The relevance of the OECD and UN Model Conventions and their Commentariesfor the interpretation of Indian tax treaties

India is a common law country. In matters relating to interpretation, whetherinvolving domestic law or treaties, courts are the final arbiters. There is nosystem of revenue ruling in India. No detailed guidelines are issued by theCentral Board of Direct Taxes (CBDT), the apex body in charge of theadministration of direct taxes. Occasionally, it issues public circulars for theguidance of the officers. These are binding on the administration but not on thetaxpayer or the courts. Generally speaking, it is the case law that guides theadministration of direct taxes including the treaties.

Until 1980, there was no United Nations Model Double Taxation Convention betweenDeveloped and Developing Countries (UN Model). Indian treaties for periodsbefore this time are closer to the OECD Model Tax Convention on Income and onCapital (OECD Model). Subsequent treaties have been strongly influenced by theUN Model, with greater emphasis on source taxation. Treaties with otherdeveloping countries also have different nuances.

The courts in India have been taking recourse to the OECD Model Commentary for along time. The UN Model Commentary, having come late, has been of less use.However, the tax officers often refer to it. Both the taxpayers and the taxadministrators routinely make reference to the Commentaries to suit theirconvenience. As the UN Commentary has adopted the OECD Commentary for the mostpart, there are very few cases where the UN Commentary has been preferred overthe OECD Commentary. There is also no guidance from the tax administration as towhether either of the Models should be given priority.