In the era of bilateral Double Taxation Avoidance Agreements, it seems that the rule espoused in the landmark case of Govt. of India v. Taylor is more or less a persona non grata.

About 3 decades before I was born, the House of Lords in London had an occasion to review the Revenue Rule as enunciated by Dicey and Morris in their landmark “Conflict of Laws” (probably the gold standard when it comes to Private International Law), crowning a landmark judgement more widely known as the “Govt of India v. Taylor”. The Revenue rule is also of referred to Rule 3 in Dicey and Morris.

To put things in perspective, Delhi Electric Supply and Traction Co Ltd was an English company established in 1906 for the purpose providing electric supply and operation of tramway in India under license from the Municipality of Delhi. In March 1947, the company sold off all its business to the Government of India. In April 1947, the Indian Government passed Indian Income Tax and Excess Profits Tax (Amendment) Act 1947. The company underwent voluntary liquidation in England in January 1949, Samuel Taylor and John Lovering (who posthumously was replaced by William Hume) serving as liquidators of the company. Subsequently the Commissioner of Income Tax at New Delhi served a demand on account of revenue and capital gains in October 1951.

The Indian Government took the claims to the English territories. The claim after being rejected at the Chancery and Appeals, the Government of India took the case to the House of Lords. Viscount Simonds had this to say about the claim:

“My Lords, I will admit that I was greatly surprised to hear it suggested that the courts of this country would and should entertain a suit by a foreign state to recover a tax. For at any time since I have had any acquaintance with the law, I should have said as Rowlatt J. said in The King of the Hellenes v. Brostron”: “It is perfectly elementary that a foreign government cannot come here – nor will the courts of other countries allow our Government to go there – and sue a person found in that jurisdiction for taxes levied and which he is declared to be liable to in the country to which he belongs.”

Needless to say the claim of the Indian Revenue was rejected, unanimously by a five-member panel.

On observation three pertinent points are there for consideration

1. The concept of independent sovereignty: National independent sovereignty precludes the assertion of sovereign authority of a foreign state within the territorial jurisdiction of the sovereign state. Revenue by extension is assertion of sovereign authority.

2. Scrutiny of foreign state law: Any observations on foreign state laws by a sovereign state might not be in the best books of the foreign state.

3. Administrative costs: Even out of courtesy it would be a remarkable feat if the sovereign state would allow its resources to be used for the purpose, all if by comity, just for the sake of collection of Revenue of the foreign state.

In some circles it is suggested that this case remains good law as of even today.

Reference may also be made to Relfo Ltd (in liquidation) v. Bhimji Velji Jadva Varsani [2008] SGHC 105 in case of unjust enrichment the respondent being a director of the petitioner company was accorded relief on the grounds of non-enforceability of revenue claims in a foreign jurisdiction. Also Oroville Reman & Reload Inc v. R 19 ITLR 259 is an interesting read.

Attempts have been made to distinguish between information gathering and revenue enforcement in that it has been held authoritatively that gathering of information does not tantamount to gathering of revenue and thus and therefore the law enunciated in Govt. of India v. Taylor doesn’t hold good as far as requisition of information is concerned for many common law jurisdictions. Jimenez v. HMRC being an authority in this subject. (http://www.bailii.org/ew/cases/EWCA/Civ/2019/51.html). Furthermore Article 26 of the OECD Model Convention of Income and Capital deals with information exchange in an international context.

However, with the recent changes in revenue concepts and administration, particularly the OECD Model Convention of Income and Capital more so with articles 26 and 27 and also the Convention on Mutual Administrative Assistance in Tax Matters, it does appear that the effect of the revenue rule becomes significantly diluted in contracting states applying the articles of the convention in spirit and face.

The case of article 27 of the OECD Model Convention of Income and Capital is a bit curious. Not only does it attempt to override well established legal precedent of the Revenue Rule, it also attempts to provide a mechanism for the same. Furthermore, the Convention on Mutual Administrative Assistance in Tax Matters has incorporated mechanisms in contracting states for recovery of taxes due in applicant states in any of the member states having regards to specific terms and conditions specified in Article 14 and 15 of the convention. However, it is to be noted that a time period of 15 years applies in case of any such request.

And while not a member of the OECD, India has for its part echoed its reservations on the OECD Model Convention of Income and Capital (https://home.kpmg/content/dam/kpmg/in/pdf/2017/12/KPMG-Flash-News-Indias-reservations-update-to-the-OECD-Model-Tax-Convention-and-Commentary-2.pdf), echoing its protection of self-preservation of revenue. As far as the Convention on Mutual Administrative Assistance in Tax Matters is concerned India has signed the Convention on Mutual Administrative Assistance in Tax Matters in 2012.

The position of the Revenue Rule as from above has significantly changed in guidance provided from the British case of Ben Nevis (Holdings) Ltd & Anor v. Revenue and Customs Commissioners [2013] BTC 485 and the South African Supreme Court in the case of Krok v. CSARS (20230/2014, 20232/2014) [2015] ZASCA 107; 2015 (6) SA 317 (SCA); [2015] 4 All SA 131 (SCA), wherein both the cases after a due consideration to articles 27 and 25 of the OECD model convention and the Vienna Convention on The Law of Treaties concluded that the Revenue rule in Dicey and Morris and resulting cases thereon would not be applicable between territorial jurisdictions who have incorporated specific terminology abrogating the effect of the Revenue Rule in their respective treaties, and if required, further guidance can be sought from Convention on Mutual Administrative Assistance in Tax Matters.

Very interesting to note is that article 27 of the Vienna Convention on The Law of Treaties applies and unless the language of the treaty specifically provides for retrospective application, the same cannot be taken advantage of. Courts have often cited this rule even in non- member states of the Vienna Convention.

More notably in the Ambatielos case (Preliminary Objections) ICJ Rep. (1952) 40, and Mavrommatis Palestine Concessions (1924) PCIJ Ser. A, No. 2 case it has been held that in case of treaty between two states everything boils down to the intention of the parties and any application to retrospective effect is to be determined from the language of the treaty and not otherwise. This state of law is generally held to be true even in case of states not parties to the Vienna Convention. It might be noted that although India has till now not ratified the Vienna Convention, courts have used the guiding principles for interpretation., AWAS Ireland v. Directorate General of Civil Aviation W.P.(C) 671/2005, Delhi High Court, Ram Jethmalani & Ors v. Union Of India & Ors ((2011) 8 SCC 1). In the case of Gramophone Company Of India Ltd v. Birendra Bahadur Pandey & Ors 1984 AIR 667, 1984 SCR (2) 664 the Apex Court has unambiguously held “There can be no question that nations must march with the international community and the municipal law must respect rules of international law even as nations respect international opinion. The comity of nations requires that rules of international law may be accommodated in the municipal law even without express legislative sanction provided they do not run into conflict with Acts of Parliament.”

With progressing adjudicative and prescriptive legislation within international juridical domains effectively moving towards greater co-operation between states as evidenced by the movements of and within the OECD and The Convention on Mutual Administrative Assistance in Tax Matters, and the rapid proliferation of information exchange provisions and application thereof, it seems that there is little space in the modern paradigm for such a restrictive covenant.