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

A treaty entered into under section 159 uses the term 'royalty' but does not define it, and the Income-tax Act, 2025 defines it. How should the term be interpreted?

The term takes the meaning given in the Income-tax Act, 2025, together with any explanation issued by the Central Government. The treaty's own definition prevails if one exists. Meanings from other Central laws are a fallback only when neither the treaty nor the Act nor a notification defines the term.

  1. AIt takes the meaning assigned in the Act, along with any explanation given by the Central GovernmentCorrect
  2. BIt takes the meaning in the general law of the other country
  3. CIt must be left undefined, with no meaning assigned
  4. DIt takes its meaning from any other Central law, even though the Act defines it

Explanation

Under section 159(7)(a), a term defined in the treaty takes the treaty meaning. Where the treaty does not define it but the Act does, it takes the Act's meaning together with the Central Government's explanation, if any. Other Central laws are only a fallback for terms defined nowhere else.

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