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

Brightwave Ltd., an Indian company, is assessed in India. A tax agreement with Country Z provides a lower tax rate on a particular income than the Income-tax Act, 2025 does. Separately, the Act's anti-avoidance provisions in Chapter XI apply to a transaction of Brightwave and are less beneficial than the treaty. Which statement is correct under section 159?

Where a notified agreement applies, the Act's provisions apply only to the extent they are more beneficial to the assessee. However, Chapter XI applies even when it is not beneficial, irrespective of the beneficial-provision rule, so the treaty cannot override Chapter XI.

  1. AThe Act's general provisions apply only to the extent they are more beneficial to the assessee, but Chapter XI applies even though it is not beneficialCorrect
  2. BThe treaty always overrides every provision of the Act, including Chapter XI
  3. CThe Act's provisions always override the treaty, even where the treaty is more beneficial
  4. DChapter XI applies only if the treaty is silent on the transaction

Explanation

Section 159(4) says that where an agreement applies, the Act's provisions apply to the extent they are more beneficial to the assessee. Section 159(6) provides that, irrespective of sub-section (4), Chapter XI applies even if it is not beneficial to the assessee. Option B ignores this carve-out for Chapter XI.

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