What are the principles on which DTAAs are to be interpreted? Do the usual principles of interpretation of tax statutes continue to apply? Or are there any special rules to be applied, given that a DTAA is a treaty between two sovereign states? In an article available on the ITAT bar association website, Mr. S.E. Dastur, Senior Advocate, provides the answers to these important questions. In concluding his article, Mr. Dastur highlights the general approach of the Courts in interpreting legal provisions in the face of two contrasting rules of interpretation. In Mr. Dastur’s words:
“I believe that the rules of interpretation are in a way elastic enough for a judge to be able to support the view which he thinks will further the cause of justice by citing an appropriate rule of interpretation. If a judge wants to go strictly by the written word he would cite the rule enunciated by Rowlatt J. in Cape Brandy Syndicate v. IR 1921 (1) KB 64, approved by the Supreme Court in CIT v. Ajax Products Ltd. 55 ITR 741, 747, which requires that in a tax law one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing to be implied. One can only look at the language used. In Jiwandas v. CIT 4 ITC 40 it was stated that one cannot extend the scope of a statute by analogy or place upon it what is called a beneficent or equitable construction in order to prevent a real or supposed anomaly.
There is, on the other hand, the directly opposite rule of construction whereunder a judge is exhorted to supplement the written word so as to give force and life to the intention of the legislature though he must not alter the material of which the fabric is woven but he should iron out the creases. By invoking these principles the Supreme Court of India in CIT v. Bhattachargee (1979) 118 ITR 461 held that in section 245M of the Act the term “assessee” would encompass the department as well! This was done undoubtedly to avoid a result which would have been unjust to the Revenue. In CIT v. J. H. Gotla (1985) 156 ITR 323 (SC) the boot was, as it were, on the other foot. A literal interpretation would have resulted in a patent injustice to the assessee. In the process the Court observed that where the plain literal interpretation of a statutory provision produces a manifestly unjust result, which could never have been intended by the legislature, the Court might modify the language used by the legislature so as to achieve its intention. To this approach a strict constructionist judge would say that it is not for the Court to make good the lacuna in the legislation.
This contrasting approach is very tellingly illustrated by two decisions of the High Court at
The pity is that what is “manifest” to one judge is often obscure to another. Therein lies the strength and weakness of rules of interpretation and provide bread, butter and large helpings of jam to the legal fraternity!”
The full article, which discusses several issues related to the interpretation of DTAAs (including "forum shopping", "double non-taxation", "life of a treaty", "aids in construing tax treaties" etc. is available on the ITAT bar association website linked here.