By
Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
Email Id: vpdalmia@vaishlaw.com
Mobile No.: +91 9810081079
Linkedin: https://www.linkedin.com/in/vpdalmia/
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Twitter: @vpdalmia
And
Udit Tewari
VIVEKANANDA INSTITUTE OF PROFESSIONAL STUDIES
Udittewari25@gmail.com
DTAA (Double Taxation Avoidance Agreement) refers to a Tax Treaty that is entered between two countries. The purpose of such Agreements is to make sure that a person does not suffer duplication of taxes. This means that a resident is not taxed for the same income twice. Hence, these kinds of Agreements come handy, when a person resides in one country and earns income in another. India over the time has entered into DTAA with many countries such as Mauritius, Bahamas, Singapore, Switzerland, Germany, etc. These Agreements not only serve the purpose of providing tax benefits, but one of the key features of these Agreements is that these Agreements help in curbing out the problem of Black Money. Black Money which is in the form of Undisclosed Foreign Assets held outside India.
Therefore, DTAA not only becomes an Agreement to make a country attractive for investment purposes due to tax benefits but countries also, agree to exchange information regarding Tax Evasion carried out by residents of the member country. The language of these Agreements can be different in various DTAAs, but the purpose and intention remain the same. To understand the object of DTAA, an extract from the DTAA between India and Mauritius is given below:
"Whereas the annexed Convention between the Government of the Republic of India and the Government of Mauritius for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains and the encouragement of mutual trade and investment."1
Ground realities when it comes to Prosecuting Tax Evaders
The language of the agreement suggests that both countries will try to prevent "Fiscal Evasion" from happening when a resident tries to escape his/her true tax liability. Hence, the intention is pretty clear. The main issue, which is also the purpose of this article, pertains to the Evidentiary Value of the information exchanged between the countries to prevent Tax Evasion in a court of law during the process of trial. It is clear that members of DTAAs may voluntarily agree to exchange information to prevent Fiscal Evasion, but, the ground realities are different from the pious intention of the Agreements. The biggest issue arises because of the well-established rule of law in India that "Uncertified and Unauthenticated Bank Records" are not Admissible as Evidence. The words and phrases used in these Agreements are always "collection, supply or exchange of information." The agreements might use the word Information as a synonym for the word Evidence, but this creates a large gap between the claim of Indian Tax Authorities of "Tax Evasion" and the material evidence to support such claims. The result being, the alleged Tax Evaders may walk free.
This happens because DTAAs only mandates the member countries to furnish information about Tax Evasion. A DTAA does not make it obligatory to provide member countries, with information in the form of authenticated and certified Evidence which can be used for prosecuting the Tax Evaders.
Now, the pivotal issue in the case of Income Tax Authorities is that the evidence to prove the existence of Undisclosed Foreign Asset has to be gathered from different sources outside India. These sources can be Financial Institutions, Banks, Government Authorities, etc. These sources, according to case studies, are not known to have a co-operative attitude in providing Indian Tax Authorities with incriminating certified and authenticated evidence against Indian residents possessing assets under their domain.2 Hence, the Tax Authorities usually try to build their case on
- whatever evidence they can gather on their own or
- whatever evidence they already have or provided under DTAA.
Income Tax authorities are miserably failing in ascertaining the admissibility and evidentiary value of the evidence produced by them in the Courts of Law, which has all the potential of failing the prosecution case.
Conclusion
DTAA is a tool used by Developing India for promoting FDI and maintaining a healthy relationship with other countries. DTAAs are an excellent tool for economic benefits, but due to reasons stated above the Information supplied under DTAAs can not substitute for Evidence. Information tendered under DTAAs can not be relied upon for prosecuting Tax Evaders, it being Unauthenticated and Uncertified piece of Evidence.
Footnotes
1. https://www.incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx
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