Unilateral amendment in DTAA is prohibited: Delhi HC

Brief of the Case

Delhi High Court held In the case of DIT vs. New Skies Satellite BV that the Vienna Convention on the Law of Treaties, 1969 (VCLT) is universally accepted as authoritatively laying down the principles governing the law of treaties. Article 39 therein states the general rule regarding the amendment of treaties and provides that a treaty may be amended by agreement between the parties. The rules laid down in Part II of the VCLT that these rules apply to such an agreement except insofar as the treaty may otherwise provide. This provision therefore clearly states that an amendment to a treaty must be brought about by agreement between the parties. Unilateral amendments to treaties are therefore categorically prohibited. Further the Madras High Court, in Commissioner of Income Tax v VR. S.RM. Firms Ors [1994] 208 ITR 400 (Mad) held that “tax treaties are considered to be mini legislation containing in themselves all the relevant aspects or features which are at variance with the general taxation laws of the respective countries”. Therefore, mere amendment to Section 9(1) (vi) cannot result in a change to DTAA i.e. such amendments are not applicable to the DTAAs.

Facts of the Case

The assessee is a company incorporated in Netherlands that engages in providing digital broadcasting services. On filing a return of NIL taxable income for the relevant years, the AO again under Section 143(3) r/w 144C applied Section 9(1) (vi) to tax the income of the assessee as royalty. This section has however, since the time of the first assessment order in this case, undergone an amendment. The question is therefore, whether in an attempt to interpret the two definitions uniformly, i.e. the domestic definition and the treaty definition, the amendments will have to be read into the treaty as well. In essence, will the interpretation given to the DTAAs fluctuate with successive Finance Act amendments, whether retrospective or prospective?

Held by High Court

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