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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

-MEMORANDUM on behalf of APPELLANT-

(Respondent)

-Contents-

-Appellant -

CONTENTS
INDEX OF ABBREVIATIONS........................................................................................................III
INDEX OF AUTHORITIES.............................................................................................................IV
STATEMENT OF JURISDICTION....................................................................................................X
STATEMENT OF FACTS...............................................................................................................XI
STATEMENT OF ISSUES............................................................................................................XIII
SUMMARY OF ARGUMENT.......................................................................................................XIV
ARGUMENTS ADVANCED..........................................................................................................- 1 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 1.1 Section 90(4) of the Act refers to Section 90(1) as a whole......................................- 1 1.2 Role of Legislative intent in interpreting a taxing statute.........................................- 3 2

Whether TRC is a sine qua non for claiming any benefit under India US Tax

Treaty?................................................................................................................................- 6 2.1. TRC is a pre-requisite for availing any treaty benefit...............................................- 6 2.2. Basic objective of the provision is to exclude third country resident from taking an
unfair advantage of the treaty]..........................................................................................- 7 3

Whether MAP order & PoEM would entitle ISI to be the resident of Germany?- 9

3.1. No obligation could be imposed by a third country against the rights forgone by one
contracting state to another contracting state by a specific treaty between the two
contracting states..............................................................................................................- 9 3.2 Place of effective Management at Germany would make ISI a resident of..............- 9 3.3. Corporate Veil is to be pierced to observe the true nature and character to the
transaction.......................................................................................................................- 11 4

Whether the rights forgone by US would enable the application of India-Germany

Treaty?..............................................................................................................................- 14 4.1. Taxing right foregone by USA would make ISI an absolute resident of Germany. - 14 4.2. The application of India-Germany treaty makes the assessee liable to tax.............- 15 5

Whether the default in withholding tax under Section 195 makes GAIL liable

under Section 201 & 163 of Income Tax Act, 1961?.....................................................- 16 -MEMORANDUM on behalf of APPELLANT 1

-Contents-

-Appellant -

5.1. Application of India-Germany treaty makes it necessary for respondent to deduct tax
under Section 195 of the Act..........................................................................................- 16 5.2. Failure to deduct tax on payments to ISI enables GAIL to be treated as an Assessee in
default under section 201 of Income Tax Act, 1961.....................................................- 17 5.3. Any person in India from or through whom non-resident is in receipt of any income
directly or indirectly can be treated as an agent of non-resident under section 163.......- 18 PRAYER....................................................................................................................................XVI

-MEMORANDUM on behalf of APPELLANT 2

-Index of AbbreviationsLIST 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
cl.
Co.
Company
Del.
DTAA
ER
FIS
FTS
ILR

Commisioner of Income Tax


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.
OECD

Mutual Agreement Procedure

Number
Organization for Economic Cooperation and Development
- MEMORANDUM on behalf of APPELLANT 3

-Index of AbbreviationsOrs.
para.
PoEM
PoM
SC
SCC
TRC
U.P.
US
USA
v

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

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
TAX (9th ed., LexisNexis, 2004)
3. DR K.N. CHATURVEDI, INTERPRETATION

OF

OF INCOME

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 on behalf of APPELLANT 4

-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)
COMMENTARY

- MEMORANDUM on behalf of APPELLANT 5

-Index of Abbreviations1. 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
2. Klaus Vogel, Double Tax Treaties and Their Interpretation, Vol. 4
(International

Tax

&

Bus.

Law

1,

1986)

http://scholarship.law.berkeley.edu/bjil/vol4/iss1/1

- MEMORANDUM on behalf of APPELLANT 6

available

at

-Index of AbbreviationsLIST OF ARTICLES


DTAA
3. M. Tenore, Timing Issues Related to the Changes of the Applicable
Treaty Law, 34, Intertax, INTERNATIONAL TAX REVIEW, pp. 475-484
(2006)
4. 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).
TREATY SHOPPING
5. D. Pohl & A. Keller, The New German Anti-Treaty/ Anti-Directive
Shopping Rule, International Tax Journal, 38, pp. 17-24, 2012.
6. K. Kral & E. Alek, Recent Tax Treaty Developments, 178, JOURNAL
OF ACCOUNTANCY, p. 34 (1994).
7. 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
8. H BECKER & F WRM, TREATY SHOPPING: AN EMERGING TAX ISSUE
AND ITS

PRESENT STATUS

IN

VARIOUS COUNTRIES (Kluwer, Deventer

1988)
PLACE OF EFFECTIVE MANGEMENT
9. 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).
10. S. Shalhav, The Evolution of Article 4(3) and Its Impact on the Place
of

Effective

Management

Tie

Breaker

Rule,

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


PLACE OF INCORPORATION

- MEMORANDUM on behalf of APPELLANT 7

32,

Intertax,

-Index of Abbreviations11. RJ Jr. Patrick, Simplifying The Taxation of Foreign Source Income,
30, NATIONAL TAX JOURNAL, pp. 321-338, (1977).
12. J. Schwarz, Management Based Definition for Domestic Corporations.
(cover story), Newsquarterly, 29, pp. 1-16, (2009).
FEES FOR TECHNICAL SERVICES
13. 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.
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.


2. 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

- MEMORANDUM on behalf of APPELLANT 8

-Index of Abbreviations-

LIST OF CASES

ADIT v. Jet Airways (India) Pvt. Ltd. (2012) 19 TAXMAN 37 (Mum).-------------------Anita Enterprises v. Belfer Coop Housing Society Ltd. (2008) 1 SCC 235.----------------Attorney General v. Powell (1906) 2 IR 272.--------------------------------------------------Bijay Kumar Agarwal v. Ratanlal Bagania AIR 1999 Cal 106.------------------------------CIT v Rajaram Bhandekar & Sons (Shipping) (P.) Ltd [1999] 237 ITR 628
(Bom.),---------------------------------------------------------------------------------------------CIT v Shrimati Vijayantimala (1977) 108 ITR 1882 (Mad.).--------------------------------CIT v. Carew & Co Ltd (1979) 12 CTR (SC) 402; (1979) 120 ITR 540 (SC).---------------CIT v. Sri Meenakshi Mills Ltd and Ors [1967] 1 SCR 934.---------------------------------CIT v. T. V. Sundaram Iyyengar [1975] 101 ITR 764 (SC);-----------------------------------CIT vs. Indian Enggt. & Comml. Corpn. (P.) Ltd. 1993 SCR (3) 86-------------------------Commissioner of Income Tax v Gautam Sarabhai (1988) 173 ITR 216 (Guj.)---------------Commissioner of Income Tax v. Ranoli Investment P Limited 1998 (3) TMI 96
(Guj.).---------------------------------------------------------------------------------------------Commissioner of Income Tax v. Smt. Swapna Roy (2010) 233 CTR (All)10.-----------------12 Commissioner of Stamp Duties v. Perpetual Trustee Co. Ltd. 21 CLR 69-----------------Cristie v. Commissioner of Inland Revenue LR 2 EX 4--------------------------------------D Sai Baba v Bar Council of India AIR 2003 SC 2502; Kashmir Singh v Union
of India (2008) 7 SCC 259----------------------------------------------------------------------DCIT v Vickers Systems International Ltd [2003] 87 ITD 182 (MUM).--------------------Dura metallic (India) Limited v. Assistant Commissioner of Income Tax (2003)
85 ITD 442.----------------------------------------------------------------------------------------Durga Thathera v. Narain Thathera, AIR 1931 All 597----------------------------------------Fric India Ltd. v Union of India, AIR 1990 SC 689--------------------------------------------Grid Corporation of Orissa Ltd. v Eastern Metal and Ferro Alloys, (2011) 11
SCC 334.-------------------------------------------------------------------------------------------- MEMORANDUM on behalf of APPELLANT 9

-Index of AbbreviationsHindustan Coca Cola Beverage Private Limited v. Commissioner of Income


Tax 2007 (8) TMI 12 (SC).--------------------------------------------------------------------In Re: Flakt (India) Ltd. v. Unknown [267 ITR 727].-----------------------------------------Jindal v. CIT (1987) 164 ITR 28.----------------------------------------------------------------Joint Commissioner Tax Officer v. Youngmens India Assn. AIR 1970 SC
1212.----------------------------------------------------------------------------------------------Juggilal Kamlapat v. Commissioner of Income Tax, AIR 1969 SC 932--------------------Keshavji Ravji & Co. v. CIT 1990 SCC (2) 231;-----------------------------------------------Krishnaih v. State of A.P, AIR 2005 AP 10-------------------------------------------------------Life Insurance Corporation of India v. Escorts Ltd (1986) 1 SCC 264; 12 AIR
1999 Cal 106.------------------------------------------------------------------------------------Mathai v. State of Kerela, (2005) 3 SCC 260.---------------------------------------------------McDowell & Co. Ltd. v. CTO (1985) 47 CTR (SC) 126.------------------------------------Prakashan Limited v. Deputy Commissioner of Income Tax 2012 (5) TMI 488
(All.).---------------------------------------------------------------------------------------------Richter Holding v. The Assistant Director of Income Writ Petition No.
7716/2011.---------------------------------------------------------------------------------------Samsung Electronics Co Ltd and Others (2009) 185 Taxman 313.-------------------------Shell Co. of India v. CIT (1964) 51 ITR 669 (Cal).---------------------------------------------Sindhi Transport Company v. State of U.P. (1986) 2 SCC 486.-------------------------------Smt. Tarulata Shyam v. CIT [1971] 108 ITR 345 (SC);----------------------------------------Sunil Siddharthbhai v. CIT (1985) 4 SCC 19.--------------------------------------------------Union of India v. Elphinston Spg. & Wvg. Co. Ltd. AIR 2001 SC 724.---------------------Wale v. Commissioner of Inland Revenue, 4 EXD 270----------------------------------------

- MEMORANDUM on behalf of APPELLANT 10

-Statement of Jurisdiction-

- Appellant -

STATEMENT OF JURISDICTION
THE COUNSEL FOR THE APPELLANT HAS PREFERED THEIR APPEAL BEFORE THIS HONBLE
HIGH COURT OF JUDICATURE, MADRAS 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-

- Appellant -

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-

-Appellant-

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 on behalf of APPELLANT-13

-Statement of Issues-

-Appellant-

STATEMENT OF ISSUES
The following questions are presented before the court in the instant matter-

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

GERMANY

AFFECTS

INDIA UNDER INDO-US TAX TREATY?


ISSUE 5
WHETHER MAP

ORDER

& POEM

WOULD ENTITLE

ISI

TO BE THE RESIDENT OF

GERMANY?

-MEMORANDUM on behalf of APPELLANT-14

-Summary of Arguments-

-Appellant-

SUMMARY OF ARGUMENT
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 in Section 90(4) would include avoidance:
Firstly, Legislature intended to include any kind of a benefit under tax treaty under
Section 90(4). Secondly, the use of the word any has been deliberatly included by the
legilslature to refer to all the clauses of Section 90(1). Thirdly, the purpose sought to be
achieved by the legislature requires the word any relief to mean all the benefits including
avoidance refered to Section 90(1). Fourthly, Heading of Chapter X reads as Double
Taxation Relief which include avoidance within its ambit. Fifthly, the word agreement in
Section 90(4) refered to Section 90(1) cannot be adopted in parts to apply only to Section
90(1)(a).

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

TRC is a sine qua non for claiming benefit under India-USA tax treaty:
Firstly, the Finance Bill 2012, Finance Act 2012 and 2013 illustrate the intention fo
the legislature to require TRC for availing benefits under tax treat. Secondly, the basic
intention of the legislature is to curb the thrid party from claiming treaty benfits to which
they are not entitled. Thirdly, use of Certificate of Incorporation of USA as a proof of
residence by ISI aims at availing th benefits of India-USA tax treaty.

3. WHETHER MAP

ORDER

& POEM

WOULD ENTITLE

ISI

TO BE THE RESIDENT OF

GERMANY?
MAP order and PoEm would make ISI a resident of Germany:
Firstly, USA has foregone the right to tax ISI by the virtue of MAP order by declaring
it to be a tax residnet of Germany. Secondly, PoEM would make ISI a resident of
Germany under the Domestic laws of Germany. Thirdly, India cannot impose an
-MEMORANDUM on behalf of APPELLANT-14

-Summary of Arguments-

-Appellant-

obligation on USA to treat ISI as its own resident. Fourthly, corporate veil is to be lifted
to identify the malafide intention of the assessee which was to avoid the tax by availing
benefits of the treaty.

4. WHETHER THE RIGHTS FORGONE BY US WOULD ENABLE THE APPLICATION OF INDIAGERMANY TREATY?
The rights foregone by USA would enables the application of India-Germany treaty:
Firstly, the rights foregone by USA in favour of Germany makes ISI an absolute
resident of Germany. Secondly, India who is a third party has no right to impose
obligations on USA to treat ISI as its resident for dealings with India. Thirdly, ISI being a
resident of Germany, India-Germany treaty would apply for taxing the said transaction.
Fourthly, the provisions relating to Fees for Technical Service is mcu hbroader in IndiaGermany treaty leding to taxability of the respondent.

5. WHETHER

THE DEFAULT IN WITHHOLDING TAX UNDER

LIABLE UNDER

SECTION 195

MAKES

GAIL

SECTION 201 & 163 OF INCOME TAX ACT, 1961?

The default in withholding tax makes GAIL liable under the Income Tax Act:
Firstly, GAIL has the responsibility to deduct tax uder Section 195 of the Act.
Secondly, Failure to deduct tax on payments to ISI enables GAIL to be treated as an
Assessee in default under section 201 of the Act. Thirdly, GAIL is liable to be treated as
an agent of ISI under Section 163 of the Act.

-MEMORANDUM on behalf of APPELLANT-15

-Arguments Advanced-

-Appellant-

-MEMORANDUM on behalf of APPELLANT-16

-Arguments Advanced-

-Appellant-

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

SECTION 90(4) OF THE ACT REFERS TO SECTION 90(1) AS A WHOLE

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) of The Act deals with avoidance in tax matters. In the case
of Dura metallic (India) Limited v Assistant Commissioner of Income Tax,2it was held
that in case of relief, the 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 assessee 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 ambit of the cl. (a) and (b) of
section 90 (1) of The Act is different from each other. The same was affirmed by the
Calcutta High Court in the case Shell Co. of India v CIT3.
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 Laws 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. The scope of the
provisions of these two clauses is thus mutually exclusive.
The Supreme Court acting through Pathak, J. affirming the decision of Calcutta High
Court in the case of CIT v Carew & Co Ltd.4observed that it is appropriate to point out
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).

CIT v. Carew & Co Ltd (1979) 12 CTR (SC) 402; (1979) 120 ITR 540 (SC).
-MEMORANDUM on behalf of APPELLANT-17

-Arguments Advanced-

-Appellant-

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.5
It is not denied that avoidance and relief are two different cases. Adopting strict
interpretation of Section 90(4) of The Act 6 which 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, the
provision refers to Section 90(1) as a whole and does not distinguish between clause (a),
i.e. Relief and (b), i.e. Avoidance of the said section.
The principle of interpretation Ex Viscaribus Actus whose literal meaning is within
the four corners of the Act. When the question arises as to the meaning of a certain
provision in a statute, it is not only legitimate but proper to read that provision in its
context. The context means statute as a whole, the general scope of the statute and the
mischief that it was intended to remedy.7 This principle was used in reference to taxing
statute in the case of Commissioner of Income Tax v Gautam Sarabhai8 and DCIT v
Vickers Systems International Ltd9. Further Bombay High Court in the case of CIT v

Supra note 4.

Income Tax (Amendment) Act, 2012.

Union of India v. Elphinston Spg. & Wvg. Co. Ltd. AIR 2001 SC 724.

Commissioner of Income Tax v Gautam Sarabhai (1988) 173 ITR 216 (Guj.)

DCIT v Vickers Systems International Ltd [2003] 87 ITD 182 (MUM).


-MEMORANDUM on behalf of APPELLANT-18

-Arguments Advanced-

-Appellant-

Rajaram Bhandekar & Sons (Shipping) (P.) Ltd, 10 rejected the claim of the assessee by
relying upon the above said maxim.
While interpreting the word any relief it is to be realized that the phrase
Agreement referred to in Section 90(1) refers to agreement of whatsoever nature
entered under Section 90(1) and the word agreement cannot be confined to the
agreement under Section 90(1)(a). The assessees claim fails for the basic reason that the
assessee chose to apply the word an agreement referred to sub-section (1) contained in
Section 90(4) only to Section 90(1)(a), i.e. relief while it is clear from the Finance Act
and the intention of the legislature that it applies to the whole of Section 90(1). Section
90(4) contains the word any relief in reference to the agreement under Section 90(1) as
a whole and breaking of the provision and adopting only one clause would lead to the loss
of meaning which was intended for the said provision by the legislature.
1.2 ROLE OF LEGISLATIVE INTENT IN INTERPRETING A TAXING STATUTE

The respondent plea as to any relief refer to in Clause 4 of Section 90 only extends
to the word relief in Section 90(1)(a) and does not include avoidance under section
90(1)(b) cannot be accepted by considering the provisions of a statute in part. The basic
intention of the legislature in the 2012 amendment of the Finance Act is to acquire a TRC
to claim any benefit under an agreement referred to in Section 90(1) of the Act as a
whole. Considering the basic intention of the legislature as contained in the Finance Act,
2012, it was to forbid a person from taking an undue advantage of the provision of the
said agreement in cases where he is not entitled for the same.
The Respondents attempt to narrow down the intention of the legislature to mean
only relief in its literal sense by defeating and overlooking the contents of the Finance Act
cannot be admitted.The Finance Act of a nation plays a key role in interpreting a taxing
statute by determining the intention of the legislature behind enacting a particular
provision. The Finance Bill 201211 through which the provision in question has been
incorporated has used the word benefit exclusively expressing the intention of the
10

CIT v Rajaram Bhandekar & Sons (Shipping) (P.) Ltd [1999] 237 ITR 628 (Bom.),

11

Finance Bill, 2012; Provisions Relating To Direct Taxes, Clause 31 & 32 available at
http://indiabudget.nic.in/budget2012-2013/ub2012-13/mem/mem1.pdf (last accessed on Feb.
25, 2016 ).
-MEMORANDUM on behalf of APPELLANT-19

-Arguments Advanced-

-Appellant-

legislature to include all the benefits that could be conferred through a Double Taxation
Avoidance Agreement referred in Section 90(1) of the Act. The Finance Bill 2012
expresses the basic legislative intent in the following words:
...It is noticed that in many instances the taxpayers who are not tax resident of a
contracting country do claim benefit under the DTAA entered into by the Government
with that country. Thereby, even third party residents claim unintended treaty benefits.
Therefore, it is proposed to amend Section 90 and Section 90A of the Act to make
submission of Tax Residency Certificate containing prescribed particulars, as a necessary
but not sufficient condition for availing benefits of the agreements referred to in these
Sections...12
The Finance Act clearly expresses the requirement of TRC for availing benefit under
Double Taxation Avoidance Agreement and not just for relief. The observations of the
Indian Tax Authorities that submission of TRC is a sine qua non for availing the benefits
of India-US Tax Treaty is right in law and the provision of the benefit to an assessee who
is not entitled for the same would ultimately defeat the basic intention of the legislature.13
Throwing light on the intention of the legislature in the process of interpreting the statute
by the Court of law opens way for purposive construction of a Statute. The idea of
purposive construction basically evolves through the mischief rule of interpretation laid
down in Haydon's case14. It is necessary to give full effect to the purport and object of the
Act.15 Purposive Construction can only be restored to, when language of a provision is
capable of more than one interpretation.16 Where liberal construction or plain meaning
may cause hardship, futility, absurdity or uncertainty the purposive contextual
construction may be preferred to arrive to a more just, reasonable and sensible result. 17
12

Moot Proposition, Page 4, 5.

13

Finance Bill 2013; Provisions Relating to Direct Taxes, Clauses 21 & 22.

14

Heydons Case (1584) 76 ER 637.

15

Anita Enterprises v. Belfer Coop Housing Society Ltd. (2008) 1 SCC 235.

16

Grid Corporation of Orissa Ltd. v Eastern Metal and Ferro Alloys, (2011) 11 SCC 334.

17

D Sai Baba v Bar Council of India AIR 2003 SC 2502; Kashmir Singh v Union of India
(2008) 7 SCC 259.
-MEMORANDUM on behalf of APPELLANT-20

-Arguments Advanced-

-Appellant-

The Honble Supreme Court in Sindhi Transport Company v State of U.P.18opined that
the doctrine of purposive construction ought to be applied and the transactions must be
considered in the sense in which the Legislature intended it to be done. Courts are to
consider the purpose of enactments in the sense of mischief they aim to prohibit.
The mischief that was intended to be curbed through the Finance Act, 2012 as
expressed in the Bill is the abuse of treaty provisions by availing benefits under the treaty
without actually being entitled. Confining the word any relief in clause 4 of Section 90
to literally mean the word relief under Section 90(1)(a) would lead to an absurdity and
an ultimate defeat of the legislative intention in bringing in the said enactment.19
It is the well settled rule of interpretation of statute that the heading can be referred to
in interpreting an Act of the legislature. Heading constitute as an important part of the Act
itself. In comparison to the preamble of the Act, they may provide a better key to the
construction of the sections which follow them. 20 Heading of a chapter indicates factors to
be considered in.21 In Krishnaih v State of A.P22, it was held that only in the case of
ambiguity or doubt, heading or sub-heading may be referred to as an aid in construing
provision.23 In Durga Thathera v Narain Thathera,24 the Court held that the headings are
like a preamble which helps as a key to the mind of the legislature.
The lack of clearty in interpreting the word any relief under section 90(4) as to
whether or not it includes avoidance suggests ambiguity in the provision, which requires
the Court to seek the assistance of Chapter Heading as an internal aid of interpretation.
In the present case, the Chapter Heading reads as Double Taxation Relief. However,
the Chapter deals with all kinds of remedy that could be availed under DTAA including
18

Sindhi Transport Company v. State of U.P. (1986) 2 SCC 486.

19

Supra note 11.

20

Mathai v. State of Kerela, (2005) 3 SCC 260.

21

Ibid.

22

Krishnaih v. State of A.P, AIR 2005 AP 10.

23

Fric India Ltd. v Union of India, AIR 1990 SC 689.

24

Durga Thathera v. Narain Thathera, AIR 1931 All 597.


-MEMORANDUM on behalf of APPELLANT-21

-Arguments Advanced-

-Appellant-

avoidance, exchange of information and recovery of tax along with relief.25 Confining the
word to strictly mean relief under 90(1)(a) is not valid, when the chapter heading clearly
indicates the inclusion of all the terms.
Therefore, the appellant humbly submits that the Hon'ble Court may apply mischief
rule of interpretation and adopts a purposive approach to give enforcement to the
objective of the legislature in enacting the Finance Act, 2012 and declare that the word
any relief would apply to Section 90(1) as a whole.

25

90(1) of The Act.


-MEMORANDUM on behalf of APPELLANT-22

-Arguments Advanced-

-Appellant-

2 WHETHER TRC IS A SINE QUA NON FOR CLAIMING ANY BENEFIT UNDER INDIA US
TAX TREATY?
2.1. TRC IS A PRE-REQUISITE FOR AVAILING ANY TREATY BENEFIT

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 prerequisite for availing benefits under tax treaties has been incorporated in The Act, through
Finance Act 2012. Section 90(4) of the Income Tax Act, 2012 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.
The phrase referred to in sub-section (1) applies is to be interpreted in its literal
sense in order to give effect to the true purpose of the legislature behind enacting the
provision. Applying this rule of interpretation, agreement referred to in sub-section (1)
means an agreement for any of the purposes referred to in the said section. Literal
interpretation requires a statute to be interpreted in the sense of its verbatim. The rule of
literal construction is widely accepted rule for interpreting the taxing statutes. If the
language of the statute is clear and unambiguous, we have to accept the plain meaning
even if it leads to some harshness or injustice to the assessee. If the person sought to be
taxed comes within the letter of law he must be taxed, howsoever, great the hardship may
appear to be as held by the Honble Apex Court in various decision. 26 Giving a literal
meaning to the word an agreement under sub-section (4), it applies equally to all the
clauses under Section 90(1) and requirement of TRC becomes equally important to avail
benefit under an agreement entered for any of the purposes contained in sub-section (1).
The assessees contention that TRC is required only for claiming relief but not for
avoidance of double taxation cannot be accepted by considering the fact that agreement

26

CIT v. T. V. Sundaram Iyyengar [1975] 101 ITR 764 (SC); Smt. Tarulata Shyam v. CIT
[1971] 108 ITR 345 (SC); Keshavji Ravji & Co. v. CIT 1990 SCC (2) 231; CIT vs. Indian
Enggt. & Comml. Corpn. (P.) Ltd. 1993 SCR (3)86
-MEMORANDUM on behalf of APPELLANT-23

-Arguments Advanced-

-Appellant-

means the agreement for any of the said purposes and the word relief is to be interpreted
in the light of legislative intent.

2.2. BASIC OBJECTIVE OF THE PROVISION IS TO EXCLUDE THIRD COUNTRY RESIDENT


FROM TAKING AN UNFAIR ADVANTAGE OF THE TREATY

The legislative intent in enacting the said provision was essentially to dis-entitle a
third country's resident from taking an unfair advantage of the provision of a treaty
between two contracting states in which he is not a resident. This practice is commonly
referred to as treaty shopping. The term treaty shopping originates from the US
legal doctrine. It derives from another term forum-shopping which indicates a situation
in which litigant may search for a more convenient jurisdiction for his case to be judged
with a view to a possibility for a more advantageous decision. 27 The International Tax
Glossary defines treaty shopping as a situation where a person who is not entitled to
the benefits of a tax treaty makes use in the widest sense of the word of an individual or
of a legal person in order to obtain those treaty benefits that are not available directly28
A short description of the term treaty shopping has been given by Rosenbloom, who
states that it represents the practice of some investors of 'borrowing' a tax treaty by
forming an entity (usually a corporation) in a country having a favourable tax with the
country of source (the country where the investment is to be made and the income in
question is to be earned).29

27

H BECKER & F WRM, TREATY SHOPPING: AN EMERGING TAX ISSUE AND ITS PRESENT STATUS IN VARIOUS
COUNTRIES (Kluwer, Deventer 1988) as cited in R.YONAH, C. PANAYI , Rethinking Treaty-Shopping: Lessons
for the European Union , UNIVERSITY OF MICHIGAN LAW SCHOOL SCHOLARSHIP REPOSITORY, LAW &
ECONOMICS WORKING PAPERS (Apr. 1, 2010) available athttp://repository.law.umich.edu/cgi/viewcontent.cgi?
article=1113&context=law_econ_current (last accessed on Feb. 25, 2016 ).

28

B. LARKING, International Tax Glossary (4th ed., Amsterdam: International Bureau of Fiscal Documentation,
2001) as cited in KEVIN HOLMES, INTERNATIONAL TAX POLICIES AND DOUBLE TAX TREATIES , An Introduction
to Principles and Application (IBFD, Netherlands 2007) available at https://books.google.co.in/books?
id=4jZ1z4JnvAAC&pg=PA361&lpg=PA361&dq=LARKING,+B.,+ed.,+International+Tax+Glossary,+4th+ed.+
(Amsterdam:+International+Bureau+of+Fiscal+Documentation,+2001)&source=bl&ots=zOZRiPQ0A&sig=IWqgL2vXOU9MgxRGCxaG3dPbN08&hl=en&sa=X&ved=0ahUKEwjqip70kZrLAhULT44K
HblFC9MQ6AEIHDAA#v=onepage&q=LARKING%2C%20B.%2C%20ed.%2C%20International%20Tax
%20Glossary%2C%204th%20ed.%20(Amsterdam%3A%20International%20Bureau%20of%20Fiscal
%20Documentation%2C%202001)&f=false (last accessed on Feb. 22, 2016 ).

-MEMORANDUM on behalf of APPELLANT-24

-Arguments Advanced-

-Appellant-

The basic intention of the legislature behind the enactment of Section 90(4) is to avoid
and forbid the practice of treaty shopping. This intention becomes clear on a reference to
the Finance Bill of 201230 which introduced the said amendment.
The assessee in this case who is actually the resident of Germany as a reason of it
being its PoEM under the domestic laws of Germany.31 The assessee still intends to claim
benefits under the Indo-US treaty which in all possible circumstances is not applicable to
the company. The basic intention behind incorporation of Section 90(4) was to prohibit
the very same practice referred to as treaty shopping and the assessee by not producing
the TRC has proved himself not being the resident of a contracting state of Indo-US tax
treaty. The assessee being a resident of Germany can in no way avail the benefits under
Indo-US treaty to which he is not entitled as he is not the resident of the contracting state
to the treaty.

29

HD ROSENBLOOM, Derivative Benifits: Emerging US Treaty Policy, (Essay on International Taxation, Kluwer,
Deventer 1993) as cited in Dimitar Terziyski, Treaty shopping and the OECD Model Tax Convention 2013
available
athttps://www.academia.edu/7955707/Treaty_shopping_and_the_OECD_Model_Tax_Convention
(last accessed on Feb. 23, 2016 ).

30

Finance Bill, 2012; Provisions Relating To Direct Taxes- Memorandom-Union Budget; available at
http://indiabudget.nic.in/budget2012-2013/ub2012-13/mem/mem1.pdf (last accessed on 25th Feb 2016 ): It is
noticed that in many instances the taxpayers who are not tax resident of a contracting country do claim benefit
under the DTAA entered into by the Government with that country. Thereby, even third party residents claim
unintended treaty benefits. Therefore, it is proposed to amend Section 90 and Section 90A of the Act to make
submission of Tax Residency Certificate containing prescribed particulars, as a necessary but not sufficient
condition for availing benefits of the agreements referred to in these Sections.

31

Moot Proposition, Pg. 3, 4; German Corporation Tax Act, 2002, Krperschaftsteuergesetz


(KStG).
-MEMORANDUM on behalf of APPELLANT-25

-Arguments Advanced-

-Appellant-

3 WHETHER MAP ORDER & POEM WOULD ENTITLE ISI TO BE THE RESIDENT OF
GERMANY?
3.1. NO OBLIGATION COULD BE IMPOSED BY A THIRD COUNTRY AGAINST THE
RIGHTS FORGONE BY ONE CONTRACTING STATE TO ANOTHER CONTRACTING STATE
BY A SPECIFIC TREATY BETWEEN THE TWO CONTRACTING STATES

ISI by the virtue of its PoEM & MAP order has become the resident of Germany for
tax purposes. Though ISI has been registered in USA, the residential status of ISI has
been forgone by USA to Germany on a Mutual Agreement Procedure. ISI cannot be said
to be a resident of Germany only for the purpose of USA, but the taxing right forgone by
USA would ultimately results in ISI getting an absolute residential status in Germany.
The MAP order between USA and Germany is absolute in nature and no restrictions
can be imposed on the said order conferring ISI with residential status of Germany. A
third party may not interfere to decide the terms of the agreement entered into between
two parties. For instance, the person is not subject to comprehensive liability in the first
State for purposes of the tax treaty between the first State and the second State because
the treaty that the first State concluded with the third State says it is not a resident in
that first State32.
In the present case, India cannot impose restrictions on the MAP order to interpret ISI
as a resident of USA for the purpose of India and as resident of Germany for other
purposes. When USA has forgone its rights declaring ISI as a resident of Germany, a third
party may not impose an obligation on the US to treat ISI as its own resident in spite of
the MAP order.
3.2 PLACE OF EFFECTIVE MANAGEMENT AT GERMANY WOULD MAKE ISI A RESIDENT OF
GERMANY.

32

Klaus Vogel, Double Tax Treaties and Their Interpretation, Vol. 4 (International Tax & Bus.
Law 1, 1986) available at http://scholarship.law.berkeley.edu/bjil/vol4/iss1/1 (last accessed
on Feb. 23, 2016).
-MEMORANDUM on behalf of APPELLANT-26

-Arguments Advanced-

-Appellant-

It is indisputable that ISI by the virtue of its PoEM becomes a resident of Germany.
The points that emerge from both In ReTrevor Smallwood Trusts v R & C Comm.33and
the OECD paper34 are that in a world where residence is commonly determined by
reference to either incorporation or some form of management test, it is management that
prevails over incorporation.35 As per the German Domestic Law, Resident corporations
are corporations having their place of management or their statutory seat within Germany.
This also includes foreign corporations having their statutory seat or place of management
in Germany.36 ISI being a company incorporated in USA becomes a foreign company for
the purpose of German laws, however under the German Domestic laws even a foreign
company having its PoEM in Germany becomes a resident if it has its PoEM in Germany.
Hence according to this principle ISI having its PoEM in Germany becomes its resident
under the domestic laws. Further under German laws, a corporation is considered tax
resident in Germany if its registered office or place of effective management is in
Germany. The place of incorporation is irrelevant.37
ISI being the resident of Germany has availed the use of Certificate of Incorporation
of USA with a view to avoid tax as the said service, i.e. the consultancy service availed by
the respondent would not fall under Article 12(4) of the treaty and hence becomes nontaxable. The definition of FIS as contained in the Article 12(4) of the India-US treaty is
much narrower than that of the India-Germany treaty due to presence of the Make
Available clause. That is to say, only the services that are made available could be tax
under the India-USA tax treaty while any service is liable to be taxed under the IndiaGermany treaty. The very idea of the legislature behind enacting Section 90(4) of the
33

In ReTrevor Smallwood Trusts v. R & C Comm. (2010) All ER (D) 99 (Jul).

34

Tax and E-Commerce, The Impact of Communications Revolution on the Application of Place of Effective
Management
as
a
Tie
Breaker
Rule
(OECD
Paper,
2001)
available
at
http://www.oecd.org/ctp/treaties/1923328.pdf (last accessed on Feb. 22, 2016).

35

Supra note 33 at 123,125.

36

German
Corporate
Income
Tax
Act,
2002
available
internet.de/englisch_ao/englisch_ao.html (last accessed on Feb. 25, 2016).

at

37

https://www.gesetze-im-

Falk GmbH & Co. KG Et.al., Germany Business and Taxation Guide, available at
http://www.fides-treuhand.de/index.php?id=73(last accessed on Feb. 25, 2016).
-MEMORANDUM on behalf of APPELLANT-27

-Arguments Advanced-

-Appellant-

Income Tax Act38 is to prevent treaty shopping. There is growing practice amongst certain
entities who are not residents of either of the two contracting state, of trying to access the
beneficial provision of the DTAA.
In the present case ISI has adopted the same mechanism with the malafide intention to
avoid tax under Indo-USA tax treaty. Having its PoEM at Germany, ISI still chose to
provide the Certificate of Incorporation at US ultimately not revealing its actual corporate
identity with the basic objective of avoiding tax. Having its PoEM at Germany, ISI is to
legally consider itself as a resident of Germany both under the MAP order as well as the
Domestic laws of Germany. However, the attempt of ISI to prove itself a resident of US
being aware of its actual residential status through the MAP order and PoEM establishes
the malafide intention of ISI to adopt treaty shopping.
3.3. CORPORATE VEIL IS TO BE PIERCED TO OBSERVE THE TRUE NATURE AND
CHARACTER TO THE TRANSACTION.

The appellant humbly submits that the Doctrine of Lifting of Corporate Veil is to be
adopted by the Honble Court for indentifing the true malafide intention of ISI behind
adopting the use of COI as a roof of its residence. The doctrine of lifting the corporate
veil ought to be applied only where the intention of the Assessee is to avoid tax through a
collusive device, and the real purpose was something else than what appeared on the face,
then the Court may lift the veil of corporate entity to pay due regard to the economic
realities behind the legal faade.
The word veil in its verb form means, to hide something or to make it obscure in
order to conceal39. So, in literal sense Piercing the Corporate Veil refers to judicially
imposed exception to separate legal entity principle. In a general sense courts are more
inclined, in appropriate conditions, to lift the veil of company where question of control
or ownership arises.40 The Honble Karnataka High Court in the case of Richter Holding

38

Income Tax (Amendment) Act, 2012.

39

Oxford Advanced Learner's Dictionary, 9th Ed. (Oxford University Press, 2014).

40

F.B. PALMER, PALMERS COMPANY LAW, Vol.1, Pg. 160- 162 (C.M.Schmitthoff, Geoffrey
Morse eds. 22nd Ed. Sweet & Maxwell, 1976).
-MEMORANDUM on behalf of APPELLANT-28

-Arguments Advanced-

-Appellant-

v The Assistant Director of Income Tax41 used this doctrine to take the view that it may
be necessary for the fact finding authority to lift the corporate veil to look into the real
nature of the transaction and ascertain the virtual facts. The Honble Supreme Court in the
case of Juggilal Kamlapat v Commissioner of Income Tax, 42 Ramaswami, J observed
that:
From a juristic point of view the Corporation may be a legal personality distinct
from its members. But the Court is entitled to lift the mask of corporate entity if the
conception is used for tax eviction or to circumvent tax obligation, or to perpetrate a
fraud.43
In Life Insurance Corporation of India v Escorts Ltd., 44the Honble Supreme Court
asserted that the veil may be lifted in cases where the aim is to avoid a taxation statute or
to evade obligations imposed by the law. The Calcutta High Court in Bijay Kumar
Agarwal v Ratanlal Bagania,45 observed that the doctrine of piercing the corporate veil
will be used by the court to prevent the abuse of process of law. The Allahabad High
Court has observed that the doctrine of lifting the veil has marked a change and is
adopted whenever and wherever a situation demanded the application of the doctrine.46
In McDowell & Co. Ltd. v CTO,47 it has been held clearly that the taxpayer cannot be
allowed to get away with any colourable device or artificial sham transaction. Therefore,
it becomes an important function of the Income Tax authorities to look into the devices
and natures of transactions used by the assessee, and decide upon the character and nature
of such devices and transactions. In Jindal v CIT,48 the Calcutta High Court pierced the
41

Richter Holding v. The Assistant Director of Income Writ Petition No. 7716/2011.

42

Juggilal Kamlapat v. Commissioner of Income Tax, AIR 1969 SC 932.

43

Ibid.

44

Life Insurance Corporation of India v. Escorts Ltd (1986) 1 SCC 264; 12 AIR 1999 Cal
106.
45

Bijay Kumar Agarwal v. Ratanlal Bagania AIR 1999 Cal 106.

46

Commissioner of Income Tax v. Smt. Swapna Roy (2010) 233 CTR (All)10.

47

McDowell & Co. Ltd. v. CTO (1985) 47 CTR (SC) 126.

48

Jindal v. CIT (1987) 164 ITR 28.


-MEMORANDUM on behalf of APPELLANT-29

-Arguments Advanced-

-Appellant-

corporate veil and found that there was an attempt to circumvent the provisions relating to
taxation of deemed dividend and refused to give effect to the corporate identity. In Sunil
Siddharthbhai v CIT,49 the Honble Supreme Court held that in the task of determining
whether a transaction is a sham or illusory transaction or a devise or ruse, he is entitled to
penetrate the veil covering it and ascertain the truth.
In CIT v Sri Meenakshi Mills Ltd and Ors.,50 the Honble Supreme Court, while
applying the doctrine, observed that from the juristic point of view, the company is a legal
personality entirely distinct from its members. But in certain exceptional cases, the Court
is entitled to lift the veil of the corporate entity and to pay regard to the economic realities
behind the legal facade.
It is well settled rule that in the determination of liability to taxation under a taxing
Act, the court has regard to the substance rather than the form of the transaction
sought to be taxed,51 that is to say, in the case of an instrument that the court has not
bound by its apparent tenor but will decide according to the real nature of the
transaction.52
Similarly by adopting the conflict of form and substance it can be confered that
though ISI in form appeared to have availed the use of COI as a proof of residence in
US to avail the treaty benefit, but in substance by the virtue of PoEM, ISI is a resident
of Germany. Corporate veil is to be pierced by the Court to prevent the misuse of the
provisions and benefits being accorded to a corporation through seperate legal entity
49

Sunil Siddharthbhai v. CIT (1985) 4 SCC 19. The Court held that where a partner transferred his
shares as capital contribution to the partnership firm, he received no consideration within the meaning of s. 48 of
the Income Tax Act, 1961, nor did any profit or gain accrue to him un der section 45 of the Act.
50

CIT v. Sri Meenakshi Mills Ltd and Ors [1967] 1 SCR 934. The Court held that where the Director of the
assessee companies was also the Director of the Bank which issued loans to the companies in non taxable
territory and then moved the money to taxable territories, the knowledge of the Director with respect to the
particulars of this arrangement will be imputed to the companies.

51

Joint Commissioner Tax Officer v. Youngmens India Assn. AIR 1970 SC 1212.

52

Commissioner of Stamp Duties v. Perpetual Trustee Co. Ltd. 21 CLR 69; Cristie v.
Commissioner of Inland Revenue LR 2 EX 4; Wale v. Commissioner of Inland Revenue, 4
EXD 270; Attorney General v. Powell (1906) 2 IR 272.
-MEMORANDUM on behalf of APPELLANT-30

-Arguments Advanced-

-Appellant-

status. ISI merely by its corporate entity status in USA seeks to taken advantage of the
benefits of India-US tax treaty which is necessary to be prevented by the Honble court.
Considering ISI as a resident of USA without the submission of TRC would defeat the
basic intention of the legislature behind providing TRC as a sine qua non for adopting
benefits under a treaty. The court may honor the intention of the legislature to curb treaty
shopping by holding that ISI is a German resident in the eye of law for all its purposes
and dealings.

-MEMORANDUM on behalf of APPELLANT-31

-Arguments Advanced-

-Appellant-

4 WHETHER THE RIGHTS FORGONE BY US WOULD ENABLE THE APPLICATION OF


INDIA-GERMANY TREATY?
4.1. TAXING RIGHT FOREGONE BY USA WOULD MAKE ISI AN ABSOLUTE RESIDENT
OF

GERMANY

USA and Germany under the terms of their treaty mutually agreed that ISI should be
considered as a resident of Germany. Considering the fact that the agreement has been
strictly entered into between USA and Germany, USA has forgone its right to tax ISI by
agreeing it to be a German resident. The MAP order does not just let USA forgo the tax
that could be levied on ISI but the very right to tax ISI, i.e. the right to tax ISI is
transferred to Germany and hence Germany alone is legally entitled to impose tax over
ISI.
Treaty between USA and Germany has an effect of transferring the legal right held by
USA to Germany and USA after the enforcement of MAP order no longer holds the legal
right to tax ISI. The absence of legal right to tax ISI with USA implies that ISI is no
longer liable to pay tax in USA, i.e. by the virtue of MAP order ISI is not liable for
worldwide tax in USA. Article 4(1) reads as:
For the purposes of this Convention, the term "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.53

53

India US DTAA, Article 4(1).


-MEMORANDUM on behalf of APPELLANT-32

-Arguments Advanced4.2.

-Appellant-

THE APPLICATION OF INDIA-GERMANY TREATY MAKES THE ASSESSEE


LIABLE TO TAX

The fact that USA has foregone its right to tax ISI to Germany, makes ISI tax resident only
of Germany. This automatically disqualifies ISI from being the resident of USA as USA
has voluntarily foregone the same. ISI was the resident of USA through its place of
incorporation under Article 4 of the India-USA treaty. USA once held the taxing rights
over ISI both under the treaty and domestic laws. Foregoing this right ISI would be
excluded from the ambit of Article 4 of the treaty for a simple reason that USA does not
have a right to tax ISI, i.e. ISI is not liable to pay worldwide tax in USA and hence cannot
claim any benefit under the India-USA tax treaty. ISI completely being a resident of
Germany is liable to pay tax in Germany and hence would be subjected to the IndiaGermany tax treaty. As already agreed by the respondents that on application of IndiaGermany tax treaty they would be liable to tax, the Appellant humbly submits that the
intention of the respondent to avoid tax by using the Certificate of Incorporation and
seeking the application of India-USA tax treaty is to be observed and the respondent be
made liable to pay tax by applying the India-Germany tax treaty. Article 12(4) of the
India-Germany tax treaty which is equivalent to Article 12(4) of India-USA tax treaty
reads as:
The term "fees for technical services" as used in this article means payments of any
amount in consideration for the services of managerial, technical or consultancy nature,
including the provision of services by technical or other personnel, but does not include
payments for services mentioned in Article 15 of this Agreement.54
The scope of the provision is much broader in the India-Germany treaty than that of
India-USA treaty due the absence of Make Available clause. As there is no Make
Available clause in the treaty, service of whatsoever nature becomes taxable under the
provision. On the application of this treaty the services availed by the respondent
becomes taxable.
Therefore, the appellant contends that ISI is the absolute resident of Germany and tax
is to be levied under the Indian Income Tax Act by applying the India-Germany tax treaty.

54

Supra note 53, Article 12(4).


-MEMORANDUM on behalf of APPELLANT-33

-Arguments Advanced-

-Appellant-

5 WHETHER THE DEFAULT IN WITHHOLDING TAX UNDER SECTION 195 MAKES GAIL
LIABLE UNDER

SECTION 201 & 163 OF INCOME TAX ACT, 1961?

5.1. APPLICATION OF INDIA-GERMANY TREATY MAKES IT NECESSARY FOR RESPONDENT


TO DEDUCT TAX UNDER

SECTION 195 OF THE ACT

As it is already established that ISI is a resident of Germany leading to an application


to India-Germany treaty, the fees received by ISI for rendering the consultancy services
becomes taxable. Under the circumstances, GAIL incurs a liability to deduct tax under
section 195 of The Act. Section 195 of the Act reads as:
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.55
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 Act lays the ground
rules for deduction of tax at source from payments to non residents which constitute
income in India (other than salaries). 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 Non-Residents, all
payments including payment for royality and fees for technical services, falls within
the ambit of Section 195 of the Income Tax Act and hence tax is liable to be deducted.
The tax is to be deducted at time of payment or credit, whichever is earlier. This view was
also held in the ruling of Flakt India Limited.56 Another salient feature of Section 195 is
55

195(1) of The Act.

56

In Re: Flakt (India) Ltd. v. Unknown [267 ITR 727].


-MEMORANDUM on behalf of APPELLANT-34

-Arguments Advanced-

-Appellant-

that the primary responsibility for ensuring the collection and deposit of the tax due from
the non-resident is placed on the deductor, and not the non-resident recipients. The
Karnataka High Court in the Samsung Electronics Case,57 held that whenever there is an
obligation to pay to the non residents, the payer has to deduct tax.
Therefore, GAIL was under the liability to deduct tax under Section 195(1) while
paying the fees for consultancy service to ISI.
5.2. FAILURE TO DEDUCT TAX ON PAYMENTS TO ISI ENABLES GAIL TO BE TREATED
AS AN

ASSESSEE IN DEFAULT UNDER SECTION 201 OF INCOME TAX ACT, 1961

Section 201(1) of Income Tax Act expressly states that any person liable to deduct TDS
on the income distributed, makes default in the deduction and/or payment of TDS, shall
be treated assessee in default and penalty under section 221 of Income Tax Act shall be
payable by such assessee.58 Section 201(1) of the Act, provides that where any person
who is required to deduct tax at source does not deduct, or does not pay, or after so
deducting fails to pay, the whole or any part of the tax, then such person, shall without
prejudice to any consequences which he may incur, be deemed to be an assessee in
default in respect of such tax.
Honble Court in the case of Jagan Prakashan Limited v Deputy Commissioner of
Income Tax59 held that where tax has not been deducted at source, the short deducted tax
cannot be realized from the deductor and the liability to pay such tax shall continue to be
with the assessee direct, whose income is to be charged and a person who fails to deduct
the tax source. At best the deductor can only be liable for interest and penalty for the
same.
Further according to the ruling of Gujarat High Court in the case of Commissioner of
Income Tax v Ranoli Investment P Limited60 it was held that when the tax is not
deducted at source, it is required to be paid by the assessee directly but in such a case the
57

Samsung Electronics Co Ltd and Others (2009) 185 Taxman 313.

58

CIT v Shrimati Vijayantimala (1977) 108 ITR 1882 (Mad.).

59

Prakashan Limited v. Deputy Commissioner of Income Tax 2012 (5) TMI 488 (All.).

60

Commissioner of Income Tax v. Ranoli Investment P Limited 1998 (3) TMI 96 (Guj.).
-MEMORANDUM on behalf of APPELLANT-35

-Arguments Advanced-

-Appellant-

liability to pay interest consequent upon failure to deduct tax at source will none the less
remain with such person who was duty bound to deduct, till the date when the tax is
actually paid by the assessee or on his behalf. The decision of Gujarat High Court was
further affirmed by the Honble Supreme Court in Hindustan Coca Cola Beverage
Private Limited v Commissioner of Income Tax.61
In the present case GAIL having paid fees for consultancy services to ISI who is a
German resident is liable to deduct tax under section 195 of the Act. Failure to do this
makes GAIL liable under Section 201 considering him as an assessee in default. GAIL
becomes liable to pay the required interest under Section 221 of the Act.
From the above it is clear that the provisions relating to payment of tax and payment
of interest operate in two different areas. If the tax has not been deducted at source, the
liability is upon the assessee to pay directly as per Section 191 of the Act and upon failure
to deduct the tax at source, the liability is upon the person who failed to deduct tax at
source to pay interest under Section 201(1A) of the Act.
5.3. ANY PERSON IN INDIA FROM OR THROUGH WHOM NON-RESIDENT IS IN
RECEIPT OF ANY INCOME DIRECTLY OR INDIRECTLY CAN BE TREATED AS AN AGENT
OF NON-RESIDENT UNDER SECTION

163

Section 163(1) of the Income Tax Act states that for the purposes of this Act, agent,
in relation to a non-resident, includes any person in India
(a) who is employed by or on behalf of the non-resident; or
(b) who has any business connection with the non-resident; or
(c) from or through whom the non-resident is in receipt of any income, whether directly
or indirectly; or
(d) who is the trustee of the non-resident.62
If any of the parameters in section 163 (1) (a) to (d) of the Act are satisfied, a person can
be regarded as an agent of the non-resident. In the case of ADIT v. Jet Airways (India)

61

Hindustan Coca Cola Beverage Private Limited v. Commissioner of Income Tax 2007 (8)
TMI 12 (SC).
62

163(1) of The Act.


-MEMORANDUM on behalf of APPELLANT-36

-Arguments Advanced-

-Appellant-

Pvt. Ltd.63, the assessee can be treated as an agent of ARL (Airline Rotables Ltd.), as
sufficient nexus existed between the business of ARL and the assessee as envisaged
under section 163(1)(b) of the Act; and ARL was in receipt of income from the assessee
for services rendered as envisaged under section 163(1)(c) of the Act.
Similarly in the present case, ISI, a non-resident has received income from GAIL in the
form of Fees for the Consultancy services rendered by it. This satisfies the ingredients of
Section 163 resulting in GAIL being considered as an agent under the section. The
purpose of section 163 of the Act was to enable revenue authorities to proceed and
impose a vicarious liability on a person regarded as agent, in an event when income was
found to be taxable in the hands of the non-resident. If the deductor makes a default in
deduction and deposit of the tax deductible and the payee also has not paid tax on such
income, such tax may be recovered from the defaulter. This can be done by treating the
defaulter as agent of the non-resident under section 163 and as representative
assesee under section 160(1)(i) of the Income Tax Act.
Therefore, the appellant humbly submits before this Hon'ble Court that the respondent
is to held liable under the said Sections for not deducting tax on payments made to ISI in
the form of Fees for consultancy services.

63

ADIT v. Jet Airways (India) Pvt. Ltd. (2012) 19 Taxman 37 (Mum).


-MEMORANDUM on behalf of APPELLANT-37

-Prayer-

-Appellant-

PRAYER
Wherefore in the light of issues raised, arguments advanced and authorities cited
above, it is humbly prayed that this Honble High Court may graciously pleased to
adjudge and declare that:
1. Tribunal erred in holding the applicability of India-USA tax treaty in the
place of India-Germany tax treaty without considering the fact that ISI is
a German resident.
2. Word any relief contained in Section 90(4) of the Act connotes the basic
intention of the legislature to mean benefit and use of the word any is
deliberate to cover all the clauses under Section 90(1).
3. TRC is a sine qua non for claiming any benefit under Double Taxation
Avoidance Agreement.
4. Fees towards consultancy services made to ISI is taxable under Article
12(4) of India-Germany Double Taxation Avoidance Agreement.
5. The respondent is liable under Section 201 and 163 of the Income Tax Act for
failure of deduction of tax under Section 195 of the Act.

Any other order as it deems fit in the interest of equity, justice and good
conscience.
For This Act of Kindness, the Appellant Shall Duty Bound Forever Pray.

Sd/(Counsel for the Appellant)

-MEMORANDUM on behalf of APPELLANT-16