TMI Blog2021 (4) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... he Netherlands to a body resident in India will bear a lower withholding tax rate of 5 per cent. The other contracting State, i.e., the Netherlands has interpreted Clause IV (2) in a particular way and therefore in our opinion, in the fitness of things, the principle of common interpretation should apply on all fours to ensure consistency and equal allocation of tax claims between the contracting States. We are not impressed with the argument advanced on behalf of the revenue that since Slovenia, Lithuania, and Columbia became members of the OECD, not only after the subject DTAA came into force but also after their own DTAA came into force, and therefore, lower rate of withholding tax, i.e., 5% on dividends would not apply to recipients in the Netherlands, who are otherwise covered under the subject DTAA - as that is not how the other contracting State, i.e., the Netherlands has interpreted Clause IV (2) of the protocol appended to the subject DTAA. While interpreting international treaties including Tax treaties the rules of interpretation that apply to domestic or municipal law need not be applied, for the reason, that international treaties, conventions and tax treaties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent no. 1. The relief sought is that the same be quashed. The consequential relief sought is that the petitioner s Indian counterpart, i.e., the deductor be permitted to remit dividend, after deducting withholding tax at the rate of 5%. Likewise, in W.P. (C) 882/2021 [hereafter referred to as the second writ petition ], the relief sought is for quashing the certificate dated 04.01.2021 issued by respondent no. 1 with the approval of respondent no. 2 whereby the withholding tax rate is pegged at 10%. Background facts: - 4. Thus, to adjudicate upon the captioned writ petitions, the following broad facts are required to be noticed: 4.1. India entered into the subject DTAA with the Kingdom of Netherlands on 21.01.1989. A notification, in that behalf, was issued on 27.03.1989 which was amended by a subsequent notification dated 30.08.1999. 4.2. The petitioner, in the first writ petition, is an entity going by the name Concentrix Services Netherlands B.V. [hereafter referred to as Concentrix Netherlands ] while the remitter of the dividend is an Indian company, i.e., Concentrix Daksh Services India Private Limited [hereafter referred to as Concentrix India ]. Similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 01.10.2020 is on record [See: page number 53 of the paper book in the first writ petition], the application seeking reasons is not part of the record. Although notice in this writ petition was issued on 17.11.2020, no counter-affidavit was filed on behalf of the respondents despite an opportunity being granted in that behalf. 4.8. Insofar as Optum Netherlands is concerned, it has placed on record letter dated 27.08.2020 and 11.11.2020 addressed to respondent no. 1. These letters were written by the chartered accountancy firm, i.e., SRBC and Associates LLP, appointed by Optum Netherlands, to respond to the queries raised on the subject matter of the issuance of a lower rate of withholding tax certificate. Furthermore, it appears that, thereafter, Optum Netherlands availed the services of Earnst Young. Earnst Young, via e-mail dated 04.01.2021, like in the first writ petition, sought both, an inspection of file and also copies of order sheet(s) which dealt with the application filed by Optum Netherlands for issuance of lower rate withholding tax certificate under Section 197 of the Act. However, after the issuance of the impugned certificate dated 04.01.2021, in the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Convention i.e., the subject DTAA. iii. For applicability of the provisions of the DTAA which followed the subject DTAA, contrary to the stand of the respondents, no fresh notification was required. In support of this plea, reliance was placed on the judgement of Division Bench of this Court in Steria (India) Ltd. vs. Commissioner of Income-tax-VI, [2016] 386 ITR 390 (Delhi) and the judgement of the Karnataka High Court in Apollo Tyres Ltd. vs. Commissioner of Income Tax, International Taxation, [2018] 92 taxmann.com 166 (Karnataka). Besides this, reliance was also placed on the judgement of another Division Bench on this Court rendered in EPCOS Electronic Components S.A vs. Union of India, [2019] 107 taxmann.com 227 (Delhi). iv. It is in this context, reliance was placed on the following DTAAs entered into between India and countries, other than the Netherlands: a) DTAA executed between India and Slovenia; which came into force on 17.02.2005 and was notified on 31.05.2005. b) DTAA executed between India and Lithuania; which came into force on 10.07.2012 and was notified on 25.07.2012. c) DTAA executed between India and Columbia; which came into for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with India, Clause IV (2) of the protocol appended to the subject DTAA would have no applicability. iii. It was contended, based on the aforesaid dates and events, that the benefit of the lower rate of withholding tax or a scope more restricted was extended to Slovenia, Lithuania and Columbia in their own right and not because they were members of the OECD. iv. Furthermore, the submission made was that several amendments have been made to the subject DTAA which have been ratified by both India and the Netherlands and therefore, if the benefit of a lower rate of withholding tax or a scope more restricted as provided in the DTAA(s) executed between India and Slovenia, Lithuania and Colombia is to be extended to those governed by the subject DTAA it could only be done by amending the subject DTAA followed by the issuance of notification. Since no such amendment has been made to the subject DTAA, the withholding tax cannot be lower than 10%. v. Clause IV (2) of the protocol appended to the subject DTAA is like a contingent contract and before any benefits availed by the residents of OECD countries are extended to those who reside in Netherlands, the following two conting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of the dividend, the tax so charged shall not exceed 10% of the gross amount of the dividend. 11.1. In the given facts and circumstances, although, the remitter of dividends are Indian entities, the recipients are companies residents of the Netherlands. Therefore, in consonance with Article 10 (2) of the subject DTAA, the remittance, i.e., the dividends can be taxed in India provided the recipients are beneficial owners of the dividends and the tax rate does not exceed 10% of the gross amount of dividends. The respondents have not contested the assertion that the recipients, i.e., Concentrix Netherlands and Optum Netherlands are the beneficial owners of the dividends. In fact, in consonance with a request made by them, certificates under Section 197 of the Act were issued authorizing the deductors, i.e., the remitters namely Concentrix India and Optum India to deduct withholding tax @ 10% in accordance with Article 10(2) of the subject DTAA. 12. The point of inflection is the rejection of the request of the deductees made to respondent no. 1 that the rate of withholding tax should be pegged at 5% and not 10% (as indicated in the impugned certificates) in consonance with C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween India and France simultaneously forms an integral part of the Convention itself. The preamble in the Protocol, which states the undersigned have agreed on the following provisions which shall form an integral part of the Convention , makes this position clear. Once the DTAA has itself been notified, and contains the Protocol including para 7 thereof, there is no need for the Protocol itself to be separately notified or for the beneficial provisions in some other Convention between India and another OECD country to be separately notified to form part of the Indo-France DTAA. 17. Reliance is rightly placed by the Petitioner on the following passage at page 32 in the commentary by Klaus Vogel on Double Taxation Conventions : As previously mentioned, (final) protocols and in some cases other completing documents are frequently attached to treaties. Such documents elaborate and complete the text of a treaty, sometimes even altering the text. Legally they are part of the treaty, and their binding force is equal to that of the principal treaty text. When applying a tax treaty, therefore, it is necessary carefully to examine these additional documents 18. The Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imit on the lower rate of tax or the scope more restricted contained in the Convention/DTAA executed between India and the third State can only apply when the third State fulfils the attribute of being a member of the OECD. 17.3. We must point out that a lot of emphases is laid on behalf of the revenue on the word is mentioned in the following part of Clause IV (2) in the context of the aforementioned third States with which India has entered into Conventions/DTAAs after the execution of the subject DTAA which is a member of the OECD . 17.4. In our view, the word is describes a state of affairs that should exist not necessarily at the time when the subject DTAA was executed but when a request is made by the taxpayer or deductee for issuance of a lower rate withholding tax certificate under Section 197 of the Act. The word is - is both autological and heterological. An autological 1 word is one that expresses the property that it possesses. Opposite of that is a heterological 2 word, i.e., it does not describe itself. The examples of autological words are expressions such as English , Noun , or Word . Heterological words as indicated above are those which do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the Contracting Governments agrees a tax treaty with another state that relaxes (or removes) the limitation on the deduction of head office expenses, its application will not extend to the India - Netherlands relationship until after the relaxation of the deduction limitation as such is included in the Convention. The MFN clause in Article 7 of the Treaty therefore does not have automatic effect. 3. Dividends The Protocol to the Convention contains a most-favored-nation clause in relation to Articles 10, 11 and 12 (Article IV, paragraph 2). This provision shall apply if, after the signing of the Convention in a treaty with another State which is a member of the OECD, India lowers the rate in respect of its taxation at source below the rate provided for in the Convention or when India has a more limited scope for the withholding tax provisions of Articles 10, 11 and 12. The treaty that India has agreed with Slovenia, which entered into force on February 17, 2005, includes a participation dividend rate of 5 percent. This constitutes a participation dividend if a company immediately owns at least 10 percent of the capital of the company that pays the divide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interpretation of Conventions/DTAAs. This is the principle of Common Interpretation . [See: Klaus Vogel, Double Tax Treaties and Their Interpretation, (1986)] 17.8. This principle of Common Interpretation is also recognized in private international law with regard to conflict rules. The purpose, it appears, as indicated above, is to allocate tax claims equally between the contracting States. The Courts of the contracting States are, thus, required to ensure that Conventions/DTAAs are applied efficiently and fairly so that there is consistency in the interpretation of the provisions by the tax authority and courts of the concerned contracting State. 17.9. Having said so, the common interpretation if adopted [whether it concerns a tax authority or a foreign court] should be applied with care and caution having regard to the fact that the view expressed could be unique and/or personal to the tax authority or a Court. An attempt should be made to choose a view that finds general acceptance with Courts and authorities. 18. Therefore, the judgement cited by Mr. Sawhney on behalf of Optum Netherlands which was rendered in Corocraft Ltd. vs. Pan American Airways Inc., [196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the interpreter is likely to be required to cope with disorganised composition instead of precision drafting. The drafting of treaties is notoriously sloppy usually for a very good reason. To get agreement, politic uncertainty is called for. The interpretation of a treaty imported into municipal law by indirect enactment was described by Lord Wilberforce as being unconstrained by technical rules of English law, or by English legal precedent, but conducted on broad principles of general acceptation. This echoes the optimistic dictum of Lord Widgery, C.J. that the words are to be given their general meaning, general to lawyer and layman alike the meaning of the diplomat rather than the lawyer . [ Francis Bennion: Statutory Interpretation, p. 461 [Butterworths, 1992 (2nd Edn.)].] 131. 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 Doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. Thus, having regard to the foregoing discussion, we are of the view that the impugned certificates dated 16.09.2020 and 04.01.2021 deserve to be quashed. 21. It is ordered accordingly. Respondent no. 1 will issue a fresh certificate under Section 197 of the Act, which would indicate, that the rate of withholding tax, in the facts and circumstances of these cases, would be 5%. 22. The case papers shall stand consigned to record. ----------------- Notes: 1. See: Oxford Reference, Oxford University Press, https://www.oxfordreference.com/view/10.1093/oi/authority.20110803095436320 , last accessed on 17.04.2021, at 13:00 IST. 2. See: Oxford Reference, Oxford University Press,https://www.oxfordreference.com/view/10.1093/oi/authority.20110803095934970, last accessed on 17.04.2021, at 13:00 IST. 3. As respects decision of foreign courts, the persuasive value of a particular court's decision must depend upon its reputation and its status, the extent to which its decisions are binding upon courts of co-ordinate and inferior jurisdiction in its own country and the coverage of the national law reporting system. For instance your Lordships would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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