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INTERPRETATION
11. Principles of Interpretation
Like domestic laws, international agreements require interpretation. But the
principles of interpretation as applicable to domestic laws may not be fully applicable to
double taxation agreements. Obligations under the agreement have to be interpreted
restrictively as to conform with the international obligations of the State. The States
entered into the agreement may be presumed to have waived their sovereignty to the extent
mentioned in the text of the agreement. The domestic codes should incorporate these as to
avoid any conflict national methods of interpretation to the binding nature of the
international obligations as formulated in the shape of an agreement. Thus, agreements
have to be interpreted more liberally than the domestic stature.
Each agreement is autonomous and its provisions are incorporated on its own terms.
Inference from other agreements be drawn with great care and caution. Each agreement is
the result of hard and protracted negotiations between the two contracting countries
reconciling the conflicting interests which may be peculiar to them alone vis-a-vis each
other. Such conflicting interest may be absent but in their place some other may exist
requiring negotiated settlement, when the State enters into agreements with some other
State. Absence of some of the terms in one agreement while those terms are specifically
emphasized in the other, may not suggest that those terms do not apply. The reason for
such absence may be two-fold. First the contracting State in one instance desires a
clarification which is deemed not necessary in another. Secondly, the States intend
resolving the conflict out of the agreement and then applying the negotiated term through
another provision of the agreement. For instance the absence of a clause about a
particular type of income being taxed on the basis of residence, does not mean that it has
not to be so done, as such a result could be arrived at in terms of a clause corresponding
to Article 21 of the OECD or UN Model. The income is still taxed in the country of
residence.
The principles of interpretation of domestic statute are variously expressed by saying
that in fiscal statute one must have regard to the letter of the law and not the spirit of
the law; that the subject cannot be taxed by inference or analogy; that in a taxing Act
there is no governing principle to look at and one has simply to go to the Act itself to
see whether the tax claimed is that which the statute imposes; that while construing
taxing Act, it is not the function of the court to give to the words used a strained or
unnatural meaning and that the subject can be taxed only if revenue satisfies the court
that the case falls strictly within the provisions of the law; that if the statute
contains a lacuna or a loophole, it is not the function of the court to plug it by a
strained construction to the supposed intention of the Legislature; that the court ought
not to hunt out ambiguities by an unnatural construction of a taxing section.
The duty of the court (whether the Act to be construed relates to taxation or to any other
subject) is to give effect to the intention of the Legislature. The intention is to be
gathered from the language employed, having regard to the context in connection with which
it is employed. The courts must no doubt ascertain the subject-matter to which the
Particular tax is intended to be applied by the statute; but when once that is ascertained
it is not open to the court to narrow or whittle down the operation of the Act by
consideration of hardship or business convenience or the like. The court should study the tax laws as a whole and even if it resorts
to a reasonable or liberal construction, care should be taken not to defeat the intention
of the Legislature.
11.1. Reason for and object of statute is a guide for
interpretation - A statute is best understood if we know the reason and logic behind
it. The purpose for which the statute is promulgated is the safest guide to its
interpretation. The words of the statute take their colour from the logic behind it. How
one can discover the reason for a statute? There are external as well as internal
indications. The external indications are statement of objects and reasons/notes appended
to the Bill and the reports of the Committees. Occasional excursions into the debates of
the Parliament are permitted. Internal indications are the preamble, the scheme and the
provisions of the statute. Having discovered the reasons for the statute, the interpreter
may proceed ahead. No provision in the statute may be construed in isolation. Every
provision and every word must be looked at generally before any opinion is formulated. The
setting and the pattern are important. These must be construed as being limited to the
actual objects of the Act. Interpretation must
depend on the text and the context. If the text is the texture, context is what gives the
colour. That interpretation is the most dependable which makes the textual interpretation
match the contextual. If a statute is looked at in the context of its enactment with the
glasses of the statute maker provided by such context, its schemes, its sections, clauses,
phrases and words may take Colour and appear different than when the statute is looked at
without the glasses provided by the context. With these glasses we must look at the Act as
a whole and discover what each section, each clause, each phrase and each word is meant
and designed to say as to fit into the scheme of the entire Act. As a matter of principle
no part of the statute and no word of it should be construed in isolation. Statutes have
to be construed so that every word has a place and everything is in its proper place.
11.2 Intent of the legislature is the basic rule - Courts in
Pakistan as well as in India and elsewhere have generally taken the view that the
ascertainment of the legislative intent is the basic rule of statutory construction and
that rule of construction should be preferred which advances the purpose and object of a
legislation. Thus the primary and the foremost task of a court in interpreting a statute
is to ascertain the intention of the legislature, actual or imputed. Once intention is
ascertained the court can proceed to interpret the statute as to promote/advance the
object and purpose of the enactment. For this purpose where necessary the court may even
depart from the rule that plain words should be interpreted according to their plain
meaning. There need to be no meek and mute settlement to the plainness of the language. To
avoid patent injustice, anomally, obstruction or to avoid invalidation of the law, the
court would be well justified in departing or to avoid invalidation of the law, the court
would be well justified in departing from the so-called golden rule of interpretation so
as to give to the object and purpose of the enactment of supplementing the written word if
necessary.
11.3 Purpose or object of international agreements - Just as
statute must have some purpose or object, the international agreements have purpose or
object. An agreement is best understood if we know the reason for it, these reasons can be
discovered from the agreement itself, from its preamble, its provisions if read as a
whole, its setting and pattern, preparatory work of the agreement, the circumstances of
its conclusion, any agreement relating to the treaty. The Vienna Convention incorporates rules for interpretation of international treaties in
the same vein ad above, almost similar to the rules of interpretation of domestic laws.
Double taxation treaties are international agreements and, therefore, the rules of Vienna
Convention on the Law of Treaties govern their interpretation. The treaty is binding on
the Contracting States upon the declaration of consent by them, which is effected through
exchange of instruments of ratification. The tax treaties are designed to be applied by
domestic authorities and in Pakistan the Federal Government has been empowered to enter
into an agreement with the government of any country, and make, by notification in the
official Gazette, such provisions as may be necessary for implementing the agreements,
(section 163 of the Income Tax Ordinance, 1979).
11.4. Tax agreements precede tax laws - The tax agreements are
considered in Pakistan to be special provisions with the result that they are not altered
by subsequent law unless it expressly contradicts their provisions. Power to enter into
agreements as also to order its implementation, has been conferred by the Income Tax
Ordinance, 1979 upon the Federal Government and, therefore, these agreements are part of
income-tax law in Pakistan. The tax agreements are special rules and in this sense they
override the domestic tax laws on the basis of the doctrine of Generalia specialibus non
derogant. This maxim is ordinarily applied where there is a conflict between a special and
a general statute. It is subject to the provision that there is nothing in the general
provision expressed or implied indicating an intention to the contrary. In other words, to
invoke the said maxim, the general and special rules shall occupy the same field. In case of a conflict, the special provision
must prevail. Tax agreements are special rules and,
therefore, they "proceed" tax laws.
