QUESTION: The Income Tax Act, 1961 provides for taxation of a certain income earned in India by Mr. X a non-resident. The DTAA ,which applied to Mr. X provides for taxation of such income in the country of his residence. Examine ,is Mr. X is liable to pay tax on such income earned by him in India?.
ANSWER: the provisions of section 90(2) makes it clear that where the Central Government has entered into a DTAA with a country outside India, then in respect of an assessee to which such agreement applies, the provisions of the Act, 1961 shall apply to the extent they are more beneficial to the assessee. This means that where the DTAA has been entered, the assessee can opt to be governed by the provisions of DTAA ,if the provisions are beneficial in comparison to the provisions of Income Tax Act, 1961.
However according to Section 90(4) , the assessee, in order to claim relief under the agreement ,has t obtain a Certificate [ TRC i.e. Tax Resident Certificate] from the Government of that country, declaring the residence of the country outside India. Further , he also has to provide the following information in Form 10F;
i) Status ( Individual, Company, Firm ,etc.) of the assessee;
ii) PAN;
iii) Nationality ( in case of individual) or country or specified territory of incorporation or registration ( in case of other than individuals);
iv) Assessee’s tax Identification Number in the country or specified territory of residence and in case here is no such number, then, a unique number o the basis of which the person is identified by the Government of the country or specified territory of which the assessee claimed to be residence;
v) Period for which the residential status , as mentioned in the TRC referred to Section 90(4) or Section 90A(4) , is applicable ;and
vi) Address for which assessee in the country or specified territory outside India, during the period for which the TRC , as mentioned in (v) above is applicable.
However, the assessee may not be required to provide information or any part thereof , if the information or the part thereof , as the case may be, is already contained in theTRC referred to in Section 90(4) or 90A(4).
The Supreme Court of India has held, in CIT Vs. PVAL Kulanagan Chettiar (2004)267 ITR 654, that in case of any conflict between the provisions of the DTAA and the Income Tax Act, 1961, the provisions of DTAA would prevail over those of the Income Tax Act, 1961.
Mr. X is therefore ,not liable to pay tax on income earned by him in India provided he submits the TRC( Tax Residence Certificate) obtained by him from the Government of the other country, and provides such other documents and information as may be prescribed.
Footnotes;
CHAPTER IX- DOUBLE TAXATION RELIEF
Agreement with foreign countries or specified territories.
90. (1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India,—
(a) for the granting of relief in respect of—
(i) income on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be, or
(ii) income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or
(b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, or
(c) for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country or specified territory, as the case may be, or investigation of cases of such evasion or avoidance, or
(d) for recovery of income-tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be, and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement.
(2) 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.
(2A) Notwithstanding anything contained in sub-section (2), the provisions of Chapter X-A of the Act shall apply to the assessee even if such provisions are not beneficial to him.
(3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf.
(4) An assessee, not being a resident, to whom an agreement referred to in sub-section (1) applies, shall not be entitled to claim any relief under such agreement unless a certificate of his being a resident in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory.
(5) The assessee referred to in sub-section (4) shall also provide such other documents and information, as may be prescribed.
Explanation 1.—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.
Explanation 2.—For the purposes of this section, “specified territory” means any area outside India which may be notified as such by the Central Government.
Explanation 3.—For the removal of doubts, it is hereby declared that where any term is used in any agreement entered into under sub-section (1) and not defined under the said agreement or the Act, but is assigned a meaning to it in the notification issued under sub-section (3) and the notification issued thereunder being in force, then, the meaning assigned to such term shall be deemed to have effect from the date on which the said agreement came into force.
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 explanation, if any, given to it by the Central Government.
CONCLUSION: as we are aware that Income of a resident in India from sources any where in world will be taxable under provisions of Income Tax Act, 1961. In case a person ,who is a non-resident in India during previous year and he earns any income from India , then taxability of that Income will be decided on the basis of source of income as well as residence of assessee. The Central Government has entered into DTAA with various countries to provide relief to our non-resident citizens on the income taxable in both countries. A non-resident Indian can opt provisions of DTAA ,if these provisions are beneficial to him than the provisions of Income Tax Act, 1961 because the provisions of DTAA will prevails on Income Tax Act, 1961 in case of any dispute. The non-resident has to submit TRC and other documents and information as required to be submitted by the Income Tax Act, 1961.
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DISCLAIMER: the article produced here is only for information and knowledge of readers. The views expressed are the personal views of the author and same would not be considered as professional advice. In case of necessity , do consult with your tax consultant for more clarity and understanding of provisions of International Taxation.
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