Where the assessee was an Indian company and more than 51% of its equity share capital was held by a German company (Daimler Benz AG) and pursuant to an offshore merger the said shares came to be held by another German company (DaimlerChrysler AG) and there being a change of more than 51% of the beneficial interest in the shares, the question arose whether section 79 of the Act (pre-amendment) applied and the loss suffered by the assessee in the earlier years was not eligible for carry forward & set-off - HELD:
(1) Under Article 24 (4) of the India-Germany DTAA, Enterprises of India, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of Germany, cannot be subjected in India to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of India are or may be subjected;
(2) Accordingly, the fact that the assessee is an Indian company and not a resident of Germany is not a bar to its claiming the benefit of the non-discrimination provision of the DTAA;
(3) The term “other similar enterprises of India” means a company which is subsidiary of a domestic company and not a company which is a subsidiary of a foreign company (judicial precedents from Germany, United States and France followed);
(4) S. 79 read with s. 2(18) is discriminatory to the Indian subsidiary of a German company as compared to the Indian subsidiary of an Indian company because while the latter qualifies as a “company in which the public are substantially interested” by virtue of the holding company being listed on an Indian stock exchange, the former is not even though its holding company is listed on a German stock exchange. There is no rational basis for this differentiation in treatment. Consequently, section 79 cannot apply to the assessee;
(5) On the question whether double taxation was necessary to invoke the DTAA and whether the non-discrimination provisions of the DTAA could, prior to the insertion of s. 90 (1) (a)(ii), be said not to be protected by treaty override, HELD the ground reality in today’s world is that the role of tax treaties is not only confined to avoiding double taxation or to giving relief in respect of an income taxed twice but it is an instrument of fostering economic relations, trade and investment. Consequently, treaty override, even before the 2004 amendments in Section 90(1), covered all provisions of the tax treaties, including the provisions relating to non discrimination;
(6) Held also that though judicial precedents from foreign judicial bodies do not have any binding value, it is desirable that the interpretation assigned to the expressions found in the bilateral tax treaties should be in harmony with the judicial opinion abroad and, where there is a divergence of judicial opinion abroad, it should at least be in harmony with the judicial opinion in the treaty partner country. This approach will bring uniformity of interpretation of expressions used in global treaty networks.