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TABLE OF CONTENTSINDEX OF AUTHORITIESiiLIST OF ABBREVIATIONSVIISTATEMENT OF JURISDICTIONXSYNOPSIS OF FACTSXIStatement Of IssuesXIISummary of ArgumentsXIVArguments Advanced1Maintainability1A.Whether the writ petition was maintainable before the High Court1B.Whether the alternate remedies were exhausted before approaching the High Court?1C.Whether the DDIT had powers to issue SCN to the assessee?2Constitutionality and Income Tax2A.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 India2B.Whether international treaty obligations under the constitution have been flouted merely on the fact that India is not a signatory to the Vienna convention?6C.Whether the Code being a law later in time would prevail over DTAA. Scope of such doctrine?8D.Can legislation unilaterally tax a transaction happening exclusively out of India between two nonresidents?11Other Issues13A.Whether SPA-II was a sham and purely to treaty shop13B.Who is the beneficial owner in the transaction?14C.Did the DDIT commit per incuriam by not following the settled judgments of this Court?15PrayerXVI

INDEX OF AUTHORITIES

A. Table of Cases1. Ajay Kumar Banerjee and Ors. v. Union of India and Ors. (1984)ILLJ368SC102. Anglo-French Textile Company Ltd. v CIT 25 ITR 27 (SC)53. Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 23254. Augusto De Piedade Barreto v. Antonio Vicente Da Fonseca and Ors. etc. [1979]3SCR494105. Automobile Transport (Rajasthan) Ltd. v. St of Rajasthan AIR 1962 SC 140656. Bachchan Singh v. State of Punjab, AIR 1982 SC 133627. Brahmananda v Gajapathinath (58 ITR 579)18. Chairman,Railway Board v. Chandrama Das AIR 2000 99839. CIT v. Visakhapatnam Port Trust 144 ITR 146610. Consumer Education and Research Centre v. Union of India (1995)411. Deepak Sibal v. Punjab University AIR 1989 SC 903212. Dwijendralal v. New Central Jute 112 ITR 568113. E. P. Royappa vs State Of Tamil Nadu & Anr 1974 AIR 555214. Eileen Louise Nicoole v. John Winter Nicolle, [1992] 1 AC 2841015. Faridabad C.T. Scan Centre v. D.G. Health Services AIR 1997 SC 3801316. Fisheries Jurisdiction (United Kingdom v Iceland)[1974] I.C.J. Reports 3717. Fothergill v. Monarch Airlines Ltd (1981) AC 251718. Francis Corallie Mullin v. The Administrator, Union Territory of India, (1981) 2 SCR 516419. Govt. of A.P. v. B. Satyanarayana Rao, (2000)IILLJ545SC1520. GVK Inds. Ltd. and Anr. v. The Income Tax Officer and Anr. (2011)4SCC365,1221. Harbans Lal Sahnia v. Indian Oil Corporation Ltd., [2003] 2 SCC 107..................................122. Hira Mills Ltd. v ITO 14 ITR 417 (All)523. In re Berubari Union, AIR 1960 SC 845924. In re Special Courts Bill,1978,AIR 1979 SC 478325. IR v. Hood Barrs 39 TC 683 HL126. Jalia Singh v. State of Rajasthan AIR 1975 SC 1436327. K. Thimnappa v. Chairman, Central Board of Directors, AIR 2001, SC 467328. Kesavananda Bharthi v. State of Kerala AIR 1973 SC 1461629. King v. Brixton IT Comrs 6 TC 195130. L&T Case Equipment Pvt. Limited v.State of Karnataka ILR2009KAR3072431. L.Hirday Narain v. Income Tax Officer, Bareilly AIR (1971) SC 33132. Madhu Kishwar and others Vs. State of Bihar and others AIR 1996 SC 1864733. Maganbhai Ishwarbhai Patel v. Union of India, AIR 1969 SC 784834. Maharaja Pratap Singh Bahadur v. Thakur Manmohan Dey and Ors.,[1966]3SCR6631035. Maneka Gandhi v. Union of India (1978) 1 SCC 248336. Maqbool Hussain v. State of Bombay SC 325437. Mohd. Yasin Vs. Town Area Committee AIR 1952 SC 115138. Mohini Jain v. State of Karnataka (1992) 3 SCC 666439. Motor General Traders v. State of Andhra Pradesh AIR 1984 SC 121240. Naraindas v. State of M.P. AIR 1974 SC 1232441. Naranjan Singh v. State of Punjab AIR 1952 SC 106442. P.M. Ashwathanarayana v. State of Karnataka AIR 1989 SC 100743. Parkar v. Palekar 94 ITR 616144. Parkash Singh Badal and Anr.v. State of Punjab and Ors.(2007)1SCC1545. R.S. Raghunath v. State of Karnataka and another, (1992)1SCC3351046. Ram Jethmalani & Ors. v. Union of India & Ors. Writ Petition (Civil) No. 176 of 2009747. Ram Narayan Singh v. Delhi AIR 1953 SC 272448. Rattan Arya v. State of Tamil Nadu AIR 1986 SC 1444249. RMDC v. Union of India AIR 1957 SC 628250. Sakalchand Babulal v ITO 47 ITR 673 (Mad)551. Sheo Nandan Paswan v. State of Bihar, AIR 1987 SC 877352. Shipping Corporation of India Ltd v. Gamlen Chemical Co (A/Asia) Pty Ltd (1980) 147 CLR 142753. Special Director and Anr. v. Mohd. Ghulam Ghouse and Anr. (2007) 120 Comp. Cases 467254. State of Himachal Pradesh v. Gujarat Ambuja Cement Ltd. AIR 2005 SC 3856155. State of UP v Bahadur Singh 142 ITR 745156. Sudhir Chandra v. Tata Iron and Steel Co. Ltd. AIR 1984 SC 1604457. Sultana Begum v. Premchand Jain AIR1997SC1006258. Thiel v. Federal Commissioner of Tax (1990) 171 CLR 338859. U.B.S.E. Board v. Hari Shankar AIR 1979 SC 65760. Union of India (UOI) and Anr. v. Azadi Bachao Andolan and Anr. (2004)10SCC11461. Union of India v. Azadi Bachao Andolan, 263 ITR 707 (SC)862. Union of India v. Manmull Jain, AIR 1954 Cal 615863. UOI v. Sukumar Sengupta, AIR 1990 SC 1692864. VodafoneInternational Holdings B.V. v. Union of India 2009 (4) Bom CR 2582

B. Books

1. Srinivasan,K, Guide to Double Taxation Avoidance Agreements,(Vidhi Foundation, 2nd Edition, New Delhi) (1992)2. Gupta, SS Service Tax, How to meet your obligations (Taxmanns, 27TH Edition Vol.1 & 2) 3. Basu, DD, Constitutional Law Of India (Wadhwa And Company, 7TH Edition, Nagpur) (Rep. 2003)4. Rao,M.B. Taxation of Foreign INCOME (Vikas Publishing House Pvt. Ltd, 2nd Edition, India) (2006)5. Jain, M.P., Indian Constitutional Law (Wadhwa And Company, 5TH Edition, Nagpur) (Rep. 2005)6. Kagzi, Constitution Of India (India Law House, 6TH Edition) (2001)7. Malik, Surendra Supreme Court on Words and Phrases, (Eastern Book Company, 1ST Edition, Lucknow) (1993)8. Seervai, H.M., Constitutional Law of India: A Critical Commentary (Universal Book Traders, 4TH Edition) (1997)

C. Dictionaries

1. Aiyar, Ramanatha P.: THE LAW LEXICON, Wadhwa & Company, 2nd Edn. Nagpur (2002).2. Black, Henry Campbell: BLACKS LAW DICTIONARY, 6th Ed., Centennial Ed. (1891-1991).3. Curzon. L. B: DICTIONARY OF LAW, Pitman Publishing, 4th Edn. New Delhi (1994).4. Garner, Bryan A.: A DICTIONARY OF MODERN LEGAL USAGE, Oxford University Press 2nd Edn. Oxford (1995).5. Greenberg, Daniel and Alexandra, Millbrook: STROUDS JUDICIAL DICTIONARY OF WORDS & PHRASES, Vol. 2, 6th Ed., London: Sweet & Maxwell (2000).6. Justice Desai, M.C. and Aiyar, Subramanyam: LAW LEXICON & LEGAL MAXIMS, 2nd Ed., Delhi: Delhi Law House (1980).7. Mitra, B.C. & Moitra, A.C., LEGAL THESARUS, University Book, Allahabad (1997).8. Moys, Elizabeth M., CLASSIFICATION & THESAURUS FOR LEGAL MATERIAL, 3rd Ed., London: Bowker Saur (1992).9. Oppe., A.S., WHARTONS LAW LEXICON, 14th Ed., New Delhi: Sweet & Maxwell (1997).10. Prem, Daulatram, JUDICIAL DICTIONARY, 1st Ed., Jaipur: Bharat Law Publication (1992).

D. Statutory Compilations

1. The Direct Taxes Code, 2010 2. Income Tax Rules, 1962 3. The Constitution of India, 1950

E. Internet Sites1. www.incometaxindia.gov.in2. http://www.findlaw.com 3. http://www.indiankanoon.com 4. http://www.indlawinfo.org/5. http://www.jstor.org.6. http://www.judis.nic.in 7. http://www.lawsofindia.org8. http://www.manupatra.com 9. http://www.scconline.com 10. http://www.supremecourtcaselaw.com

LIST OF ABBREVIATIONS

A.I.R.All India Reporter

AllAllahabad

APAndhra Pradesh

Art.Article

BomBombay

CalCalcutta

Co.Company

Comm.Commissioner

CrLJCrminal Law Journal

DDITDeputy Director of International Tax

DelDelhi

DITDirector of International Tax

DTAADouble Tax Avoidance Agreement

DTCDirect Tax Code

e.g.exemplum gratia (for example)

Ed.Edition

GAAR General Anti Avoidance Rule

HTAHelp Tax Avoidance

ITAIncome Tax Act

LahLahore

LRLaw Reporter

MadMadras

MANUmanupatra

NNPTNeed Not Pay Tax

p.Page

Para.Paragraph

PunPunjab and Haryana

PNTPaid No Tax

SCSupreme court

SCCSupreme court cases

SCNShow Cause Notice

STATEMENT OF JURISDICTION The Petitioners have approached the Honble Supreme Court of India under Article 136 of the Constitution of India, which reads as hereunder:

__________________________________________136. Special leave to appeal by the Supreme Court.(1) Notwithstanding anything in this Chapter, the Supreme Court may, in its discretion, grant special leave to appeal from any judgment, decree, determination, sentence or order in any cause or matter passed or made by any court or tribunal in the territory of India.(2) Nothing in clause (1) shall apply to any judgment, determination, sentence or order passed or made by any court or tribunal constituted by or under any law relating to the Armed Forces.__________________________________________

The Petitioners submit to the Jurisdiction of this Honble Court

SYNOPSIS OF FACTS YPT is a company incorporated in U.S.A. that wanted to acquire PNT incorporated in India whose shares lye in the various companies in the following order: HTA, Hong Kong > TFT, Cayman Islands > NNPT, Mauritius. It therefore entered into SPA-I with its ultimate parent company HTA that would sell all its shares that it held in TFT to the assessee, YPT. In view of the Indian Court judgments similar to the transaction against such nonresident purchasers the assessee entered into SPA-II, according to which it would purchase all the shares which NNPT holds in PNT and HTA (parent company) would grant necessary authorization permitting TFT to authorize NNPT to sell the shares to YPT at agreed rates. JCIT issued a notice to PNT and YPT for getting details of their transaction. The whole transaction was believed to evade the tax liability in India on sale of shares by NNPT. The DDIT issued a show cause notice SCN where it was required to show as to why YPT should not be deemed to be assessee in default AID. After hearing YPTs submissions DDIT passed an order levying tax at 20% being long term capital asset along with applicable surcharge and cess amounting to INR 2,060 Crores. Further penalty and interest charges were also levied. The assessee filed writ petition against the impugned order in the Bangalore High Court praying that the order passed by DDIT was quashed since it was non est in law and violated the Constitution, settled tax treaties, income tax law principles and also territorial limits of India. The Honble High Court dismissed the writ petition. On filing the Special Leave Petition, leave was granted and the matter was directed to be heard on SLP paper books. The matter was then placed before the Constitutional Bench.

Statement Of IssuesThe Respondent respectfully asks the Honble Supreme Court of India, the following Questions:I. Maintainability:A. Whether the writ petition before the High Court was maintainable?B. Whether alternative remedies were exhausted before approaching the High Court? C. Whether the DDIT had powers to issue SCN to the assessee?

II. Constitutionality and income tax: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?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?C. Whether the Code being a law later in time would prevail over DTAA. Scope of such doctrineD. Can legislation unilaterally tax a transaction happening exclusively out of India between two nonresidents?

III. Other Issues:A. Whether SPA-II was sham and was purely to treaty shop?B. Who is the beneficial owner in the transaction?C. Did the DDIT commit per incuriam by not following the settled judgments of this Court?

Summary of ArgumentsMAINTAINABILITYIt has been most humbly submitted that the writ petition was maintainable before under Article 226 of the Indian Constitution. The High Court may issue a writ of certiorari to quash quasi-judicial proceedings taken by income-tax authorities without jurisdiction/in excess of jurisdiction or to quash an order which is vitiated by an error apparent on the face of the record. The existence of an alternative remedy is not a bar to move a writ petition in the High Court.CONSTITUTIONALITY AND INCOME TAX(a) & (b) It has been most humbly submitted that GAAR and income deemed to accrue in India provisions of the Act are in violation of Article 14, 21 and 301 of the Constitution of India. They also seek to violate Article 245 by envisaging extra territorial operation without the existence of any nexus. It is further contended that these provisions disregard International Treaty obligations of the country merely because India is not a signatory to the Vienna Convention.(c) & (d) As to the question of conflict between DTAA and DTC, it has been submitted that the instant conflict between DTAA and DTC does not fall within the ambit of Last-in-time doctrine. As to the question of unilateral taxation of such transaction, it has been submitted that the Parliament is competent to enact such legislation under powers conferred to it under Article 245 of the Constitution of India.OTHER ISSUES(a) As to the question of SPA-II being a sham, it has been submitted that it was genuine transaction with a legitimate corporate purpose. (b) It has been submitted that beneficial owner in the transaction is NNPT. (c) That DDIT committed per incuriam by not following the settled judgments of this Court.

- Preliminaries Advanced-Page | i

-Written Submission on behalf of the Petitioners-Arguments AdvancedMaintainabilityWhether the writ petition was maintainable before the High Court1. It is most humbly submitted that the writ petition was maintainable before under Article 226 of the Indian Constitution. The High Court may issue a writ of certiorari to quash quasi-judicial proceedings taken by income-tax authorities without jurisdiction in excess of jurisdiction[footnoteRef:1] or to quash an order which is vitiated by an error apparent on the face of the record[footnoteRef:2] or which is passed in violation of the principles of natural justice[footnoteRef:3]. Thus, the writ petition was maintainable. [1: King v. Brixton IT Comrs 6 TC 195] [2: Brahmananda v Gajapathinath (58 ITR 579)] [3: IR v. Hood Barrs 39 TC 683 HL; Brahmananda v. Gajapathinath 58 ITR 579; Dwijendralal v. New Central Jute 112 ITR 568; King v Briston IT Comrs (6 TC 195); State of UP v Bahadur Singh 142 ITR 745.]

Whether the alternate remedies were exhausted before approaching the High Court?2. It is humbly put forth that in cases where there has been violation of fundamental right, resulting from which a petitioner files a writ petition at the High Court under Article 226 of the Constitution of India, the writ shall be considered regardless of the fact whether alternative remedies had been exhausted or not. The existence of an alternative remedy is not a bar to move a writ petition in the High Court[footnoteRef:4]. It can be derived from the instant case that there was violation of fundamental rights of the appellant under articles 14 and 21. The power relating to alternative remedy has been considered to be a rule of self imposed limitation which is a rule of policy, convenience and discretion and not a rule of law.[footnoteRef:5] [4: Mohd. Yasin v. Town Area Committee AIR 1952 SC 115; Parkar v. Palekar 94 ITR 616] [5: State of Himachal Pradesh v. Gujarat Ambuja Cement Ltd. AIR 2005 SC 3856; Harbans Lal Sahnia v. Indian Oil Corporation Ltd., [2003] 2 SCC 107; L.Hirday Narain v. Income Tax Officer, Bareilly AIR (1971) SC 33]

Whether the DDIT had powers to issue SCN to the assessee?3. It is humbly contended that DDIT did not have powers to issue the SCN to YPT. SCN is issued in situations payee fails to make payment; which clearly was not the concern in the matter. In the instant case too, the issue of the show cause notice not founded on any legal principle and was extra-territorial[footnoteRef:6] in its operation and was beyond the jurisdiction of the DDIT. [6: VodafoneInternational Holdings B.V. v. Union of India 2009 (4) Bom CR 258; Sultana Begum v. Premchand Jain AIR1997SC1006; Lal Thankar & Co. v.Union of India2006(195) ELT 9 (Bom); Special Director and Anr. v. Mohd. Ghulam Ghouse and Anr. (2007) 120 Comp. Cases 467 ]

Constitutionality and Income Tax1. 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 India4. It is humbly submitted that the provisions under Section 123 and Section 5(I)(d) of the Code unconstitutional. According to the doctrine of severability in case of rendering any provision of an Act unconstitutional it is not the whole Act which would be held invalid but only such provisions of it which are violative of the fundamental rights, provided that the part which violates the fundamental rights is separable from that which does not isolate them.[footnoteRef:7] [7: RMDC v. Union of India AIR 1957 SC 628.]

The GAAR and income deemed to accrue in India provisions are in violation of Article 14 of the Constitution5. It is respectfully submitted that this Court in E.P.Royappa v. State of TN[footnoteRef:8] held that Equality is antithetic to arbitrariness. Wherever we find arbitrariness and unreasonableness there is denial of rule of law.[footnoteRef:9] It has also been held in Deepak Sibal v. Punjab University[footnoteRef:10] that classification need not be to a mathematical precision. But if there is little or no difference between the persons or things that have been grouped together and those left out of the group, then classification cannot be regarded as reasonable.[footnoteRef:11] [8: E. P. Royappa vs State Of Tamil Nadu & Anr 1974 AIR 555 ] [9: Bachchan Singh v. State of Punjab, AIR 1982 SC 1336; Motor General Traders v. State of Andhra Pradesh AIR 1984 SC 121; Rattan Arya v. State of Tamil Nadu AIR 1986 SC 1444. ] [10: Deepak Sibal v. Punjab University AIR 1989 SC 903.] [11: Sheo Nandan Paswan v. State of Bihar, AIR 1987 SC 877.]

6. It is humbly stated that in the instant case the scope of the Indian GAAR is wide reaching as it seeks to cover within its ambit nearly all transactions and structures which have any element of tax planning imbedded. There is no distinction between tax mitigation and tax avoidance as any arrangement to obtain a tax benefit may be considered as an impermissible avoidance arrangement. This incorporates subjectivity and ambiguity into the definition. Also Section 5(I)(d) of the Act covers under its ambit any income if it accrues, whether directly or indirectly, through or from the transfer of a capital asset situated in India. Suchincome should be chargeable under the head Capital Gain under Section 46 of theCode. Thefact that the documents of transferare registered outsideIndia or consideration for transfer is paid outside Indiais irrelevant for income to be chargeable under this clause.7. There seems to be a lack of an intelligible differentia[footnoteRef:12] and also lacks some rational nexus between the basis of classification and the object intended to be achieved.[footnoteRef:13] It is thus violative of the fundamental right to equality and irrational in its approach and should be held unconstitutional. [12: Jalia Singh v. State of Rajasthan AIR 1975 SC 1436.] [13: In re Special Courts Bill,1978,AIR 1979 SC 478; K. Thimnappa v. Chairman, Central Board of Directors, AIR 2001, SC 467; Faridabad C.T. Scan Centre v. D.G. Health Services AIR 1997 SC 3801; Chairman,Railway Board v. Chandrama Das AIR 2000 998.]

The GAAR and income deemed to accrue in India provisions are in violation of Article 21 of the Constitution8. It is humbly submitted that The Supreme Court from Maneka Gandhi v. Union of India[footnoteRef:14] onwards took upon itself the task of infusing into the Constitutional provisions the spirit of social justice. Further, the Supreme Court took a broader view of the scope and content of the fundamental right to life and liberty. Article 21 was interpreted to include a bundle of other incidental and integral rights.[footnoteRef:15] The court may declare a law invalid if it does not accord with its notions of what is just and fair in the circumstances.[footnoteRef:16] The courts have insisted that the procedure established by law must be strictly complied with and must not be departed from to the disadvantage of the person[footnoteRef:17]. A law conferring unguided and unrestricted power on an authority is bad for arbitrary power is discriminatory.[footnoteRef:18] [14: Maneka Gandhi v. Union of India (1978) 1 SCC 248.] [15: Francis Corallie Mullin v. The Administrator, Union Territory of India, (1981) 2 SCR 516 right to lifeincludes right to live with human dignity, in Consumer Education and Research Centre v. Union of India (1995)3 SCC 42 right to health of workers, right to education in Mohini Jain v. State of Karnataka (1992) 3 SCC 666.] [16: Seervai H.M, CONSTITUTIONAL LAW OF INDIA, 970 (1973)] [17: Naranjan Singh v. State of Punjab AIR 1952 SC 106; Ram Narayan Singh v. Delhi AIR 1953 SC 272; Maqbool Hussain v. State of Bombay SC 325. ] [18: Naraindas v. State of M.P. AIR 1974 SC 1232; Sudhir Chandra v. Tata Iron and Steel Co. Ltd. AIR 1984 SC 1604.]

9. In the instant case the provisions of Section 123 are sweeping in nature and may be invoked by the Assessing Officer in a routine manner. Section 5 provides sweeping powers to tax authorities to determine any income accrued even indirectly through a capital asset situated in India as taxable income under the Code[footnoteRef:19]. This delegation of excessive and discretionary provisions to the Indian Tax Authorities at the lower level is unreasonable and thus it is unconstitutional as it violates Article 21. [19: Itmay be noted that Rule 10 of Income Tax Rules providesthat, in the case where the income accruing or arising to a non resident cannot be definitely ascertained, the Assessing officer can determine the income either at such percentage of the turnover / profits andgains of the business or such other manner as he may deem suitable.]

These provisions violate the freedom of trade, commerce and intercourse under Article 301 of the Constitution10. It is further submitted that the Karnataka High Court in L&T Case Equipment Pvt. Limited v.State of Karnataka[footnoteRef:20] it was opined that Article 301 is a mandatory provision and a legislation in violation of the same shall be regarded as unconstitutional. In the instant case the imposition of tax on a transaction which occurred between non residents of the country is in violation of this right and thus unconstitutional.[footnoteRef:21] [20: L and T Case Equipment Pvt. Limited v.State of Karnataka ILR2009KAR3072.] [21: Automobile Transport (Rajasthan) Ltd. v. St of Rajasthan AIR 1962 SC 1406; Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232.]

Article 245 of the Constitution is being violated as income deemed to accrue in India is extra territorial in nature11. It is humbly submitted that Section 5 of the Code, both for residents and for non-residents brings within the fold of chargeable total income, all income which is received or is deemed to be received in India or which accrues or arises or is deemed to accrue or arise in India to the assessee.[footnoteRef:22] In respect ofnon-resident his income accruing within India is subjected to tax. [22: Sakalchand Babulal v ITO 47 ITR 673 (Mad), Annamalais Timber Trust & Co. v CIT 41 ITR 781 (Mad), Turner Morrison & Co. Ltd. v CIT 23 ITR 152 (SC), Hira Mills Ltd. v ITO 14 ITR 417 (All) and Anglo-French Textile Company Ltd. v CIT 25 ITR 27 (SC).]

12. It is further submitted that the Supreme Court in GVK[footnoteRef:23] held that: Parliament is constitutionally restricted from enacting legislation with respect to extra-territorial aspects... All that would be required would be that the connection to India be real or expected to be real, and not illusory or fanciful. Any laws enacted by Parliament with respect to extraterritorial aspects or causes that have no impact on or nexus with India would be ultra-vires. [23: GVK Inds. Ltd. and Anr. v. The Income Tax Officer and Anr. (2011)4SCC36]

13. It is thus stated that in the present case, the transaction was between two non-resident entities through a contract executed outside India. Consideration was also passed outside India. That transaction has no nexus with the underlying assets in India. The provision of Section 5(I)(d) seek to tax such a transaction which does not have any nexus with India and thus are violative of Article 245 of the Constitution.These Provisions violate the settled Tax Treaties.14. It is humbly submitted that in case ofCIT v. Visakhapatnam Port Trust[footnoteRef:24] Andhra Pradesh High Court has taken a view that "though under section 9 (1)(i) of the Act, all income arising, whether directly or indirectly, through or from any "business connection" in India or other income mentioned in that section shall be deemed to accrue or arise in India, the charging section 4 as well as the definition of "total income" in section 5 are expressly made subject to the provisions of the Act, which means that it is subject to the terms of the DTAA, if any, entered intoby the Government of India with foreign countries. [24: CIT v. Visakhapatnam Port Trust 144 ITR 146.]

15. This principle has been accepted by the Courts and thus it is submitted that Section 5 (I) (d) and Section 123 of the Code will ultimately result in international treaties running afoul and ending up in courts. And thus the former should be declared invalid.Whether international treaty obligations under the constitution have been flouted merely on the fact that India is not a signatory to the Vienna convention?16. It is most humbly submitted that Vienna Convention is a customary law and therefore would be binding upon India despite the fact that India is not a signatory to it.The neglect of international treaty obligations is violative of the Directive Principles of State Policy17. It is most humbly contended that according to the Article 51 c) of the Indian Constitution it is a function of the state to foster respect for international law and treaty obligations. In the landmark case of Kesavananda Bharthi v. State of Kerala[footnoteRef:25], the apex court was of the view that The Directive Principles should be looked upon as laying down the path of the Countrys progress towards the allied objectives and aims stated in the Preamble The courts are bound to evolve, affirm and adopt principles of interpretation which will further and not hinder the goals[footnoteRef:26] set out in the DPSPs[footnoteRef:27]. Thus, clearly indicating that the setting aside of the international treaty obligation was violative of the constitution. [25: Kesavananda Bharthi v. State of Kerala AIR 1973 SC 1461] [26: Madhu Kishwar and others Vs. State of Bihar and others AIR 1996 SC 1864; GVK Inds. Ltd. and Anr. Vs. The Income Tax Officer and Anr. (2011) 4 SCC 36; ] [27: U.B.S.E. Board v. Hari Shankar AIR 1979 SC 65; P.M. Ashwathanarayana v. State of Karnataka AIR 1989 SC 100]

The Vienna Convention is binding on India despite the fact that India is not a signatory to it.18. It is most humbly submitted before that the Vienna Convention[footnoteRef:28] will have a binding effect over India since it is customary law. Moreover, in the case of Ram Jethmalani & Ors. v. Union of India & Ors.[footnoteRef:29], the Supreme Court referred to the General Rule of Interpretation contained in the Article 31[footnoteRef:30] of the Vienna Convention. Though India is not a party to the Vienna Convention, the principles of customary international law and principle of interpretation contained provides a broad guideline for the appropriate manner of interpreting a treaty in the Indian context also. [28: Vienna Convention on the Law of Treaties 1969] [29: Ram Jethmalani & Ors. v. Union of India & Ors. Writ Petition (Civil) No. 176 of 2009] [30: Article 31, Vienna Convention on the Law of Treaties 1969: General Rule of Interpretation: A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.]

19. Under modern international law, it is clearly established that customary rules need not be supported by all states. It isenough for the majority of states to engage in a consistent practice and to believe in its legally binding authority. A State would be bound by a customary rule if it was silent or indifferent as to it[footnoteRef:31].Broader international law principles are to be adopted when interpreting tax treaties[footnoteRef:32]. Thus, based upon this, the same binding rule for customary law would apply in the case of Articles 26[footnoteRef:33] and 27[footnoteRef:34] of the Vienna Convention of Law of Treaties. [31: Fothergill v. Monarch Airlines Ltd (1981) AC 251 at pp 276; Shipping Corporation of India Ltd v. Gamlen Chemical Co (A/Asia) Pty Ltd (1980) 147 CLR 142 at p 159; Fisheries Jurisdiction (United Kingdom v Iceland)[1974] I.C.J. Reports 3 at 50] [32: Thiel v. Federal Commissioner of Tax (1990) 171 CLR 338] [33: Article 26, Vienna Convention on the Law of Treaties 1969: Pacta sunt servanda: Every treaty in force is binding upon the parties to it and must be performed by them in good faith.] [34: Article 27, Vienna Convention on the Law of Treaties 1969: Internal law and observance of treatiesA party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.This rule is without prejudice to article 46.]

Whether the Code being a law later in time would prevail over DTAA. Scope of such doctrine?20. It is most humbly submitted that DDIT has contended that the Code being a statute later in time than the DTAA entered between India and Mauritius, the code shall prevail over the DTAA[footnoteRef:35]. [35: Factsheet 11.]

21. It is submitted that the instant conflict between DTAA and Direct Tax Code does not fall within the ambit of Last-in-time[footnoteRef:36] doctrine. [36: Hereinafter doctrine]

The power to enter into treaties is an exercise of constitutional power and DTAA cant be overridden by the Code.22. In terms of article 73 of the constitution, the executive power of the union extends to the matters regarding which the Parliament has power to make laws. Thus, absent parliamentary legislation to the contrary, the power to negotiate and conclude international treaties is a prerogative of the executive branch. The power of the executive branch to negotiate and conclude treaties is unfettered by any internal constitutional restrictions[footnoteRef:37]. This view has been endorsed by the courts on several occasions[footnoteRef:38]. Thus, it is submitted that treaty-making is an exercise of a Constitutional power under article 73[footnoteRef:39] read with articles 53 and 246(1) and entry 14 of the Union List of the Seventh Schedule to the Constitution. [37: See Indias statement of its treaty practice made to the U.N., available as U.N. Doc ST/LEG/SER.B/3.] [38: Maganbhai Ishwarbhai Patel v. Union of India, AIR 1969 SC 784; Union of India v. Manmull Jain, AIR 1954 Cal 615; UOI v. Sukumar Sengupta, AIR 1990 SC 1692; Union of India v. Azadi Bachao Andolan, 263 ITR 707 (SC).] [39: Article 73 (1) provides that the executive power of the Union Shall extend-(b) to the exercise of such rights, authority and jurisdiction as exercisable by the Government of India by virtue of any treaty or agreement.]

23. Furthermore, it is put forth that only a constitutional power can trump another constitutional power. To displace a constitutionally authorized act, a constitutional (and not merely a legislative) norm would be required.24. In the matter of Re Berubari Union[footnoteRef:40], the Court held that in order to cede the territory of India (which is defined by the constitution), a constitutional amendment would be necessary and a treaty and/or a domestic legislation simpliciter is not sufficient. [40: In re Berubari Union, AIR 1960 SC 845.]

25. Henceforth, it is respectfully submitted that the rules in a treaty cannot be overridden by prescribing a conflicts rule in favor of domestic legislation, as the conclusion of treaties involves as much the discharge of a constitutional function of lawmaking, albeit at the international level, as enacting laws by the legislature does at the domestic level. That the DTAA being a special law will prevail over DTC.26. It is most humbly submitted that tax treaties are equivalent to a special legislation and the instant conflict does not fall under the scope of this doctrine.27. It is most humbly submitted that Klaus Vogel[footnoteRef:41] has opined that:Being restricted to cross-border taxation of residents of the two contracting States, tax treaties are equivalent to special legislation (lex speciales) compared to the contracting States general tax law (lex generalis). Thus according to the old rule Lex specialis derogat legi genarali[footnoteRef:42], treaties override the domestic tax law that is effective at the time of their implementation. Under a supplementary rule of Lex posterior generalis non derogart legi priori speciali[footnoteRef:43], changes of domestic tax law normally will not affect existing treaties. This later rule does not apply, however, if the legislator, when changing the general law, expressly or implicitly intended to repeal the special law.[footnoteRef:44] [41: Professor Emeritus, University of Munich.] [42: Special legislation overrides general legislation] [43: Later general legislation does not overrule earlier special legislation] [44: 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.]

28. The SC in the matter of R.S. Raghunath v. State of Karnataka and another[footnoteRef:45] considered various judicial pronouncements[footnoteRef:46] pertaining to this doctrine and approved the following quotation: A general later law does not abrogate an earlier special one mere by implication[footnoteRef:47] [45: R.S. Raghunath v. State of Karnataka and another, (1992)1SCC335] [46: Maharaja Pratap Singh Bahadur v. Thakur Manmohan Dey and Ors.,[1966]3SCR663; Eileen Louise Nicoole v. John Winter Nicolle, [1992] 1 AC 284; Augusto De Piedade Barreto v. Antonio Vicente Da Fonseca and Ors. etc. [1979]3SCR494; Ajay Kumar Banerjee and Ors. v. Union of India and Ors. (1984)ILLJ368SC] [47: Maxwell on the Interpretation of Statutes, Eleventh Edition at page 168]

29. The petitioner humbly submits the Section-291(8)[footnoteRef:48] reflects the legislative intent of not incorporating the Last-in-time rule and therefore, it is submitted the rule Lex posterior derogate priori[footnoteRef:49], is not attracted in the instant conflict and hence, the Last-in-time doctrine is not applicable. [48: Section-291(8)Where the Central Government has entered into an agreement under sub-section (1) or sub-section (2), or has adopted an agreement entered into by the specified association under sub-section (4), as the case may be, then the provisions of this Code shall apply in relation to the assessee to whom such agreement applies, to the extent they are more beneficial to him.] [49: Later legislation overrides earlier inconsistent legislation]

The Last-in-time doctrine is ex-post in India.30. It is most humbly submitted that the Last-in-time doctrine in India has substantial difference from the doctrine prevalent in United States and its applicability will thrash legitimate expectations, as this rule is ex-post in India.31. The U.S. later in time doctrine has evolved as a constitutional doctrine emanating from the supremacy clause in Article VI[footnoteRef:50] of the U.S. Constitution. In hierarchy, it comes across as a constitutional and not merely a legislative norm. Second, being a constitutional rule, it precedes the U.S.s international agreements; therefore, the treaty partners, when concluding a treaty, are aware of such a position. [50: Article VI Clause 2: This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby; any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.]

32. Therefore, the Petitioners most reverentially submit that the applicability of such ex-post rule will jeopardize the legitimate expectations of treaty partners and is against the spirit of Vienna Convention.Can legislation unilaterally tax a transaction happening exclusively out of India between two nonresidents?33. It is most reverentially submitted that this was purely a transaction occurring between two nonresidents situated out of India and DTC does not have locus to tax such a transaction.34. Furthermore, the parties to the agreement were only the Petitioners YPT[footnoteRef:51] and NNPT[footnoteRef:52]. The agreement was executed in Mauritius as per the laws of Mauritius. None of the transactions happened in India and this was an arrangement/ agreement/ transaction which entirely happened out of India including the payment and receipt of the sale consideration[footnoteRef:53]. On the date of the transaction, Assessee was not involved in any business in India either directly or indirectly and had no branch office, business connection/ transaction, source of income or any other nexus with India[footnoteRef:54] [51: Why Pay Tax Inc. (YPT or the Company) is a company incorporated in Delaware, USA according to the company laws of state of Delaware and is having its registered office at Dover, Delaware.] [52: NNPT is a company incorporated in Mauritius.] [53: Factsheet 6.] [54: Factsheet 1.]

Article 245 constitutionally restricts the Parliament from enacting such legislation.35. It is submitted that DTC aims to unilaterally tax a transaction happening exclusively out of India. But, the Parliament is not empowered to enact laws in respect of extra-territorial aspects or causes that have no nexus with India[footnoteRef:55]. [55: GVK Inds. Ltd. and Anr. v. The Income Tax Officer and Anr., (2011)4SCC36]

36. The scope of Article 245(1)[footnoteRef:56] and the ratio of ECIL[footnoteRef:57] were analyzed by the Constitutional bench of the Apex Court in the matter of GVK Inds. Ltd. and Anr. v. The Income Tax Officer and Anr.[footnoteRef:58], and it was held by the Court that:1. The Parliament is constitutionally restricted from enacting legislation with respect to extra-territorial aspects or causes that do not have, nor expected to have any, direct or indirect, tangible or intangible impact(s) on or effect(s) in or consequences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, wellbeing of, or security of inhabitants of India, and Indians [56: Article 245(1) provides that (1) Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India...] [57: Electronics Corporation of India Ltd. v. Commissioner of Income Tax and Anr, (1989) (2) SCC 642; ] [58: Supra note 55]

37. Therefore, the Petitioners submit that applying the ratio of above judicial pronouncement to the instant facts, it can be concluded that this legislation deals with a transaction which entirely happened out of India and between two non-residents and hence, it is ultra-vires.The legislation cannot unilaterally tax this transaction and Indo-Mauritius DTAA must be taken into account.38. That Article 260 explicitly vests Union the jurisdiction in relation to territories outside India. The SC in the matter of GVK Industries[footnoteRef:59] interpreted Article 260[footnoteRef:60] and observed that: It is clear from Article 260 that it is the Government of India which may exercise legislative, executive, and judicial functions with respect of certain specified foreign territories, the Governments of which, and in whom such powers have been vested, have entered into an agreement with Government of India asking it do the same.. [59: Ibid] [60: Article 260 provides that The Government of India may by agreement with the Government of any territory not being part of the territory of India undertake any executive, legislative or judicial functions vested in the Government of such territory, but every such agreement shall be subject to, and governed by, any law relating to the exercise of foreign jurisdiction for the time being in force.]

39. Therefore, it is submitted that legislation cannot unilaterally tax this transaction and the provisions of Indo-Mauritius DTAA must be implemented. The legislation cannot unilaterally tax this transaction and Indo-Mauritius DTAA must be taken into account.40. It is most reverentially submitted that Article 25 of Indo-Mauritius DTAA[footnoteRef:61] incorporates the provision of Mutual Agreement Procedure[footnoteRef:62]. Thus, as the agreement provides that the Contracting states shall resolve the difficulties or doubts by MAP, the Central Government must discuss the issue with competent authorities of Mauritius. Henceforth, it is most respectfully submitted this legislation cannot unilaterally without complying by the provisions of Indo-Mauritius DTAA, tax a transaction happening entirely out of India and it is ultra-vires the Constitution of India. [61: Agreement for avoidance of double taxation and prevention of fiscal evasion with Mauritius dated 24-8-1982.] [62: Article 25 provides that the competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. They may also consult together for the elimination of double taxation in cases not provided for in the Convention.]

Other Issues1. Whether SPA-II was a sham and purely to treaty shop41. It is most humbly submitted that SPA-II was not a sham to treaty shop, but it was a genuine transaction executed with a legitimate corporate purpose.[footnoteRef:63] [63: Factsheet 5.]

42. Further, the issue of treaty-shopping was dealt by this court in the Azadi Bachaho Andolan[footnoteRef:64] and it was held by the Court that: We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non-est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests.. [64: Union of India (UOI) and Anr. v. Azadi Bachao Andolan and Anr. (2004)10SCC1]

43. The SC in Vodafone[footnoteRef:65] judgment affirmed the principle laid down in Azadi Bachao[footnoteRef:66] and also obsereved that: No court will recognise sham transaction or a colourable device or adoption of a dubious method to evade tax, but to say that the Indo-Mauritian Treaty will recognise FDI and FII only if it originates from Mauritius, not the investors from third countries, incorporating company in Mauritius, is pitching it too high, especially when statistics reveals that for the last decade the FDI in India was US$ 178 billion and, of this, 42% i.e. US$ 74.56 billion was through Mauritian route. [65: Vodafone International Holdings B.V. v. Union of India and Anr., CIVIL APPEAL NO.733 OF 2012 (arising out of S.L.P. (C) No. 26529 of 2010)] [66: Supra note 64]

44. Thus, in the light of law laid down in above cited judicial pronouncements and facts of the instant matter, it can be concluded that there exists a corporate business purpose strong enough to override the evidence of device and SPA-II was a part of genuine tax planning. Therefore, the Petitioners submit SPA-II was not a sham to treaty-shop.Who is the beneficial owner in the transaction?45. It is most humbly submitted before this Honble Court that the beneficial owner in the transaction was NNPT, a company incorporated in Mauritius.46. The Petitioner submits that the parties to the agreement were YPT and NNPT[footnoteRef:67]. The agreement was executed and the sale consideration was paid to NNPT by YPT as agreed upon[footnoteRef:68]. NNPT held 100 % shares of PNT[footnoteRef:69]. [67: Factsheet 6] [68: Factsheet 7] [69: Factsheet 3]

47. It is most respectfully submitted that further transfer of money from NNPT to TFT and from TFT to HTA is merely co-incidental. HTA, TFT and NNPT have a parent-subsidiary relationship and this was their internal transaction which has nothing to do with SPA-II. Did the DDIT commit per incuriam by not following the settled judgments of this Court?48. It is most reverentially put forth that the DDIT committed per incuriam[footnoteRef:70] by not following the settled judgments of this Honble Court. [70: Halsbury laws of England states that decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a court of coordinate jurisdiction which covered the case before it, in which case it must decide which case to follow; or when it has acted in ignorance of a House of Lords decision, in which case it must follow that decision; or when the decision is given in ignorance of the terms of a statute or rule having statutory force.]

49. In Govt. of A.P. v. B. Satyanarayana Rao[footnoteRef:71]it has been held as follows: The rule of per incuriam can be applied where a court omits to consider a binding precedent of the same court or the superior court rendered on the same issue or where a court omits to consider any statute while deciding that issue. [71: Govt. of A.P. v. B. Satyanarayana Rao, (2000)IILLJ545SC]

50. Thus, the Petitioner submits the judgment of SC in Azadi Bachao Andolan[footnoteRef:72] is a law under Article 141[footnoteRef:73] of the Constitution and DDIT has avoided and ignored the same and hence, it is submitted that DDIT has committed per incuriam. [72: Supra note 64.] [73: Parkash Singh Badal and Anr.v. State of Punjab and Ors.(2007)1SCC]

- Arguments Advanced--Page 15 of 15-

PrayerWherefore in the light of the issues raised, argument advanced, reasons given and authorities cited, this Honble Court may be pleased to:To Hold That the writ petition was maintainable before the high court That the GAAR Provision and income deemed to accrue in India provisions are Unconstitutional That the code disregards international treaty obligations enshrined in the Indian constitution That the Code being a law later in time will not prevail over DTAA That the legislation cannot unilaterally tax a transaction happening exclusively out of India between two non-residents That the SPA-II was not sham or purely to treaty shop That NNPT is the beneficial owner in the transaction That the DDit committed per incuriam by not following the settled judgments of this courtTo Set AsideThe order passed by the High Court

MiscellaneousAnd any other relief that this Honble court may be pleased to grant in the interests of justice, equity and good conscience

All of which is respectfully submitted.

Counsels for the Petitioners