Circular No. 333-Income Tax dated 2-4-1982

TG Team 02 Apr 1982 3,747 Views 0 comment Print Income Tax | Circulars, Notifications/Circulars

Double Taxation Relief & Transfer Pricing

SECTION 90 – AGREEMENT WITH FOREIGN COUNTRIES
[CORRESPONDING TO SECTION 40A OF THE 1922 ACT]

627. Specific provisions made in double taxation avoidance agreement -Whether it would prevail over general provisions contained in Income-tax Act

1. It has come to the notice of the Board that sometimes effect to the provisions of double taxation avoidance agreement is not given by the Assessing Officers when they find that the provisions of the agreement are not in conformity with the provisions of the Income-tax Act, 1961.

2. The correct legal position is that where a specific provision is made in the double taxation avoidance agreement, that provisions will prevail over the general provisions contained in the Income-tax Act. In fact that the double taxation avoidance agreements which have been entered into by the Central Government under section 90 of the Income-tax Act, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective countries except where provisions to the contrary have been made in the agreement.

3. Thus, where a double taxation avoidance agreement provides for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income-tax Act. Where there is no specific provision in the agreement, it is basic law, i.e., the Income-tax Act, that will govern the taxation of income.

Circular : No. 333 [F. No. 506/42/81-FTD] dated 2-4-1982.

JUDICIAL ANALYSIS

EXPLAINED IN – The above circular was explained in ITO v. Degremont International [1985] 11 ITD 564 (Jp. – Trib.) with the following observations :

“4. The ITO has assumed that the provisions of section 44C override the provisions of the articles in the Agreement. This assumption is contrary to a circular issued by the CBDT, i.e., Circular No. 333.

Now, it will be seen from the above that the ITO have been directed to compute the income according to the Agreement unless the Agreement clearly provides otherwise. The provisions of the Agreement will override the provisions of the Act.” (p. 567)

EXPLAINED IN – The above circular was explained in Elkem Spigerverket v. ITO [1988] 32 TTJ (Cal. – Trib.) 5, with the following observations :

“. . . Circular No. 333 dated 2nd April, 1982 issued by the CBDT ( see Taxmann’s Direct Taxes Circular Vol. I, page 584) has clarified the legal position by saying that where a specific provision is made in the Double Taxation Avoidance Agreement that provision will prevail over the general provisions contained in the Income-tax Act. It further says that where a Double Taxation Avoidance Agreement provided for a particular mode of computation of income, the same should be followed, irrespective of the provisions of the Income-tax Act. Thus, even according to the aforesaid Circular, the provisions of the DTA Agreement will prevail over the general provisions contained in the Income-tax Act, 1961. . .” (p. 10)

EXPLAINED IN – The above circular was referred to in DCM Ltd. v. ITO [1989] Taxation 92(4)-16(Delhi – Trib.). The Tribunal observed :

“6. The double taxation avoidance agreements are referable to sections 90 & 91. Where a specific provision is made in the double taxation avoidance agreement, that provision prevails over the general provisions contained in the Income-tax Act. The laws in force in either country continue to govern the assessment and taxation of the income in the respective countries except where provisions to the contrary have been made in the agreement. This position is not under dispute before us and was also clarified vide Circular No. 333, dated 2-4-1982. . .” (pp. 19-20)

EXPLAINED IN – The above circular was explained in CIT v. Davy Ashmore Ltd. [1991] 190 ITR 626 (Chd.), as follows:

“In our view, the Circular reflected the correct legal position inasmuch as the Convention or Agreement is arrived at by the two contracting Governments in deviation from the general principles of taxation applicable to the Contracting States; otherwise, the double taxation avoidance agreement will have no meaning at all.” (p. 632)

EXPLAINED IN – The above circular was explained in Banque National De Paris v. IAC [1991] 94 CTR (Bom. – Trib.) 57, as follows :

“4. We have heard the parties and considered their rival submissions. As a matter of principle, we agree with the learned counsel for the assessee that the provisions of DTAA would prevail over the provisions of the Income-tax Act, in view of the Board’s Circular (supra) as also the judgment of the Andhra Pradesh High Court in 144 ITR 146 (supra). But that is when there is a conflict between the two; otherwise the assessments would be governed by the provisions of the respective laws of the country. . . ” (p. 60)

EXPLAINED IN – The above circular was explained in CIT v. R.M. Muthiah [1993] 202 ITR 508 (Kar.) as follows:

“The effect of an ‘agreement’ entered into by virtue of section 90 of the Act would be : (i) If no tax liability is imposed under this Act, the question of resorting to the agreement would not arise. No provision of the agreement can possibly fasten a tax liability where the liability is not imposed by this Act ; (ii) if a tax liability is imposed by this Act, the agreement may be resorted to for negativing or reducing it; (iii) in case of difference between the provisions of the Act and of the agreement, the provisions of the agreement prevail over the provisions of this Act and can be enforced by the appellate authorities and the court. To the same effect is the circular issued by the Central Board of Direct Taxes as per Circular No. 333, dated April 2, 1982… (pp. 512-513)

EXPLAINED IN – The above circular was explained and applied in Agencia Geral (P.) Ltd. v. First ITO [1993] 45 ITD 243 (Pune – Trib.), as follows :

“7. Para 3 of the above circular clearly clarifies that a particular mode of computation of income which for that matter includes the particular rate of tax payable on such computation of income should be followed irrespective of the provisions in the Income-tax Act. Therefore, it is clear that the provisions of Double Taxation Avoidance Agreement entered into with the Government of Singapore would prevail over the relevant provisions of the Income-tax Act, 1961. Consequently, the ITO ought to have applied the provisions of Double Taxation Avoidance Agreement, especially Article 9 thereof and ought to have subjected the relevant income at 50 per cent of the prescribed rate of tax. This position emerges from the consideration of all the relevant provisions of the Income-tax Act and Double Taxation Avoidance Agreement.” (pp. 247-248)

EXPLAINED IN – The above circular was explained in CIT v. VR.S.R.M. Firm [1994] 208 ITR 400 (Mad.), as follows :

“Tax treaties are for that matter considered to be mini legislations containing themselves all the relevant aspects or features which are at variance with the general taxation laws of the respective countries. Such variations are in some cases in addition to the existing local tax laws and in other cases in lieu thereof. That being the legal position, the exposition of the said position also by the Central Board of Direct Taxes in their Circular No. 333, dated April 2, 1982, assumes significance and importance inasmuch as they can also be traceable to the powers of the Board under section 119 of the Act. Consequently, wherever the double taxation avoidance agreement provides for a particular mode of computation of income, the said method alone is required to be followed, irrespective of the provisions of the Income-tax Act, and it is only where there is no specific provision in the agreement to the contrary the basic tax law in force in the country will get attracted and govern the taxation of such income…” (p. 420)

EXPLAINED IN – The above circular was explained in CIT v. Hindustan Paper Corpn. Ltd. [1994] 77 Taxman 450 (Cal.), as follows :

“. . . It is by now well-settled that wherever there is a conflict between a DTA and the specific provisions contained in the Income-tax Act, the provisions of DTA will prevail over the statutory provisions contained in the said Act. In this connection reference may be made to Circular No. 333, dated 2-4-1982. The CBDT made it quite clear that where a specific provision is made in the DTA, that provisions will prevail over the general provisions contained in the Act. In fact, the DTA which has been entered into by the Central Government under section 90 of the Act, also provides that the laws in force in a country will continue to govern the assessment and taxation of income in that country except where provisions to the contrary had been made in the agreement. Thus, where a DTA provides for a particular mode of computation of income, the same should be followed irrespective of the provisions in the Act. Where there is no specific provision in the agreement, it is the basic law, i.e., the Act, that will govern the taxation of income.” (pp. 455-456).