Saturday, May 12, 2018

HEAR a LAWYER - what he says, on a lot of predicaments not only, -

as a professional of his eminence, par excellence - who has been in practice of  income-tax law for 6 decades -  has to so politely but honestly make a 'confession' ,- but also, from the view point of 'taxpayers' , national and inter-national, alike !


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Overdose of amendments

Lord Macnaghten in London County Council v. Attorney-General 44 TC 265, 293, observed “Income Tax, if I may be pardoned for saying so, is a tax on income. It is not meant to be a tax on anything else.” Our Finance Ministers should take heed of these words of wisdom. Today, section 2(24) of the Income-tax Act includes twenty-eight items as “income,” quite a few of which cannot at all be regarded as “income.” The zeal of our Finance Ministers has resulted in our presently having Volume 402 of the Income-tax Reports. The publication of the Income-tax Report started in 1933. The proliferation of litigation is shown by the fact that whereas till 1950 we had only one volume of the Income-tax Reports per year, now (in 2017) we have 10 Volumes per year and I do not know how many volumes 2018 will generate! Prior to the publication of the Income-tax Reports we had “Income-tax Cases” which covered 10 Volumes relating to the period from 1886 to 1937. The Tax Cases in England published from 1876 presently are in the 80th volume. Of course, in so far as the legal profession is concerned, the Indian overdose is all to the good! I may note in passing something which is rather intriguing. In India we refer to “Income-tax” but in the United Kingdom it is “Income Tax.”

There is today a strong lobby which doubts the wisdom of several provisions in the annual Finance Bills (sometimes 2 per year) which amend the Income-tax Act. The thought process which goes into the enactment of the proposed amendments is best illustrated by the fact that recently the Finance Bill, 2018, was apparently passed by the Lok Sabha without debate. 


GAAR will lead to prolific litigation

The change in the nature of the litigation then and now is striking. In 1959 a large part of the appeals before the Tribunal centered around cash credits, unexplained investments, capital and revenue expenditure etc. The litigation is now more sophisticated and with an international flavour like the circumstances in which income earned by a non-resident from an asset situated outside India is to be deemed to accrue or arise in India (section 9), transfer pricing and Double Taxation Avoidance Agreements. One of the most often cited cases today is the decision of the Supreme Court in Union of India v. Azadi Bachao Andolan 263 ITR 706 where the Supreme Court laid down the path-breaking interpretation to be placed on the words “may be taxed” appearing in DTAAs. I daresay in the future, a substantial part of the litigation will centre around Chapter XA of the Income-tax Act (concerning General Anti-Avoidance Rule) bearing in mind the very wide, if not wild, provisions which have been enacted.

People often condemn Treaty Shopping overlooking that Treaties are negotiated with several political, economic and other considerations in mind and if in achieving/implementing the same tax concessions are available so be it. If the Government negotiates a treaty which opens a shop it cannot complain if people resort thereto! 


To supply some added ammunition >

With due reverence to the renowned lawyer’s – perhaps the very few left in the top rank- forthright and frank exposition of the to-days TAX REGIME :

I ...
a ) RE. 'Overdose of  amendments', -
personally wonder, wildly so, should, regard be had to the pith and substance of what he says, be more appropriately termed as a 'lethal dose' ; in the result, put both tax- lawyers and - payers in a state of coma, waiting to be wheeled into a ICU ?!

b) The zeal of our Finance Ministers has resulted in our presently having Volume 402 of the Income-tax Reports.

To aptly reminisce : the days of the upright king, and his wise counsel, Chanakya,  even now fondly but remorsefully remembered for his 'artha sastra'; by, of course, the few who are admittedly a minority countable by one's nature-given fingers!


ARTHA SHASTRA - unparalleled !

within > 
“Dharma is law in its widest sense—spiritual, moral, ethical and temporal. Every individual, whether the ruler or the ruled, is governed by his or her own dharma. To the extent that society respected dharma, society protected itself; to the extent society offended it, society undermined”
Kautilya, The Arthashastra

'dharma' , in modern times, is by and large, sadly regarded a dirty concept, - equilant to only 'deemed dharma' = 'adharma';

So also, the concept of 'deemed arthasatra' has come to be wildly equated to 'anarthasastra' -  ...... ?!

To quip; think peremptorily  of an analogy, for a blunt comparison, of the said two concepts -
A reputed surgeon who performs surgery on the body of a human or other living being, with highly sophisticated tools , with the object of saving life X a butcher who recklessly and mercilessly cuts a living being (be it fish, cattle, or any other) with his sharpest chopper for making a meal out of the pieces, to sell for a price, to earn own livelihood ?!   

II ..



Supreme Court in Union of India v. Azadi Bachao Andolan 
   (263 ITR 706

Ø      For defending and / or vindicating its stand on the impugned circular, the GOI perforce had to take a different stance, by resisting the Respondents’ pleas questioning the legality or otherwise of “treaty shopping”, etc., which in normal circumstances the Revenue would have itself chosen to resort to against assessees, particularly foreign institutional investors (FIIs). 
Interpretation of Treaties 
“An important principle which needs to be kept in mind in the interpretation of the provisions of an international treaty, including one for double taxation relief, is that treaties are negotiated and entered into at a political level and have several considerations as their bases. Commenting on this aspect of the matter, david r. Davis in principles of international double taxation relief, points out that the main function of a double taxation avoidance treaty should be seen in the context of aiding commercial relations between treaty partners and as being essentially a bargain between two treaty countries as to the division of tax revenues between them in respect of income falling to be taxed in both jurisdictions. It is observed (vide para 1.06):

"the benefits and detriments of a double tax treaty will probably only be truly reciprocal where the flow of trade and investment between treaty partners is generally in balance. Where this is not the case, the benefits of the treaty may be weighted more in favour of one treaty partner than the other, even though the provisions of the treaty are expressed in reciprocal terms. This has been identified as occurring in relation to tax treaties between developed and developing countries, where the flow of trade and investment is largely one-way.”

”because treaty negotiations are largely a bargaining process with each side seeking concessions from the other, the final agreement will often represent a number of compromises, and it may be uncertain as to whether a full and sufficient quid pro quo is obtained by both sides."and,finally,inparagraph1.08:

"apart from the allocation of tax between the treaty partners, tax treaties can also help to resolve problems and can obtain benefits which cannot be achieved unilaterally."

”Based on these observations, counsel for the appellants contended that the preamble of the indo-mauritius dta recites that it is for the "encouragement of mutual trade and investment" and this aspect of the matter cannot be lost sight of while interpreting the treaty.”
9. Aside: 
   The following words of late ‘nani’ (as fondly known /called), an eminent lawyer of our times, may be worth recalling: 
    “In a vast democracy like india, many citizens are bound to be un-dimensional. But no lawyer has any excuse for being un-dimensional, by his training and equipment and by his professional competence he is better qualified than the rest of the citizenry to take an active part in the making of laws and the formulation of public policies. He would be failing his country if he did not do this duty.

the lawyer has to act as a catalyst. The responsibilities, which today, lie on the shoulders of the lawyers, are far greater than at any earlier time in world history.” 


Advocate vs. lawyer

“….The practice of tax laws is not confined just to the provisions of the relevant Direct Tax Acts. One has to consider the provisions of a whole range of what may be termed as “GENERAL LAWS” like the Transfer of Property Act, ….” (FONT supplied)

III The enumerated laws, chosen to be termed 'general laws' are, by virtue of the inescapable fact of their inter-relationship / - connectedness, are of every or no-less relevance. And, that is indisputably so, for the judiciary to adjudicate, in proper light, any point of dispute /issue or non-issue principally arising under the tax law. In that view of the matter, a lawyer /advocate is ideally expected to be fairly, if not totally, familiar and duly equipped in order to take on, to a successful end, any such tax issue.

For a dilation of the above stated proposition, attention may be usefully invited to  inter alia the following:

B) Some of the related Articles published , - 

On the website of (besides Taxguru) LCI @ 



As per Section 9 (1) of I-T Act dealing with indirect transfer provisions, the value of shares of a foreign company is deemed to be substantially derived from India, if the value of the Indian assets is greater than 50 per cent of its worldwide assets -- a criteria that is apparently met in Flipkart's case.
"In the Walmart-Flipkart deal, Section 9 (1) will apply as the assets of Flipkart Singapore are substantially based in India and hence the sellers would be liable to pay capital gains tax," Titus & Co Managing Partner Diljeet Titus opined.
As regards the capital gains tax made by Indian founders Sachin Bansal and Binny Bansal, the official said they would have to pay 20 percent tax with indexation benefit, which is applicable on sale of unlisted shares by Indian residents.

Posts On FB/Linkedin, -
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Tail End >   
Flipkart-Walmart Deal ?



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