2005 (6) TMI 34 - HC - Income Tax

Court Upholds Tax Treaty Interpretation, Dismisses Appeal in Favor of Revenue

The court upheld the Tribunal's decision, ruling that the Double Taxation Avoidance Agreement benefits could only be availed of from the fiscal year ... DTAA - '(i) Whether the provisions of the Double Taxation Avoidance Agreement between India and Malta are applicable to income arising in India within the previous year relevant to the assessment year 1996-97? - (ii) Whether the Tribunal went wrong in denying the benefits of the DTAA between India and Malta to the appellant?' - It is very clear that in India, benefit can be availed of only for the fiscal year starting from April 1, 1996 to March 31, 1997, starting after the first day of the next calendar year following in which the agreement came into force (February 1995). - We cannot rewrite the words in the agreement merely because it will be more beneficial to the assessee. Here, when the words are clear, there is no necessity to go into the intention of the Governments in making the treaty. - The plain meaning has to be adopted in taxation matters especially when there is no ambiguity. We agree with the view adopted by the Tribunal and the Revenue. Therefore, the questions are answered in favour of the Revenue and the appeal is dismissed. Issues Involved:1. Applicability of the Double Taxation Avoidance Agreement (DTAA) between India and Malta to income arising in India within the previous year relevant to the assessment year 1996-97.2. Whether the Tribunal erred in denying the benefits of the DTAA between India and Malta to the appellant.Issue-wise Detailed Analysis:1. Applicability of the DTAA between India and Malta:The appellant, a non-resident company registered in Malta and engaged in the business of shipping in international traffic, claimed relief under the DTAA for the assessment year 1996-97. The DTAA was signed on September 28, 1994, and came into force on February 8, 1995, with a formal notification published on November 22, 1995. The appellant argued that since the agreement came into force in February 1995, the benefit should apply from the next fiscal year, i.e., April 1, 1995, to March 31, 1996, which corresponds to the assessment year 1996-97. However, the Revenue contended that the benefit would start only in the fiscal year beginning April 1, 1996, making the assessment year 1997-98 the first eligible year for the DTAA benefits.2. Tribunal's Denial of DTAA Benefits:The Tribunal held that the appellant could avail of the DTAA benefits only from the assessment year 1997-98, aligning with the Revenue's interpretation. The appellant contended that the wording of the DTAA was ambiguous and should be interpreted in favor of the assessee, especially considering Section 90(2) of the Income-tax Act, which states that the provisions of the Act shall apply to the extent they are more beneficial to the assessee. The appellant also argued that the phrase 'calendar year next following that' should be interpreted to mean the next fiscal year following the date on which the agreement entered into force.Interpretation of the Agreement:The court examined Article 29 of the DTAA, which states that the agreement shall enter into force thirty days after the later of the notifications by the contracting states and shall have effect in India for any fiscal year beginning on or after the first day of April of the calendar year next following that in which the agreement enters into force. The court found no ambiguity in the wording and concluded that the agreement's benefits could be availed of only for the fiscal year starting April 1, 1996, corresponding to the assessment year 1997-98.Strict Interpretation of Taxing Statutes:The court reiterated that taxing statutes must be strictly construed, and no tax can be imposed without clear words to that effect. The court cited several precedents, emphasizing that the intention of the legislature in a taxation statute must be gathered from the plain language of the provisions, and equitable construction cannot be applied.Contemporanea Expositio:The appellant's reliance on the principle of contemporanea expositio, which suggests interpreting a statute based on its contemporary understanding, was rejected. The court noted that this principle applies primarily to ancient statutes and not modern acts. Furthermore, the court found that the administrative clarifications provided by the Chief Commissioner and other authorities were not contemporaneous with the agreement's date and were not binding on the Revenue.Absence of Punctuation:The court dismissed the argument regarding the absence of punctuation in the relevant clause, stating that even if punctuation were added, it would not change the meaning in favor of the assessee. The court applied the rule of 'reddendo singula singulis,' which assigns each phrase to its appropriate object, and concluded that the Revenue's interpretation was correct.Conclusion:The court upheld the Tribunal's decision, agreeing that the DTAA benefits could be availed of only from the fiscal year starting April 1, 1996 (assessment year 1997-98). The court emphasized adherence to the ordinary meaning of the words used in the agreement and dismissed the appeal, answering the questions in favor of the Revenue.