The Court ruling comes as a major setback for Foreign Institutional Investors (FII). and upholds the government’s decision to tax inflows at 30 per cent TDS from Cyprus.
The Madras High Court yesterday dismissed a bunch of writ petitions challenging the constitutional validity of Section 94-A(1) of the Income Tax Act and against Cyprus as Jurisdictional Area. The Court ruling comes as a major setback for Foreign Institutional Investors (FII). and upholds the government’s decision to tax inflows at 30 per cent TDS from Cyprus.
The Court was hearing nine writ petitions, challenging respectively (i) the Constitutional validity of Section 94-A(1) of the Income Tax Act, 1961 (ii) the validity of a Notification bearing No.86/2013 dated 1.11.2013 issued by the Central Government in exercise of the powers conferred under Section 94-A(1), specifying Cyprus as a notified jurisdictional area for the purposes of Section 94-A(1) and (iii) the validity of a press release dated 1.11.2013 issued by the Ministry of Finance.
The petitioners challenge Section 94-A(1), on the short ground that it has conferred sweeping powers upon the Central Government to specify any country as a notified jurisdictional area in relation to transactions entered into by any assessee, irrespective of whether such country is one, with whom a bilateral Treaty has already been entered into or not. The contention of the petitioners is that the State has an obligation under Article 51(c) of The Constitution, which is part of the Directive Principles of the State Policy, to foster respect for Treaty obligations in the dealings of organized people with one another. The Treaty entered into by the Government is virtually a law under Article 253 of The Constitution and hence, neither the Parliament can make any law that would go contrary to the Treaty nor can the Government take any executive action to annul the effect of the Treaty so long as the Treaty is in force.
It is contended by Mr.Arvind P.Datar, learned Senior Counsel for the petitioners that the power of the Parliament to make laws conferred under Article 245(1), is made subject the provisions of The Constitution and hence, the said power is subordinate to Article 253, which confers power upon the Parliament to make laws for implementing any Treaty, Agreement or Convention with any other country. That the power under Article 245(1) is subordinate to the power under Article 253 is also made clear by a non-obstante clause contained in Article 253.
The petitioners also contended that Section 94-A(1), in as much as it confers a power upon the Central Government to specify by notification, any country as a notified jurisdictional area, without reference to the existence of a Treaty with that country, is violative of Articles 14, 19(1)(g), 51, 245, 253 and 269 of The Constitution.
The Bench Comprising Justice V. Ramasubramanian and Justice T. Mathivanan held that, the challenges to Section 94-A (1), the Notification dated 1.11.2013 and the Press Release dated 1.11.2013 are not sustainable in law.
The ordinary dictionary meaning of the word “haven”is “harbour or anchorage”. By extension, the word also denotes a place of safety, a refuge or sanctuary. In association with the word “tax”, the word “haven” has assumed different connotations in the recent past and Panama appears to have followed Cyprus. Therefore, Section 94A was the need of the hour and we do not find the same to suffer from unconstitutionality.
Read the full text of the Judgment below.
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