Sections 90 & 90A – Clarification with regard to interpretation of ‘terms’ used in tax treaties under Section 90/90A but not defined in such treaties – Concern to be addressed


Under the existing provisions of Section 90 of the Act, power has been conferred upon the Central Government to enter into a tax treaty with the Government of any country outside India for granting relief in respect of income on which income-tax has been paid both under the said Act and Income-tax Act in that foreign country, avoidance of double taxation of income, exchange of information for the prevention of evasion or avoidance of income-tax or recovery of income-tax. Similar provisions are provided in section 90A of the Act in the case of a treaty entered into by any specified association in India with any specified association in the specified territory outside India.

It is further provided in section 90 and 90A of the Act that any ‘term’ used but not defined in this Act or in the tax treaty referred to in subsection (1) of respective sections shall have the meaning assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf, unless the context otherwise requires, provided the same is not inconsistent with the provisions of this Act or the agreement.

The Finance Act 2017 amended sections 90 and 90A of the Act, to provide that where any ‘term’ used in an agreement entered into under sub-section (1) of Section 90 and 90A of the Act, is defined under the said agreement, the said term shall be assigned the meaning as provided in the said agreement and where the term is not defined in the agreement, but is defined in the Act, it shall be assigned the meaning as per definition in the Act or any explanation issued by the Central Government.

A tax treaty is a bilateral agreement entered between two countries based on mutual negotiations by executives of respective countries. As per Article 31 of the Vienna Convention, a treaty shall be interpreted in good faith in accordance with the ordinary meaning given to the terms of the treaty in their context and in the light of its object and purpose.

In view of above, the Government cannot unilaterally introduce an amendment in the Act which would override a bilateral tax treaty. In several cases , the courts have also held the same.

Article 3(2) of the Indian tax treaties provides that if any term which has not been defined under the tax treaty, unless the context otherwise requires, the meaning defined under the Act shall apply. Therefore, the tax treaties already provide a mechanism in such a situation.


It may therefore be suggested to withdraw the proposed amendments to Section 90 and 90A of the Act.

Without prejudice to the above suggestion, the proposed amendment should be restricted to the terms defined under the Act and should not apply to ‘Explanation to be issued by the Government’. In other words, reference to the ‘Explanation to be issued by the Government’ should be removed.

Source-  ICAI Pre-Budget Memorandum–2018 (Direct Taxes and International Tax)

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June 2021