Exchange of information under Double Tax Avoidance Agreement. - Income Tax - 1418/CBDT

INSTRUCTION NO. 1418/CBDT Dated: September 30, 1981 While making assessments of multi-national corporations and other non-residents one of the problems which are generally faced by the assessing offices is how to obtain reliable information regarding international transactions. The non-residents often claim deductions for expenses incurred outside India, the validity of which needs to be examined. They may also carry on significant transactions with affiliated persons or entities located abroad. The reliability of figures reported for such transactions needs verification particularly due to the case with which transactions between affiliated tax payers can be distorted to minimise or avoid the tax liability. 2. We have entered into Double Taxation Avoidance Agreements with a number of countries. The aim of these agreements is not only the avoidance of double taxation of income but also the prevention of tax evasion. For achieving the objective of pervention of tax evasion most of our DTA agreements contain an article for exchange of information under this article the competent authorities of the contracting states are empowered to exchange such information is necessary for carrying out the provisions of the agreement or of the domestic laws of the contracting states concerning taxes covered by the agreement and in some cases, for the prevention of fraud or evasion of such taxes. The reference to the underlined words in the agreements is intended to focus attention on the importance of exchange of information that would assist the contracting states in combating tax evasion or fraud. 3.It is seen that in spite of having provisions for exchange of information in our DTA Agreements we have not made any effective use thereof. This is mainly due to the reason that the board have not been getting requests form field formations for obtaining information regarding international transactions from the competent authorities with which we are having DTA agreements. One reason for this may be that some of the assessing officers may not be aware of the provisions regarding exchange of information contained in our various DTA agreements. 4. A list of our DTA agreements which contain provisions regarding exchange of information and which have already been notified is given in the Annexure. 5. The Board desired that the enclosed list of DTA agreements may be supplied to all the assessing officers and they may be asked to write to the board through your office, whenever they consider it necessary to obtain information regarding international transaction from the country with whom we are having DTA Agreements. Before making such request the assessing officers should however satisfy themselves that the information sought falls within the scope of the Article for Exchange of Information in the relevant DTA agreement. On receipt of such requests the board would write to the competent Authority of the country concerned and try to obtain the desired information.