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CMA Final · Direct Tax Laws and International Taxation · Double Taxation Avoidance Agreements (DTAA)

A treaty between India and another country does not define the term 'royalty', but the Income-tax Act, 2025 defines it. Under section 159(7), how should the term be interpreted for applying the treaty?

The term takes the meaning given in the Income-tax Act, 2025, together with any explanation issued by the Central Government. Under section 159(7)(a), a term not defined in the agreement but defined in the Act follows the Act's definition.

  1. AIt has the meaning assigned in the Act, along with any explanation given by the Central GovernmentCorrect
  2. BIt has the meaning in the law of the other country
  3. CIt has the meaning in the OECD commentary only
  4. DIt has no meaning and treaty relief is denied

Explanation

Section 159(7)(a) provides that a term defined in the agreement has the treaty meaning. Where the agreement does not define the term but the Act does, it carries the Act's meaning and any explanation given by the Central Government. The foreign law and the OECD commentary are not the prescribed source.

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