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CHAPTER – 1

1.1 Introduction

Double taxation may arise when the jurisdictional connections, used by different
countries, overlap or it may arise when the taxpayer has connections with more than
one country. A person earning any income has to pay tax in the country in which the
income is earned (as source Country) as well as in the country in which the person is
resident. As such, the said income is liable to tax in both the countries.

To avoid this hardship of double taxation, Government of India has entered into Double
Taxation Avoidance Agreements (DTAAs) with various countries. DTAAs provide for
the following reduced rates of tax on dividend, interest, royalties, technical service fees,
etc., received by residents of one country from those in the other. The Double Tax
Avoidance Agreement (DTAA) is essentially a bilateral agreement entered into
between two countries. The basic objective is to promote and foster economic trade and
investment between two countries by avoiding double taxation.

DTAA stands for Double Taxation Avoidance Agreement. It is an agreement between

two countries with an objective to avoid taxation of the same income in both countries.
India has comprehensive Double Taxation Avoidance Agreements (DTAA) with 84
countries as of now. Double Taxation Avoidance Agreement (DTAA) also referred as
Tax Treaty is a bilateral economic agreement between two nations that aims to avoid or
eliminate double taxation of the same income in two countries.

Double taxation is the enforced duty of two or more taxes on the same, property or
monetary transactions. Double taxation may occur when the legal authority
associations, used by different nations, overlap or it may occur when the taxpayer has
links with more than one country.
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Objectives –

 Protection against double taxation: These Tax Treaties serve the purpose of providing
protection to tax-payers against double taxation and thus preventing any
discouragement which the double taxation may otherwise promote in the free flow of
international trade, international investment and international transfer of technology;
 Prevention of discrimination at international context: These treaties aim at preventing
discrimination between the taxpayers in the international field and providing a
reasonable element of legal and fiscal certainty within a legal framework;
 Mutual exchange of information: In addition, such treaties contain provisions for
mutual exchange of information and for reducing litigation by providing for mutual
assistance procedure; and
 Legal and fiscal certainty: They provide a reasonable element of legal and fiscal
certainty within a legal framework.

1.2 Research Objectives

1) To study about Double Taxation Avoidance Agreement in detail.

2) To analyse the DTAA in India in relation to other foreign countries.
3) To study the recent developments of DTAA with the help of a case law.

1.3 Literature Review

Books –

1) Manual of SEBI, Acts, Rules, Regulations, Guidelines, Circulars, etc, 23rd

edition, Bharat Publications
 Page |3

This book lays bare the rules and guidelines under SEBI compiled together,
along with detailed explanation of the provisions. It is ambiguous and
methodically compiled for easy understanding.

1.4 Research Methodology

Given a study of this kind, this research project has been written using the doctrinal
or principled method of research, which involves the collection of data from
secondary sources, like articles found in journals and websites.

1.5 Source of Data

Accumulation of the information on the topic includes various secondary

sources such as books, e-articles, etc. The matter from these sources has been
complied and analysed to understand the topic in a better way.

1.6 Scope and Limitation

The project is an attempt to study double taxation and the framework provided
to prevent it. The study is limited to India and the development.
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CHAPTER -2

2.1 Double Taxation Avoidance Agreement

A person earning any income has to pay tax in the country in which the income is
earned (as Source Country) as well as in the country in which the person is resident.
As such, the said income is liable to tax in both the countries. To avoid this hardship
of double taxation, Government of India has entered into Double Taxation
Avoidance Agreements (DTAAs) with various countries. DTAAs provide for the
following reduced rates of tax on dividend, interest, royalties, technical service fees,
etc., received by residents of one country from those in the other. Where total
exemption is not granted in the DTAAs and the income is taxed in both countries,
the country in which the person is resident and is paying taxed, the credit for the tax
paid by that person in the other country is allowed.

Where tax relief has been given by one country, the country of residence generally
allows credit for the tax so spared, to avoid nullifying the relief. If the rate
prescribed in the Indian Income-tax Act, 1961 is higher than the rate prescribed in
the Tax Treaty then the rate prescribed in the Tax Treaty has to be applied. In other
words, provisions of DTAA or Indian Income-tax Act, whichever are more
favourable to an individual would apply. Thus In order to avail the benefits of
DTAA, an NRI should be resident of one country and be paying taxes in that country
of residence. India has entered into DTAA with around 65 countries. These treaties
are based on the general principles laid down in the model draft of the Organisation
for Economic Cooperation and Development (OECD) with suitable modifications as
agreed to by the other contracting countries.

Thus in case there is a DTAA between India and United States of America, an NRI
should be a resident of USA and paying taxes there. In case of income earned in
India by NRI, tax paid in India is allowed as credit against tax paid in USA.
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2.2 Who are subjects of such agreement?

A typical DTA Agreement between India and another country usually covers
persons, who are residents of India or the other contracting country, which has
entered into the agreement with India. A person, who is not resident either of India
or of the other contracting country, would not be entitled to benefits under DTA
Agreements. International double taxation has adverse effects on the trade and
services and on movement of capital and people.

Taxation of the same income by two or more countries would constitute a

prohibitive burden on the tax-payer. The domestic laws of most countries, including
India, mitigate this difficulty by affording unilateral relief in respect of such doubly
taxed income (Section 91 of the Income Tax Act). But as this is not a satisfactory
solution in view of the divergence in the rules for determining sources of income in
various countries, the tax treaties try to remove tax obstacles that inhibit trade and
services and movement of capital and persons between the countries concerned. It
helps in improving the general investment climate.

2.3 Need for DTAA

The need for Agreement for Double Tax Avoidance arises because of conflicting
rules in two different countries regarding chargeability of income based on receipt
and accrual, residential status etc. As there is no clear definition of income and
taxability thereof, which is accepted internationally, an income may become liable to
tax in two countries. Double taxation occurs when an individual is required to pay
two or more taxes for the same income, asset, or financial transaction in different
countries. Double taxation occurs mainly due to overlapping tax laws and
regulations of the countries where an individual operates his business.
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In such a case, the two countries have an Agreement for Double Tax Avoidance, in
which case the possibilities are:
 The income is taxed only in one country.
 The income is exempt in both countries.
 The income is taxed in both countries, but credit for tax paid in one country is given
against tax payable in the other country.
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CHAPTER – 3

3.1 Types of DTAA under Income Tax Act, 1961

In India, Under Section 90 and 91 of the Income Tax Act, relief against double
taxation is provided in two ways:

1) Unilateral relief –

Under Section 91, an individual can be relieved from double taxation by Indian
Government irrespective of whether there is a DTAA between India and the
other country concerned. Unilateral relief to a tax payer may be offered if:
 The person or company has been a resident of India in the previous year.
 In India and in another country with which there is no tax treaty, the income
should have been taxed.
 The tax have been paid by the person or company under the laws of the foreign
country in question.

2) Bilateral relief –

Under Section 90, the Indian government offers protection against double
taxation by entering into a DTAA with another country, based on mutually
acceptable terms.

Such relief may be offered under two methods:

 EXEMPTION METHOD: This ensures complete avoidance of tax overlapping.

 TAX CREDIT METHOD This provides relief by giving the tax payer a
deduction from the tax payable in India.
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DTAA can be of two types –

 Comprehensive.

 Limited.

Comprehensive DTAAs are those which cover almost all types of incomes
covered by any model convention. Many a time a treaty covers wealth tax, gift
tax, surtax, etc. too.

Limited DTAAs are those which are limited to certain types of incomes only,
e.g. DTAA between India and Pakistan is limited to shipping and aircraft
profits only.

When an Indian person makes a profit or some other type of taxable gain or
receives any income in another country, he may be in a situation where he will
be required to pay a tax on that income in India, as well as in the country in
which the income was made. To protect Indian tax payers from this unfair
practice, DTAA ensures that India's trade and services with other countries, as
well the movement of capital are not adversely affected.

The provisions of DTAA override the general provisions of taxing statute of a

particular country. It is now well settled that in India the provisions of the
DTAA override the provisions of the domestic statute. Moreover, with the
insertion of Sec. 90(2) in the Indian Income Tax Act, it is clear that assessee
have an option of choosing to be governed either by the provisions of
particular DTAA or the provisions of the Income Tax Act, whichever are more
beneficial. For example under DTAA between Indian and Germany, tax on
interest is specified @ 10% whereas under Income Tax Act it is 20%. Hence,
one can follow DTAA and pay tax @ 10%. Further if Income tax Act itself
does not levy any tax on some income then Tax Treaty has no power to levy
any tax on such income. Section 90(2) of the Income Tax Act recognizes this
principle.
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3.2 Models of DTAA

There are different models developed over a period of time based on which
treaties are drafted and negotiated between two nations. These models assist in
maintaining uniformity in the format of tax treaties. They also serve as
checklist for ensuring exhaustiveness or provisions to the two negotiating
countries. OECD Model, UN Model, the US Model and the Andean Model are
few of such models. Of these the first three are the most prominent and often
used models. However, a final agreement could be combination of different
models.

1) OECD Model

Organization of Economic Co-operation and Development (OECD)

Model Double Taxation Convention on Income and on Capital, issued in
1977, 1992 and 1995. OECD Model is essentially a model treaty between
two developed nations. This model advocates residence principle, that is to
say, it lays emphasis on the right of state of residence to tax.

2) UN Model

United Nations Model Double Taxation Convention between Developed

and Developing Countries, 1980. The UN Model gives more weight to the
source principle as against the residence principle of the OECD model. As
a correlative to the principle of taxation at source the articles of the Model
Convention are predicated on the premise of the recognition by the source
country that –

(a) taxation of income from foreign capital would take into account
expenses allocable to the earnings of the income so that such income
would be taxed on a net basis, that
(b) taxation would not be so high as to discourage investment and that
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(c) it would take into account the appropriateness of the sharing of revenue
with the country providing the capital.

In addition, the United Nations Model Convention embodies the idea that
it would be appropriate for the residence country to extend a measure of
relief from double taxation through either foreign tax credit or exemption
as in the OECD Model Convention. Most of India’s treaties are based on
the UN Model.

3) United States Model Income Tax Convention of September, 1996

The US Model is different from OECD and UN Models in many respects.

US Model has established its individuality through radical departure from
usual treaty clauses under OECD Model and UN Model.

3.3 General Features of DTAA

Tax Treaties employ standard International language and standard terms. This
is done in order to understand and interpret the same term in the same manner
by both assessee as well as revenue. Language employed is technical and
stereotyped. Some of the terms are explained below:

a) Contracting State - country which enters into Treaty

b) State of Residence- Country where a person resides
c) State of Source- Country where income arises - Enterprise of a Contracting
State- Any taxable unit (including individuals of a Contracting State)
d) Permanent Establishment - A fixed base of an enterprise in the state of
e) Source (usually a branch of a foreign company and in some cases wholly –
owned subsidiaries as well)
f) Income arising in Contracting state - Income arising in a State of a source.
One has to read the treaty carefully in order to understand its provisions in
their proper perspective.
 P a g e | 11

The best way to understand the DTAA is to compare it with an agreement of

partnership between two persons. In partnership, the words used are “the party
of the first part” and in the DTAA, the words used are “the other contracting
state”. One can also replace the words” Contracting States” by names of the
respective countries and read the DTAA again, for better understanding.

3.4 Overall preview of Model Conventions

In general terms, the Articles of a convention can be divided into six groups
for the purpose of analyses:

a) Scope provisions: these include Article 1 (Personal scope), 2 (Taxes

covered), 30 (Entry into force) and 31 (Termination). These provisions
determine the persons, taxes and time period covered by a treaty.

b) Definition provisions: these include Article 3 (General Definitions),

4(Residence) and 5 (Permanent Establishment) as well as the definitions of
terms in some of the substantive provisions (e.g. the definition of
“immovable property” in Article 6(2)).

c) Substantive Provisions: these are the Articles between article 6 and 22

which apply to particular categories of income, capital gains or capital and
allocate taxing jurisdiction between the two Contracting States.

d) Provisions for elimination of double taxation: this is primarily Article 23.

Article 25(Mutual Agreement) could also be placed in this category.

e) Anti-avoidance provisions: these include Article 9 (Associated Enterprises)

and 26 (Exchange of information).

f) Miscellaneous Provisions: this final category includes Articles such as

24(Non-Discrimination), 28 (Diplomats) and 29 (Territorial Extension).
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3.5 How to apply DTAA

The process of operation of a double taxation convention can be divided into a

series of steps, involving the different types of provisions:

1. Determine if the issue is within the scope of the convention: This involves
determining firstly whether the taxpayer is within the personal scope in
Article 1- that is, “persons who are residents of one or both Contracting
States”. This may involve confirming that the taxpayer is a “person” within in
the definition of Article 3(1)(a); it will involve confirming that the taxpayer is
resident of a Contracting State according to Article 4(1).

2. Check that the treaty applies to the tax in issue- is it a tax listed in Article 2
(or a tax substantially similar to such a tax).

3. Thirdly, check that the treaty is in operation for the taxable period in issue –
that the treaty is in force (Article 29) and has not been terminated (Article 30).

4. Apply the relevant definitions: At this stage the relevant definition provisions
(if any) can be applied. Thus, for example, if the taxpayer is a resident of both
Contracting States, the tiebreakers in Article 4(2) and (3) have to be applied to
determine a single residence for treaty purposes, similarly, if it is necessary to
decide whether the taxpayer has a permanent establishment in a state, then
Article 5 is relevant.

5. Determine which of the substantive provisions apply: The substantive

provisions apply to different categories of income, capital gains or capital; it is
necessary to determine which applies. This is a process of characterization. In
many cases this may be straightforward; in others the task may not be easy. For
example, payments, which are referred to as “royalties”, may in fact fall under
 P a g e | 13

Article 7 (Business Profits), 12 (Royalties), 13 (Capital Gains) or 14 (Independent

Personal Services).
Assistance in characterizing the items can be gained from the Commentaries, case
law and reports of the Committee on Fiscal Affairs.

5. Apply the substantive article: Substantive articles generally take one of three
forms:

a) The state of source may tax without limitation. Examples are: income from
house property situated in that state, and business profits derived from a
permanent establishment there.
b) The state source may tax up to a maximum: here the treaty sets a ceiling to the
level of taxation at source.
Examples in the OECD Models are: dividends from companies resident in that
state and interest derived from there.
c) The state of source may not tax: here, the state of residence of the tax payer
alone has jurisdiction to tax. Examples in the OECD Model are: business profit
where there is no permanent establishment in the state of source.

6. Apply the provisions for the elimination of double taxation Everyone of the
substantive articles must be considered along with article 23 which sets out the
methods for the elimination of double taxation.
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CHAPTER – 4

4.1 Role of Tax Treaties in International Tax Planning

 It facilitates investment and trade flow, preventing discrimination between tax

payers; Adds fiscal certainty to cross border operations; Prevents international
evasion and avoidance of tax;

 Facilitates collection of international tax; Contributes attainment of international

development goal, and Avoids double taxation of income by allocating taxing
rights between the source country where income arises and the country of
residence of the recipient; thereby promoting cooperation between or amongst
States in carrying out their obligations and guaranteeing the stability of tax burden.

 Tax incidence, therefore, becomes an important factor influencing the non-

residents in deciding about the location of their investment, services, technology
etc. Tax treaties serve the purpose of providing protection to tax payers against
double taxation and thus preventing the discouragement which taxation may
provide in the free flow of international trade, international investment and
international transfer of technology. In addition, such treaties contain provisions
for mutual exchange of information and for reducing litigation by providing for
mutual assistance procedure.

 The agreements allocate jurisdiction between the source and residence country.
Wherever such jurisdiction is given to both the countries, the agreements prescribe
maximum rate of taxation in the source country which is generally lower than the
rate of tax under the domestic laws of that country. The double taxation in such
cases are avoided by the residence country agreeing to give credit for tax paid in
the source country thereby reducing tax payable in the residence country by the
amount of tax paid in the source country.
 P a g e | 15

 These agreements give the right of taxation in respect of the income of the nature
of interest, dividend, royalty and fees for technical services to the country of
residence. However, the source country is also given the right but such taxation in
the source country has to be limited to the rates prescribed in the agreement.

 So far as income from capital gains is concerned, gains arising from transfer of
immovable properties are taxed in the country where such properties are situated.
Gains arising from the transfer of movable properties forming part of the business
property of a ‘permanent establishment ‘or the ‘fixed base’ is taxed in the country
where such permanent establishment or the fixed base is located.

 So far as the business income is concerned, the source country gets the right only if
there is a ‘permanent establishment‘ or a ‘fixed place of business’ there.

 Income derived by rendering of professional services or other activities of

independent character are taxable in the country of residence except when the
person deriving income from such services has a fixed base in the other country
from where such services are performed.

 The agreements also provides for jurisdiction to tax Director’s fees, remuneration
of persons in Government service, payments received by students and apprentices,
income of entertainers and athletes, pensions and social security payments and
other incomes.

 It may sometimes happen that owing to reduction in tax rates under the domestic
law taking place after coming into existence of the treaty, the domestic rates
become more favourable to the non-residents. Since the objects of the tax treaties is
to benefit the non-residents, they have, under such circumstances, the option to be
assessed either as per the provisions of the treaty or the domestic law of the land.

 In order to avoid any demand or refund consequent to assessment and to facilitate

the process of assessment, it has been provided that tax shall be deducted at source
 P a g e | 16

out of payments to non-residents at the same rate at which the particular income is
made taxable under the tax treaties.

4.2 Recent Developments

Mauritius has promised full cooperation with India to address outstanding issues
relating to their bilateral tax treaty, days after Prime Minister Narendra Modi's visit
to the island nation. The much-talked about changes in India-Mauritius Double
Taxation Avoidance Agreement (DTAA) have been hanging fire for a long time,
despite several rounds of official level talks between the two sides.

Apprehensions persist that Mauritius is being used for round-tripping of funds into
India even though the island nation has always maintained that there have been no
concrete evidence of any such misuse.

Mauritius has been one of the largest sources for foreign direct investment in India
and inflows touched USD 7.66 billion in the April 2014-January 2015 period.
Reflecting the importance that Mauritius attaches to India, the reference about the
bilateral tax agreement was made by its Finance Minister Seetanah
Lutchmeenaraidoo in his Budget speech, "The clear statement made by Prime
Minister Modi during his last visit in Mauritius has reassured all stakeholders in the
global business sector that India will do nothing to harm this sector,"

Lutchmeenaraidoo, who is also the Economic Development Minister, said, "We

will cooperate fully with Indian authorities to bring to a fruitful conclusion our
discussions on outstanding issues relating to the Double Taxation Avoidance
Agreement (DTAA)," he said while presenting the Budget for 2015-16.

Regarding Agalega island, the Finance Minister said that with the assistance of
Indian government "Rs 750 million will be invested in the construction of a new
airstrip and new jetty facilities"
 P a g e | 17

During his visit, earlier this month, Modi and his Mauritian counterpart Anerood
Jugnauth discussed the issues related to the tax treaty, "We appreciate that already
India postponed the consideration of the GAAR until 2017. However, we have
stressed on the initiatives taken by Mauritius to build substance within our offshore
jurisdiction, "I have requested PM Modi to give his full support on the DTAA as it
is of prime importance for our global business sector," Jugnauth had said during a
joint press conference with Modi in Mauritisus on March 11.

In his response, Modi had said the two sides agreed to continue negotiations on the
revised treaty based on shared objectives to prevent the "abuse" of the convention.
He had also assured Mauritius that India would do nothing to harm its interests. "I
also conveyed our deep appreciation for the support and cooperation offered by
Mauritius on information exchange on taxation," Modi had said.

In the recent case of Sanofi tax, Andhra Pradesh High Court rules the double tax
avoidance agreement between India and France exempts the French drug maker
from capital gains tax relating to 90% stake in Shantha Biotech.

In a landmark judgment, the Andhra Pradesh High Court (APHC) on 15 February

ruled that the French drug maker Sanofi Aventis, which (by buying another French
firm ShanH) had acquired a 90% stake in the Hyderabad-based vaccine-maker
Shantha Biotech in 2009, need not pay tax in India. The controversy dates back to
2006 when ShanH, a holding company, was incorporated in France as a joint
venture (JV) between Merieux Alliance (MA) and Groupe Industriel Marcel
Dassault (GIMD). The income tax authorities claimed that ShanH was formed as a
shell company only with the intention of avoiding tax. They sought to lift the
corporate veil to understand the structure of ShanH. Soon after its incorporation,
ShanH acquired the Shantha stake in 2006. In 2009, it decided to sell that stake. So,
MA and GIMD, founders of ShanH, sold their ShanH holding to Sanofi Pasteur
Holding for an estimated Rs 3,700 crore. This MA-GIMD-Sanofi deal for ShanH
had come under the income tax radar. The income tax authorities had raised a
claim for about Rs 700 crore to be payable on account of capital gains. But Sanofi
 P a g e | 18

rubbished the claim in its petition. It said that ShanH was formed to make it “from
the very first day the owner of the shares of Shantha”.

MA (Sanofi) had contested the income tax department's claim and the issue has
since been going through rounds of adjudication. MA's contention is that the tax by
the Indian authorities would tantamount to double taxation which is sought to be
avoided by an India-France Double Taxation Avoidance Agreement (DTAA).
Even Sanofi referred the tax issue to the Authority for Advance Rulings (AAR).
However, the AAR ruled against Sanofi.and favoured the tax authorities. In
response, Sanofi approached the Andhra Pradesh High Court.

The outcome of the case was a matter of interest for various other firms,
particularly those contemplating mergers and acquisitions in India but protected by
the DTAA concerned. "The (AP) High Court has clearly settled the law that the
retrospective amendments have no impact on interpretation of the treaty
provisions," said Rohit Jain, partner with law firm Economic Laws Practice that
represented MA in the case. Analysts, too, expect the APHC order to encourage
foreign investments, particularly from countries having DTAA with India. For, the
APHC has provided clarity on how to interpret the provisions of the DTAA. "This
order definitely gives boost to foreign investors in the country. It is a very positive
development because there is clarity that such transactions are not liable for tax in
cases of treaty agreements," said Vikram Doshi, partner with consultancy firm
KPMG. However, income tax authorities may exercise the option of appealing
against the APHC order in the Supreme Court. “I cannot comment anything on this
order. The decision on whether or not to appeal has to be taken by the income tax
department,” said S R Ashok, the counsel for the department.

Indian Income Tax Department (IT) filed a special leave petition (SPL) before the
Supreme Court against the ruling by Andhra Pradesh High Court in Sanofi-Aventis
double tax case. According to the report, in February 2013, the AP high court
issued a ruling in favour of Sanofi-Aventis, a French pharmaceutical company, in a
case filed by the IT Department seeking taxation of Sanofi's offshore transaction in
India. The AP high court had ruled that transaction was only taxable in France
under the India-France double taxation avoidance pact (DTAA). In its plea before
 P a g e | 19

the Apex Court, the IT Department had sought reconsideration of its ruling
claiming that the high court's interpretation of DTAA was erroneous.

Previously, the IT Department had demanded Sanofi to pay Rs 700 crores in

capital tax gains in the offshore transaction by Sanofi. Both the Authority for
Advance Ruling’s order and the IT Department’s demand notice for Rs 985 crores
for tax and interest, and Rs 985 crores for penalty were also rejected by AP High
Court.

Sanofi's subsidiaries — Institut Merieux (IM), Groupe Industriel Marcel Dassault

(GIMD) and ShanH were also involved in the case. ShanH SAS, a French
subsidiary of Merieux Alliance, acquired by Sanofi Pasteur, bought a majority
stake in Shantha Biotechnics in November 2008. IM and GIMD held 80% and 20%
shares in ShanH, which were sold to Sanofi Aventis in August2009. Sanofi
acquired 80% stake of Shantha Biotechnics in July 2009 at INR38 billion. The IT
Department claimed that Shantha Biotech has formed a shell company, ShanH,
prior to signing a tax avoidance deal. This claim was challenged by Sanofi in 2010.
The IT Department sought to bring tax from these transactions to India, citing
retrospective amendments to income-tax law in Budget 2012-13. Although the
Division Bench ruled that the transaction was not designed for tax avoidance, it
was rejected in the High Court.

4.2.1 Questions

1) What did Sanofi Aventis appealed in its petition?

2) What was the reason behind the controversy?
3) Why were many firms interested in the outcome of the case?
4) What is the outcome of the filed case?
5) How could the judgement turn out to be beneficial to the economy?

Solution-1: Quoting the provisions of the India-France DTAA, Sanofi said that
where shares of a resident company of France are transferred, representing the
participation of anything more than 10%, the capital gains are taxable only in
France. Further, it contended that all other so-called rights, properties and assets
 P a g e | 20

held by a French resident, when transferred and even if located in India, are
taxable in France.

Solution-2: The controversy started when the income tax authorities claimed
that ShanH was formed as a shell company only with the intention of avoiding
tax because soon after its incorporation, ShanH acquired the Shantha stake in
2006 and in some time, founders of ShanH sold their holding to Sanofi Pasteur
Holding. This made the deal to come under Indian IT Department radar which
filed a petition for a payment of capital tax gains in the offshore transaction by
Sanofi.

Solution-3: The firms which were interested in the outcome were those firms
which were expecting mergers and acquisitions in India but were threatened by
the Double Taxation Avoidance Agreement (DTAA) with India. There was not
much of clarity in the interpretation of the provisions of DTAA.

Solution-4: The Andhra Pradesh High Court, in February 2013, ruled that the
offshore transaction was only taxable in France under the India-France DTAA
and exempted the French drug maker from capital gains tax relating to 90%
stake in Shantha Biotech. In the judgment, the APHC issued a ruling that the
French firm Sanofi Aventis, which (by buying another French firm ShanH) had
acquired stake in Shantha Biotech, need not pay tax in India.

Solution-5: Many analysts, after the judgement, have said that AP High Court
has clearly settled the law that the ex post facto amendments have no impact on
interpretation of the treaty provisions. They also expect that the order will also
encourage foreign investments in the country, particularly from countries having
DTAA with India. For, the APHC has provided clarity on how to interpret the
provisions of the DTAA.
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CONCLUSION

From the above study it can be said that Double Taxation Avoidance Agreement is
very much helpful for avoiding double taxation not only that double taxation
avoidance agreement can override the Income Tax Act, it is beneficial for the assessee
too. But it should not be used in wrong manners to promote double non taxation or to
unnecessarily or illegally reduce the tax liability or treaty shopping. It is essential that
the Double Taxation Avoidance Agreement should have a clear provision which
prevents DTAA from misuse (example: provision for anti treaty shopping etc).

So to conclude it can be said the Double Taxation Avoidance Agreement should be

used for good purposes like for the benefits of the assessee or to prevent a person
from being taxed twice for the same income it should not be misused.
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BIBLIOGRAPHY

Primary Source:

Bare Act –

1) Income Tax Act, 1961

Secondary Source:

Websites:

C.S.Rajkumar, Double Taxation Avoidance Agreement and Taxation,

https://taxguru.in/income-tax/double-tax-avoidance-agreements-taxation.html, (Last
updated, Feb 20, 2012)

CR Sukumar, France, not India is entitled to 650 crore in capital gains from Shantha
Deal, https://economictimes.indiatimes.com/news/economy/finance/france-not-india-is-
entitled-to-rs-650-crore-in-capital-gains-tax-from-shantha-deal-andhra-high-
court/articleshow/18524103.cms?intenttarget=no, (last updated, Feb 16, 2013)

Mauritius promises India full cooperation on tax treaty issues,

https://economictimes.indiatimes.com/news/economy/foreign-trade/mauritius-promises-
india-full-cooperation-on-tax-treaty-issues/articleshow/46677575.cms?intenttarget=no,
(Updated on March 24, 2015)

Double Taxation, Wikipedia, https://en.wikipedia.org/wiki/Double_taxation, (Updated

on 7 December 2017)