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CA Final · Direct Tax Laws & International Taxation · Double Taxation Relief

A foreign company, resident in a treaty country, is taxed in India at a rate higher than that for a domestic company. The treaty has a non-discrimination clause. As per section 159(5), how is the higher rate treated?

It is not regarded as less favourable charge or levy of tax. Section 159(5) provides that taxing a foreign company at a higher rate than a domestic company does not amount to less favourable treatment for the purpose of the agreement.

  1. AIt is less favourable charge and breaches the clause
  2. BIt is not regarded as a less favourable charge of tax on the foreign companyCorrect
  3. CIt is allowed only if the treaty specifically permits it
  4. DIt is void unless approved by the Assessing Officer

Explanation

Section 159(5)(a) says that charging a foreign company at a rate higher than the rate for a domestic company is not regarded as a less favourable charge or levy of tax. The higher rate therefore does not breach the non-discrimination clause. No approval is required.

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