Skip to content

CA Final · Direct Tax Laws & International Taxation · Tax Planning, Tax Avoidance and Tax Evasion

Arjun Pvt Ltd, a domestic company, and Brook Inc, a foreign company resident in a treaty country, are both taxed in India. Brook Inc is chargeable to Indian tax at a rate higher than the rate applicable to a domestic company. Brook Inc argues that this is a less favourable charge under the treaty's non-discrimination article. Under section 159 of the Income-tax Act, 2025, what is the position?

A higher rate of tax on a foreign company than on a domestic company is not regarded as a less favourable charge or levy of tax under section 159(5). Brook Inc therefore cannot claim discrimination merely because its Indian tax rate exceeds the domestic company rate.

  1. AIt is a less favourable charge and must be reduced to the domestic rate
  2. BIt is not regarded as a less favourable charge or levy of tax on the foreign companyCorrect
  3. CIt is a less favourable charge only if the foreign company has a permanent establishment
  4. DIt is less favourable only if the treaty country also taxes domestic companies at a higher rate

Explanation

Section 159(5)(a) provides that the charge of tax on a foreign company at a rate higher than the rate chargeable on a domestic company shall not be regarded as less favourable charge or levy of tax. So Brook Inc's argument fails regardless of any other condition. The options adding permanent establishment or reciprocity conditions have no basis in the provision.

Did you get it right without looking?

One question tells you little. A timed set on Tax Planning, Tax Avoidance and Tax Evasion shows your real accuracy, how long you take and where you lose marks.

Practise Tax Planning, Tax Avoidance and Tax EvasionFree diagnostic mock

More Tax Planning, Tax Avoidance and Tax Evasion questions