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Concerns on Language of Dtaa To be Addressed When Finance Bill is Taken up for Consideration: Finance Ministry

Concern has been expressed regarding the clause in the Finance Bill that amends Section 90 of the Income-tax Act that deals with Double Taxation Avoidance Agreements. Sub-section (4) of section 90 was introduced last year by Finance Act, 2012. That sub­section requires an assessee to produce a Tax Residency Certificate (TRC) in order to claim the benefit under DTAA.

DTAAs recognize different kinds of income. The DTAAs stipulate that a resident of a contracting state will be entitled to the benefits of the DTAA.

In the explanatory memorandum to the Finance Act, 2012, it was stated that the Tax Residency Certificate containing prescribed particulars is a necessary but not sufficient condition for availing benefits of the DTAA. The same words are proposed to be introduced in the Income-tax Act as sub-section (5) of section 90. Hence, it will be clear that nothing new has been done this year which was not there already last year.

However, it has been pointed out that the language of the proposed sub-section (5) of section 90 could mean that the Tax Residency Certificate produced by a resident of a contracting state could be questioned by the Income Tax Authorities in India. The government wishes to make it clear that that is not the intention of the proposed sub­section (5) of section 90. The Tax Residency Certificate produced by a resident of a contracting state will be accepted as evidence that he is a resident of that contracting state and the Income Tax Authorities in India will not go behind the TRC and question his resident status.

In the case of Mauritius, circular no. 789 dated 13.4.2000 continues to be in force, pending ongoing discussions between India and Mauritius.

However, since a concern has been expressed about the language of sub-section (5) of section 90, this concern will be addressed suitably when the Finance Bill is taken up for consideration.


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  1. vswami says:

    As reported elsewhere, in his post-budget speech, besides the condition of ‘residency’, the FM has made a mention of another condition; that is, of “beneficial ownership”.

    That reads, – “He stated that this merely means that certain treaties MAY HAVE two conditions — a condition of residency and BENEFICIAL OWNERSHIP . As far as residency is concerned, TRC would be acceptable and for beneficial ownership it will be a question of fact and law. ”
    (Highlights supplied)

    To one’s memory or knowledge, none of the treaties as of now (to double check with experts) contain any such ‘condition’ of ‘beneficial ownership’, much less any explicit one, – as seem to be implied by the FM.

    On the premise that, in all, or anyone or more of, the treaties, there is no such ‘condition of beneficial ownership’, that too in unequivocal and indisputable terms, then it is NOT, according to the very scheme of things, so also as per the categorical view taken by the SC, a matter which could be regarded to be open to any debate or dispute, or even adjudication by domestic court , on a unilateral basis, as if it were a question of “fact and law”.

    On the contrary, in case of any conflicting stance on any such treaty related or connected issues, the treaty partners would, strictly speaking, require to have it settled amicably by having recourse to the only treaty provision, known as “MAP’.

    The applicable OECD Guidelines, besides case law and published articles in public domain (e.g. (2008) 13 CPT pg. 514, (2009) 176 TAXMAN pg. 129) may be noted to throw sufficient light on the foregoing aspects.

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July 2024