Taxation Project

DOUBLE TAXATION AVOIDANCE AGREEMENT : CROSSING OVER THE SHORES!!

DOUBLE TAXATION AVOIDANCE AGREEMENT : CROSSING OVER THE SHORES!! 2015

UNIVERSITY OF PETROLEUM & ENERGY STUDIES

COLLEGE OF LEGAL STUDIES

BA.,LLB.(HONS). ENERGY LAWS

SEMESTER- 8 th

ACADEMIC YEAR: 2014-15

TAXATION LAW

PROJECT SUBMISSION: DOUBLE TAXATION AVOIDANCE RELIEF

Under the Supervision of: Mr. Sujith Surendran

Name:

1.Ria Tandon

500017689

R-450211080

INDEX

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Serial Number Contents1. CHAPTER 1: INTRODUCTION

Concept in Brief

About Double Taxation Avoidance Agreement

2.CHAPTER 2: CONCEPTS IN GENERAL

Need for Double Taxation

Who are subject to the rule of this agreement?

Types of Reliefs

Language used in the Treaties

3. CHAPTER 3: LEGAL PROVISIONS

Section 90 of the Income Tax Act

Section 90 A of the Income Tax Act

Section 90 A of the Income Tax Act

Procedure for obtaining Relief

4.CHAPTER 4: INTERNATIONAL SCENARIO

Types of Model under DTAA

Indian Scenario

5. CHAPTER 5: CASE ANALYSIS

This case explains about the concept of Permanent Establishments:

Assessee to decide which will be beneficial

DTAA and Jurisdictional issues:-

Treaty Shopping : Misuse of DTAA

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6. Misuse of DTAA CHAPTER 6:

Status quo

Conclusion

CHAPTER 1: INTRODUCTION

i. Concept in Brief

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In the present time of cross -outskirt exchanges over the world, because of extraordinary

development in universal exchange also, trade and expanding connection among the countries,

occupants of one nation amplify their circle of business operations to different nations where

wage is earned. A standout amongst the most critical aftereffects of globalization is the detectable

effect of one nation's household charge strategies on the economy of another nation. This has

prompted the requirement for ceaselessly evaluating the assessment administrations of different

nations and bringing about essential changes. Universal twofold assessment has antagonistic

consequences for the exchange and administrations and on development of capital and

individuals. Levy of the same wage by two or more nations would constitute a restrictive weight

on the citizen. In perspective of the above discourse, the article endeavors to assess different

aspects of two-sided Double Taxation Avoidance Agreements (DTAAs)1 with specific reference

to India's system of DTAAs as a device of assessment coordination utilized by countries 2 to

convey rights to charge diverse bases in the worldwide financial lodge. All the more absolutely,

an endeavor has been made, in this article, to break down and give a brief record of the different

experiences in appreciation of twofold assessment shirking concurrences with India. By method

for Double Taxation Avoidance Agreements, every nation suits the cases of different countries

inside their financial stadium to create universal exchange and ventures with insignificant

boundaries. Nonetheless, the worldwide expense administration must be rebuilt always in order to

react to the present difficulties and downsides.

1 NRI TAX SERVICES,available at http://www.nritaxservices.com/ (Last Visited on 15th,April, 2015).2 SHARMENDRA CHAUDHRY, DOUBLE TAXATION AVOIDANCE AGREEMENTS, available at ,http://dx.doi.org/10.2139/ssrn.2036494 (Last Visited on 15 th , April, 2015).

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ii. About Double Taxation Avoidance Agreement

A standout amongst the most profoundly ensured wards of a nation is its monetary purview.

Accordingly, in the time of globalization, twofold levy3 keeps on being one of the significant

obstructions to the improvement of universal monetary relations. A person who earned salary

needs to pay impose in the nation in which the wage was earned furthermore in the nation in

which such individual was inhabitant. Accordingly, the obligation to duty on the previously stated

pay emerges in the nation of source and the nation of living arrangement. The Monetary

Committee of OECD in the Model Double Taxation Convention on Income and Capital, 1977,

characterizes twofold tariff as 'the inconvenience of tantamount assessments in two or more states

on the same citizen in appreciation of the same topic and for indistinguishable periods'. Though a

citizen's own nation (alluded to as home nation) has a sovereign right to expense him, the

wellspring of salary may be in some other nation (alluded to as host nation) which likewise

claims right to assessment the wage emerging in that nation. Countries are regularly compelled to

examine and settle the cases of different countries by method for twofold assessment shirking

3 See, Rajkumar Adukia, ‘Double Taxation Avoidance Agreement and Taxation’, also available at www.carajkumarraukia.com/articles/dtaa.doc , (Last Visited on 15 th , April, 2015).

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Cause Cross Border TransactionThere is a scenario of cross border transaction as that of across the globe hence there is a need for a simpliefied sytem with respect to taxation.There is an impact of the tax policies of one country over the economy of the another country.

Effect There is an urgent need with respect to immediately and continously assess the assess the tax regimes which are persisting in various countries.The situation may arise wherein a person may be a resident of one country but has his/her income being accrued from different country that is why the concept of double taxation comes up.

Effect If Double Taxation is to be allowed then this will create a problem for the trade and the services as well as the movement of the people and the goodsThis kind of taxation will reate a problem off burden on the assesse of paying more.

http://www.carajkumarraukia.com/articles/dtaa.doc


understandings, keeping in mind the end goal to cut down the obstructions to global exchange.

Twofold duty settlements are settlements between two nations, which incorporate the end of

global twofold tariff, advancement of trade of products, persons, administrations and speculation

of capital. This is on account of, the communication of two duty frameworks of two distinct

nations can bring about twofold tariff. Each nation looks for to assessment the wage created

inside its region on the premise of one or all the more joining variables, for example, area of the

source, habitation of assessable element et cetera. Twofold Taxation of the same pay would cause

extreme results on the eventual fate of global exchange. Nations of the world subsequently go for

wiping out the predominance of twofold assessment. Such assentions are known as "Twofold Tax

Avoidance Assentions" (DTAA) additionally termed as "Assessment Treaties". Taking after the

strides of most nations of the world that impose assess on salary/ capital, India has additionally

forced Income Tax on the "aggregate world wage" i.e. wage earned anyplace on the planet. The

outcome is that salary emerging to an inhabitant out of India is subjected to duty in India as it is a

piece of aggregate world salary and, additionally in host nation which gives the hotspot for that

salary. To stay away from the hardship of twofold assessment, Government of India has entered

into Double Taxation Avoidance Agreements with a few nations. The statutory power to go into

such assentions is vested in the Central Government by the procurements contained in Section 90

of the Salary Tax Act regarding which India has, before the end of March 2002, went into 64

assentions of this nature which manage distinctive sorts of pay which may be subjected to

twofold assessment. Subsequently, Two fold Tax Avoidance Agreements involve agreement

between two nations going for disposal of Two fold assessment. Twofold Taxation Avoidance

Agreements between two nations would concentrate on moderating the frequency of twofold

levy. It would advance trade of products, persons, administrations and venture of capital among

such nations. These are reciprocal financial understandings wherein the nations concerned.

DTAAs dealt with specialized skill and administration charges, decreased rates of expense on

profit, interest, also, sovereignties got by occupants of one nation from other. At the point when

the rate of expense is higher in the Indian Salary Tax Act, 1961 than the rate recommended in the

DDTA, then the rate endorsed in the DDTA might be connected i.e. the rate which is ideal to the

citizen would be connected. Contingent upon their extension, twofold assessment evasion

understandings are delegated Comprehensive and Limited. Far reaching DTAAs are those which

cover a wide range of salaries secured by any model tradition. Numerous a period a settlement

covers riches assessment, blessing expense, surtax. And so on as well. While exhaustive Double

Taxation Agreements accommodate assessments on pay, capital additions and capital, Limited

Double Taxation Agreements allude just to wage from delivering and air transport,or domains,

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legacy and endowments. Far reaching understandings guarantee that the citizens in both the

nations would be dealt with just as, in appreciation to issues identifying with twofold assessment

CHAPTER 2: CONCEPTS IN GENERAL

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i. Need for Double Taxation

Twofold assessment is the methodical burden of two or more assessments on the same pay (on

account of salary charges), resource (on account of capital duties), or budgetary exchange (on

account of offers assessments). It alludes to levy by two or more nations of the same salary,

resource or exchange, for instance, wage paid by a substance of one nation to an inhabitant of an

alternate nation. The twofold risk is regularly alleviated by duty arrangements between nations. In

this way, twofold levy can be characterized as the duty of assessments on pay/ capital in the

hands of the same citizen in more than one nation in appreciation of the same salary or capital for

the same period. The issue gets confounded since levy plans of diverse nations contain disparate

ideas viewing meaning of pay as source. The position gets to be peculiar in a circumstance where

an assessee dwelling in one nation wins wage in another nation4, and the expense rates in both the

nations are higher than 50%. In the event that saddled at both places on the same wage the

assessee will be left with a negative pay. This is sure to influence the monetary development. To

stay away from such a hardship to people furthermore with a perspective to seeing that national

monetary development does not endure, Double Taxation Avoidance Agreements (D.T.A.A.) is

gone into with different nations. Such expense arrangements, thusly, fill the need of giving full

security to citizens against twofold tariff and in this way keep the debilitation which twofold

assessment may give in the free stream of global exchange and worldwide speculation. Moreover,

such arrangements for the most part contain procurements for common trade of data and for

decreasing case. Thusly, the requirement for Agreement for Double Tax Avoidance emerges due

to clashing guidelines in two diverse nations with respect to chargeability of pay in light of

receipt and collection, private status and so on. As there is no unmistakable meaning of salary and

taxability thereof, which is acknowledged globally, a wage may get to be obligated to assessment

in two nations. In such a case, the two nations have an Agreement for Double Tax Avoidance, in

which case the potential outcomes are:

1. The wage is saddled just in one nation.

2. The wage is absolved in both nations.

3. The wage is saddled in both nations, yet credit for assessment paid in one nation is given

against expense payable in the other nation.

4 APOORVA SHARMA, Double Taxation Avoidance Agreement and Impact of Advanced Pricing Agreement on Indian Regime: A Comparative Study with Other Nations, available at , http://dx.doi.org/10.2139/ssrn.2338920 (Last Visited on 15 th, April, 2015).

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In India, the Central Government, acting under Section 90 of the Income Tax Act, has been

approved to go into twofold duty evasion assentions (hereinafter alluded to as expense bargains)

with different nations. The object of a Double Taxation Avoidance Agreement is to accommodate

the duty cases of two administrations both really inspired by burdened a specific wellspring of

salary either by relegating to one of the two the entire claim or else by endorsing the premise on

which duty cases is to be imparted between them. The need and motivation behind expense

bargains has been outlined by the OECD5 in the 'Model Tax Convention on Income and on

Capital' in the accompanying words: 'It is alluring to illuminate, institutionalize, and affirm the

monetary circumstance of citizens who are locked in, mechanical, budgetary, or whatever other

exercises in different nations through the application by all nations of normal answers for

indistinguishable instances of twofold levy'.

ii. Who are subject to the rule of this agreement?

A normal DTA Agreement in the middle of India and another nation normally covers persons, who are occupants of India or the other contracting nation, which has gone into the concurrence with India. An individual, who is not inhabitant both of India alternately of the other contracting nation, would not be qualified for advantages under DTA Agreements. Worldwide twofold assessment has unfriendly consequences for the exchange and administrations and on development of capital and individuals. Assessment of the same salary by two or more nations would constitute a restrictive weight on the citizen. The local laws of most nations, including India, relieve this trouble by bearing one-sided help in admiration of such doubly exhausted pay (Section 91 of the Income Tax Act). Anyhow, as this is not an agreeable arrangement in perspective of the disparity in the guidelines for deciding wellsprings of pay in different nations, the expense settlements attempt to uproot charge hindrances that repress exchange and administrations and development of capital and persons between the nations concerned. It helps in enhancing the general venture atmosphere. The requirement for Agreement for Double Tax Avoidance emerges due to clashing principles in two unique nations with respect to chargeability of pay taking into account receipt and gathering, private status and so on. As there is no reasonable meaning of salary and taxability thereof, which is acknowledged globally, a pay may get to be subject to duty in two nations. Twofold levy happens when an individual is obliged to pay two or more charges for the same pay, resource, or money related exchange in diverse nations. Twofold tariff happens fundamentally because of covering duty laws and regulations of the nations where an individual works his business.

In such a case, the two nations have an Agreement for Double Tax Avoidance, in which case the potential outcomes are:

5 Model Convention with respect to Taxes on Income and on Capital, also available at http://www.oecd.org/ctp/treaties/2014-model-tax-convention-articles.pdf, (Last Visited on 15 th, April, 2015).

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http://www.oecd.org/ctp/treaties/2014-model-tax-convention-articles.pdf


The salary is saddled just in one nation.

The salary is excluded in both nations.

iii. Types of Reliefs

In India, Under Section 90 and 916 of the Income Tax Act, alleviation against twofold levy is

given in two ways:

One-sided RELIEF /Unilateral Relief

Under Section 91, an individual can be eased from twofold levy by Indian Government regardless

of whether there is a DTAA in the middle of India and the other nation concerned. One-sided

alleviation to a citizen may be offered if:

The individual or organization has been an inhabitant of India in the earlier year.

In India and in another nation with which there is no assessment bargain, the wage

ought to have been burdened.

The assessment have been paid by the individual or organization under the laws of the

outside nation being referred to.

Reciprocal RELIEF /Bilateral Relief

Under Section 90, the Indian government offers assurance against twofold assessment by going into a

DTAA with another nation, taking into account commonly worthy terms. Such is offered under two of the

methods

EXEMPTION METHOD: This guarantees complete shirking of assessment covering.

TAX CREDIT METHOD This gives help by giving the citizen a derivation from the expense

payable

6 GIRISH AHUJA & RAVI GUPTA, PRACTICAL APPROACH TO INCOME TAX ,(2009).

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iv. Language used in the Treaties

Tax Treaties employ standard International language and standard terms. This is done in order to understand and interpret the same term in the same manner by both assessee as well as revenue. Language employed is technical and stereotyped. Some of the terms are explained below:a) Contracting State7 - country which enters into Treatyb) State of Residence- Country where a person residesc) State of Source- Country where income arises - Enterprise of a Contracting State- Any taxable unit (including individuals of a Contracting State)d) Permanent Establishment - A fixed base of an enterprise in the state ofe) Source (usually a branch of a foreign company and in some cases wholly – owned subsidiaries as wellf) Income arising in Contracting state - Income arising in a State of a source

One has to read the treaty carefully in order to understand its provisions in their proper perspective. The best way to understand the DTAA is to compare it with an agreement of

7 Double Taxation Avoidance Agreement, Rajput Consultancy, Private Limited, (Last Visited on 15 th, April, 2015).

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Wherein the income of the person is subjected to taxation because of being the place of the source of income. This income can be in the form of the bussiness , or where the property is located.

Source Rule


partnership between two persons. In partnership, the words used are “the party of the first part” and in the DTAA, the words used are “the other contracting state” .One can also replace the words” Contracting States” by names of the respective countries and read the DTAA again , for better understanding.

CHAPTER 3: LEGAL PROVISIONS

i. Section 908 of the Income Tax Act

1. The Central Government may go into a concurrence with that of the Government of any nation

outside India or determined terriority which is outside India: For the allowing of alleviation in

appreciation of:

(i) wage on which have been paid both salary charge under this Act and pay –tax in that nation or

indicated terriotory , as the case may be, or

8 Refer to Section 90 of the Income Tax Act.

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(ii) wage –tax chargeable under this Act and under this Act and under the comparing law in

power in that nation or indicated domain , as the case may be , to advance common monetary

relations , exchange and speculation, or

For the shirking of twofold tariff of pay under this Act and under the relating law in power in that

nation or indicated region, as the case might be,or For the trade of data for the counteractive

action of avoidance or shirking of pay expense chargeable under this Act or under the

corresponsding law in power in that nation or indicated region, as the case may be , or of

instances of such avoidance or evasion , or For recuperation of pay –tax under this Act .

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) 60[***]

The following sub-section (2A) shall be inserted after sub-section (2) of section 90 by the Finance

Act, 2013, w.e.f. 1-4-2016 :

(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 62[a certificate62a 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

ii. Section 90 A of the Income Tax Act

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90A9. Adoption by Central Government of agreement between specified associations for double

taxation relief.- (1) Any specified association in India may enter into an agreement with any

specified association in the specified territory outside India and the Central Government may, by

notification in the Official Gazette, make such provisions as may be necessary for adopting and

implementing such agreement—

(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 any

specified territory outside India; or

(ii) income-tax chargeable under this Act and under the corresponding law in force in that

specified territory outside India 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 specified territory outside India, 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 specified territory

outside India, 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

specified territory outside India.

(2) Where a specified association in India has entered into an agreement with a specified

association of any specified territory outside India under sub-section (1) and such agreement has

been notified under that sub-section, 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.

(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.

9 Refer to Section 90 A of the Income Tax Act.

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iii. Section 91 of the Income Tax Act

Countries with which no agreement exists.-

(1) If any person who is resident in India in any previous year proves that, in respect of his

income which accrued or arose during that previous year outside India10 (and which is not deemed

to accrue or arise in India), he has paid in any country with which there is no agreement under

section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise,

under the law in force in that country, he shall be entitled to the deduction from the Indian

income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of

tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both

the rates are equal.

(2) If any person who is resident in India in any previous year proves that in respect of his income

which accrued or arose to him during that previous year in Pakistan he has paid in that country,

by deduction or otherwise, tax payable to the Government under any law for the time being in

force in that country relating to taxation of agricultural income, he shall be entitled to a deduction

from the Indian income-tax payable by him—

(a) of the amount of the tax paid in Pakistan under any law aforesaid on such income which is

liable to tax under this Act also; or

(b) of a sum calculated on that income at the Indian rate of tax;

whichever is less.

(3) If any non-resident person is assessed on his share in the income of a registered firm assessed

as resident in India in any previous year and such share includes any income accruing or arising

outside India during that previous year (and which is not deemed to accrue or arise in India) in a

country with which there is no agreement under section 90 for the relief or avoidance of double

taxation and he proves that he has paid income-tax by deduction or otherwise under the law in

force in that country in respect of the income so included he shall be entitled to a deduction from

the Indian income-tax payable by him of a sum calculated on such doubly taxed income so

included at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or

at the Indian rate of tax if both the rates are equal.

Explanation.—In this section,—

10 Refer to Section 91 of the Income Tax Act.

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(i) the expression “Indian income-tax” means income-tax charged in accordance with the

provisions of this Act;

(ii) the expression “Indian rate of tax” means the rate determined by dividing the amount of

Indian income-tax after deduction of any relief due under the provisions of this Act but before

deduction of any relief due under this Chapter, by the total income;

(iii) the expression “rate of tax of the said country” means income-tax and super-tax actually paid

in the said country in accordance with the corresponding laws in force in the said country after

deduction of all relief due, but before deduction of any relief due in the said country in respect of

double taxation, divided by the whole amount of the income as assessed in the said country;

(iv) the expression “income-tax” in relation to any country includes any excess profits tax or

business profits tax charged on the profits by the Government of any part of that country or a

local authority in that country.

iv. Procedure for obtaining Relief

The most effective method to benefit advantages under the DTAA Any NRI can benefit

advantages under the DTAA by opportune accommodation of archives recorded underneath to the

deductor.

Charge Residency Certificate (TRC)

Self-verified duplicate of PAN Card

Self-announcement cum repayment organization (organizations of such letter are availabe

in the bank site)

Self-bore witness to duplicate of Passport and Visa

Duplicate of PIO Proof (pertinent if the international ID has been reestablished amid the

Financial Year)

Obligatory points of interest to be incorporated in the TRC

Name of the assessee

Status (individual, organization, firm and so forth.) of the assessee

Nationality (if there should be an occurrence of person)

Nation or indicated domain of joining or enrollment (in the event of others)

Assessee's duty ID number in the nation or indicated region of habitation or in the event

that no such number, then a special number on the premise of which the individual is

distinguished by the Government of the nation or the predefined domain

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Private status for the reasons of duty

Period for which the endorsement is relevant

Location of the candidate for the period for which the endorsement is relevant

The testament containing above points of interest ought to be rightfully confirmed by the

Government of the nation or the predetermined region of which the NRI cases to be an occupant

for the reasons of assessment.

Overhaul May 21, 2013: You may read the Finance Bill Amendment on "TRC – Can be a

definitive proof yet must be bolstered by endorsed records"

Step by step instructions to get the TRC

You can approach the expense/government powers of the abroad where you dwell to get the TRC.

You might likewise check with your Chartered Accountant/ Tax Consultant abroad on the

strategy to get the same. Keep in mind! No other archive in lieu of the TRC is considered for

benefitting the advantages under DTAA.

Presently the inquiry may emerge, whether you have to present these reports consistently to

benefit advantages under the DTAA? Answer is; Yes! DTAA advantage is reached out on a

yearly premise. In this way, any NRI is obliged to give all the essential records consistently to

keep profiting the advantage under DTAA.

Additionally what happens if one (here NRI) doesn't submit TRC11 and different reports to the

bank inside stipulated timetables? In such case, the bank will need to deduct premium earned on

NRO stores at the in a matter of seconds appropriate rate of 30.90

11 Shankar P B, How Non-Residents in India can claim tax relief under Double Taxation Avoidance Agreement, The Economic Times, also available at http://articles.economictimes.indiatimes.com/2012-12-06/news/35647719_1_tax-treaty-tax-residency-certificate-indian-tax, (Last Visited on 15 th, April, 2015).

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http://articles.economictimes.indiatimes.com/2012-12-06/news/35647719_1_tax-treaty-tax-residency-certificate-indian-tax

http://articles.economictimes.indiatimes.com/2012-12-06/news/35647719_1_tax-treaty-tax-residency-certificate-indian-tax


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Person who claims the credit or tax exemtption

Self-declaration & identity

form.

Self-attested Xerox of

passport & visa.

Self-attested Xerox of Pan

Card.

Tax Residency Certificate

This provision has been given or the relief of that of some kind is provided by the Hope even if there is no agreement which has been entered into between the two countriesThis provision is given under Section 91 of the Income Tax Act , wherein the government can relieve the person from the double taaxation even if there is no Double Tax Avoidance Agreement.This can arise in following situations-:a) If the company or the person has been a resident in the country in the previous year.b) If the company or the person has paid the tax as that under the laws of the foreign country.The same income has been gained as well as received by the assesse outside India in that of the previous year .The income has been taxed both in India and in the country with which India has no tax treaty.

Unilateral Relief

Under this method or the rule Government of the two countries enter into an agreement against the double taxation. India has entered into an agreem ent with around 50 countries.M ethods which are employed are:a) Exemtption M ethod where income is taxed in only one of the two countries which are there.b) Tax Relief M ethod is one under which the taxation happens in both the country according to the tax laws of the respective countries in accordance of the adouble taxation avoidance agreem ent. The country of residence allows for the credit for that of the tax charged thereon in that of the country..

Bilateral Relief


CHAPTER 4: INTERNATIONAL SCENARIO

i. Types of Model under DTAA

There are distinctive models grew over a time of time in view of which arrangements are drafted

and arranged between two countries. These models support in keeping up consistency in the

organization of assessment arrangements. They additionally serve as agenda for guaranteeing

thoroughness or procurements to the two arranging nations.

OECD Model, UN Model, the US Model and the Andean Model are few of such models. Of

these the initial three are the most conspicuous and regularly utilized models. Nonetheless, a last

understanding could be mix of distinctive models.

OECD MODEL- Organization of Economic Co-operation and Development (OECD) Model

Double Taxation Convention on Salary and on Capital, issued in 1977, 1992 and 1995. OECD

Model is basically a model settlement between two created countries. This model supporters

living arrangement guideline, that is to say, it lays accentuation on the privilege of condition of

home to assessment.

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UN MODEL- United Nations Model Double Taxation Convention12 in the middle of Developed

and Developing Countries, 1980. The UN Model gives more weight to the source standard as

against the living arrangement guideline of the OECD model. As a correlative to the standard of

tariff at source the articles of the Model Convention are predicated on the reason of the

acknowledgment by the source nation that (a) levy of wage from outside capital would consider

costs allocable to the profit of the wage so that such pay would be exhausted on a net premise,

that (b) assessment would not be so high as to demoralize speculation and that (c) it would

consider the fittingness of the imparting of income with the nation giving the capital.

Furthermore, the United Nations Model Convention epitomizes the thought that it would be

proper for the living arrangement nation to amplify a measure of alleviation from twofold

assessment through either remote assessment acknowledge or absolution as in the OECD Model

Convention. The greater part of India's arrangements are in light of the UN Model.

United States Model Convention of September , 1996. The US Model is not the same as OECD

and UN Models in numerous regards. US Model has secured its distinction through radical flight

from normal arrangement conditions under OECD Model and UN Model.

ii. Indian Scenario

As indicated by the World Investment Report (UNCTAD, 2009), starting 2008 there were 2805

thorough then again constrained two-sided settlements between nations from a conceivable most

extreme of around 50,000 arrangements. These settlements are generally between nations with

significant exchange or other monetary relations. Most arrangements are between sets of created

nations while, of the equalization, most are in the middle of created and creating nations.

DTAAs13 (a) give corresponding concessions to moderate twofold levy, (b) allot assessment

rights generally as per that "current agreement" portrayed underneath and (c) to a great extent

however not unbendingly take after the OECD Model Tax Convention14 or, for creating nations,

12 United Nations Model Double Taxation Convention between Developed and Developing Countries, also available at http://www.un.org/en/development/desa/publications/double-taxation-convention.html and http://www.un.org/esa/ffd/wp-content/uploads/2014/09/UN_Model_2011_Update.pdf, (Last Visited on 15 th, April, 2015).13 DTAA,available at http://businesstoday.intoday.in/story/how-treaties-with-foreign-countries-can-help-nrissave- tax/1/194401.html (Last Visited on 1 5 th, April,2015).14 Deepshikha Sikarwar, India finally gets a say in OECD tax convention, The Economic Times, also available at http://articles.economictimes.indiatimes.com/2008-07-25/news/27707004_1_treaty-benefits-model-convention-tax-treaties, (Last Visited on 15 th, April, 2015).

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http://articles.economictimes.indiatimes.com/2008-07-25/news/27707004_1_treaty-benefits-model-convention-tax-treaties

http://articles.economictimes.indiatimes.com/2008-07-25/news/27707004_1_treaty-benefits-model-convention-tax-treaties

http://businesstoday.intoday.in/story/how-treaties-with-foreign-countries-can-help-nrissave-

http://www.un.org/esa/ffd/wp-content/uploads/2014/09/UN_Model_2011_Update.pdf

http://www.un.org/en/development/desa/publications/double-taxation-convention.html


the UN Tax Convention. Later arrangements contain new statements taking after the OECD

Model Tax Conventions of 2005 to 2010 which augment regions of collaboration to regulatory

and data issues. While current arrangements bargain essentially with the right to assessment

earnings and, sometimes, capital, the OECD‟s late Model VAT Guidelines could extend the

extent of two-sided bargains in future to additionally cover the VAT (Owens, 2002). An average

DTA Agreement in the middle of India and another nation covers just inhabitants of India and the

other contracting nation who has gone into the concurrence with India. An individual who is not

occupant both of India or of the other contracting nation can't guarantee any advantage under the

said DTA Agreement. Such understanding by and large gives that the laws of the two contracting

states will represent the levy of pay in individual states aside from when express procurement

despite what might be expected is made in the assention.

CHAPTER 5: CASE ANALYSIS

i. This case explains about the concept of Permanent Establishments:

Rolls Royce Industrial Power Limited v. ACIT 15: The Delhi ITAT explained the scope of Article

26(2) of that of the Indo –UK DTAA ( this dealth with the PE of that of the non-resident should

not be treated unfavorably as against the residents). As per the observation which was noted by

ITAT , stated that with respect to non-discrimination clause, the followings things were required

to be noted firstly that the foreign company is being taxed which is more burdensome as

compared with that of the Indian Company and secondly , the resident company which is being

compared should be in similar business to the non-resident company.

ii. Assessee to decide which will be beneficial

CIT vs.Vishakhapatnam Port Trust16- This case explained the rule which has been stated under

section 90 (2) was recognized as by the High Court of Andhra Pradesh , . After this there was the

famous case of the Union of India vs. Azadi Bachao Andolon, wherein the Supreme Court had

recognized the same. Section 90 (2) states the provisions that there is a benefit to decide the

income tax for one type of the income and the DTAA for that of the other type income. Hence if

there is a problem like this then based on the letter of law both the options shall be tried.

15 Rolls Royce Industrial Power Limited v. ACIT, also available at https://www.taxmanagementindia.com/visitor/Detail_Case_Laws.asp?ID=205363&text=Rolls%20royce%20industrial%20power%20ltd, (Last Visited on 15 th, April, 2015).

16 CIT vs. VISAKHAPATNAM PORT TRUST, also available at http://www.indiankanoon.org/doc/865397/ (Last Visited on 15 th, April, 2015).

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https://www.taxmanagementindia.com/visitor/Detail_Case_Laws.asp?ID=205363&text=Rolls%20royce%20industrial%20power%20ltd

https://www.taxmanagementindia.com/visitor/Detail_Case_Laws.asp?ID=205363&text=Rolls%20royce%20industrial%20power%20ltd


iii. DTAA and Jurisdictional issues:-

The question which arose is who can tax the income ? So it is better to know as to who has the

right to do so when DTAA has been entered into. So the options are the country where the

income comes from or the country taxpayer resides.

The Madras High Court in the case of CIT vs. V.R.S.M Firm and other17s as well as the

Karnataka High Court in the case of CIT vs. R.M. Muthaiah18 it was stated that if the tax is being

charged by one state then the other contracting party has no right to do the same on the same

income.

iv. Treaty Shopping : Misuse of DTAA

Misuse takes place when it comes to DTAA when an asssesse wishes to do a transaction through

that of another country , with which there is beneficial treaty with India in so as to reduce his tax

liability.

In the famous case Union of India v. Azadi Bachao Andolan19: It was stated that DTAA aim was

not to have the iclusion of a person fro m that of the third world country and to stop them from

taking the benefit of the terms which were favorable. Hence it is the responsibility of that of the

parliament to see that the re is no problem or discrimination id there is no specific provision then

everyone has the right to avail the favorable tax understanding that the treaty shopping is not

allowed.

v. Misuse of DTAA

In the case of Turquoise Investment Case ( 300 itr 1): 20It was stated that the Tax credit method of

the double taxation shall be there if the tax which is to be made payable is there in both of the

countries. In terms of that of the article 11 of DTAA with Malaysia the income which was

derived by the assessee from the company based in Malyasia was not made liable to be taxed in

India.

17 208 ITR 400.18 19CIT vs. R. M. Muthaiah,available at, http://indiankanoon.org/doc/1675748/, (Last Visited on 15 th, April, 2015).

19 263 ITR 706 at pages 746 – 753. 20 Turquoise Investment Case ( 300 itr 1), also available at http://indiankanoon.org/doc/559475/, (Last Visited on 15 th, April, 2015).

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http://indiankanoon.org/doc/559475/



In the case of CIT VS. Hyundai Industries Co. Ltd21. – A Korean company which is the assessee

had entered into an agreement with ONGC for the work of designing , hook up and other of the

platform work at the Bombay High Court in India and the contract was entered in that of the two

parts : firstly fabrication of the platform in Korea and other was with respect to the installation

and commissioning of the platform at Bombay High Court it was said or held that the installation

was the permanent establishment and in India on the conclusion of the transaction which gave

rise to the supplies of that of the fabricated platform and it emerged after the contract with that of

ONGC had stood to be concluded and the plaforms were delivered by the agents from Korea to

ONGC so the profits were seen to be arising for Korean Operations hence were not liabled to be

taxed in India.

21 CIT VS. Hyundai Industries Co. Ltd, also available at http://indiankanoon.org/doc/559475/, (Last Visited on 15 th, April, 2015).

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CHAPTER 6:

i. Status quo

The Finance Minister asked for the review of the 77 DTAA so as to see their compliance along the guidelines of OCED with respect to the information involving the flow of the blackmoney and to achieve India’s commitment at G-20 Summit.

India has a network of that of 126 22 DTAA, the ldest being with Greece which was signed in the year of 1965. India is also on the verge of being in negotiation 12 of the treaties with autonomous territories and is also now the signatory to that of 2005 multilateral SAARC avoidance of double taxation convention and that of some other bilateral treaties which are there.

India and the other two of the low tax countries had signed in the early 1990’s while after 2000 it was seen that India’s treaties with those countries with which it has limited relations.

ii. Conclusion

India’s tax treaties are basically a combination of both the models be it OECD and U.N. model. However emphasis is given more to the source country taxation system which is considered to be in objective as well as rationale of the U.N. Model.The language which is used in many agreement are differeing, hence no staright –jacket formula can be adopted unilatelly for all the cases. India has entered into agreement with those countries with which it does not have economic relations , hence this can turn out to be disadvantageous to the country

22 Income Tax Department, Government of India, also available at http://www.incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx, (Last Visited on 15 th, April, 2015).

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http://www.incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx


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Taxation Project

Documents

g e chapter

misuse of dtaa chapter

g e dtaa

different experiences

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universal twofold assessment

income tax act section

cases of different countries