Agreement with foreign countries or specified territories - Section 90 - International Taxation - Income Tax

Agreement with foreign countries or specified territories - Section 90 The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India,- for the granting of relief in respect of - income on which income-tax have been paid both in India and in that country or specified territory, as the case may be, or income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in the said agreement for the indirect benefit to residents of any other country or territory), or Accordingly the CG has notified that where such an agreement provides that any income of a resident of India may be taxed in the other country then, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of Income Tax Act, 1961 and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement. [Notification no. 91/2008, dated 28.08.2008] for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country or specified territory, as the case may be, or investigation of cases of such evasion or avoidance, or for recovery of income-tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be, CG may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement. Provision of Income Tax or DTAA whichever is more beneficial - Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under section 90(1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. However, the provisions of Chapter X-A, General Anti-Avoidance Rule, shall apply to the assessee even if such provisions are not beneficial to him. Meaning of terms used in any DTAA with a foreign country or specified territory. Particulars Meaning of the term 1 Term used in any DTAA with a foreign country or specified territory and not defined in the agreement or the Act but assigned a meaning in the notification issued by the CG in the official Gazette, which is still in force The term shall have the meaning assigned in the said notification and the meaning shall be deemed to have effect from the date on which DTAA came into force. 2. Term used in any DTAA with a foreign country or specified territory, which is defined in the DTAA itself. The term shall have the same meaning assigned to it in the DTAA. 3. Term used in any DTAA with a foreign country or specified territory, which is not defined in the said DTAA, but defined in the Income Tax Act, 1961. The term shall have the meaning assigned to it in the IT Act, 1961 and explanation, if any, given to it by the CG Tax Residency Certificate Section 90(4) provides that the non-resident to whom the agreement referred to in section 90(1) applies, shall not be entitled to claim any relief under such agreement unless a certificate of his being a resident in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory, is furnished declaring his residence of the country outside India or the specified territory outside India, as the case may be. The double taxation avoidance treaties entered into by the Government of India override the domestic law As per Section 90(2) provides that the provisions of the double taxation avoidance treaty is entered into by the Government, the provisions of the Income Tax Act, 1961 would apply to the extent they are more beneficial to the assessee As per Circular No. 333 dated 02.04.1982 issued by CBDT provides that a specific provision of the DTAA will prevail over the general provisions of Income Tax Act, 1961. However, where there is no specific provision in the treaty, then the income tax act will apply. Generally DTAA only provides for distribution of taxing right between the residence and the source state. The computation mechanism is usually not provided under DTAA and the same is governed by the domestic tax law of each country. In case of any conflict between the provisions of the DTAA and Income Tax Act, 1961, the provisions of the STAA would prevail over the act in view of the provisions of section 90(2), to the extent they are more beneficial to the assessee. [ CIT v. P.V.A.L. Kulandagan Chettiar 2004 (5) TMI 8 - SC ] Notes:- A certificate issued by the Government of a foreign country would constitute proof of tax residency without any further conditions regarding furnishing of Prescribed Particulars therein. In addition to such certificate issued by the foreign Government, the assessee would be required to provide such other documents and information, as may be prescribed, for claiming the treaty benefits. The charge of tax in respect of foreign company at a rate higher than the rate at which as domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company