Essar Oil Ltd. v. Addl. CIT - Taxpublishers.in

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The Tax Publishers2013 TaxPub(DT) 2798 (Mum-Trib) : (2013) 157 TTJ 0785 : (2013) 094 DTR 0153 : (2013) 028 ITR (Trib) 0609 Essar Oil Ltd. v. Addl. CIT INCOME TAX ACT, 1961 --Double taxation relief--Agreement between India and Qatar/OmanBusiness profit and capital gains--Assessee was having a PE in Oman and Qatar. From the Oman Branch, assessee derived business profit for sums aggregating to Rs. 3,20,80,443 and from Qatar Branch assessee incurred losses of Rs. (-) 90,38,012. After setting off of the losses of Qatar, the net income was worked out to Rs. 2,30,42,431, which was not included in total income of the company in return of income filed in India. The reasons for not including the same was that assessee had also been filing the return of income in respective countries, i.e., Oman and Qatar and being assessed on profit as per the domestic law. In that regard assessee had taken shelter of article 7(1) of DTAA. AO held that income from Oman and Qatar was also assessable in India and has to be added to total income in India. Accordingly, he had also gave credit of taxes paid at Rs. 50,40,215 in Oman. Assessee's contentions mainly have been that by virtue of article 7(1) of Indo-Oman DTAA once the taxes have been paid in the source country (i.e., Oman), the same profit cannot be taxed in the country of residence, i.e., in India. The main reliance in this regard was placed on the phrase used in article 7(1) 'may be taxed in other contracting State' which, according to assessee, means that the country of residence, i.e., India loses its rights to tax if the assessee has paid taxes in source country. Further, as regards the long-term capital gain on sale of assets of PE in Oman and Qatar was concerned, it was claimed exemption and not included in income of assessee. Reliance was placed on Article 15(1) of Indo-Oman and Article 13(1) of India, Qatar DTAA. Here also, assessee has raised the same contention that once the capital gains is taxable as per domestic law of Oman and Qatar, there is no requirement under respectives DTAAs to offer the same in India, here also phrase used in the said aricle is 'may be taxed the in other Contracting State. CIT(A) allowed assessees appeal. *Held:* Not rightly so. Interpretation of expression 'may be taxed' that once the tax is payable or paid in the country of source, then country of residence is denied of right to levy tax on such income or said income cannot be included in return of income filed in India would no longer apply after insertion of provision of section (3) of section 90 w.e.f. 1-4-2004, i.e., assessment year 2004-05. Hence both, business income and long-term capital gain would be included in return of income in India and credit for taxes paid in Oman and Qatar would be given accordingly. In the present case, section 90 including sub-section (3) has been substituted by new section 90 without any change in the provisions especially in sub-section (3). The notification issued under the earlier provision of sub-section (3) will continue up to the period of new substitution that is up to 1-10-2009. It is not a case here that after 1-10-2009, the notification is being pressed into. If a matter relates to after 1-10-2009, then probably it can be held that the earlier notification issued under sub-section (3) may not be applicable. However, Tribunal refraining from giving any opinion as to whether after 1-10-2009, the said notification issued by the Central Government would be applicable or not. As already observed several times that no proceedings have been initiated in the wake of Notification dt. 28-8-2008, it merely clarifies the intention of the Central Government in the interpretation of the term used in the agreement. A distinction has to be made where any notification through which proceeding is initiated that is prejudicial to the tax payer or it warrants any action and between the notification which has been issued for the purpose of clarifying the provision of a statute or the intention of the legislature or the Government. The only condition is that such a notification should not be contrary to the provisions of the Act. The ratio laid down by the Hon'ble Supreme Court in the aforesaid cases will not be applicable here. [Para 74] The Departmental Representative further relying upon section 24 of the General Clauses Act, has submitted that any notification issued under the provisions of the Central Act, is repealed and re-enacted with or without any change, then such notification under the earlier Act shall continue to be in force unless such notification is inconsistent with the provisions re-enacted. In the present case also, once a notification is not against the provision of the statute, it will continue to hold operations even if the said provision has been substituted by new provision as the new provision does not make any modification there is substance in the argument of the Departmental Representative as section 24 of The General Clauses Act, 1897, clearly stipulates for such a situation. [Para 75] Further, the Supreme Court in Venkateshwara Hatcheries (supra) also clearly opined that where a provision of the Act is omitted by an Act and the said Act simultaneously re-enacted, a new provision which substantially covers the field occupied by repealed provision with certain modification (which in the present case there is no modification), in that event, such re-enactment is regarded having force continuously and the modification or changes are treated,as amendment coming into force with effect from the date of enforcement of the enacted provisions. Therefore, sub-stitution of section 90 w.e.f. 1-10-2009, will not obliterate the earlier section 90 and specifically subsection (3) of section 90 which has come into effect from 1-4-2004, and notification issued therein shall continue to hold at least up to 1-10-2009. [Para 76] The legislature has reiterated that the meaning assigned in a treaty entered into by the Government has a particular intent and object which is to be understood from the course of negotiations leading to the formalization of the treaty. The notifications which are issued under section 90(3), gives a legal framework for clarifying such intent. This clarification given in the memorandum provides that notifications will apply from the date when the agreement has come into force even though the Explanation (3) itself has been brought in statute w.e.f. 1-10-2009. However, the insertion of the said Explanation can only be relied for the purpose of showing the legislative intent. Tribunal is not entering into the debate as to whether or not the said Explanation (3) which has been brought in statute w.e.f. 1-10-2009, will have retrospective effect or not. Since the issue pertains to the assessment year 2004-05, wherein sub-section (3) of section 90, was already there and in pursuance of such section, the Central Government has issued a notification clarifying its intent and object of the terms used in the treaty, therefore, Tribunal's not entering into this debate. The language of the said Explanation along with the memorandum of the object has to be seen from the context of the actual legislative intent and the intention of the Central Government which is one of the contracting parties. Thus, one cannot make themselves oblivious of such an intent which has been reiterated in the Explanation (3). This only reinforces Tribunal's conclusion. Beyond this, Tribunal is not entering into the semantics of retrospective effect of the said Explanation. All the other arguments raised by the Counsel and the Departmental Representative regarding retrospective effect of Explanation (3), are not dealt with in view of conclusion that earlier notification dt. 28-8-2008, will apply from the assessment year 2004-05. [Para 81] Interpretation of the phrase 'may be taxed' has to be seen from the angle of clarification issued by the Central Government by way of notification in the exercise of power given under section 90(3) w.e.f. 1-4-2004, i.e., assessment year 2004-05, the earlier decisions given by the Tribunal in assessee's own case confirmed by the High Court will not be applicable. This non-applicability of earlier decision in the wake of section 90(3) and the notification issued in pursuance thereof has already been discussed in detail in the and, accordingly, these decisions cannot be said to have binding precedence in the assessee's case from the assessment year 2004-05. [Para 82] There is another important aspect which has to be seen independently while coming to the conclusion as to what is meant by the phrase 'may be taxed' as given in the various Articles of the DTAA. In the international taxation, the starting point is the understanding of the domestic tax law/rules of the various countries because the State can levy taxes by its sovereign right upon its residents. The tax sovereignty emanates from the connection between resident tax payer and the State. Under the domestic tax laws, a tax liability arises in a country only if there is a connection between the tax jurisdiction and the tax payers or the taxable event. The connecting factors include tax residency of the tax payer, source of the income, the place where the income is earned or derived, or the location of the asset. All these factors emanate from the domestic tax laws. The country of source also levies tax from the income earned or derived in their tax jurisdiction under their domestic tax laws. This is how the conflict arises on taxing the same income under both the jurisdictions which leads to the double taxation. To avoid such conflicts and eliminate double taxation, DTAAs / tax treaties are negotiated between the two States. They determine as to what extent each State may levy tax and commit themselves to relinquishing completely or partially the imposition of taxes in specific situations. The tax treaties only allocate taxing rights and do not make any tax rules. The treaties cannot impose or levy tax which is solely based on domestic laws. Generally in the scheme of double tax avoidance treaty wherever the right of taxation is given to the source country, the country of resident relieve the double tax as it asserts the right of taxation on the same income of its resident. If the incomes were to be taxed only by the source country, probably, there would arise no conflict of incidence of double taxation. In that scenario, clear cut demarcation would have been there, one which is taxable in source country and other which is taxable in resident country. There would not be any issue of giving credit of taxes. But, this is not so, as the world wide scheme followed by most of the countries is residency based taxation, irrespective of where the income is earned. Therefore, the State of resident has an obligation under the double taxation conventions to provide relief from double taxation of income either by following 'exemption method' or 'credit method'. In India, the provisions of Income Tax Act, 1961, follow the resident rule of tax which are quite comprehensive so as to include the global income of a resident Indian. This residency rule is provided in section 5 and the criteria of residency rule have been provided in section 6. Section 5 read with sections 4 and 6 empower the Government of India to tax the income of the resident from whatever source and wherever earned. Thus, section 5 is the triggering point of taxing the income of the resident. In order to eliminate double taxation of the income in the source country, section 90 provides for such relief. Section 5 is subject to relief under section 90 and any provision of treaty that is entered into by the Government of India under sub-section 1, which is more beneficial to the tax payer has to be followed. If a tax payer gets relief under section 90 i.e., by virtue of the treaty, the same will have primacy. This has been made amply clear by the Hon'ble Supreme Court in various cases including that of the Azadi Bachao Andolan. However, this does not mean that by virtue of section 90, section 5 loses its significance completely as the right to tax on global income of the resident flows from section 5 only. This is the fundamental rule that one has to keep in mind. As stated above, elimination of double taxation is done also through 'exemption method' or 'credit method'. In India, all the tax treaties are negotiated for elimination of double taxation by following credit method which is evident from various treaties entered into by the Indian Government. [Para 83] The international view had been that the phrase 'may be taxed' cannot be interpreted in the manner that the country of resident is left with no right to tax its resident. However, these international conventions or views do not have a binding precedence but have a great persuasive value in understanding the various concepts which are based on understanding the international law and the negotiation of the treaty. When the model convention of the treaty or the OECD model has been made the basis of agreement ( which here in this case both the treaties, Oman and Qatar are based on OECD model), then the commentaries given under these conventions acts as an external aid and a guiding factor. It is assumed that negotiating parties have understood the various expressions used in the treaty in the manner provided by these commentaries and international conventions. In the present case, both the treaties, Oman DTAA and Qatar DTAA are based on model convention, hence, the views expressed has a great persuasive value. [Para 84] Independent of the international views, in the context of India, now the position as to what is meant by the phrase 'may be taxed' has been explained and clarified by the Government of India in a very clear terms in the notification issued in exercise of statutory power authorised by the Act and this view expressed by the Government of India which is one of the contracting parties in the treaty, clinches the entire controversy. [Para 85] The fundamental principle of interpretation in international law has been codified in Articles 31 to 34 of the Vienna Convention on the Law on Treaties (VCLT). Article 31 provides that a treaty must be interpreted in good faith with the ordinary meaning to be given to the terms of the treaty in the context and in the light of its object and purpose. Article 31(4) provides that a special meaning be given to a term if it is established that the parties so intended. [Para 86] The interpretation of the expression 'may be taxed', that once the tax is payable or paid in the country of source, then country of residence is denied of the right to levy tax on such income or the said income cannot be included in return of income filed in India, would no longer apply after the insertion of provision of sub-section (3) of section 90 w.e.f. 1-4-2004, i.e., assessment year 2004-05. Provision of section 90(3) has conferred upon the Central Government a power to issue notification, assigning meaning to the terms used in the DTAA, which has neither been defined under the Act nor in the agreement provided that such a meaning should not be inconsistent with the provisions of the Act or agreement. In pursuance of such a statutory empowerment, Central Govt., has issued a notification on 28-8-2008, clearly specifying that where the DTAA entered into by the Central Govt., with the Govt., of any other country provides that any income of a resident of India 'may be taxed' in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income Tax Act, 1961 and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement. This meaning assigned to the term 'may be taxed' has changed its complexion.[Para 88] The notification dt. 28-8-2008, reflects a particular intent and objective of the Government of India, as understood during the course of negotiations leading to formalization of treaty. Therefore, such a notification has to be reckoned as clarificatory in nature and hence interpretation given by govt, of India through this notification will be effective from 1-4-2004, i.e., from the date when provision of section 90(3) was brought in the statute, giving a legal frame work for clarifying the intent of one of the negotiating parties; (iii) The phrase “may be taxed' is not appearing in the statute, but it is appearing in the agreement and therefore, the interpretation as understood and intended by the negotiating parties should be adopted. Here one of the parties, i.e., Government of India has clearly specified the intent and the object of this phrase. If phrase is used in a statute, then any interpretation given by the High Court or the Supreme Court is binding on all the subordinate Courts and has to be reckoned as law of the land. However, the meaning assigned by Government of India for a phrase or term used in the agreement through notification will prevail at least from the assessment year 2004-05. Because, while interpreting the treaty, the intention of the parties to the agreement has to be given primacy and has to be understood in that manner only. Therefore, the notification is not contrary to the provisions of the Act. Consequently, the earlier judgments rendered in assessee's case prior to assessment year 2004-05, will not have binding precedence in this year or subsequent years; and (iv) Thus, the business income from P.E. in Oman and Qatar and also the capital gain from sale of assets in these countries will be included in the total income of the assessee in India and Credit of taxes paid there will be given as per the relevant article of the DTAA. [Para 88. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 2798 (Mum-Trib) : (2013) 157 TTJ 0785 : (2013) 094 DTR 0153 : (2013) 028 ITR (Trib) 0609

Essar Oil Ltd. v. Addl. CIT

INCOME TAX ACT, 1961

--Double taxation relief--Agreement between India and Qatar/OmanBusiness profit and capital gains--Assessee was having a PE in Oman and Qatar. From the Oman Branch, assessee derived business profit for sums aggregating to Rs. 3,20,80,443 and from Qatar Branch assessee incurred losses of Rs. (-) 90,38,012. After setting off of the losses of Qatar, the net income was worked out to Rs. 2,30,42,431, which was not included in total income of the company in return of income filed in India. The reasons for not including the same was that assessee had also been filing the return of income in respective countries, i.e., Oman and Qatar and being assessed on profit as per the domestic law. In that regard assessee had taken shelter of article 7(1) of DTAA. AO held that income from Oman and Qatar was also assessable in India and has to be added to total income in India. Accordingly, he had also gave credit of taxes paid at Rs. 50,40,215 in Oman. Assessee's contentions mainly have been that by virtue of article 7(1) of Indo-Oman DTAA once the taxes have been paid in the source country (i.e., Oman), the same profit cannot be taxed in the country of residence, i.e., in India. The main reliance in this regard was placed on the phrase used in article 7(1) 'may be taxed in other contracting State' which, according to assessee, means that the country of residence, i.e., India loses its rights to tax if the assessee has paid taxes in source country. Further, as regards the long-term capital gain on sale of assets of PE in Oman and Qatar was concerned, it was claimed exemption and not included in income of assessee. Reliance was placed on Article 15(1) of Indo-Oman and Article 13(1) of India, Qatar DTAA. Here also, assessee has raised the same contention that once the capital gains is taxable as per domestic law of Oman and Qatar, there is no requirement under respectives DTAAs to offer the same in India, here also phrase used in the said aricle is 'may be taxed the in other Contracting State. CIT(A) allowed assessees appeal. Held: Not rightly so. Interpretation of expression 'may be taxed' that once the tax is payable or paid in the country of source, then country of residence is denied of right to levy tax on such income or said income cannot be included in return of income filed in India would no longer apply after insertion of provision of section (3) of section 90 w.e.f. 1-4-2004, i.e., assessment year 2004-05. Hence both, business income and long-term capital gain would be included in return of income in India and credit for taxes paid in Oman and Qatar would be given accordingly.

In the present case, section 90 including sub-section (3) has been substituted by new section 90 without any change in the provisions especially in sub-section (3). The notification issued under the earlier provision of sub-section (3) will continue up to the period of new substitution that is up to 1-10-2009. It is not a case here that after 1-10-2009, the notification is being pressed into. If a matter relates to after 1-10-2009, then probably it can be held that the earlier notification issued under sub-section (3) may not be applicable. However, Tribunal refraining from giving any opinion as to whether after 1-10-2009, the said notification issued by the Central Government would be applicable or not. As already observed several times that no proceedings have been initiated in the wake of Notification dt. 28-8-2008, it merely clarifies the intention of the Central Government in the interpretation of the term used in the agreement. A distinction has to be made where any notification through which proceeding is initiated that is prejudicial to the tax payer or it warrants any action and between the notification which has been issued for the purpose of clarifying the provision of a statute or the intention of the legislature or the Government. The only condition is that such a notification should not be contrary to the provisions of the Act. The ratio laid down by the Hon'ble Supreme Court in the aforesaid cases will not be applicable here. [Para 74] The Departmental Representative further relying upon section 24 of the General Clauses Act, has submitted that any notification issued under the provisions of the Central Act, is repealed and re-enacted with or without any change, then such notification under the earlier Act shall continue to be in force unless such notification is inconsistent with the provisions re-enacted. In the present case also, once a notification is not against the provision of the statute, it will continue to hold operations even if the said provision has been substituted by new provision as the new provision does not make any modification there is substance in the argument of the Departmental Representative as section 24 of The General Clauses Act, 1897, clearly stipulates for such a situation. [Para 75] Further, the Supreme Court in Venkateshwara Hatcheries (supra) also clearly opined that where a provision of the Act is omitted by an Act and the said Act simultaneously re-enacted, a new provision which substantially covers the field occupied by repealed provision with certain modification (which in the present case there is no modification), in that event, such re-enactment is regarded having force continuously and the modification or changes are treated,as amendment coming into force with effect from the date of enforcement of the enacted provisions. Therefore, sub-stitution of section 90 w.e.f. 1-10-2009, will not obliterate the earlier section 90 and specifically subsection (3) of section 90 which has come into effect from 1-4-2004, and notification issued therein shall continue to hold at least up to 1-10-2009. [Para 76] The legislature has reiterated that the meaning assigned in a treaty entered into by the Government has a particular intent and object which is to be understood from the course of negotiations leading to the formalization of the treaty. The notifications which are issued under section 90(3), gives a legal framework for clarifying such intent. This clarification given in the memorandum provides that notifications will apply from the date when the agreement has come into force even though the Explanation (3) itself has been brought in statute w.e.f. 1-10-2009. However, the insertion of the said Explanation can only be relied for the purpose of showing the legislative intent. Tribunal is not entering into the debate as to whether or not the said Explanation (3) which has been brought in statute w.e.f. 1-10-2009, will have retrospective effect or not. Since the issue pertains to the assessment year 2004-05, wherein sub-section (3) of section 90, was already there and in pursuance of such section, the Central Government has issued a notification clarifying its intent and object of the terms used in the treaty, therefore, Tribunal's not entering into this debate. The language of the said Explanation along with the memorandum of the object has to be seen from the context of the actual legislative intent and the intention of the Central Government which is one of the contracting parties. Thus, one cannot make themselves oblivious of such an intent which has been reiterated in the Explanation (3). This only reinforces Tribunal's conclusion. Beyond this, Tribunal is not entering into the semantics of retrospective effect of the said Explanation. All the other arguments raised by the Counsel and the Departmental Representative regarding retrospective effect of Explanation (3), are not dealt with in view of conclusion that earlier notification dt. 28-8-2008, will apply from the assessment year 2004-05. [Para 81] Interpretation of the phrase 'may be taxed' has to be seen from the angle of clarification issued by the Central Government by way of notification in the exercise of power given under section 90(3) w.e.f. 1-4-2004, i.e., assessment year 2004-05, the earlier decisions given by the Tribunal in assessee's own case confirmed by the High Court will not be applicable. This non-applicability of earlier decision in the wake of section 90(3) and the notification issued in pursuance thereof has already been discussed in detail in the and, accordingly, these decisions cannot be said to have binding precedence in the assessee's case from the assessment year 2004-05. [Para 82] There is another important aspect which has to be seen independently while coming to the conclusion as to what is meant by the phrase 'may be taxed' as given in the various Articles of the DTAA. In the international taxation, the starting point is the understanding of the domestic tax law/rules of the various countries because the State can levy taxes by its sovereign right upon its residents. The tax sovereignty emanates from the connection between resident tax payer and the State. Under the domestic tax laws, a tax liability arises in a country only if there is a connection between the tax jurisdiction and the tax payers or the taxable event. The connecting factors include tax residency of the tax payer, source of the income, the place where the income is earned or derived, or the location of the asset. All these factors emanate from the domestic tax laws. The country of source also levies tax from the income earned or derived in their tax jurisdiction under their domestic tax laws. This is how the conflict arises on taxing the same income under both the jurisdictions which leads to the double taxation. To avoid such conflicts and eliminate double taxation, DTAAs / tax treaties are negotiated between the two States. They determine as to what extent each State may levy tax and commit themselves to relinquishing completely or partially the imposition of taxes in specific situations. The tax treaties only allocate taxing rights and do not make any tax rules. The treaties cannot impose or levy tax which is solely based on domestic laws. Generally in the scheme of double tax avoidance treaty wherever the right of taxation is given to the source country, the country of resident relieve the double tax as it asserts the right of taxation on the same income of its resident. If the incomes were to be taxed only by the source country, probably, there would arise no conflict of incidence of double taxation. In that scenario, clear cut demarcation would have been there, one which is taxable in source country and other which is taxable in resident country. There would not be any issue of giving credit of taxes. But, this is not so, as the world wide scheme followed by most of the countries is residency based taxation, irrespective of where the income is earned. Therefore, the State of resident has an obligation under the double taxation conventions to provide relief from double taxation of income either by following 'exemption method' or 'credit method'. In India, the provisions of Income Tax Act, 1961, follow the resident rule of tax which are quite comprehensive so as to include the global income of a resident Indian. This residency rule is provided in section 5 and the criteria of residency rule have been provided in section 6. Section 5 read with sections 4 and 6 empower the Government of India to tax the income of the resident from whatever source and wherever earned. Thus, section 5 is the triggering point of taxing the income of the resident. In order to eliminate double taxation of the income in the source country, section 90 provides for such relief. Section 5 is subject to relief under section 90 and any provision of treaty that is entered into by the Government of India under sub-section 1, which is more beneficial to the tax payer has to be followed. If a tax payer gets relief under section 90 i.e., by virtue of the treaty, the same will have primacy. This has been made amply clear by the Hon'ble Supreme Court in various cases including that of the Azadi Bachao Andolan. However, this does not mean that by virtue of section 90, section 5 loses its significance completely as the right to tax on global income of the resident flows from section 5 only. This is the fundamental rule that one has to keep in mind. As stated above, elimination of double taxation is done also through 'exemption method' or 'credit method'. In India, all the tax treaties are negotiated for elimination of double taxation by following credit method which is evident from various treaties entered into by the Indian Government. [Para 83] The international view had been that the phrase 'may be taxed' cannot be interpreted in the manner that the country of resident is left with no right to tax its resident. However, these international conventions or views do not have a binding precedence but have a great persuasive value in understanding the various concepts which are based on understanding the international law and the negotiation of the treaty. When the model convention of the treaty or the OECD model has been made the basis of agreement ( which here in this case both the treaties, Oman and Qatar are based on OECD model), then the commentaries given under these conventions acts as an external aid and a guiding factor. It is assumed that negotiating parties have understood the various expressions used in the treaty in the manner provided by these commentaries and international conventions. In the present case, both the treaties, Oman DTAA and Qatar DTAA are based on model convention, hence, the views expressed has a great persuasive value. [Para 84] Independent of the international views, in the context of India, now the position as to what is meant by the phrase 'may be taxed' has been explained and clarified by the Government of India in a very clear terms in the notification issued in exercise of statutory power authorised by the Act and this view expressed by the Government of India which is one of the contracting parties in the treaty, clinches the entire controversy. [Para 85] The fundamental principle of interpretation in international law has been codified in Articles 31 to 34 of the Vienna Convention on the Law on Treaties (VCLT). Article 31 provides that a treaty must be interpreted in good faith with the ordinary meaning to be given to the terms of the treaty in the context and in the light of its object and purpose. Article 31(4) provides that a special meaning be given to a term if it is established that the parties so intended. [Para 86] The interpretation of the expression 'may be taxed', that once the tax is payable or paid in the country of source, then country of residence is denied of the right to levy tax on such income or the said income cannot be included in return of income filed in India, would no longer apply after the insertion of provision of sub-section (3) of section 90 w.e.f. 1-4-2004, i.e., assessment year 2004-05. Provision of section 90(3) has conferred upon the Central Government a power to issue notification, assigning meaning to the terms used in the DTAA, which has neither been defined under the Act nor in the agreement provided that such a meaning should not be inconsistent with the provisions of the Act or agreement. In pursuance of such a statutory empowerment, Central Govt., has issued a notification on 28-8-2008, clearly specifying that where the DTAA entered into by the Central Govt., with the Govt., of any other country provides that any income of a resident of India 'may be taxed' in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income Tax Act, 1961 and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement. This meaning assigned to the term 'may be taxed' has changed its complexion.[Para 88] The notification dt. 28-8-2008, reflects a particular intent and objective of the Government of India, as understood during the course of negotiations leading to formalization of treaty. Therefore, such a notification has to be reckoned as clarificatory in nature and hence interpretation given by govt, of India through this notification will be effective from 1-4-2004, i.e., from the date when provision of section 90(3) was brought in the statute, giving a legal frame work for clarifying the intent of one of the negotiating parties; (iii) The phrase “may be taxed' is not appearing in the statute, but it is appearing in the agreement and therefore, the interpretation as understood and intended by the negotiating parties should be adopted. Here one of the parties, i.e., Government of India has clearly specified the intent and the object of this phrase. If phrase is used in a statute, then any interpretation given by the High Court or the Supreme Court is binding on all the subordinate Courts and has to be reckoned as law of the land. However, the meaning assigned by Government of India for a phrase or term used in the agreement through notification will prevail at least from the assessment year 2004-05. Because, while interpreting the treaty, the intention of the parties to the agreement has to be given primacy and has to be understood in that manner only. Therefore, the notification is not contrary to the provisions of the Act. Consequently, the earlier judgments rendered in assessee's case prior to assessment year 2004-05, will not have binding precedence in this year or subsequent years; and (iv) Thus, the business income from P.E. in Oman and Qatar and also the capital gain from sale of assets in these countries will be included in the total income of the assessee in India and Credit of taxes paid there will be given as per the relevant article of the DTAA. [Para 88.