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The issue before the Mumbai Tribunal was in what manner and to what extent the decisions of Hon’ble non-jurisdictional High Courts bind the lower judicial forums outside of their jurisdiction.
The Mumbai Tribunal held when there are conflicting decisions of non-jurisdictional High Courts but no decision of jurisdictional HC on an issue, ITAT should not as a rule apply the view favorable to the assessee.
It's a conscious call that is required to be taken for the question of whether, on the facts of a particular situation, the non-jurisdictional High Court is required to be followed.
For Tribunal, it is a compulsion by law to follow a jurisdictional High Court decision. However, following a non-jurisdictional High Court is a call of judicial propriety. The decisions of the non-jurisdictional High Court are followed in letter and spirit if there is no contrary decision by the jurisdictional High Court.
Difficulties arise when there are conflicting views of the non-jurisdictional High Courts. Tribunal can’t choose the views of one of the High Courts based on its perceptions.
In the given case, there was one decision of the division bench consisting of two Hon’ble judges, and there was another decision of a single judge bench consisting of only one Hon’ble judge.
The Tribunal has much simpler and much more objective criteria readily available, which is the strength of the bench of the Hon'ble non-jurisdictional High Court which has rendered the judgment.
The plurality in the decision-making process makes the decisions of benches with a larger number of Hon’ble judges being placed on a higher pedestal than the decisions of the benches with a lesser number of Hon’ble judges.
Between a division bench decision of a non-jurisdictional High Court and a single judge bench of a non-jurisdictional High Court, a simple objective criterion of choice is the division bench decision to be preferred over the single judge bench decision.
In the given case, a large capital gain was realized by corporate resident of Luxembourg on the sale of shares whose value was derived principally from immovable property situated in Canada. An exemption was claimed under the carve-out provision of Article 13(4) of the Canada-Luxembourg Treaty.
Revenue denied the exemption by invoking GAAR and hold that Luxembourg-company had no "sufficient substantive economic connections" to Luxembourg. Thus, the treaty benefits under Article 13(4) cannot be claimed.
The Supreme Court of Canada has ruled that Treaty Shopping per se is not abusive tax avoidance to attract General Anti-avoidance Rule (GAAR). Treaty Shopping is abusive tax avoidance and attracts GAAR, only when treaty shopping spoils the treaty bargain between two contracting states.
Luxembourg is a country well known for its broad tax treaty network and international tax haven regime, making it an attractive jurisdiction to set up a conduit corporation and take advantage of treaty benefits.
One can presume that Canada knew these features of Luxembourg's tax system when it entered into the Treaty. Canada nevertheless entered into a bilateral tax treaty with Luxembourg with only minimal safeguards and thereby ignored many of the OECD's suggestions.
Canada understood that it was dealing with a low-tax jurisdiction and it agreed to specific terms in the Treaty, such as the business property exemption. In this way, Canada effectively agreed to give up its right to tax certain entities incorporated in Luxembourg in exchange for the jobs and economic opportunities that the business property exemption would promote.
That’s it from us for today! Stay Tuned for more updates from?Taxmann.com
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