TMI Blog2004 (2) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... this order, the remaining issues are the issues covered by the binding judicial precedents. 4. There is no dispute about the position under the Income-tax Act to the effect that deduction under section 80M is available only to the domestic companies. As far as the provisions of the Income-tax Act are concerned, the assessee company, being admittedly a foreign company within meanings of that expression under section 2(23A) of the Act, is not eligible for deduction under section 80M. The assessee's contention is that in view of the provisions of Article XXI of the applicable India France Double Taxation Avoidance Agreement regarding non-discrimination, and in view of the fact that provisions of section 80M seek to discriminate against foreign companies by allowing this deduction only for domestic companies, the deduction under section 80M is required to be extended to the foreign companies covered by the India France DTAA. This is a purely legal contention. The Assessing Officer has rather summarily rejected this contention by relying on the plain wordings of the statute and by stating the legal position that concession is given to the foreign companies by charging the tax at a low ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discrimination clause is particularly aimed at "exemption, deduction, credit or other allowance accorded in consideration of the family circumstances", such as allowances in respect of dependants etc., which anyway do not find place in the Indian tax laws. The non-discrimination clause seeks to ensure that the Contracting States do not decline any such allowance only on the ground of tax payer's nationality. That will be the situation, for example, in a case in which dependant allowance in computation of total income is allowed only to the nationals of that country and the same is not extended to the nationals of the other country who are residents in the first country. In the Indian perspective, such a situation may arise when, for example, deduction under section 80DD, for deduction in respect of maintenance of a dependant with disability, is restricted to Indian nationals only. In such an eventuality, in view of the provisions of Article XXI, the benefits of that provision would have been available to the French nationals as well. Another situation in which the provisions of Article XXI may affect the provisions of the Income-tax Act is perhaps the entitlement for deduction unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax payer cannot be construed as non-discrimination. In other words, when different tax treatments are being given to the assessees on the basis of criterion connected with requirements regarding residence of the tax payer, it will not be covered by the scope of non-discrimination clause. This is so stated in the authoritative commentary issued by the OECD itself which is one of the bodies making immense contribution to the development of standardization of tax treaties, and thus developing, what is often termed as, 'international tax language'. The importance of OECD commentary in interpretation of tax treaties can hardly be overemphasized. This proposition finds support from the judgment of Hon'ble Andhra Pradesh High Court in the case of CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146 and Tribunal decisions in the cases of Graphite India Ltd. v. Dy. CIT [2003] 86 ITD 384 (Kol.) and Dy. CIT v. ITC Ltd. [2003] 85 ITD 162 (Kol.). In any event, on a plain reading of the provision also it is unambiguous that it deals with discrimination on account of nationality alone. It is so stated in clear words of the DTAA. 7. The question then is as to on what basis is a company classified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eign company, therefore, is certainly not the nationality. Even a French company, which has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income, can be treated as a domestic company under the Indian Income-tax Act, and the deduction under section 80M will then be available to such French company. The true test for deciding whether or not a company is eligible for deduction under section 80M is not the nationality of the said company, but it is whether or not it has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income. This kind of a classification, under the scheme of non-discrimination clause in the applicable India French DTAA, cannot be considered as a discrimination on the ground of nationality. 9. During the course of hearing before us, we shared our, then prima facie, impression with the learned representatives that the discrimination so far as non-availability of section 8M to the foreign companies is concerned, if at all that can be termed as a di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrary, this classification is at best relatable to requirements connected with residence, which, as stated in the OECD commentary extracted earlier in this order, cannot be a reason enough for invoking the non-discrimination clause. We may add that the provisions of Article 26(1) of the present India France DTAA (209 ITR Statute 130) is materially similar in scope. Accordingly, non-discrimination clause in the Indian France DTAA cannot be invoked in the cases where provisions of Indian Income-tax Act more favourable to the domestic companies vis-a-vis foreign companies. Once we come to this conclusion, it follows that the case of non-availability of deduction under section 80M cannot be covered by the non-discrimination clause under the India France DTAA. We, therefore, see no need to address ourselves to the merits of assessee's grievance about discrimination against foreign companies, even if such a discrimination actually exists. 11. The assessee's grievance against CIT(A)'s declining the deduction of Rs. 2,70,91,836 under section 80M, and assessee's reliance on Article XXI of the applicable India France DTAA, in support of such a grievance, is not sustainable in law. We, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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