- P RELIMINARIES A DVANCED - Page | i -WRITTEN SUBMISSION ON BEHALF OF THE RESPONDENTS- TABLE OF CONTENTS TABLE OF CONTENTS ............................................................................................. I INDEX OF AUTHORITIES ....................................................................................... II LIST OF ABBREVIATIONS .................................................................................... VII STATEMENT OF JURISDICTION ........................................................................... IX SYNOPSIS OF FACTS .............................................................................................. X STATEMENT OF ISSUES ........................................................................................ XI SUMMARY OF ARGUMENTS .............................................................................. XIII ARGUMENTS ADVANCED ..................................................................................... 1 MAINTAINABILITY ...................................................................................................................... 1 A. Whether the writ petition was maintainable before the High Court? .........................1 B. Whether the alternate remedies were exhausted before approaching the High Court?2 C. Whether the DDIT had powers to issue SCN to the assessee? .......................................2 CONSTITUTIONALITY AND INCOME TAX......................................................................................... 3 A. Whether the GAAR provision and income deemed to accrue in India provision of the Code have violated the Constitution, settled tax treaties and territorial limits of India ..3 B. Whether international treaty obligations under the constitution have been flouted merely on the fact that India is not a signatory to the Vienna convention? ...........................6 C. Whether the Code being a law later in time would prevail over DTAA. Scope of such doctrine? ..............................................................................................................................8 D. Can legislation unilaterally tax a transaction happening exclusively out of India between two nonresidents? ...................................................................................................... 10 OTHER ISSUES ......................................................................................................................... 12 A. Whether SPA-II was a sham and purely to treaty shop .............................................. 12 B. Who is the beneficial owner in the transaction? ............................................................ 13 C. Did the DDIT commit per incuriam by not following the settled judgments of this Court?......................................................................................................................................... 14 PRAYER .............................................................................................................. XVI
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TA B L E O F C O N T E N T S
TABLE OF CONTENTS ............................................................................................. I
INDEX OF AUTHORITIES ....................................................................................... II
LIST OF ABBREVIATIONS .................................................................................... VII
STATEMENT OF JURISDICTION ........................................................................... IX
SYNOPSIS OF FACTS .............................................................................................. X
STATEMENT OF ISSUES ........................................................................................ XI
SUMMARY OF ARGUMENTS ..............................................................................XIII
1. It is most humbly contended before the Hon‟ble Court that the writ petition was not maintainable
before the High Court. Article 2261 is not meant to circumvent statutory procedures and the
judicial process should never become an instrument of abuse2. It is only where statutory
remedies are entirely ill-suited to meet the demands of extraordinary situations that recourse may
be had to Article 226 of the Constitution3. It is a well settled principle that ordinarily no writ lies
against a charge sheet or show-cause notice4. It has also been laid down in series of cases by the
Supreme Court that the High Court should not interfere at the stage of show cause notice to take
over the fact finding investigation which is to be resolved by fact finding authorities constituted
under the relevant statute5.
2. It is also submitted that the instant matter involves complex questions arising out of disputed
facts, lot of which are still undisclosed and the same cannot be made the subject matter of a Writ
Petition under Article 226 of the Constitution of India.6
1 Article 226 of the Constitution of India: Power of High Courts to issue certain writs (1) Notwithstanding anything
in Article 32 every High Court shall have powers….shall not be in derogation of the power conferred on the
Supreme court by clause ( 2 ) of Article 32.
2 Nooruddin v. Dr K. L. Anand [1995] 1 SCC 242
3 Special Director and another v. Mohd. Ghulam Ghouse and another AIR 2004 SC 1467; Collector of Central
Excise v. Dunlop India Ltd (1 SCC 260).
4 Executive Engineer, Bihar State Housing Board v. Ramdesh Kumar Singh and Ors. AIR 1996 SC 691; Special Director and Anr. v. Mohd. Ghulam Ghouse and Anr. 2004 (164) ELT 141 (SC).
5 State of Goa v. Leukoplast (India) Ltd. 1997(2) ELT 19; Union of India v. Polar Marmo Aglomerates Ltd. 1997
(96) E.L.T. 21; Union of India v. Bajaj Tempo Ltd. 1997 (94) ELT 285.
6 Vodafone International Holdings B.V. v. Union of India (UOI), Ministry of Finance and Asstt. Director of Income
6. It is humbly submitted before the Hon‟ble Court that the provisions under Section 12310
and
Section 5(1)(d)11
of the Code are not unconstitutional. It is also to be noted that the GAAR
provisions cannot be severed as it is a part of the central theme of the Code and in order to prove
it unconstitutional the entire statute has to be declared so.12
The GAAR and income deemed to accrue in India provisions are not in violation of Article 14 and 21 of the Constitution
7. It is humbly submitted that the presumption is always in favor of constitutionality, and the
burden is upon him who attacks it to show that there has been a clear transgression of the
constitutional principles.13
It is humbly submitted that The Supreme Court in the celebrated
decision of Federation of Hotel Restaurant Association of India v Union of India and Ors14
observed that “…….. legislature enjoys a wide latitude in the matter of selection of persons,
subject matter, events etc of taxation.. The legislature can exercise an extremely wide discretion
in classifying items for tax purposes…..‖
10 123. (1) “Any arrangement entered into by a person may be declared as an impermissible avoidance arrangement
and the consequences, under this Code, of the arrangement may be determined by— (a) disregarding, combining or
recharacterising any step in, or a part or whole of, the impermissible avoidance arrangement; (b) treating the
impermissible avoidance arrangement— (i) as if it had not been entered into or carried out; or (ii) in such other
manner as in the circumstances of the case, the Commissioner deems appropriate for the prevention or diminution of
the relevant tax benefit;………... “
11 (1) The income shall be deemed to accrue in India, if it accrues, whether directly or indirectly, through or from: (d) the transfer of a capital asset situated in India.
12 Narayanan Damodaran And Ors. v. Narayana Panicker Parameswara AIR 1971 Ker 314 ; R.M.D.C. v. UOI
AIR 1957 SC 628.
13 Madhu Limaye v. S.D.M.Monghyr, (1970) 3 SCC 746
14 Federation of Hotel Restaurant Association of India v Union of India and Ors (1989) 3 SCC 634.
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8. It is submitted that the proposed GAAR provisions do not envisage that every arrangement for
tax mitigation would be liable to be classified as an impermissible avoidance arrangement. 15
The
Assessing Officer in accordance with the directions of Commissioner of Income Tax may in such
cases determine the tax consequences for the assessee by disregarding the arrangement and thus
do not confer any arbitrary power on the tax authorities and it falls under procedure established
by law.16
Therefore in the instant case the provisions under the Code are not arbitrary or
ambiguous and there are an effective procedure in place and are thus not invalid.17
The Parliament has power to impose restriction the freedom of trade, commerce and intercourse under Article 30218 of the Constitution
9. It is humbly submitted before this Hon‟ble Court that the freedom under Article 301 of the
Constitution is not absolute and is subject to the Parliament imposing restrictions on the same
under Article 302 in public interest. The Supreme Court interpreted Article 302 and held that:
"....It is evident that the restrictions contemplated by it must bear a reasonable nexus with the
need to serve public interest19
” It is thus stated that this provision is not being violated as
taxation is for collection of revenue and that is very much in the interest of the public.20
15 Empowers the Commissioner of Income-tax („CIT‟) to declare an arrangement impermissible if it - has been
entered into with the objective of obtaining tax benefit And - creates rights or obligations, which would not
normally be created if the transaction was implemented at arm‟s length; or - results in, directly or indirectly, misuse
or abuse of the provisions of the Code; or - lacks commercial substance in whole or in part; or - is not for bonafide
purpose.
16 A.K. Gopalan v. State of Madras, AIR 1950 SC 27.
17 Electronics Corporation Of India v. Commissioner Of Income Tax & Anr. 1989 AIR 1707.
18 301. Freedom of trade, commerce and intercourse Subject to the other provisions of this Part, trade, commerce
and intercourse throughout the territory of India shall be free.
19 Prag Rice & Oil Mills v. UOI AIR 1978 SC 1296.
20 Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406; Atiabari Tea Co. Ltd. v. State of
Assam AIR 1961 SC 232.
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Article 245 of the Constitution is not being violated as income deemed to accrue in India is extra territorial in nature
10. It is humbly submitted that in British Columbia Railway Company Limited v. King21
and
ECIL22
the principle that was enunciated in was that the problems of inability to enforce the laws
outside the territory of a nation state cannot be grounds to hold such laws invalid. Within
international law, the principles of strict territorial jurisdiction have been relaxed. Hence, even
those extra-territorial aspects or causes, provided they have a nexus with India, should be
deemed to be within the domain of legislative competence of the Parliament.
11. It is thus submitted that as far as the applicability of Section 5(I)(d) is concerned the taxation of
income accruing through or from a direct or direct transfer of capital which is situated in India is
not in violation of the territorial limits as it is very much in consonance with the nexus principle.
These provisions are not in violation settled tax treaties
12. It is humbly submitted before this Hon‟ble Court that Section 291 of the Code expressly provides
that Central Government can enter into tax treaties with other countries and there is no bar on
such agreements. However GAAR shall apply only with respect to cases where tax avoidance is
inequitable and undesirable. In the Vodafone case23
the Supreme Court opined that, “Tax
avoidance is a problem faced by almost all countries following civil and common law systems
and all share the common broad aim that is to combat it.‖
13. It is further submitted this limited treaty override is in accordance with the internationally
accepted principles. Since anti-avoidance rules are part of the domestic legislation and they are
not addressed in tax treaties, such limited treaty override will not be in conflict with the DTAAs.
21 British Columbia Railway Company Limited v. King (1946) A.C. 527.
22 Electronics Corporation of India v. Commissioner of Income Tax [1990] 183 ITR 43 (SC).
23 Vodafone International Holdings B.V. v. Union of India & Anr. 2010 (6) SCALE 442.
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It is thus submitted that in the instant case the agreement entered into between YPT and NNPT
was to evade taxes and thus disregard of such an arrangement would not be a contravention of
14. It is most humbly submitted before this Hon‟ble Court that the Directive Principles of State
Policy are unenforceable in the court of law and municipal law shall prevail over international
law in cases of conflict between the two.
The international treaty obligations under the constitution are not enforceable under the law
15. It is humbly submitted before this Hon‟ble Court that the principles laid down under Article 3724
of Part IV of the Constitution of India expressly state that it is mere directive and is not
enforceable by any Court25
especially when its compliance would jeopardize the sovereignty of
India‟s power to legislate statutes to safeguard its revenue interests. Further, Article 5126
only
expects that the State shall endeavour to comply with any treaty obligation and does not compel
it to do so especially when India‟s interests are at risk.
16. In Kesavananda Bharthi v State of Kerala27
Chief Justice Sikri observed: ―In view of Article 51
of the constitution this court must interpret language of the Constitution…. Directive Principles
of State Policy are non – justiciable by virtue of Article 37.‖
24 Article 37, Constitution of India: “Application of the principles contained in this Part, the provisions contained in
this Part shall not be enforceable by any court, but the principles therein laid down are nevertheless fundamental in
the governance of the country and it shall be the duty of the State to apply these principles in making laws.”
25 Unni Krishnan, J.P. and others v. State of Andhra Pradesh 1993 AIR 217; Kishwar and others v. State of Bihar and others AIR 1996 SC 1864; Gadadhar v. State of West Bengal AIR 1963 Cal 565; K. Rajendran v. State of Tamil
Nadu AIR 1982 SC 1107; T.P. Kunhiraman v. Official Assignee Madras AIR 1983 Mad 145; Lily Thomas v. Union
of India AIR 2000 SC 1650; Government of Andhra Pradesh and Ors. v. Smt. P. Laxmi Devi AIR 2008 SC 1640
26 Article 51, Constitution of India: Promotion of international peace and security.
27 Kesavananda Bharthi v State of Kerala AIR 1973 SC 1461
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17. For that reason, Article 51 c)28
of the Constitution cannot be argued over in the instant case and
the directive principle will not be considered as a necessary commitment in the eyes of law.
These principles are unenforceable by any court and it is the prerogative of the State to decide as
to when the treaty obligations could be overstepped especially when the interest of the country is
at peril. And thus YPT can‟t claim that international treaty obligations under the constitution
have been violated.
The Vienna Convention will not have any binding effect over the municipal law of the country if the two are in conflict
18. It is most humbly put forth this Hon‟ble Court that municipal law shall supersede over
international law when the conflict between the two is inevitable. In the landmark case of
Vishaka & Ors. v. State of Rajasthan & Ors29
Verma, C.J., said: ―…The rules of international
law and municipal law should be construed harmoniously, and only when there is an
inevitable conflict between these two laws should municipal law prevail over international law”.
The rule of construction should be such that if there be a conflict between the municipal law on
one side and the international law or the provisions of any treaty obligations30
on the other, the
courts would give effect to municipal law.31
Hence, the municipal laws shall supersede the
Vienna convention provisions in the instant case.
28 Article 51, Constitution of India: Promotion of international peace and security. The State shall endeavour to: c)
Foster respect for international law and treaty obligations in the dealings of organised peoples with one another; and
encourage settlement of international disputes by arbitration.
29 Vishaka &Ors. v. State of Rajasthan & Ors (1997) 6 SCC 241
30 Gramophone Co. of India Ltd v Birendra Bahadur Pandey AIR 1984 SC 667
31 Additional District Magistrate, Jabalpur v. Shivakant Shukla, AIR 1976 SC 1207; Jolly George Varghese and
Anr. v..The Bank of Cochin. 1980 2 SCC 360; People's Union of Civil Liberties (PUCL) v. Union of India (UOI) and
19. It is most humbly submitted before this Hon‟ble Court that the Code being a statute later in time
than the DTAA entered into between India and Mauritius, the Code shall prevail over the DTAA.
The instant conflict between DTAA and DTC fall within the scope of Last-in-time doctrine.
20. It is humbly put forth that applicability of Last-in-time doctrine is a prevalent practice to resolve
the conflict between a treaty and statute.
21. It is submitted that according to US Supreme Court, statutes and treaties are created equal and, in
case of conflict, the one last in time controls the other32
. This so called “last-in-time rule,” set
forth in a trinity of cases33
in the late nineteenth century, is a restatement of the legal maxim lex
posterior derogat priori34
.
22. Further, it has been opined by Reuven S. Avi-Yonah35
: ―Tax treaties aim primarily at the
avoidance of double taxation and the prevention of fiscal evasion but also have the objective of
allocating tax revenues equitably between Contracting States. Thus, any interpretation achieving
these objectives would be preferable to one leading double taxation or to an inappropriate
double exemption.‖36
32 Breard v. Greene, 523 U.S. 371, 376 (1998) (per curiam); Reid, 354 U.S. at 18; The Chinese Exclusion Cases, 130
U.S. 581, 600 (1889); Whitney v. Robertson, 124 U.S. 190, 194 (1888); Head Money Cases, 112 U.S. 580, 599
(1884); The Cherokee Tobacco, 78 U.S. (11 Wall.) 616, 621 (1870).
33 Ibid.
34 See BLACK‟S LAW DICTIONARY 931 (8th ed. 2004) (defining the term as the principle that “a later statute negates the effect of a prior one if the later statute expressly repeals, or is obviously repugnant to, the earlier law”).
35 Professor of Law, The University of Michigan.
36 Excerpted from ―Tax Treaties and Domestic Law‖ which was based on the presentations made at the Tax Treaties
and Domestic Law seminar held in Milan on November 21, 2005 and was edited by Professor Gulielmo
Maisto.
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23. Thus, it is submitted that interpreting the treaty by applying Last-in-time doctrine achieves the
objectives of Indo-Mauritius DTAC37
of avoidance of double taxation and prevention of fiscal
evasion.
The principle "Generalia specialibus non derogant" is applicable.
24. It is most reverentially put forth that the rule “Lex posterior generalis non derogart legi priori
speciali”38
is not applicable in the instant matter. In the matter of Ajoy Kumar Banerjee and
Ors.v. Union of India (UOI) and Ors39
, this Court analyzed the judicial pronouncements40
pertaining to principle "Generalia specialibus non derogant”41
and observed that:―In other
words, a prior special law would yield to a later general law, if either of the two following
conditions is satisfied: (i) The two are inconsistent with each other, (ii) There is some express
reference in the later to the earlier enactment.‖
25. Further, it is submitted that there is an express reference to the DTAC in Section 291(9)42
and it
provides that “Notwithstanding anything in sub-section (8), the provisions of this Code relating
to— (a) General Anti-Avoidance Rule under section 123; …shall apply to the assessee referred
to in sub-section (8), whether or not such provisions are beneficial to him..‖
26. Therefore, in light of the above cited judicial pronouncements and Section 291(9), it can be
concluded that the DTC, even though a general law, will prevail over Indo-Mauritius DTAC.
37 Agreement for avoidance of double taxation and prevention of fiscal evasion with Mauritius dated 24-8-1982
38 “Later general legislation does not overrule earlier special legislation‖
39 Ajoy Kumar Banerjee and Ors.v. Union of India (UOI) and Ors, AIR1984SC127;
40 J.K Cotton Spinning & Weaving Mills Co. Ltd. v. Slate of U.P. and Ors, (1961)ILLJ540SC; Life Insurance
Corporation of India v. D.J. Bahadur and Ors. AIR 1980 SC 2181
41 “General things do not derogate from special things‖
42 Section 291(9) of the Direct Taxes Code, 2010
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The Last-in-time rule does not violate OECD Model Tax Convention
27. It is most reverentially put forth that the applicability of Last-in-time rule in the instant conflict
does not violate OECD Model Tax Convention. It is submitted that Commentary on OECD says
that :―…To the extent these anti-avoidance rules are part of the basic domestic rules set by
domestic tax laws for determining which facts give rise to a tax liability, they are not addressed
in tax treaties and are therefore not affected by them. Thus, as a general rule, there will be no
conflict between such rules and the provisions of tax conventions.‖43
28. Further, as argued above, such override achieves the objective of tax treaties and OECD Model
Tax Convention44
, of prevention of both double taxation and double non-taxation and fiscal
evasion.
29. Henceforth, it is submitted that the instant conflict lies within the scope of Last-in-time doctrine.