982. (III) The Learned Tribunal's action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the provisions of this Act in respect of the total income of the previous year of every person. Thus, every year parliament enacts Finance Act which provides for rate of Income Tax to be charged in respect of the total income of the previous year. The Finance Act enacted by parliament relevant for the assessment year involved in these appeals are similar with change of assessment year and rate of income tax. We have reproduced above the relevant portion of the Finance (No. 2) Act, 2004. As per Section 2 (1) of the Finance Act, income tax shall be charged at the rates specified in Part I of the First Schedule. Clause (a) of the Sub-section 12 of Section 2 of the Finance Act also defines the words domestic company similar to the definition given in Section 2 (22A) of the Act, 1961. Paragraph (E) of the First Schedule to the Finance Act prescribes rates of income tax for companies. It has classified companies in two categories. The first category is domestic company . The second category is Company other than a domestic Company . Undisputedly the appellant s company is not a domestic company. Therefore, the appellant s company falls under the other class i.e. a company other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unambiguous rule with respect to tax law. The plain meaning rule suggests that when the language in the statute is plain and unambiguous, the court has to read and understand the plain language as such, and there is no scope for any interpretation. This salutary maxim flows from the phrase cum inverbis nulla ambiguitas est, non debet admitti voluntatis quaestio . Following such maxim, the courts sometimes have made strict interpretation subordinate to the plain meaning rule [ Mangalore Chemicals and Fertilisers Ltd. v. CCT, 1992 Supp (1) SCC 21], though strict interpretation is used in the precise sense. To say that strict interpretation involves plain reading of the statute and to say that one has to utilise strict interpretation in the event of ambiguity is self-contradictory. 29. We are not suggesting that literal rule dehors the strict interpretation nor one should ignore to ascertain the interplay between strict interpretation and literal interpretation . We may reiterate at the cost of repetition that strict interpretation of a statute certainly involves literal or plain meaning test. The other tools of interpretation, namely, contextual or purposive interpretation cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State. 16. In V.O. Tractoro Export, Moscow vs. Tarapore Company Anr. (1969) 3 SCC 562 (Para 15 and 16) a Three Judges Bench of Hon ble Supreme Court held, as under:- 15. Now, as stated in Halsbury's Laws of England, Vol. 36, p. 414, there is a presumption that Parliament does not assert or assume jurisdiction which goes beyond the limits established by the common consent of nations and statutes are to be interpreted provided that their language permits, so as not to be inconsistent with the comity of nations or with the established principles of International law. But this principle applies only where there is an ambiguity and must give way before a clearly expressed intention. If statutory enactments are clear in meaning, they must be construed according to their meaning even though they are contrary to the comity of nations or International law. 16. We may look at another well-recognised principle. In this country, as is the case in England, the treaty or International Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aph 3 of Article 7 apply, the taxation on a permanent establishment which an enterprise of one of the States has in the other State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities. 19. Explanation to Section 90 is part of Section 90. The Explanation itself starts with the words for the removal of doubts . Explanatory notes on the provision of the Finance Act of 2001 afore-quoted, states that the explanation has been inserted in Section 90 of the Income Tax Act to clarify that the charge of tax in respect of foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company, where such foreign company has not made the prescribed arrangement for declaration and payment within India of the dividends, (including dividend in preferential share) payable out of its income in India. It is admitted case of the appellant that it has not made the prescribed arrangements for declaration and payment within India of the dividends including dividends on preferential shares, payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, 1961 read with explanatory notes makes, it absolutely clear that the Explanation to Section 90 is clarificatory. The said Explanation has merely reiterated the clear statutory provision for rate of tax emerging from Section 2 (22A), 2 (23A) of the Act 1961 read with Section 2 (1) and Section 2 (12) (a) of the Finance Act and Paragraph E of Part I of the First Schedule to the Finance Act which we have discussed in earlier paragraphs. That apart even without the said Explanation to Section 90 of the Act 1961, the statutory provision for rate of tax applicable to a company like the appellant which is not a domestic company, it remained clear at all relevant point of time that the appellant company being not a domestic company is liable to tax on its income in India at the rate specified for a company other than a domestic company. 22. Article 24 (2) of the DTAA prevents from less favourable levy between two enterprises falling under one and the same class and not between one falling under one class and the other falling under another class. The phrase shall not be less favourably levied used in Article 24 (2) of the DTAA simply means that taxation on a company falling unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by CBDT and the letter of the CBDT dated 21.11.1945;- 26. The Circular No. 333 dated 02.04.1982 has been reproduced by the ITAT in paragraph 51 of the impugned order. We have perused the aforesaid circular of the CBDT. For ready reference para 2-3 of the aforesaid circular no. 333 dated 02.04.1982 issued by CBDT is reproduced below;- 2. The correct legal position is that where a specific provision is made in the double taxation avoidance agreement, that provision will prevail over the general provisions contained in the Income Tax Act, 1961. In fact the Double Taxation Avoidance Agreements which have been entered into by the Central Government under Section 90 of the Income-tax Act, 1961, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective country except where provisions to the contrary have been made in the Agreement. 3. Thus, where a Double Taxation Avoidance Agreement provides for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income Tax Act. Where there is no specific provision in the agreement, it is the basic law, i.e. the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded by the ITAT in paragraph 59 of the impugned order. Accordingly we hold that the said letter cannot overwride the plain and unambiguous provision of the Act, 1961 and the Finance Act. Some Important judgements on DTAA and Section 90 of the Act of 1961:- 30. In Union of India and Anr. Vs. Azadi Bachao Andolan and Anr. 2004 10 SCC 1 Hon ble Supreme Court considered various aspects relating to treaties/DTAA, (paragraph 28 32) held as under:- 28. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries unless domestic legislation has been introduced to attain a specified result. Once, Parliament has legislated, the Court must first look at the legislation and construe the language employed in it. If the terms of the legislative enactment do not suffer from any ambiguity or lack of clarity they must be given effect to even if they do not carry out the treaty obligations. But the treaty or the Protocol or the convention becomes important if the meaning of the expressions used by the Parliament is not clear and can be construed in more than one way. The reason is that if one of the meanings which can be properly ascribed is in consonance with the treaty obligations and the other meaning is not so consonant, the meaning which is consonant is to be preferred. Even where an Act had been passed to give effect to the convention which was scheduled to it, the words employed in the Act had to be interpreted in the well-established sense which they had in municipal law. ( See Barras v. Aberdeen Steam Trawling Fishing Co. Ltd. [[1933] A.C. 402]) 49. The legal position discernible from the previous discussion, therefore is that upon India entering into a treaty or protocol does not resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and leads only to one conclusion that two class of companies namely Domestic Company and Company other than a Domestic Company are liable to tax at the prescribed rates. When the words used in aforesaid provisions are clear, plain and unambiguous and admits only one meaning, the court is bound to give effect to the words used in the aforesaid provisions, in their natural and ordinary sense. Since the words used are capable of one construction, therefore, it is not open for the court to adopt any other construction. It is well settled that in a taxation statute, there is no room for any intendment; that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the provision. Equity has no place in interpretation of a tax statute. Strictly one has to look to the language used; there is no room for searching intendment nor drawing any presumption. In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
