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CS Professional · Advanced Direct Tax Laws and Practice · Double Taxation Avoidance Agreement (DTAA)

A treaty between India and a foreign country defines 'permanent establishment' in its own text. The Income-tax Act, 2025 also contains a differently worded definition of a similar concept. For applying the treaty to an assessee, which meaning governs under section 159?

The treaty's own definition governs. Under section 159(7)(a), a term defined in the agreement carries the meaning given in that agreement. The Act's definition applies only when the agreement does not define the term, so domestic wording cannot override an express treaty definition.

  1. AThe meaning in the Act, because domestic law always prevails over treaties
  2. BThe meaning given in the treaty, because a term defined in the agreement has the meaning assigned to it thereCorrect
  3. CThe meaning given by the foreign country's domestic law
  4. DThe wider of the two meanings, whichever is more beneficial to the Revenue

Explanation

Section 159(7)(a) provides that where a term is defined in the agreement, it has the meaning assigned in that agreement. The Act's definition or the Central Government's explanation applies only where the agreement does not define the term.

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