COMMENTS:
As has been rightly stressed, a proper drafting of any contract agreement deserves to be given the utmost importance; especially in a case where a foreign party’s concerns / interests are involved. There could be no two views on the basic proposition that, – extreme care and caution require to be devoted to the drafting of any contract agreement, having special regard to inter alia its tax, particularly income-tax, implications.
However, that is not the whole of the story; what follows is an attempt to explain:
1. Deficiencies in the drafting of income-tax legislation:
The concerned personnel of the government has to act with due diligence in discharging the most responsible and onerous task of the drafting of any enactment. They are expected to take the utmost care, so as to make doubly sure that the output draft is as complete, comprehensible and foolproof as humanly possible. But, in practice, such an ideal scenario, has by far remained a far cry.
The point made will be readily appreciated, even if one simply bears in mind the on going exercise, undertaken afresh, with regard to producing a simplified income-tax code. The reference is to the infamous DTC, which is a classic example of a recent origin. It is more or less an admitted position that, – the draft code contains several careless omissions and commissions. Those appertain to certain crucial aspects, having far reaching ramifications. It is a tragedy that the so-dubbed simplified code,- that too soon after its release to the public with all fanfare and publicity,- came to be uniformly criticized in legal circles. The general grievance is that the draft code suffers from glaring and copious deficiencies. And, in its wake, perforce, the government had to undertake a fresh exercise in the matter, which is still on the anvil. It is anybody’s guess as to how many valuable man-years had been already spent, or are going to be spent, and, at what cost to the exchequer. One might have to wait for quite long for getting to know what the CAG has to say on the enormous waste of public monies, on the task of simplifying the law the government has been grappling with for years, nay decades now.
2. Form vs Substance:
Conventionally, based on sound principles, for examining the tax implications, it was invariably, except in certain extreme but compelling situations (e.g. tax evasion), the – ‘FORM’ of a transaction, – as mainly evidenced by the related contract agreement, – not its ‘SUBSTANCE’,- that used to be considered as the primary guiding factor / criterion. Be that as it may, in recent years, there has been a notable change or departure from that convention. Of the many cases since reported, it is the case of ‘Vodafone’ that stands out as the leading case on this aspect.
Briefly stating, therefore, given the above scenario, it is not just the utmost care taken in the drafting of – the ‘form’ of – a contract agreement that can be safely assumed to be solely and exclusively instrumental for anyone to reach a definitive conclusion in any such matter.
vswaminathan
