CA Final · Direct Tax Laws & International Taxation · Double Taxation Relief
An agreement notified under section 159 does not define the term 'royalty', but the Income-tax Act, 2025 defines it and the Central Government has issued an explanation of it. A dispute arises on the meaning of the term in applying the agreement. Which statement follows from section 159(7)?
The term takes its meaning from the Income-tax Act, 2025, together with any explanation given by the Central Government. Under section 159(7)(a), where the agreement does not define a term but the Act does, the Act's meaning applies. Other laws are consulted only if the Act and notifications also do not define it.
- AThe term has the meaning assigned in the Act, along with the explanation given by the Central GovernmentCorrect
- BThe term must be given its dictionary meaning, ignoring the Act
- CThe term has the meaning in any other law of the Central Government, in preference to the Act
- DThe term cannot be applied until the foreign country defines it
Explanation
Under section 159(7)(a), a term defined in the agreement has the agreement's meaning. Where it is not defined in the agreement but is defined in the Act, it has the meaning in the Act and the explanation, if any, given by the Central Government. Other laws are relevant only if the term is defined neither in the agreement, the Act, nor a notification.
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