Section 9 Income Tax can’t be enforced for prevailing DTAA: DHC

The Delhi High Court recently ruled that unless changes are carried out in a Double Taxation Avoidance Agreement (“DTA”), the new interpretation of Section 9(1)(vi) of The Income Tax Act cannot be enforced.

The Division Bench of the Court was recently asked to implore the legality of section 9 (1)(vi) that deals with income by royalty in light of the recent changes in law carried out by the Finance Act 2012 without amending the DTA.

“On a final note, India’s change in position to the OECD commentary cannot be a fact that influences the interpretation of the words defining royalty as they stand today. The only manner in which such change in position can be relevant is if such change is incorporated into the agreement itself and not otherwise,” the Court said.

The Court further added, “A change in executive position cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign states. It is fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mere amendment to section 9(1)(vi) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. Any attempt short of this, even if it is evidence of the state’s discomfort at letting data broadcast revenues slip by, will be insufficient to persuade this court to hold that such amendments are applicable to the DTAs.”

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