Scope of the provision - In case of conflict between Income-tax Act and provisions of DTAA, provisions of DTAA would prevail over provisions of Income-tax Act. Section 90(2) makes it clear that the Act gets modified in regard to the assessee insofar as the agreement is concerned if it falls within the category stated therein - CIT v. P.V.A.L. Kulandagan Chettiar [2004] 137 Taxman 460/267 ITR 654 (SC).
The provisions of section 90 prevail over those of sections 4, 5 and 9, and therefore, even where a business connection is established the profits of a company could be free from tax if they are covered by a Double Taxation Agreement - CIT v. Vishakhapatnam Port Trust [1983] 144 ITR 146 (AP).
The Double Taxation Avoidance Agreement (DTAA) shall always prevail even when anomaly is noticed between the provisions of the Act and the provisions of DTAA. Further, in view of section 90(2), the assessee has an option to claim that the provisions of the Act may be made applicable if these are more beneficial to the assessee - CIT v. Hindustan Paper Corporation Ltd. [1994] 77 Taxman 450 (Cal.).
Tax liability of a person residing in both contracting States - Tax liability arising in respect of a person residing in both contracting States has to be determined with reference to his close personal and economic relations with one or other - CIT v. P.V.A.L. Kulandagan Chettiar [2004] 137 Taxman 460/267 ITR 654 (SC).
When foreign assessment is not final - The law requires that an application for double taxation relief should be made on the basis of taxes paid both in India and abroad. Notwithstanding that a foreign assessment has not become final, an application for refund made on the basis of a provisional assessment in the foreign country is not opposed to the provisions of law or the rules made thereunder -A.H.M. Allaudin v. Addl. ITO [1964] 52 ITR 900 (Mad.).
Agreement with Malaysia - In absence of permanent establishment in India in regard to carrying on of business of rubber plantations in Malaysia, business income earned by assessee out of rubber plantations could not be taxed in India - CIT v. P.V.A.L. Kulandagan Chettiar [2004] 137 Taxman 460/267 ITR 654 (SC).
In terms of the Treaty wherever any expression is not defined, the expression defined in the Act would be attracted. The definition of ‘income’ would, therefore, include capital gains. Thus, capital gains derived from immovable property is income and, therefore, the relevant article of DTAA would be attracted - CIT v. P.V.A.L. Kulandagan Chettiar [2004] 137 Taxman 460/267 ITR 654 (SC).
Agreement with Mauritius - Circular No. 789, dated 13-4-2000, clarifying that FIIs, etc., which are resident in Mauritius, would not be taxable in India on income from capital gains arising in India on sale of shares is valid and efficacious. Being a circular within the meaning of section 90, it must have the legal consequences contemplated by sub-section (2) of section 90. In other words, the Circular shall prevail even if inconsistent with the provisions of Income-tax Act, 1961 insofar as assessees covered by the provisions of the DTAA are concerned. There is no merit in the contention that the delegate of a legislative power cannot exercise the power of exemption in a fiscal statute. Section 90 enables the Central Government to enter into a DTAA with the foreign Government. When the requisite notification has been issued thereunder, the provisions of sub-section (2) of section 90 spring into operation and an assessee who is covered by the provisions of the DTAA is entitled to seek benefits thereunder, even if the provisions of the DTAA are inconsistent with the provisions of the Act. One cannot accept the contention that the DTAA with Mauritius is ultra vires the powers of the Central Government under section 90 on account of its susceptibility to ‘treaty shopping’ on behalf of the residents of third countries - Union of India v. Azadi Bachao Andolan [2003] 132 Taxman 373/263 ITR 706 (SC).
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