Case Law Details
Shinhan Bank Vs Deputy Director of Income Tax (International Taxation) (ITAT Mumbai)
S.90 : Double taxation relief-Foreign Company-discrimination allowed-Company has not made prescribed arrangement-DTAA-India -Korea. [S. 2(22A), Art. 25(1)]
We find that, by Finance Act 2001, an Explanation (now known as Explanation 1) was inserted below Section 90, and it was with retrospective effect i.e. effective 1st April 1962. This Explanation states that “For the removal of doubts, it is hereby declared that the charge of tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company, where such foreign company has not made the prescribed arrangement for declaration and payment within India, of the dividends (including dividends on preference shares) payable out of its income in India”.
It is important to bear in mind that it is by virtue of Section 90(2), which specifically provides that “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 sub-section (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”, that the provisions of the related double taxation avoidance agreement override the provisions of the Income Tax Act, 1961.
As a corollary to this legal framework, it is only elementary that once a rider to this override is placed in the statute itself, to that extent the provisions of the Income Tax Act, 1961 will hold the field notwithstanding the more beneficial provisions in the tax treaties. In this light, when we look at the expression “less favourably levied” or “more burdensome…taxation and connected requirement”, appearing in Articles 25(2) and 25(1) respectively, in the then applicable tax treaty, we find that unless such a foreign company makes prescribed arrangements for declaration and payment within India, of the dividend payable out of its income in India, the levy of tax at a higher rate cannot be considered a less favourable levy of tax or more burdensome taxation vis-à-vis the domestic companies. Once this principle is implicit in the very scheme of legislation which provides for the treaty provisions overriding the domestic law provisions, it cannot be open to contend that the provisions of law prescribing the higher rate of taxation for the foreign companies will have to be read down by the treaty provisions. The law is clear and unambiguous. To this extent, therefore, the treaty provisions do not override the provisions of the Income Tax Act, 1961.
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