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

An Indian treaty with a country gives a lower tax rate on a particular income than the Income-tax Act, 2025. In another instance the Act's own rate for the income is lower than the treaty rate. Under section 159(4), and ignoring Chapter XI, how is the position correctly stated for a non-resident assessee to whom the agreement applies?

Under section 159(4), the Act applies to the extent it is more beneficial to the assessee. So the assessee takes whichever of the treaty or the Act gives the lower tax, meaning the treaty where it is lower and the Act where the Act is lower. Neither prevails automatically.

  1. AThe treaty always overrides the Act, even when the Act is lower
  2. BThe Act always overrides the treaty, even when the treaty is lower
  3. CThe provisions of the Act apply to the extent they are more beneficial to the assessee, so in the first instance the treaty rate and in the second the Act's rate benefits the assesseeCorrect
  4. DThe assessee must pay the average of the treaty rate and the Act rate

Explanation

Section 159(4) says that where an agreement applies, the provisions of the Act apply to the extent they are more beneficial to the assessee. The assessee therefore gets the lower of the two outcomes. In the first case the treaty gives the lower rate, so treaty relief is used. In the second the Act's rate is lower, so the Act applies. The treaty does not mechanically override the Act in either direction.

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