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Situation
could arise where due to subsequent amendments, the
statute law is more beneficial than the provision in
the treaty. Since the tax treaties are intended to
grant tax relief and not to put residents of a contracting
country at a disadvantage, vis-à-vis other tax
payers, it is clarified that any beneficial provision
in the law will not be denied to a resident of a contracting
country merely because the corresponding provision in
the tax treaty is less beneficial
Method
of giving relief from Double Taxation
Relief
from double taxation is provided by abatement on the
basis of mutual agreement between two states concerned
whereby the assessee is given relief by credit/refund
in a particular manner even though he is taxed in both
countries. Relief may be in the form of credit for tax
payable in another country or by charging tax at lower
rate.
The
procedure to be adopted by the authorities for granting
relief is to determine in the first place, the total
income of the person liable to tax in India in accordance
with the provisions of the Income-tax Act, and then
allow relief as per the terms of the tax treaty entered
with the other contracting country where the income
has suffered double taxation.
Almost
every treaty provides that the tax paid in the contracting
country should be deducted from the tax payable by the
assessee in the assessing country on the income taxable
in both the countries. The treaty generally stipulates
which country will grant relief and the manner and extent
of the relief on the various heads of income. For example,
income from immovable property is taxed in the source
country where it is situated, but the country of residence
of the owner can also tax the same income unless the
tax treaty between the countries expressly provides
for exclusion of the property income from being taxed
in the country of residence of the assessee. Relief
can, however, be claimed and given in terms of tax treaty
on providing proof of payment or at least proof of assessment.
Relief
cannot be granted unless the income which has been taxed
in one of the contracting countries has also suffered
tax in the other contracting country. Proof has to be
provided of the income having suffered double taxation.
If there is no tax treaty with the country levying double
tax, then relief can be granted.
Concept
of ‘‘Business Connection’’ and ‘‘Permanent
Establishment’’
The
liability to tax in the source country generally arises
out of “business connection” or through what
is called “Permanent Establishment”. Most
of the agreements spell out what they regard as “Permanent
Establishment” as this is of utmost important while
fixing the tax liability. The term “business connection”
has not been defined in the Act. Whether there is any
business connection would depend upon facts of each
case.
India
has comprehensive tax treaties besides limited agreements
covering shipping or air transport or both. Refer Annexure
1 for names of the countries with which India has
entered such Treaties, the Central Government Notifications
GSR No. and date of issue.
For
Tax Rates applicable as per Tax Treaties that India
has entered into with Australia, Austria, French Republic,
Germany, Italy, Japan, Mauritius, Netherlands, New Zealand,
Spain, Swiss Confederation, UK, USA, refer Annexure
2
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