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TMI BlogComprehensive Reform in International Taxation and Treaty Implementation : Clause 159 of Income Tax Bill, 2025 Vs. Section 90 of Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... rnational obligations, ensure effective relief from double taxation, and fortify the mechanisms to prevent tax evasion and avoidance in an increasingly globalized economic environment. This commentary provides a detailed clause-wise analysis of Clause 159, evaluates its objectives and practical implications, and undertakes a comprehensive comparative assessment with the extant provisions u/s 90 and Rule 21AB. The discussion focuses on the legislative intent, interpretive nuances, compliance requirements, and anticipated challenges or ambiguities, with a view to offering a holistic understanding of the evolving statutory regime. Objective and Purpose The legislative intent behind Clause 159 is rooted in the need to modernize and harmonize India's approach to double taxation relief and international tax cooperation. The provision seeks to: * Enable the Central Government to enter into tax treaties and similar arrangements with foreign countries or specified territories. * Allow for the adoption of agreements between specified associations, reflecting the trend towards greater cooperation at institutional or industry levels. * Codify mechanisms for relief from double taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 90, which restricts the power to the Central Government alone. The rationale is to facilitate sectoral or institutional arrangements (e.g., between professional bodies, chambers of commerce, or industry associations) that may address double taxation or tax cooperation in specific contexts. However, the Central Government retains the power to adopt and implement such agreements, ensuring that international obligations remain within the purview of sovereign authority. Purposes of Agreements Clause 159(3) enumerates the purposes for which agreements may be entered into: * Relief from Double Taxation: Covers income taxed both in India and the foreign jurisdiction, or income chargeable under both laws to promote economic relations, trade, and investment. This is in line with Section 90(1)(a). * Avoidance of Double Taxation and Anti-abuse: Expressly states that avoidance should not create opportunities for non-taxation or reduced taxation through evasion or avoidance, including treaty shopping. This aligns with the language introduced in Section 90(1)(b) post-2020 amendments, reflecting India's commitment to the OECD BEPS (Base Erosion and Profit Shifting) initiative. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation by the Central Government. * If not defined in either, the meaning assigned in a notification by the Central Government applies. * If still undefined, the meaning in any Central Government tax law or, failing that, any other Central Government law applies. This multi-layered approach is more elaborate than Section 90(3) and its Explanations, which primarily provide for definitions in the Act, the treaty, and notifications. The expanded hierarchy aims to reduce interpretive disputes and litigation by providing a clear roadmap for term interpretation, with retrospective effect from the date the agreement comes into force. Documentary Requirements for Non-residents Clause 159(8) requires a non-resident assessee to provide: * A certificate of residence from the relevant foreign government; and * Such other documents and information as may be prescribed. This is in line with Section 90(4) and (5), read with Rule 21AB, which mandate a Tax Residency Certificate (TRC) and additional prescribed information (Form 10F). The provision ensures that only genuine residents of treaty partner jurisdictions can claim treaty benefits, thereby curbing treaty shopping and abusive cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar purposes: relief from double taxation, avoidance of double taxation (with anti-abuse caveats), exchange of information, and mutual assistance in tax recovery. Clause 159, however, elaborates on the anti-abuse objective, explicitly referencing treaty shopping and indirect benefit to residents of third countries, reflecting recent amendments to Section 90 and India's BEPS commitments. Beneficial Provision and Treaty Override The principle that the more beneficial of domestic law or treaty applies is common to both Section 90(2) and Clause 159(4). Both also provide for an override in favor of anti-abuse provisions (GAAR/Chapter X-A in Section 90(2A); Chapter XI in Clause 159(6)), underscoring the growing policy emphasis on substance over form and the prevention of tax avoidance. Non-discrimination Both statutes clarify that higher tax rates for foreign companies do not constitute less favorable treatment. This is codified as Explanation 1 to Section 90 and Clause 159(5), providing legal certainty in the face of non-discrimination clauses in many DTAAs. Interpretation of Terms Section 90(3) and its Explanations provide a three-tiered approach: treaty definition, Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve deeming of definitions from the date of agreement may have unintended consequences for prior assessments or ongoing disputes. * Interaction with Domestic Anti-abuse Rules: The precise scope and operation of the override for anti-abuse provisions may require judicial clarification, especially where domestic law and treaty provisions are in tension. Conclusion Clause 159 of the Income Tax Bill, 2025 marks a significant evolution in India's international tax regime, building on the foundations laid by section 90 of the Income-tax Act, 1961 and rule 21AB of the Income-tax Rules, 1962. The clause embodies a comprehensive approach to double taxation relief, robust anti-abuse measures, and enhanced procedural rigor. Its innovations-such as the recognition of specified association agreements, the expanded interpretive hierarchy, and the reaffirmation of anti-avoidance primacy-reflect India's commitment to global best practices and the realities of a dynamic international tax environment. While the core principles remain consistent with the existing framework, the refinements introduced by Clause 159 are likely to have far-reaching implications for taxpayers, businesses, and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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