In a petition filed before the Supreme Court by an organisation called Citizen India based upon media and scholarly reports alleged that various individuals, mostly citizens, but may also include non-citizens, and other entities with presence in India, have generated and secreted away large sums of monies, through their activities in India or relating to India, in various foreign banks, especially in tax havens and jurisdiction that have strong secrecy laws with respect to the contents of bank accounts and the identities of individuals holding such accounts and that the Government of India and its agencies have been very lax in terms of keeping an eye on the various unlawful activities generating unaccounted monies; the consequent tax evasion and such laxity extends to efforts to curtail the flow of such funds out and into, India and seeking the Court’s intervention to order proper investigations and monitor continuously, the action of the Union of India, and any and all governmental departments and agencies in these matters.
In deciding the matter, the Supreme Court had an occasion to consider the Double Taxation Avoidance Agreement with Germany and the Vienna Connection and it made certain observations with respect to the same.
The Supreme Court noted the relevant portions of Article 26 of the Double Taxation Avoidance Agreement with Germany, which reads as follows:
“1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Agreement. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of or the determination of appeals in relation to, the taxes covered by this Agreement. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.
2. In no case shall the provisions of paragraph 1 be construed so as to impose on Contracting State the obligation:
(a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;
(b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;
(c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process or information, the disclosure of which would be contrary to public policy (order public).”
The Supreme Court observed that the above clause in the relevant agreement with Germany would indicate that there is no absolute bar or secrecy. Instead the agreement specifically provides that the information may be disclosed in public court proceedings which the instant proceedings are. The proceedings before it, relate both to the issue of tax collection with respect to unaccounted monies deposited into foreign bank accounts, as well as with issues relating to the manner in which such monies were generated, which may include activities that are criminal in nature also. Comity of nations cannot be predicated upon clauses of secrecy that could hinder constitutional proceedings such as these, or criminal proceedings.
The Supreme Court noted that the claim of the Union of India is that the phrase ‘public court proceedings’, in the last sentence in Article 26(1) of the Double Taxation Avoidance Agreement only relates to proceedings relating to tax matters. The Union of India claims that such an understanding comports with how it is understood internationally. In this regard, the Union of India cited a few treatises. According to the Supreme Court, however, the Union of India did not provide any evidence that Germany specifically requested it to not reveal the details with respect to accounts in the Liechtenstein even in the context of proceedings before it.
The Supreme Court held that in Article 31, ‘General Rule of Interpretation’, of the Vienna Convention of the Law of Treaties, 1969, provides that a “treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.” While India is not a party to the Vienna Convention, it contains many principles of customary international law, and the principle of interpretation of Article 31 of the Vienna Convention, provides a broad guideline as to what could be an appropriate manner of interpreting a treaty in Indian context also.
The Supreme Court said that in Union of India v. Azadi Bachao Andolan, (2003) 263 ITR 706; (2004) 10 SCC 1, it approvingly had noted Frank Bennion’s observations that a treaty is really an indirect enactment instead of a substantive legislation, and that drafting of treaties is notoriously sloppy, whereby inconveniences obtain. In this regard this Court further noted that the dictum of Lord Widgery C.J. that the words “are to be given their general meaning, general to lawyer and layman alike . . . . The meaning of the diplomat rather than the lawyer.” The broad principle of interpretation, with respect to treaties, and the provisions therein, would be that the ordinary meanings of words be given effect to, unless the context requires or otherwise. However, the fact that such treaties are drafted by diplomats, and not lawyers, leading to sloppiness in drafting also implies that care has to be taken to not render any word, phrase, or sentence redundant, especially where rendering of such word, phrase or sentence redundant would lead to a manifestly absurd situation, particularly from a constitutional perspective. The Government cannot bind India in a manner that derogates from constitutional provisions, values and imperatives.
The last sentence of the Article 26(1) of the Double Taxation Avoidance Agreement with Germany, “They may disclose this information in public court proceedings or in judicial decisions,” is revelatory in this regard. It stands out as an additional aspect or provision, and an exception, to the proceeding portion of the said Article. It is located after the specification that information shared between the Contracting Parties may be revealed only to “persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to taxes covered by this Agreement.” Consequently, it has to be understood that the phrase ‘public court proceedings’ specified in the last sentence in Article 26(1) of the Double Taxation Avoidance Agreement with Germany refers to court proceedings other than those in connection with tax assessment, enforcement, prosecution, etc., with respect to tax matters. If it were otherwise, as argued by the Union of India, then there would have been no need to have that last sentence in Article 26(1) of the Double Taxation Avoidance Agreement at all. The last sentence would become redundant if the interpretation pressed by the Union of India is accepted. Thus, notwithstanding the alleged convention of interpreting the last sentence only as referring to proceedings in tax matters, the rubric of common law jurisprudence, and fealty to its principles, leads us inexorably to the conclusion that the language in this specific treaty, and under these circumstances cannot be interpreted in the manner sought by the Union of India.
The Supreme Court while agreeing that the language could have been tighter, and may be deemed to be sloppy, to use Frank Bennion’s characterisation, negotiation of such treaties are conducted and secured at very high levels of Government, with awareness of general principles of interpretation used in various jurisdictions. It is fairly well known, at least in common law jurisdictions, that legal instruments and statutes are interpreted in a manner whereby redundancy of expressions and phrases is sought to be avoided.
The Supreme Court inter alia constituted Special Investigation Team to take over the matter of investigation of the individuals whose names had been disclosed by Germany as having accounts in Liechtenstein; and expeditiously conduct the same.
