TAX RESIDENCY CERTIFICATE IN DOUBLE TAXATION RELIEF: LATENCY UNRAVELED

Abstract

For the first time, a tax residency certificate requirement for claiming benefits under Double Taxation Avoidance Agreements was introduced by the Parliament in the Income Tax Act, 1961 through the Finance Act, 2012. Such requirement was a necessity considering the prevalent situation of treaty shopping; whereby, third party non-residents of contracting countries claimed unintended treaty benefits. However, the amendment that brought in the residency certificate requirement failed to consider the fundamental distinction between ‘avoidance’ and ‘relief’ as evolved by the courts of law. Through this paper, the authors seek to underscore this distinction by referring to interpretative tools used in taxation jurisprudence and by providing a comparison of the relevant amendments on the tax residency certification requirement. Since the parliament has failed to include the term ‘avoidance’ in the requirement provision, such an inadequacy is bound to create confusion and increase litigation. The solution to remove such inadequacy lies with the Legislature, since Indian courts are constrained by principles of fiscal interpretation. As the adage goes, prevention is better than cure, it is hoped that the Parliament will put the issue to rest.