2016 (4) TMI 593 - HC - Income Tax

Court upholds constitutional validity of Income Tax Act provision, Notification, and dismisses challenges

The court upheld the constitutional validity of Section 94-A(1) of the Income Tax Act, 1961, rejecting arguments that it violated various articles of the ... Constitutional validity of Section 94-A(1) of the Income Tax Act, 1961 - validity of a Notification bearing No.86/2013 dated 1.11.2013 issued by the Central Government in exercise of the powers conferred under Section 94-A(1), specifying Cyprus as a notified jurisdictional area for the purposes of Section 94-A(1) - Held that:- We agree that from the point of view of linguistics, the words 'sum' and 'amount' are synonyms. But under the Income Tax Act, each of the words 'sum', 'amount', 'income' and 'payment' have different connotations. But the argument advanced on the basis of the same, to assail the Press Release dated 1.11.2013, does not hold water. Sub-Section (5) of Section 94-A uses the words 'sum', 'income' and 'amount' with the disjunction 'or' in between. But all these three words are preceded by the expression 'any'. While Sub-Section (5) of Section 94-A is worded from the point of view of the recipient of any sum, income or amount, the Press Release is worded from the point of view of the person making the payment. When we speak from the point of view of the recipient of an amount, the word 'payment' will not normally be used. The Press Release is not a legal document, but a note intended for the benefit of the common man. Therefore, the words and expressions used therein cannot be tested on the strength of Law Lexicons. Moreover, as rightly pointed out by Mr.T.Pramod Kumar Chopda, learned Standing Counsel for the Department, the Supreme Court made it clear in para 44 of the report in Azadi Bachao Andolan that though the Circulars issued by CBDT under Section 119 of the Act, have statutory force, the Press Releases issued by CBDT for the information of the public, do not have the same force. Therefore, the question of assailing the Press Release does not arise. Clause 6.4 of the Securities Purchase Agreement reads as follows:- '6.4 Skyngelor represents, warrants and covenants that the First Tranche Securities are being transferred hereunder at a loss and, thus, there is no obligation on the Buyers to withhold any Tax on the First Tranche Consideration being remitted to Skyngelor for the transfer of the First Tranche Securities. If despite such representation, any tax should be levied, the same shall be borne and paid by Skyngelor.' The above Clause in the Securities Purchase Agreement, exposes the frivolity of the contentions of the petitioners. After having taken care to indicate that if a tax is levied, it should be borne by the Cyprus company, the petitioners appear to have indulged in an adventure in making remittances in full. Actually the petitioners should have deducted tax at source in terms of Clause 6.4 of the Securities Purchase Agreement and thereafter fought a legal battle with the Department for refund. If the petitioners had taken a calculated risk by making the payments, they cannot later turn around and find fault with the statutory prescription and with the Notification and Press Release. Therefore, we are of the considered view that the challenges to Section 94-A (1), the Notification dated 1.11.2013 and the Press Release dated 1.11.2013 are not sustainable in law. The ordinary dictionary meaning of the word 'haven'is 'harbour or anchorage'. By extension, the word also denotes a place of safety, a refuge or sanctuary. In association with the word 'tax', the word 'haven' has assumed different connotations in the recent past and Panama appears to have followed Cyprus. Therefore, Section 94A was the need of the hour and we do not find the same to suffer from unconstitutionality. Hence, all the writ petitions are dismissed. However, there will be no order as to costs. Consequently, connected Miscellaneous Petitions are closed. Issues Involved:1. Constitutional validity of Section 94-A(1) of the Income Tax Act, 1961.2. Validity of Notification No. 86/2013 dated 1.11.2013.3. Validity of the press release dated 1.11.2013 issued by the Ministry of Finance.Detailed Analysis:A. Constitutional Validity of Section 94-A(1):Contentions of Petitioners:- Section 94-A(1) confers sweeping powers on the Central Government to specify any country as a notified jurisdictional area, irrespective of any existing bilateral treaty.- The State has an obligation under Article 51(c) of the Constitution to foster respect for treaty obligations.- The power under Article 245(1) is subordinate to Article 253, which deals with the implementation of treaties, thus Parliament cannot enact laws contrary to treaties.- Treaties, once notified under Section 90 of the Income Tax Act, become law under Article 253, and hence, Section 94-A(1) is unconstitutional and suffers from excessive delegation.Court’s Analysis:- Article 51(c) is part of the Directive Principles and does not impose enforceable obligations.- Article 253 empowers Parliament to make laws for implementing treaties, overriding other provisions in Chapter I of Part XI.- The Constitution follows a dualistic model where international treaties do not automatically form part of domestic law unless incorporated by legislation.- Section 90 of the Income Tax Act allows the Central Government to enter into agreements for avoidance of double taxation and exchange of information.- Section 94-A(1) was enacted to address situations where the exchange of information under such treaties is ineffective.- The power under Section 94-A(1) is not uncontrolled as it is exercised only in cases of lack of effective exchange of information.- The insertion of Section 94-A was justified by the need to combat tax evasion, as highlighted by global resolutions like those of the G20 Summit.Conclusion:- The challenge to the constitutional validity of Section 94-A(1) is without merit. The provision does not violate Articles 14, 19(1)(g), 51, 245, 253, and 269 of the Constitution.B. Vires of the Notification dated 1.11.2013:Contentions of Petitioners:- The Notification is ultra vires Section 94-A(1) as it specifies Cyprus without proper justification.- The DTAA with Cyprus already provides a mechanism for exchange of information, and the notification undermines this treaty.Court’s Analysis:- Section 94-A(1) empowers the Central Government to notify any country as a jurisdictional area due to lack of effective exchange of information.- The Notification was issued because Cyprus was not providing necessary information as required under the DTAA.- The DTAA’s provisions for mutual agreement and exchange of information were not being honored by Cyprus, justifying the Notification.Conclusion:- The Notification dated 1.11.2013 is valid and within the powers conferred by Section 94-A(1).C. Vires of the Press Release dated 1.11.2013:Contentions of Petitioners:- The Press Release uses the term 'payment' instead of 'sum,' 'income,' or 'amount' as used in Section 94-A(5), leading to confusion and misinterpretation.Court’s Analysis:- The Press Release is intended for public information and does not have the statutory force of a legal document.- The terminology used in the Press Release should be understood in the context of simplifying the information for the public.- The Supreme Court in Azadi Bachao Andolan clarified that Press Releases do not have the same legal force as Circulars issued under Section 119 of the Act.Conclusion:- The challenge to the Press Release dated 1.11.2013 is not sustainable.Final Judgment:- All the writ petitions challenging the validity of Section 94-A(1), the Notification dated 1.11.2013, and the Press Release dated 1.11.2013 are dismissed. There will be no order as to costs, and the connected Miscellaneous Petitions are closed. The request for a certificate for leave to appeal was rejected as the parameters of Article 132(1) were not satisfied.