Interpretation of statutes & DTAAs: The substitution of a provision results in repeal of earlier provision and its replacement by new provision. When a new rule in place of an old rule is substituted, the old one is never intended to keep alive and the substitution has the effect of deleting the old rule and making the new rule operative. Though Notification dated 18.07.2005 (which substitutes paragraph 12 of Article 12 of the DTAA to provide for levy of tax on the royalties or fees for technical services at a rate not exceeding 10%) issued u/s 90 came into force with effect from 01.08.2005, it applies to the entire fiscal year

This appeal under Section 260A of the Income Tax
Act, 1961 (hereinafter referred to as the Act for short)
has been preferred by the revenue. The subject matter
of the appeal pertains to the Assessment year 2006-07.
The appeal was admitted by a bench of this Court vide
order dated 12.08.2013 on the following substantial
question of law:

(i) Whether the Tribunal was correct in
holding that the assessee is liable to be
taxed at 10% in view of replacement of
15% with 10% of tax in Article 12 of
the DTAA without taking into
consideration that the modification of
rate of tax by way of notification dated
18.07.2005 was with effect from
01.08.2005 and recorded a perverse
finding?

(ii) Whether the Tribunal was correct in
extending the benefit of Notification to
the whole of the Previous year, when
the Notification was given effect from
01.08.2005 as per Article 7 of the
DTAA?

2. Facts leading to filing of the appeal briefly
stated are that the assessee is a company based in
Singapore and is engaged in the business of marketing
and sale of software. The assessee sold software
licences to Indian customers and in connection with sale
of software also provided certain ancillary services to the
Indian customers. The assessee showed turnover on
sale of software licences and ancillary services at USD
1,02,15,762/-, out of which 95% of software licences
were sold to authorized distributors viz., INGRAM Micro
India Pvt. Ltd. and M/s Tech Pacific India Limited. Thus,
sales to the tune of 100,52,271$ was made to the
authorized distributors. The assessee filed a return of
income for the Assessment Year 2006-07 on 08.11.2006
by declaring the taxable income as ‘NIL’. The case was
selected for scrutiny and notice under Section 143(2) of
the Act was issued to the assessee, by which assessee
was asked to furnish details such as agreements,
invoices etc. The Assessing Officer by an order dated
26.12.2008 on examination of the agreements and
documents supplied by the assessee inter alia held that
software supplied is chargeable to income tax from
royalty and technical services. Accordingly, the order of
assessment was concluded. The aforesaid order was
affirmed in appeal by an order dated 17.02.2011 by
Commissioner of Income Tax (Appeals). Being
aggrieved, the assessee approached the Income Tax
Appellate Tribunal (hereinafter referred to as ‘the
Tribunal’ for short). The Tribunal by an order dated
26.10.2012 allowed the appeal preferred by the
assessee. In the aforesaid factual background, this
appeal has been filed.