Amendment to DTAA can’t be given retrospective effect unilaterally

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IN THE ITAT MUMBAI

Abu Dhabi Commercial Bank Ltd.

v.

ADIT (IT) – 1(1), Mumbai

IT APPEAL NOS. 1996, 2205, 2851, 3925, 4304

& 5017 (MUM.) OF 2004

AND 3462, 3857 & 4022 (MUM.) OF 2010

C.O. NOS. 115 & 414 (MUM.) OF 2004

AND 48 (MUM.) OF 2005

[ASSESSMENT YEARS 1995-96 TO 2000-01]

July 20, 2012

It is a cardinal principle, when two sovereign nations enter into an agreement and have come to an understanding regarding the terms, views expressed in the agreement, such terms cannot be unilaterally changed. Once the Government of India and Government of UAE had not used the limitation clause of applicability of domestic law in determining the profits and deduction of expenses of PE under Article 7(3), the same cannot be read into even impliedly, that such a provision existed. One has to see the merits of the word and its meaning understood when the two high contracting parties, herein in this case, two sovereign nations entered into an agreement. When a particular provisions in the agreement has been brought from a particular date, it has to be, prima facie, taken to be prospective in operation, unless it is expressly or by necessary implication provided or made to have retrospective operation, because the parties interpreting such agreement gets vested right under such existing agreement and any such interpretation giving retrospective effect not only impairs the vested right but attracts the new disability in respect of transactions already entered in the past. Here in this case, if any such interpretation is given for retrospective operation of this Article, it creates new obligation and disturbs the assessability of the profit of the PE. The retrospective operation cannot be taken to be intended unless by necessary implication it has been made to have the retrospective effect. Thus, the amendment brought in Article 7(3) w.e.f. 1-4-2008, will not apply retrospectively, prior to such date as it would impose a new obligation or a liability to tax which was not made by the two Contracting States.