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12th NANI PALKHIVALA MEMORIAL NATIONAL TAXMOOT COURT

COMPETITION 2016

Team Code_____

IN THE HIGH COURT OF JUDICATURE AT MADRAS


(Ordinary Original Civil Jurisdiction)
IN APPEAL NO. _____ OF 2014
IN THE MATTER OF:
The Income-Tax Act, 1961
And
IN THE MATTER OF:
Section 260A of the Income-Tax Act, 1961
And
IN THE MATTER OF:
Order dated 24th October, 2015 by the
Income-Tax Appellate Tribunal, Chennai,
for the Assessment Year 2013-14.

PRINCIPAL COMMISSIONER OF INCOME TAX


(Appellant)
Versus
M/S GLOBAL APPLIANCES INDIA LIMITED
(Respondent)

-MEMORANDUM for THE RESPONDENT-

-Contents-

-Respondent-

CONTENTS
INDEX OF ABBREVIATIONS........................................................................................................
INDEX OF AUTHORITIES..............................................................................................................
STATEMENT OF JURISDICTION..................................................................................................
STATEMENT OF FACTS..............................................................................................................
STATEMENT OF ISSUES............................................................................................................
SUMMARY OF ARGUMENTS.....................................................................................................
ARGUMENTS ADVANCED..........................................................................................................
1.
WHETHER THE WORD ANY SUCCEEDED BY THE WORD RELIEF
UNDER SECTION

90(4) OF INCOME TAX ACT, 1961 COVERS THE AVOIDANCE

OF DOUBLE TAXATION?......................................................................................................

1.1 The word Relief and Avoidance are altogether two different things
specifically dealt under two different clauses...................................................................
1.2 The word Relief bears the same meaning all through the provision.....................
2
WHETHER TRC IS A PRE-REQUISITE FOR CLAIMING ANY BENEFIT
UNDER INDIA

US TAX TREATY?........................................................................................

2.1 TRC is pre-requisite only for claiming relief but not for claiming
avoidance..........................................................................................................................
2.2 Strict interpretation is to be adopted while enforcing taxing statute.........................
3.
WHETHER MAP ORDER AND POEM WOULD DISENTITE ASSESSEE
FROM CLAIMING BENEFEITS UNDER INDIA

US TAX TREATY?........................................

3.1 ISI qualifies the test of resident as per Article 4 of India US treaty
-73.2. Fees received towards rendering of Consultancy Services is not taxable
as per Article 12(4)(b) of India USA Tax Treaty..............................................................
3.3. Even applicability of India German Treaty would not make the payment
of consultancy services taxable by virtue of MFN clause..............................................
4.
WHETHER THE TAXING RIGHT FORGONE BY USA IN FAVOUR OF
GERMANY AFFECTS INDIA UNDER INDO-US TAX TREATY.............................................
4.1 Map order under us germany treaty does not deprive isi from claiming
the benefit under India-US tax treaty..............................................................................
4.2 Actual payment of tax in one of the Contracting States is not a condition
precedent to avail the benefits of DTAA........................................................................
4.3 Application India US tax treaty declaring the income received by ISI
nontaxable does not impose any liability on gail under section 195 of the Act.....................
17 -MEMORANDUM for THE RESPONDENT1

-Contents-

-Respondent-

PRAYER......................................................................................................................................

-MEMORANDUM for THE RESPONDENT2

-Index of Abbreviations-

INDEX OF ABBREVIATIONS
&

and
Section

A.C.
A.P.
AAR

Sections
Appellate Cases
Andhra Pradesh
Authority for Advance Rulings

AIR
Anr.
Art.

All India Reporter


Another
Article

Bom.
Cal.

Bombay
Calcutta

CIT
Tax
cl.
Co.
Company
Del.
DTAA
ER
FIS
FTS
ILR

Commissioner of Income
Clause

Delhi
Double Taxation Avoidance
English Reporter
Fees for Included Services
Fees for Technical Services
International Law Review

INDO

India

ISIIT

Image Searcher Inc.


Income Tax

ITAT

Income Tax Appellate Tribunal

ITR
K.
Kar.
Mad.

Income Tax Reporter


Kings Bench
Karnataka
Madras

MAP
Mum
Mumbai
no.

Mutual Agreement Procedure

Number
-MEMORANDUM for THE RESPONDENT3

-Index of AbbreviationsOECD

Organization for Economic Cooperation and Development

Ors.

Others
Paragraph
Place of Effective Management
Place of Management
Supreme Court
Supreme Court Cases
Tax Residency Certificate
Uttar Pradesh
United States
United States of America
Versus

PoEM
PoM
SC
SCC
TRC
U.P.
US
USA
v
Vol.

Volume

INDEX OF AUTHORITIES
LIST OF BOOKS

LAW OF TAXATION
1. CHATURVEDI & PITHISARIA, INCOME TAX LAW, Vol. I (6th ed.,
LexisNexis, 2014)
2. KANGA, PALKHIVALA AND VYAS, THE LAW AND PRACTICE OF INCOME
TAX (9th ed., LexisNexis, 2004)
3. DR K.N. CHATURVEDI, INTERPRETATION

OF

TAXING STATUTES (1st ed.,

Taxmann Allied Service (P.) Ltd., Haryana 2008)


4. PROF. KAILASH RAI, TAXATION LAWS, (9th ed., Allahabad Law Agency,
Faridabad, 2012)
5. DR. VINOD K. SINGHANIA & DR. MONICA SINGHANIA, STUDENTS
GUIDE TO INCOME TAX (49th ed., Taxmann Publications (P.) Ltd ,
Haryana, 2013-14)
6. DR. GIRISH AHUJA & DR. RAVI GUPTA, INCOME TAX, (11th ed.,
Allahabad Law Agency, Faridabad, 2013)
7. ARVIND P. DATAR, THE LAW AND PRACTICES

OF INCOME

TAX, (10th

ed., LexisNexis Butterworths Wadhwa, Nagpur, 2013)


PUBLIC INTERNATIONAL LAW
8. J.G. STARKE, STARKE'S INTERNATIONAL LAW, (I.A. Shearer ed., 11th ed.
Oxford University Press, New York, 1994)
-MEMORANDUM for THE RESPONDENT4

-Index of Abbreviations9. MALCOLM N. SHAW, INTERNATIONAL LAW (6th ed., Cambridge


University Press, New Delhi, 2013).
10. L. OPPENHEIM ET.AL, OPPENHEIM'S INTERNATIONAL LAW, (9th ed.,
Oxford University Press, New York, 1996)
11. Martin Dixon, TEXTBOOK OF INTERNATIONAL LAW (6th ed., Oxford
University Press 2007)

12. VEPA

INTERPREATATION OF STATUTES
P. SARATHI, INTERPRETATION OF STATUTES, (5th ed., Eastern

Book Company, Lucknow, 2010)


13. M .N. RAO & AMITA DHANDA, N.S. BINDRAS INTERPRETATION OF
STATUTES, (10th ed., LexisNexis Butterworths Wadhwa, Nagpur , 2007)
14. B.M. GANDHI, INTERPRETATION OF STATUTES, (1st ed., Eastern Book
Company, Lucknow, 2006)
15. JUSTICE GP SINGH, PRINCIPLES OF STATUTORY INTERPRETATION (13th
ed., Lexis Nexis Gurgaon, 2015)
16. AVATAR SINGH & HARPREET

SINGH,

INTRODUCTION

TO

INTERPRETATION OF STATUTES, (4th ed., LexisNexis, Gurgaon, 2014)


DICTIONARIES
1. MICK WOODLEY, OSBORNS CONCISE LAW DICTIONARY, (11th ed.,
Thompson Reuters, (Legal) Ltd., London, 2011)
2. BRAYAN A. GARNER, A DICTIONARY OF MODERN LEGAL USAGE, (2nd
ed., Oxford University Press, New York, 1995)
3. BRAYAN A. GARNER, BLACKS LAW DICTIONARY (9th ed., Thompson
Reuters, 2009)

-MEMORANDUM for THE RESPONDENT5

-Index of Abbreviations-

LIST OF ARTICLES
DTAA
1. M. Tenore, 'Timing Issues Related to the Changes of the Applicable
Treaty Law', 34, Intertax, INTERNATIONAL TAX REVIEW, pp. 475-484
(2006)
2. JL. Rubinger, 'Moving the Management and Control of a Foreign
Corporation to Achieve Favorable U.S. Tax Results: Part II', 81,
FLORIDA BAR JOURNAL, pp. 44-47. (2007).
3. S. Shalhav, 'The Evolution of Article 4(3) and Its Impact on the Place
of

Effective

Management

Tie

Breaker

Rule',

32,

Intertax,

INTERNATIONAL TAX REVIEW, pp. 460-476 (2004).

TREATY SHOPPING
4. D. Pohl & A. Keller, 'The New German Anti-Treaty/ Anti-Directive
Shopping Rule', International Tax Journal, 38, pp. 17-24, 2012.
5. K. Kral & E. Alek, 'Recent Tax Treaty Developments', 178, JOURNAL OF
ACCOUNTANCY, p. 34 (1994).
6. HD Rosenbloom, Derivative Benifits: Emerging US Treaty Policy
(Essay on International Taxation, Kluwer, Deventer 1993) from
DIMITAR TERZIYSKI,

Treaty shopping and the OECD Model Tax

Convention
7. H BECKER & F WRM, TREATY SHOPPING: AN EMERGING TAX ISSUE
AND ITS

PRESENT STATUS

IN

VARIOUS COUNTRIES (Kluwer, Deventer

1988)
-MEMORANDUM for THE RESPONDENT6

-Index of Abbreviations-

PLACE OF EFFECTIVE MANGEMENT


8. L. Cerioni, The Place of Effective Management as a Connecting
Factor for Companies' Tax Residence Within the EU vs. the Freedom of
Establishment: The Need for a Rethinking?' 13, GERMAN LAW
JOURNAL, pp. 1095-1130 (2012).
9. J. Schwarz, 'Management Based Definition for Domestic Corporations.
(cover story)', Newsquarterly, 29, pp. 1-16, (2009).

PLACE OF INCORPORATION
10. RJ Jr. Patrick, 'Simplifying The Taxation of Foreign Source Income', 30,
NATIONAL TAX JOURNAL, pp. 321-338, (1977).
FEES FOR TECHNICAL SERVICES
11. Tax Payers Information Series 44, Royalty And Fees For Technical
Services, Income Tax Department, available at
http://www.incometaxindia.gov.in/booklets%20%20pamphlets/royaltyand-fees-for-technical-services.pdf.
12. OECD Model Treaty and Commentaries (Condensed and Full
Versions), Article 4, Commentaries On The Articles Of The Model Tax
Convention,

available

http://www.oecd.org/berlin/publikationen/43324465.pdf

TREATIES
1.
2.
3.
4.

Vienna Conventions on the Law of Treaties, 1969


India USA Double Tax Avoidance Agreement, 1991
India Germany Double Tax Avoidance Agreement, 1996
USA Germany Double Tax Avoidance Agreement, 1990
WEBSITES REFERRED

1. Manupatra Online Resources, http://www.manupatra.com.


-MEMORANDUM for THE RESPONDENT7

at

-Index of Abbreviations2. Lexis Nexis Academica, http://www.lexisnexis.com/academica.


3. Lexis Nexis Legal, http://www.lexisnexis.com/in/legal.
4. SCC Online, http://www.scconline.co.in.
5. Oxford Dictionary, http://www.oxforddictionaries.com
6. WestlawIndia, http://www.westlawindia.com
7. EBSCOhost, http://web.ebscohost.com
8. Wolters Kluwer, https://www.cchtaxonline.com
9. Wolters Kluwer International Tax Law, http:// intelliconnect.cchcom
10. Income Tax India, http://www.incometaxindia.gov.in

CASES
Asst. Director of Income Tax v. Green Emirate Shipping & Travels (2006) 99
TTJ 0988.-----------------------------------------------------------------------------------------Bhagwati Developers Pvt. Ltd. v Peerless General Finance & Investment Co.
Ltd (2013) 9 SCC 584---------------------------------------------------------------------------Bhogilal Chunnilal Pandya v. State of Bombay, AIR 1959 SC 356.-------------------------Birla Cement Works v. CBDT, (2001) 3 JT, 256.-----------------------------------------------C.E.S.C Ltd v. DCIT [2003] (275 ITR 15) (Cal. ITAT).--------------------------------------CIT v De Beers India Minerals Pvt. Ltd. [2012] 346 ITR 467 (Kar.).----------------------CIT v Shaan Fianance (P.) Ltd. (1998) 231 ITR 308 (SC).------------------------------------CIT v. Carew & Co Ltd (1979) 12 CTR (SC) 402; (1979) 120 ITR 540 (SC).---------------CIT v. Carew & Co. Ltd. (1973) 87 ITR 459 (Cal).--------------------------------------------CIT v. De Beers India Minerals 346 ITR 467( Kar.).-------------------------------------------CIT v. ITC Ltd. [2002] 82 ITD 239 2001 Indlaw ITAT 320 (Cal.).-------------------------CIT v. Poddar Cement (P.) Ltd. [1997] 226 ITR 625 (SC).------------------------------------CIT v. Samsung Electronics Ltd [2010] 320 ITR 209-----------------------------------------CIT v. Vegetable Products Ltd [1973] 88 ITR 192.---------------------------------------------CIT v. Visakhapatnam Port Trust 1983 144 ITR 146 AP-------------------------------------DCIT v. Gupta Overseas, 160 TTJ 257.----------------------------------------------------------MEMORANDUM for THE RESPONDENT8

-Index of AbbreviationsDCIT v. ITC Ltd. (2002) 76 TTJ 323 (Cal.).---------------------------------------------------DDIT v IATA BSP India (2014) 164 TTJ 484 (Bom.).----------------------------------------Director of IT v. Green Emirate Shipping & Travel (2006)99TTJ(Bom.)988;
(2006)100ITD203(Bom.).------------------------------------------------------------------Dura metallic (India) Limited v. Assistant Commissioner of Income Tax (2003)
85 ITD 442----------------------------------------------------------------------------------------Feerrel v Alexander [1976]2 All ER 721.--------------------------------------------------------GE India Technology Centre Private Ltd. v. CIT (2010) 327 ITR 456 (SC)----------------Guy Carpenter &Co Ltd v. ADIT (2012) (346 ITR 504).--------------------------------------Hindustan Lever Ltd. v. Municipal Corporation of Greater Bombay [1995] 3
SCC 716-------------------------------------------------------------------------------------------In Re Idea Cellular Ltd., [2012] 343 ITR 381 [AAR].----------------------------------------In Re Intertek Testing Services India (P) Ltd., [2008] 307 ITR 418 (AAR)---------------In Re Poonawala Aviation Pvt. Ltd [2011] 343 ITR 202.-------------------------------------IRC v. Duke of Westminster 1936 AC 1.---------------------------------------------------------Maruti Udyog Ltd. v. Asst. DIT (2010) 37 DTR 85; 130 TTJ 66; 34 SOT 480
(Del.) (Trib.) (2010).----------------------------------------------------------------------------Meera Bhatia v. ITO 2010 (10) TMI 304-------------------------------------------------------NQA Quality Systems Registrar Ltd v. DCIT 2004 (92 TTJ 946) (Delhi ITAT).
-----------------------------------------------------------------------------------------------------Sandvik Ab, Pune v. Assessee (ITA no. 93/PN/2011).----------------------------------------Shell Co. of India v. CIT (1964) 51 ITR 669 (Cal).---------------------------------------------Sumitomo Corporation v. DCIT, 114 ITD 61 (Del).-------------------------------------------Transmission Corporation of AP v. CIT 239 ITR 587 (SC)----------------------------------Van Ooord Acz India (P) Ltd v. CIT [2010]189 (2010) 323 ITR 130 (Del) 230.---------------18 -

-MEMORANDUM for THE RESPONDENT9

-Statement of Jurisdiction-

-Respondent-

STATEMENT OF JURISDICTION
The Respondent humbly submits this memorandum in response to appeal filed by the
appellant before High Court of Judicature, Madras under Ordinary Original Civil
Jurisdiction provided under Section-260A of the Income Tax Act, 1961.

STATEMENT OF FACTS
INTRODUCTION OF COMPANIES
The parties involved in the present case are Companies incorporated under the
domestic laws of India & US respectively.
1. The First party being Global Appliances India Limited (GAIL) is a company
incorporated in India and registered under Indian Companies Act 1956.
2. The Second party being M/s Image Searcher Inc. (ISI), a limited liability company
incorporated in the United States of America (USA) as per the laws of that country
ISI has its Place of Effective Management (PoEM) in Germany and accordingly
regarded as a resident of Germany as per the domestic laws of Germany.

RESIDENTIAL STATUS
As per the India and USA tax treaty, company is to be considered as a tax resident of
USA if the company is incorporated therein. Further GAIL was provided with the
Incorporation certificate of ISI.
By the virtue of PoEM in Germany and MAP order under USA-Germany tax treaty
company ISI was concluded as tax resident of Germany.

CAUSE OF ACTION
In the Assessment Year 2013-14 payment was made by GAIL to ISI in regards to the
consultancy services rendered. The said payment was treated by GAIL as not taxable in
India by applying Article 12 (4) of India-USA tax treaty and therefore GAIL did not
deduct any tax at source thereon. While examining the deductibility of the expense in the
hands of GAIL it was observed by the Indian tax authorities that Tax Residency

-Statement of Jurisdiction-

-Respondent-

Certificate (TRC) has not been obtained by ISI from US tax authorities and for want of
that it denied the benefit of India US tax treaty.

-Statement of Facts-

MATTER BEFORE CIT(A) & TRIBUNAL


Aggrieved by the said order of the Tax authorities the respondent went
for appeal before CIT(A). CIT(A) considered ISI as tax resident of
Germany based on MAP order and disentitled GAIL from any benefit
under India US tax treaty as India Germany tax treaty does not have as
narrow a definition of FTS.
In further appeal before the Tribunal by GAIL and also Assessing
Officer, the appeal of GAIL was allowed on the grounds that tax residency
criteria in India USA treaty considers place of incorporation as a relevant
criteria and hence obligation incurred by India US treaty confers certain
benefit to US tax residents.
The Tribunal also concluded that the status of company in relation to
US cannot be altered or ignored having regard to its relation to Germany
and TRC is not pre-requisite for claiming avoidance of double taxation
under the India USA tax treaty.
Aggrieved by the order passed by Income Tax Appellate Tribunal,
Chennai the Principal Commissioner of Income Tax has filed this appeal
before the Honble High Court of Judicature at Madras.

MEMORANDUM for THE RESPONDENT12

-Statement of Facts-

MEMORANDUM for THE RESPONDENT13

-Statement of Issues-

-Respondent-

STATEMENT OF ISSUES
The following issues are presented before the Honble High Court of Judicature, Madras:

ISSUE 1:
WHETHER THE WORD ANY SUCCEEDED BY THE WORD RELIEF UNDER SECTION
90(4) OF INCOME TAX ACT, 1961 COVERS THE AVOIDANCE OF DOUBLE TAXATION?
ISSUE 2
WHETHER TRC IS A SINE QUA NON FOR CLAIMING ANY BENEFIT UNDER INDIA US TAX TREATY?
ISSUE 3
WHETHER MAP ORDER

AND

POEM WOULD

DISENTITE ASSESSEE FROM CLAIMING BENEFEITS UNDER

INDIA US TAX TREATY?


ISSUE 4

WHETHER

THE TAXING RIGHT FORGONE BY

USA IN

FAVOUR OF

INDIA UNDER INDO-US TAX TREATY?

MEMORANDUM for THE RESPONDENT14

GERMANY

AFFECTS

-Summary of Arguments-

-Respondent-

SUMMARY OF ARGUMENTS
1. WHETHER THE WORD ANY SUCCEEDED BY THE WORD RELIEF UNDER SECTION
90(4) OF INCOME TAX ACT, 1961 COVERS THE AVOIDANCE OF DOUBLE
TAXATION?

The word any relief umder Section 90(4) does not include avoidance:
Firstly, legislature chose to use the word relief instead of the word benefit which
shows its intend to specifically mean relief. Secondly, the word relief is to be attributed
the same meaning all over the statute. Thirdly, the word any is intended to denote the two
sub-clauses within clause (a) of sub-section (1) of section 90.
2.

WHETHER TRC IS A SINE QUA NON FOR CLAIMING ANY BENEFIT UNDER INDIA US TAX TREATY?

TRC is not a sine qua non for claiming relief under the tax treaty:
Firstly, the assessee is seeking avoidance under the treaty and not relief. Secondly, by
adopting strict interpretation of taxing statute a benefit is to be accorded to the assessee.
3.

WHETHER MAP
UNDER INDIA

ORDER AND

POEM

WOULD DISENTITLE ASSESSEE FROM CLAIMING BENEFEITS

US TAX TREATY?

MAP order and PoEM would make ISI a resident of USA:


Firstly, ISI qualifies the rule of resindence under Article 4 of India-USA tax treaty.
Secondly, India-USA treaty would apply to ISI. Thirdly, the said service is non-taxable
under Aricle 12(4) due to the presence of make availability clause. Fourthly, even the
application of India-Germany treaty would not make the service taxable through a
provision for import of make availbility clause.
4. WHETHER

THE TAXING RIGHT FORGONE BY

USA

IN FAVOUR OF

GERMANY

AFFECTS INDIA UNDER INDO-US TAX TREATY?

The taxing right foregone by USA may not affect the rights of India:
Firstly, USA has foregone the taxing right through MAP which cannot be imposed on India
who is a third party. Secondly, the actual payment of tax in one of the contracting state is not
a pre-requisite for availing the benefits of the treaty. Thirdly, the existance of legal right to
tax ISI with USA would suffice the requirement for claiming the benefits under India-USA
tax treaty, no matter whether the USA would exersice the said right or not. Fourthly, the
transaction between ISI and GAIL had its basis in provision of certificate of incorporation as
a proof of residence in USA.

MEMORANDUM for THE RESPONDENT15

-Arguments Advanced-

-Respondent-

ARGUMENTS ADVANCED
1.

WHETHER

THE WORD

ANY

SUCCEEDED BY THE WORD

RELIEF

UNDER SECTION

90(4)

OF

INCOME TAX ACT, 1961 COVERS THE AVOIDANCE OF DOUBLE TAXATION?


1.1 THE WORD RELIEF AND AVOIDANCE ARE ALTOGETHER TWO DIFFERENT THINGS SPECIFICALLY
DEALT UNDER TWO DIFFERENT CLAUSES

The word relief and avoidance are altogether two different things specifically dealt
under two different clauses. Section 90(1) (a) of the Income Tax Act, 19611 deals with
relief while Section 90(1) (b) deals with avoidance in tax matters. In the case of Dura
metallic (India) Limited v. Assistant Commissioner of Income Tax, 2 itwasheldthatin
caseofrelief,theassesseeisboundtopaytaxandthenmayapplyforthereliefinthe
formofreturnsofexcesspayments,i.e.reliefisgrantedaftertheincomebeingtaxed
underthelawsofboththeterritories.Ontheotherhandavoidancereferstoasituation
wheretheassesseepaystaxunderlawsofoneterritoryandisexemptedundertheother
andistobeallowedatthetimeofassessmentitself.The ambit of the cl. (a) and (b) of
Section 90 (1) is different from each other.
The scope of cl. (a) is for granting relief in respect of income on which income-tax
has been paid both under The Act, as well as under the income-tax law of other nation.
On the other hand cl. (b) seeks to avoid double taxation of income under The Act and the
corresponding law in force in the other country. The provisions of cl. (b) strive for
avoidance of double taxation, whereas cl. (a) will be applicable when an income has
been duly taxed and tax has been paid in India as well as the other country. Therefore,
the scope of these two clauses is mutually exclusive.
The Calcutta High Court in case of Shell Co. of India v. CIT3 pointed out the
difference between the provisions relating to relief against double taxation and avoidance
of double taxation. According to the High Court, relief against double taxation is the case
where an assessee is bound to pay tax and then may apply for the relief in the form of
returns of excess payments, i.e. relief is granted after the income being taxed under the
laws of both the territories. On the other hand avoidance refers to a situation where the
1

Income Tax Act, 1961 (Hereinafter referred to as The Act).

Dura metallic (India) Limited v. Assistant Commissioner of Income Tax (2003) 85 ITD 442.

Shell Co. of India v. CIT (1964) 51 ITR 669 (Cal).

-Arguments Advanced-

-Respondent-

assesse pays tax under laws of one territory and is exempted under the other and is
allowed at the time of assessment itself.4
The Supreme Court acting through Pathak, J. affirming the decision of Calcutta
High Court in the case of CIT v. Carew & Co Ltd.5 observed that it is appropriate to
point out that a distinction exists between the avoidance of double taxation and relief
against double taxation. One important feature distinguishing the two concepts lies in
this that in the case of avoidance of double taxation, the assessee does not have to pay
the tax first and then apply for relief in the form of refund, as he would be obliged to do
under a provision for relief against double taxation. The respective schemes embodying
the two concepts differ in some degree from each other, and that needs to be borne in
mind when statutory provisions are referred to and cases are cited before the Court on a
point involving double taxation.
Therefore, the respondent contends that relief and avoidance are two different benefits
that could be availed under a tax treaty and avoidance may not be included under the
definition of relief.

1.2 THE WORD RELIEF BEARS THE SAME MEANING ALL THROUGH THE PROVISION

Same word same meaning is the subsidiary rule of statutory interpretation which
that a specific word used at more than one place in a particular statute bears the same
meaning in every place, i.e. if the same word is used in two or more section or two or
more clauses of the same section or even more than once in a particular clause the word
is to bear the same meaning and attributing different meanings at different places dilutes
the intention of the legislature behind the use of such word. It was satated by the court in
the case of Bhagwati Developers Pvt. Ltd. v Peerless General Finance & Investment
Co. Ltd.6that When the legislature uses same word in different part of th same section
or statute, there is a presumption that the word is used in the same sense through out.

CIT v. Carew & Co. Ltd. (1973) 87 ITR 459 (Cal).


CIT v. Carew & Co Ltd (1979) 12 CTR (SC) 402; (1979) 120 ITR 540 (SC).
6
Bhagwati Developers Pvt. Ltd. v Peerless General Finance & Investment Co. Ltd (2013) 9
SCC 584.
5

-Arguments Advanced-

-Respondent-

Further the court stated that when a word is defined in a statute, meaning of said word
does not vary when the same word has used elsewhere in the statute. 7
The English Court in Feerrel v Alexander8 stated that, where the draftsman uses the
same word or phrase in similar contexts, he must be presumed to intend it in each place
to bear the same meaning. Thus in a nutshell the rule of same word same meaning is
that when a word occurs more than once in the same provision or statute it should be
presumed to have the same meaning throughout the statute.
The word in question i.e. relief in the present case cannot be considered to bear
different meaning under Section 90(1)(a) and 90(4) of the Act and two different
intention cannot be attributed to the legislature behind enactment of the provision
bearing same word.
The basic idea of the legislature behind using the word any relief in section 90(4)
is to imply the application to any of the clauses contained under section 90
(1)(a), which specifically deals with two kinds of relief that can be availed by the
assessee. Following are the two kinds of relief:

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

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.9

Therefore it is humbly submitted before the Honble Court that the word any
succeeded by the word relief under Section 90(4) of The Act, does not cover the
avoidance of double taxation.

Bhogilal Chunnilal Pandya v. State of Bombay, AIR 1959 SC 356.


Feerrel v Alexander [1976]2 All ER 721.
9
90(1)(a) of The Act.
8

-Arguments Advanced-

-Respondent-

WHETHER TRC IS A PRE-REQUISITE FOR CLAIMING ANY BENEFIT UNDER INDIA US TAX TREATY?
2.1 TRC IS PRE-REQUISITE ONLY FOR CLAIMING RELIEF BUT NOT FOR CLAIMING AVOIDANCE

TRC is a certificate issued by a contracting state of a treaty to an assessee


determining him to be the tax resident of that particular state. The provision of TRC
being a pre-requisite for availing benefits under tax treaties has been incorporated in The
Act, through Finance Act 2012. The appellant contends that TRC is a sine qua non for
claiming relief under Section 90(4) of the Act however the respondent humbly submits
that the claim in the said case is not for relief but for avoidance. As already discussed
above in the case of Shell Co. of India v. CIT10 difference between the provisions
relating to relief against double taxation and avoidance of double taxation i.e. relief is
granted after the income being taxed under the laws of both the territories. On the other
hand avoidance refers to a situation where the assesse pays tax under laws of one
territory and is exempted under the other and is to be allowed at the time of assessment
itself. The same line of argument was completely affirmed by the Supreme Court in the
case of CIT v. Carew & Co Ltd11.
Construing Section 90(4) in its strict sense, the TRC serves to be a mandatory
requirement for claiming relief and the provision remains silent for the case of
avoidance. 12 As taxing statute are to be given a strict interpretation, i.e. look through
approach is to be adopted in construing them the word avoidance may not be imported
by this Honourable Court into Section 90(4) of the Act.

2.2 STRICT INTERPRETATION IS TO BE ADOPTED WHILE ENFORCING TAXING STATUTE

The settled rule of construction of taxing statute is that if there is any reasonable
interpretation which will avoid the tax liability legally in any particular case, one must
adopt that construction. If there are two reasonable constructions that can be put upon a
taxing provision, the court must lean towards that construction which exempts the
subject from the taxability rather than the one which imposes taxability. In the case of
IRC v. Duke of Westminster,13 strict interpretation requires a benefit to be accorded to
10

Supra note 3.
Supra note 5.
12
90(4) of Income Tax (Amendment) Act, 2013.
11

13

IRC v. Duke of Westminster 1936 AC 1.

-Arguments Advanced-

-Respondent-

the assessee when there can be two possible interpretations, one in the favour and one
against the assessee. Section 90(4) reads as:
An assessee, not being a resident, to whom an agreement referred to in sub-section
(1) applies, shall not be entitled to claim any relief under such agreement unless [a
certificate of his being a resident] in any country outside India or specified territory
outside India, as the case may be, is obtained by him from the Government of that
country or specified territory.14
The requirement of TRC has been stated in the provision as a sine qua non for
claiming any relief. The word any relief may be attributed two different meanings. One
to mean benefit as contended by the Appellant and the other to include relief granted
under Section 90(1) (a). When the legislature has adopted the use of the word relief and
not benefit it should be considered a deliberate act and the meaning that is beneficial to
the assessee is to be attributed to the word relief.
The Supreme Court in the case of Hindustan Lever Ltd. v. Municipal Corporation
of Greater Bombay15 held that if two views are possible with respect to any provisions
under a taxing statute, the view which is in favour of the assessee should be accepted.
This view of the court has been reiterated in the case of CIT v. Poddar Cement (P.) Ltd16
where the court has stated that, Where there are two possible interpretations of a
particular section which is akin to a charging section, the interpretation which is
favourable to the assessee should be preferred while construing that particular
provision. This view has been strengthened by the Apex Court in the case of CIT v
Shaan Fianance (P.) Ltd.17 by stating that in interpreting a fiscal statute, the Court
cannot proceed to make good the deficiencies if there be any. The Court must interpret
the statute as it stands and in case of doubt, in a manner favourable to the taxpayer.
Further the court in the case of CIT v. Vegetable Products Ltd18 held that if the Court
finds that the language of taxing provision is ambiguous or capable of more meaning
than one, and then the Court has to adopt the interpretation which favours the assessee.
14

90(4), Income Tax (Amendment) Act, 2013.

15

Hindustan Lever Ltd. v. Municipal Corporation of Greater Bombay [1995] 3 SCC 716; Birla Cement Works
v. CBDT, (2001) 3 JT, 256.
16

CIT v. Poddar Cement (P.) Ltd. [1997] 226 ITR 625 (SC).
CIT v Shaan Fianance (P.) Ltd. (1998) 231 ITR 308 (SC).
18
CIT v. Vegetable Products Ltd [1973] 88 ITR 192.
17

-Arguments Advanced-

-Respondent-

A taxing statute needs to be interpreted in a manner that would benefit the assessee as
well as serve the purpose of the revenue. Jeopardizing the rights of the assessee by
interpreting a provision in a manner leading to a dis-entitlement from a benefit under a
treaty would defeat the object of the legislation. In the present case including the word
avoidance under the ambit of the word any relief and requiring the assessee to
submit a TRC for claiming a benefit other than relief i.e. avoidance would affect the
rights of the assessee in a grave manner. If the assessee is claiming relief under the
agreement, then submission of TRC would be a sine qua non. However, the assessee in
the present case is claiming tax avoidance under Indo-US tax treaty and not relief. The
Respondent humbly submits that, the act of the legislature for using the word any
relief in the place of any benefit to be considered deliberate and the Honourable
Court may be pleased to declare the applicability of the said benefit i.e. avoidance to the
assessee without submission of TRC.

-Arguments Advanced3.

WHETHER MAP
UNDER INDIA

-RespondentORDER AND

POEM

WOULD DISENTITE ASSESSEE FROM CLAIMING BENEFEITS

US TAX TREATY?

3.1 ISI QUALIFIES THE TEST OF RESIDENT AS PER ARTICLE 4 OF INDIA

US TAX

TREATY

ISI being a company incorporated in USA is entitled to be a resident of USA


according to the definition of Resident contained in the Article 4 of the Indo-USA Tax
Treaty. Article 4(1) of the treaty states that:
For the purposes of this Convention, the resident of a Contracting State means
any person who, under the laws of that State, is liable to tax therein by reason of his
domicile, residence, citizenship, place of management, place of incorporation, or any
other criterion of a similar nature, provided, however, that
a) this term does not include any person who is liable to tax in that State in
respect only of income from sources in that State; and
b) in the case of income derived or paid by a partnership, estate, or trust, this
term applies only to the extent that the income derived by such partnership,
estate, or trust is subject to tax in that State as the income of a resident, either
in its hands or in the hands of its partners or beneficiaries.19
ISI being a company incorporated in USA satisfies the ingredient of the said article
and hence becomes resident of USA. The United States adopted the POI (Place of
Incorporation) test in the War Revenue Act of 1917.20 Section 200 of 1917 Act defined
a domestic Corporation as any corporation created under the law of the United States,
or of any state, territory or district thereof. This definition survives largely unchanged to
this day. Currently under Section 7701(a)(4) deals with the definition of Domestic where
the term domestic when applied to a corporation or partnership means created or
organized in the United States or under the law of the United States or of any State
unless, in the case of a partnership, the Secretary provides otherwise by regulations.21

19

Article 4, India USA Tax Treaty, 1991 available at https://www.irs.gov/pub/irstrty/india.pdf (last accessed on Feb. 27, 2016)
20
War Revenue Act, 1917, Pub. L. No. 65-50, 200, 40 Stat. 300, 302 (1917) available at
http://www.constitution.org/uslaw/sal/041_itax.pdf (last accessed on Feb. 27, 2016)
21
Internal Revenue Code, 26 7701 (2006) available at http://constitution.org/tax/usic/irc/2006_IRC.pdf (last accessed on Feb. 26, 2016)

-Arguments Advanced-

-Respondent-

In the moot proposition it is clearly mentioned that the respondant was provided with
the incorporation certificate of ISI 22 (presuming that all laws are complied and the
certificate was issued by US Government).23 Therefore POI certificate serves as a proof
for claiming that ISI is a US residence as it is created & organized under the laws of US.
The United States reserves the right to use a place of incorporation test for determining
the residence of a corporation, and, failing that, to deny dual resident companies certain
benefits under the Convention. Place of Incorporation being in USA, ISI cannot be
deprived of the residency of United States.24 Having established that ISI is a resident of
USA, the respondent humbly submits that, the Indo-US tax treaty is applicable to the
assessee.

3.2. FEES RECEIVED TOWARDS RENDERING OF CONSULTANCY SERVICES IS NOT TAXABLE AS PER ARTICLE
12(4)(B) OF INDIA USA TAX TREATY

The Respondent submits that even if the consultancy service in the present case is
considered as fees for included services but the payment would not be taxable in
India, due to the availability of the clause make available in Article 12(4) of the IndiaUSA Tax Treaty, which states as:
For purposes of this Article, "fees for included services" means payments of any
kind to any person in consideration for the rendering of any technical or consultancy
services (including through the provision of services of technical or other personnel)
if such services:
(a) are ancillary and subsidiary to the application or enjoyment of the right,
property or information for which a payment described in paragraph 3 is
received; or
(b) make available technical knowledge, experience, skill, know-how, or
processes, or consist of the development and transfer of a technical plan or
technical design.25
22

Moot proposition, Pg 1, 2.
Clarification 1, Corrections and Clarifications of the 12th Nani Palkhivala Memorial
National Tax Moot Court Competition 2016.
24
OECD Model Treaty and Commentaries (Condensed and Full Versions), Article 4,
Commentaries On The Articles Of The Model Tax Convention, available at
http://www.oecd.org/berlin/publikationen/43324465.pdf
25
Supra note 19, Artcle 12(4).
23

-Arguments Advanced-

-Respondent-

It is further submitted that the term make available has not been defined in the
India-USA DTAA. However, the Memorandum of Understanding (MOU) in the IndiaUSA DTAA contemplates that technology will be considered as made available when
the person acquiring the service is enabled to apply the technology or skills involved in
rendering such service. This category is narrower as it excludes any service that does not
make technology available to the person acquiring the service.
The fact that the provision of the service may require technical input by the person
providing the service does not per se mean that technical knowledge, skills, etc. are made
available to the person purchasing the service, within the meaning of paragraph 4(b). The
fact that ISI has provided consultancy services to the Respondant does not suffice the
ingredients required under Article 12(4)(b) of the treaty for making available a service.
The services rendered by ISI did not provide the respondant with any technical knowhow enabling him to avail the service at a later point and hence the respondant may not
be deprived of the benefits under the treaty. The MOU to the India-US DTAA lists down
various illustrations in order to aid interpretation as to whether a particular service
makes available technical knowledge, experience, skill, know-how or processes or
not.26
In the case of CIT v. De Beers India Minerals,27 Karnataka High Court held that a
mere rendering of services does not fall within the gamut of the term make available
unless the recipient of services is enabled and empowered to make use of the technical
knowledge by itself in its business or for its own benefit without recourse to the original
service provider in the future. Same ruling was reiterated by the Delhi HC in the case of
Guy Carpenter &Co Ltd v. ADIT.28
In the case of NQA Quality Systems Registrar Ltd v. DCIT,29 it was held that services are
said to be made available if the recipient of services is at liberty to use the technical
knowledge, skill, know-how and processes in his own right.

26
27
28
29

Supra note 19, Memorandum of Understanding.


CIT v. De Beers India Minerals 346 ITR 467( Kar.).
Guy Carpenter &Co Ltd v. ADIT (2012) 346 ITR 504.
NQA Quality Systems Registrar Ltd v. DCIT 2004 (92 TTJ 946) (Delhi ITAT).

-Arguments Advanced-

-Respondent-

For instance, if a US tax resident simply provides some consultancy services to an


Indian tax resident, payment towards the same would not satisfy the make available
criteria and hence, would not qualify as FIS as per Article 12 of the India-US DTAA.
However, if in the above example, the US tax resident tutors the Indian tax resident in
such a manner that the Indian tax resident is thereafter enabled to render the said
consultancy services independently; the same would satisfy the make available
criteria. Substituting ISI in the place of US resident in the illustration and the respondent
in the place of the Indian tax resident it is clear that the consultancy services rendered by
ISI to the respondent would not constitute make available and is not taxable under
Article 12(4) of the treaty. The fact that the provision of a service may require technical
inputs from the person providing the service does not per se mean that technical
knowledge, skills, etc., are being made available to the person purchasing the
service.30
Klaus Vogel in his Third Edition on Double Taxation Convention has explained the
role of the Protocol as an Integral part of treaty.31 The same has been considered by the
Kolkata Tribunal in the case of ITC Ltd.32 In the case of Maruti Udyog Ltd.33 the Delhi
Tribunal has explained the scope of the Protocol and held that Protocol is an
indispensable part of the treaty with the same binding force as the main clauses therein.
The same ruling i.e. Protocol as an integral part of treaty has been followed in the case of
Sumitomo Corporation v. DCIT34 and DCIT v. Gupta Overseas.35

30

Supra note 19.


Klaus Vogel on Double Tax Conventions, (4 Revised edition, Wolters Kluwer Law &
Business, 2015) available at http:// intelliconnect.cchcom (last accessed on Feb. 23, 2016)
32
DCIT v. ITC Ltd. (2002) 76 TTJ 323 (Cal.).
31

33

Maruti Udyog Ltd. v. Asst. DIT (2010) 37 DTR 85; 130 TTJ 66; 34 SOT 480 (Del.) (Trib.) (2010).

34

Sumitomo Corporation v. DCIT, 114 ITD 61 (Del).


DCIT v. Gupta Overseas, 160 TTJ 257.

35

-Arguments Advanced-

-Respondent-

In the case of Sandvik Australia Pvt. Ltd.36

the Pune Tribunal dealt with the

expression of make available and held that unless the service provider makes available
his technical knowledge, experience, skill, know how or process to the recipient of the
technical service, the liability to tax has not attracted.
Therefore, it is humbly submitted before the Honble Court that in the present case
the condition of Make Available is not fulfilled and fees received towards rendering of
Consultancy Services is not taxable as per Article 12(4) (b) of India US Tax Treaty.

3.3. EVEN APPLICABILITY OF INDIA GERMAN TREATY WOULD NOT MAKE THE PAYMENT OF CONSULTANCY
SERVICES TAXABLE BY VIRTUE OF

MFN CLAUSE

An MFN clause refers to a situation wherein two non-resident taxpayers are given
impartial treatment by the concerned country. In tax treaties, the MFN clause finds place
when countries are reluctant to forego their right to tax some elements of the income. An
MFN clause can direct more favourable treatment available in other treaties only in
regard to the same subject matter, the same category of matter or the same clause of the
matter. The Protocol attached to the tax treaty takes care of a situation wherein either of
the contracting states enter into a bilateral agreement in the nature of a tax treaty with
another sovereign state and where the same subject matter has been given more
favourable treatment by way of a definition or mode of tax, then the parties can claim the
benefit on the recognised principle of the MFN clause.
The definition of fee for technical services in the context of Indo-French DTAA
has to be interpreted in the context of other treaties between India and a third State,
which is a member of OECD and which is more favourable to the assessee.37
The Karnataka High Court, in the case of De Beers India Mineral Pvt. Ltd.38has
applied the MFN clause under the Netherlands tax treaty and observed that the meaning
of term Make Available under the India-Netherlands tax treaty is further narrowed
down by emphasising the words which enables the person acquiring the services to
36

Sandvik Ab, Pune v. Assessee (ITA no. 93/PN/2011).


Dy. CIT v. ITC Ltd. [2002] 82 ITD 239 2001 Indlaw ITAT 320 (Cal.).
38
CIT v De Beers India Minerals Pvt. Ltd. [2012] 346 ITR 467 (Kar.).
37

-Arguments Advanced-

-Respondent-

apply technology contained therein under the Singapore tax treaty. Similarly in the case
of CIT v. ISRO Satellite Centre39 court applied the MFN Clause and held that beneficial
provisions of the Tax Treaty could not be denied. The AAR and ITAT have held in the
case of C.E.S.C Ltd v. DCIT40 and Intertek Testing Services India Pvt. Ltd. 41,that the
explanation as provided in the MOU to the India-US DTAA should be equally applicable
to all other DTAAs India.
It is true that authorities have given tax payers the benefit of the MFN clause in
context of the India treaties with OECD countries. The instances of such rulings may be
found in the decisions of, Poonawala Aviation Pvt. Ltd42 and Idea Cellular Ltd.43
So, in the present case even if we apply India German treaty in that case also the
payment made by GAIL to ISI is not taxable because of import of make available by
virtue of MFN Clause. Therefore, Respondent humbly submits that, payment made to ISI
is not taxable in India in the view of beneficial provision of Indo-US Tax Treaty read
with the MOU. Accordingly, Fees received towards rendering of Consultancy Services
are not taxable as FIS under Article 12(4)(b) of Indo-US Tax Treaty.

39

CIT v. ISRO Satellite Centre (2013) 35 Taxmann 352 (Kar); DDIT v IATA BSP India
(2014) 164 TTJ 484 (Bom.).
40
C.E.S.C Ltd v. DCIT [2003] (275 ITR 15) (Cal. ITAT).
41
In Re Intertek Testing Services India (P) Ltd., [2008] 307 ITR 418 (AAR)
42
In Re Poonawala Aviation Pvt. Ltd [2011] 343 ITR 202.
43
In Re Idea Cellular Ltd., [2012] 343 ITR 381 [AAR].

-Arguments Advanced4.

-Respondent-

WHETHER THE TAXING RIGHT FORGONE BY USA IN FAVOUR OF GERMANY AFFECTS INDIA UNDER
INDO-US TAX TREATY?

4.1 MAP ORDER UNDER US GERMANY TREATY DOES NOT DEPRIVE ISI FROM CLAIMING THE BENEFIT UNDER
INDIA-US TAX TREATY

The respondent is already established that ISI is a resident of United States by the
virtue of Certificate of Incorporation and the creation of company in accordance with the
laws of United States. As per the tax treaty between USA and Germany, a company
resident of both USA and Germany will be treated as tax resident of the state selected by
Competent Authorities under a Mutual Agreement Procedure (MAP). In the present case,
MAP proceedings between the Competent Authorities of Germany and USA concluded
that ISI shall be treated as tax resident of Germany.44 So in the present case, appellant
contended that USA has forgone the taxing right in the favour of Germany through a
MAP order.
The fact that ISI is deemed to be a resident of Germany under the MAP order does
not deprive ISI from claiming the benefit under India-US tax treaty as the MAP order has
been concluded between the competent authorities of USA and Germany, and India being
a third party cannot be forced to honor the agreement between USA ad Germany. The
provisions of the Mutual Agreement Proceeding cannot be made applicable to India, who
is the third party to the agreement. According to Article 34 of Vienna Convention
which states:
A treaty does not create either obligation or rights for a third State without its
consent.45
The Vienna Convention provides 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. Thus, Vienna Convention precludes a
pure literal interpretation and propounds a contextual and a purposive approach for
interpretation of tax treaties. Applicability of Vienna Convention in the context of India
44

4, Moot proposition, 12th Nani Palkhivala Memorial National Tax Moot Court
Competition 2016.
45
Article 34, Vienna Convention on the law of treaties, 1969 available at
https://treaties.un.org/doc/Publication/UNTS/Volume%201155/volume-1155-I-18232English.pdf

-Arguments Advanced-

-Respondent-

has been explained by Apex Court in the case of Ram Jethmalani v. Union of India46, in
following terms:
While India is not a party to the Vienna Convention, it contains many principles of
customary international law, and the principle of interpretation, of Article 31 of the
Vienna Convention, provides a broad guideline as to what could be an appropriate
manner of interpreting a treaty in the Indian context also.
A point of considerable interest with regard to the creation of binding rules of law for
the international community centres on the application and effects of treaties upon third
states, i.e. states which are not parties to the treaty in question. 47 The general rule is that
international agreements bind on the parties to them. The reasons for this rule can be
found in fundamental principles of the sovereignty and independence of states, which
posit that the states must consent to rules before they can be bound by them.48
In the present case, India has never consented for application of MAP order.
Therefore, India is not bound to honour the agreement and consider ISI as a resident of
Germany. Although ISI becomes a resident of Germany for dealings between USA and
Germany, it continues to remain resident of USA for the purpose of Indo-US tax treaty.
4.2 ACTUAL

PAYMENT OF TAX IN ONE OF THE

AVAIL THE BENEFITS OF

CONTRACTING STATES

IS NOT A CONDITION PRECEDENT TO

DTAA

It is undisputed position that the recipient company i.e. ISI is a company duly
incorporatedinUSAbutthetreatybenefithasbeendeclinedonlyonthegroundthatthe
ISIisnotpayinganytaxintheUSA.IthasneverbeenthecaseoftheAOthatthe
recipientcompanyISIisnottheresidentofUSA.Itisinterestingtonotethatinthe
impugnedorder,theCIT(A)observedthateventheabsenceofTRCwouldnotdis
entitleISIfromclaimingthebenefitofIndiaUSAtaxtreaty. 49 Itisnotnecessarythat
unlessapersonistaxedintheUSAthatpersoncannotclaimthebenefitsofIndiaUSA
46

Ram Jethmalani v. Union of India (2011) 8 SCC 1.


Sinclair, The Vienna Conventions on Law of Treaties (1984), pp-98-106.
48
MALCOLM N. SHAW, INTERNATIONAL LAW (6th ed., Cambridge University Press, New
Delhi, 2013) , p-928.
49
8, Moot Proposition, 12th Nani Palkhivala Memorial National Tax Moot Court
Competition 2016.
47

-Arguments Advanced-

-Respondent-

taxtreatyinIndia.Whatisreallyrelevanttoseeiswhetherornottherecipientwas
residentoftheUSA.ThecompanyISIhaddulyfiledtheevidenceinsupportofresident
statusintheUSAbyprovidingIncorporationCertificatetotheRespondent.
Forclaimingtreatybenefit,theISIhastoprovethatitisataxresidentofUSA.Inthe
presentcasethecompanyISIiseligibletobeconsideredasresidentofUSAunderArt.4
ofthetreaty,whichhasbeenalreadyprovedinabovecontention.
In the case of Director of IT v. Green Emirate Shipping & Travel,50 Mumbai
tribunalheldthattheactualpaymentoftaxinoneoftheContractingStatesisnota
condition precedent to avail the benefits of the IndoUAE tax treaty in the other
ContractingStates.Inotherwords,itisnotnecessary,contrarytowhathasbeenheldso
bytheAO,thatunlessapersonistaxedintheUAEthatpersoncannotclaimthebenefits
ofIndoUAEtaxtreatyinIndia.
ThereasoningwasreitteratedinthecaseofMeeraBhatiav.ITO51,itwasheldthat
actualpaymentoftaxinoneoftheContractingStatesisnotaconditionprecedentto
avail the benefits of DTAA in the other Contracting States because the tax treaty
preventsnotonlycurrenttaxationbutalsopotentialdoubletaxation.Oncetheright
totaxUAEresidentsinspecifiedcircumstancesvestsonlywithprincipalStateofthe
UAEunder atax treaty, that right,whether that rightexercisedornot, continues to
remainexclusiverightofthatState.
HavingprovedthatISIisaresidentofUnitedStatesbythevirtueofincorporation
whichisconsideredtobeasufficientproofofresidenceinUS,therespondenthumbly
submitsthatUShastorighttotaxISIandthefactthatithasvoluntarilyforgoneitsright
shallnotaffecttheIndoUStaxtreaty.ThoughUShaveneverexercisedthesaidrightby
thevirtueofMAPorder,itcannothaveanimpactontherightsofthethirdparty.

Director of IT v. Green Emirate Shipping & Travel (2006)99TTJ(Bom.)988;(2006)100


ITD203(Bom.).
51
Meera Bhatia v. ITO 2010 (10) TMI 304.
50

-Arguments Advanced-

-Respondent-

Itisthusclearthattaxabilityinonecountryisnotsinequanonforavailingrelief
underthetreatyfromtaxabilityintheotherCourts.Allthatisnecessaryforthispurpose
isthatthepersonshouldbeliabletotaxintheContractingStatebyreasonofdomicile,
residence,placeofmanagement,placeofincorporationoranyothercriterionofsimilar
naturewhichessentiallyreferstothefiscaldomicileofsuchaperson.Theviewtakenby
the Tribunal in the case of Green Emirates Shipping & Travels52, has also been
confirmed,afewmonthslater,byaDutchHighCourtvidejudgmentdated15February
2006. Prof. Klaus Vogel referred the Tribunal decision53 has observed as follows:
AnunusualcasedecidedbytheDutchGerechtshofAmstredamCourtofAppeals
on15February2006confirmsthisdecision.TheownersoftheDefunctCompanyBy
emigratedfromtheNetherlandstoGreecein1995andadvisedtheDutchtaxauthorities
that they now exercised management and contract from their new location, as a
consequenceofwhichthecompanybecameaGreekresident.Thiswasnotindisputein
May2000,thetaxpayersinformedtheDutchauthoritiesthat,sincetheirrelocation,they
hadendeavouredtoregisterthecompanywiththeGreekTaxauthorities,butfailedto
succeedbecauseoftheGreektaxauthorities,butfailedtosucceedbecauseoftheGreek
bureaucracythecompanyhadnotyetbeenassessedtotheGreekcorporateincometax.
ThesefactswerenotcontestedbytheDutchauthorities.Butin2004theyassessedthe
taxpayersfortheDutchcorporateincometaxretrospectivefortheyear1995.Thetax
inspectorarguedthat,forApplyingArt4(1)oftheNetherlandsGreecetaxliabilityisnot
sufficient rather a factual subjective indebtedness (een feitelike subjective
onderworpnheld)isrequired.TheCourt,however,refutedthisargumentitpointedout
thatthetaxtreatydidnotpostulatefactualtaxation:insteadalegalobligationtopaytax
onworldwideincome.
InthepresentcaseISIacompanyinitiallyincorporatedinUnitedStatesnowhasits
PlaceofEffectiveManagementatGermany.ThisfactcannotdilutetherightofUnited
Statestoimposetaxoveritsresidents.ThoughasamatteroffactISIhasitsPoEMin
Germany,itstillhasalegalobligationforpaymentoftaxatUSA.Whatmattersisthe

52

Supra note 50.


Asst. Director of Income Tax v. Green Emirate Shipping & Travels (2006) 99 TTJ 0988.

53

-Arguments Advanced-

-Respondent-

legalobligationbutnotthefactualpaymentoftax.Thislegalobligationissufficientto
constitutetheresidencyofISIinUSleadingtoanapplicabilityofIndiaUStaxtreaty.
In legal matters such as interpretation of international tax treaties and with a view to
ensure consistency in judicial interpretation thereof under different tax regimes, it is
desirable that the interpretation given by the foreign Courts should also be given due
respect and consideration unless, of course, there are any contrary decisions from the
binding judicial forums or unless there are any other good reasons to ignore such judicial
precedents of other tax regimes.54
ThefactthatUSAhasforgoneitstaxingrightsoverISItoGermanydoesdepriveISI
ofbeingtheresidentofUnitedStates.ThecertificateofincorporationisissuedtoISI
fromUSmakesitaresidentandtheagreementbetweenUSAandGermanydoesnot
haveimpactontherightsofthethirdparty.Therespondenthumblysubmitsthatthe
transactionbetweentherespondentandISIhaditsbasisintheincorporationcertificate
ofISIasproofofresidenceinUSAandthecourtmaynotinvalidatethesamedepriving
therespondentfromavailingthebenefitunderIndiaUSAtaxtreaty.

4.3 APPLICATION INDIA US

TAX TREATY DECLARING THE INCOME RECEIVED BY

IMPOSE ANY LIABILITY ON GAIL UNDER SECTION

ISI

NONTAXABLE DOES NOT

195 OF THE ACT

Income Tax Act, 1961 adopted the mechanism of deducting tax at source for the
payments to residents as well for non - residents. Section 195(1) of the Income Tax Act
lays the ground rules for deduction of tax at source from payments to non residents
which constitute income in India (other than salaries). 55 This provision was laid in the
Act in order to avoid a revenue loss as a result of tax liability in the hands of a foreign
resident, by deducting the same from payments made to them at source. In the case of the
54

55

CIT v. Visakhapatnam Port Trust 1983 144 ITR 146 AP

The Income- Tax Act, 1995, Section 195(1):- Any person responsible for paying to a non resident, not being
a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable
under the provisions of this Act (not being income chargeable under the head Salaries) shall, at the time of
credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a
cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force:
Provided that in the case of interest payable by the Government or a public sector bank within the meaning of
clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax
shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other
mode.

-Arguments Advanced-

-Respondent-

Non-Residents, all payments which includes payment for royality and fees for
technical services, is taxable under Section 195 of the Income Tax Act.
It is well settled law that TDS is required to be made u/s 195(1) only if the income is
chargeable to tax (partly or wholly) under the Act. In cases where the income itself is not
chargeable to tax, question of TDS should not arise. Under section 195(1), the obligation
to deduct tax arises only when a sum is chargeable to tax in India.Honble Supreme
Court in the case of GE India Technology Centre Private Ltd. v. CIT,56 it has been held
that the obligation to deduct tax at source arises only when there is a sum chargeable
under the act. Therefore, where the sum paid/payable is not a taxable income in the
hands of recipient, there is no need to deduct tax at source.
Therefore, in the present case, it is found that the income is not chargeable to tax, so
there is no necessity to deduct tax from the payment made by the GAIL to ISI.

56

GE India Technology Centre Private Ltd. v. CIT (2010) 327 ITR 456 (SC) Transmission Corporation of AP v.
CIT 239 ITR 587 (SC); CIT v. Samsung Electronics Ltd [2010] 320 ITR 209; Van Ooord Acz India (P) Ltd v.
CIT [2010]189 (2010) 323 ITR 130 (Del) 230.

-Prayer-

-Respondent-

PRAYER
In the light of arguments advanced and authorities cited, the Respondent
humbly submits that the Honble Court may be pleased to adjudge and
declare that:
1. The word any succeeded by the word relief under section
90(4) of Income Tax Act, 1961 does not cover the avoidance
of double taxation.
2. TRC is a sine qua non for availing relief but not avoiance
under Double Taxation Avoidance Agreement.
3. Tribunal was right in holding the appliability of India-USA
treaty and assuring benefit even in the absence of TRC.
4. Payment towards the fees for consultancy services rendered by ISI
as non-taxable in India by applying Section 12(4)(b) of India-USA
treaty.
Any other order as it deems fit in the interest of equity, justice
and good conscience.
For This Act of Kindness, the Respondent Shall Duty Bound
Forever Pray.

Sd/(Counsel for the Respondent)

-MEMORANDUM for THE RESPONDENT15

-Prayer-

-Respondent-

-MEMORANDUM for THE RESPONDENT16