The Calcutta High Court has held that the letter by the joint secretary of CBDT cannot override the plain and unambiguous provisions of the Income Tax Act, 1961 and the Finance Act. It was observed that the letter of the Joint Secretary violating plain and unambiguous provision of the Income tax act and Finance Act, 1994 is not valid.
The appellant/assessee is a branch of ABN Amro Bank NV (now The Royal Bank of Scotland N.V.) incorporated in the Netherlands with limited liabilities and its original office in Singapore. In India, the appellant is registered as a scheduled bank in terms of Schedule-II of the Reserve Bank of India (RBI) Act, 1934.
The main activities of the appellant in India are accepting deposits, giving loans, discounting or collecting bills, issuing letters of credit or guarantees, executing forward transactions of foreign currencies for importers and exporters, money market lending and borrowing, investing in societies, etc., in terms of the existing rules and regulations governing such transactions.
There is an agreement between India and the Netherlands for the avoidance of double taxation and the prevention of fiscal evasion ( DTAA ). Article 7 of the DTAA provides for the taxation in India of a foreign enterprise in respect of profits attributable to its permanent establishment (PE) in India.
Since the appellant has a PE in India, they are therefore liable to tax with respect to income attributable to the PE. In the impugned order, the ITAT has held that the appellant or assessee is liable to income tax at the rate specified for companies “other than domestic companies.”
The ITAT has held that the rate of income tax as provided in the Finance Act applicable to a domestic company shall not apply to the appellant or assessee, and instead the appellant or assessee is liable to tax at the rate prescribed by the Finance Act for a company other than a domestic company.
The word ‘domestic company’ has been defined in Section 2(22A) of the Act, 1961, which has been reproduced above. As per definition, an Indian company or any other company fulfilling specified conditions is a domestic company. The word “company” has been defined in Section 2(17) of the Act, 1961, which means (i) an Indian company and (ii) any body corporate incorporated by or under the laws of a country outside India.
The division bench of Justice Surya Prakash Kesarwani and Justice Rajarshi Bharadwaj has observed that the letter of the Joint Secretary violating plain and unambiguous provision of the Income Tax Act, 1961 and Finance Act, 1994 is not valid.
The court held that once Parliament has legislated, the Court must first look at the legislation and construe the language employed in it. If the terms of the legislative enactment do not suffer from any ambiguity or lack of clarity they must be given effect to even if they do not carry out the treaty obligations.
Since the expressions used in the aforesaid provisions of the Act 1961 and the Finance Act are clear and capable of only one construction as discussed and there is no ambiguity or lack of clarity. Therefore, the provision of the Act 1961 and the provision of the Finance Act are bound to be given full effect.
The court held that the appellant is liable to tax at the rate applicable to a company other than a domestic company as provided in the Finance Act.
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