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

A treaty provides that a particular Indian-source income of a non-resident company, Alpha Inc., is taxable at 10%. The Income-tax Act, 2025 would tax the same income at 20%. Alpha Inc. is not affected by Chapter XI. Under section 159(4), which treatment applies?

The 10% treaty rate applies. Section 159(4) provides that, for an assessee to whom a notified agreement applies, the Act's provisions apply only to the extent they are more beneficial. Since the treaty rate is lower than the Act's 20%, the assessee gets the treaty rate.

  1. A20%, because the Act always overrides a treaty
  2. B10%, because the treaty is more beneficial and the Act applies only to the extent it is more beneficialCorrect
  3. C15%, being the average of the two rates
  4. D20%, because the treaty has not been re-notified for the year

Explanation

Under section 159(4), where a notified agreement applies to an assessee, the Act's provisions apply only to the extent they are more beneficial to that assessee. The treaty rate of 10% is lower than the Act's 20%, so the treaty rate applies. The averaging option has no basis in the law.

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