Clarification with regard to interpretation of ‘terms’ used in an agreement entered into under section 90 and 90A.
Under the existing provisions of Section 90 of the Act, power has been conferred upon the Central Government to enter into agreement 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 an agreement 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 agreement referred to in sub-section (1) of respective provisions 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 Income-tax simplification committee in its final report has suggested to bring in more clarity in the Act in respect of interpretation of ‘terms’ used in an agreement entered under section 90 or 90A for the purposes of its application in order to reduce the avoidable litigation related to taxation of non- residents.
In the light of above discussion and to bring in clarity to avoid litigation , it is proposed to amend the 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 definition in the Act or any explanation issued by the Central Government.
These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.
[Clauses 39 & 40]
Extract of relevant clause from Finance Bill, 2017
Amendment of section 90.
39. In section 90 of the Income-tax Act, after Explanation 3, the following Explanation shall be inserted with effect from the 1st day of April, 2018, namely:—
“Explanation 4.––For the removal of doubts, it is hereby declared that where any term used in an agreement entered into under sub-section (1) is defined under the said agreement, the said term shall have the same meaning as assigned to it in the agreement; and where the term is not defined in the said agreement, but defined in the Act, it shall have the same meaning as assigned to it in the Act and any explanation given to it by the Central Government.”.
Amendment of section 90A.
40. In section 90A of the Income-tax Act, after Explanation 3, the following Explanation shall be inserted with effect from the 1st day of April, 2018, namely:—
“Explanation 4.––For the removal of doubts, it is hereby declared that where any term used in an agreement entered into under sub-section (1) is defined under the said agreement, the said term shall have the same meaning as assigned to it in the agreement; and where the term is not defined in the said agreement, but defined in the Act, it shall have the same meaning as assigned to it in the Act and any explanation given to it by the Central Government.”.
