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

Meridian Pharma Ltd, an Indian company, has income from a country with which India has a notified agreement under section 159. Its Indian tax computation under the Act is more favourable than the treaty rate on one item of that income. As per section 159(4), how should the assessee be taxed on that item?

The Act's provisions apply to the extent they are more beneficial to the assessee. Section 159(4) allows the assessee to choose the more favourable of the Act or the notified agreement, so the more favourable Indian computation applies to that item.

  1. AOnly under the treaty, since a treaty always overrides the Act
  2. BUnder the provisions of the Act, since they apply to the extent they are more beneficial to the assesseeCorrect
  3. CUnder the Act and the treaty cumulatively, with both rates added
  4. DUnder whichever is higher, to protect revenue

Explanation

Section 159(4) provides that, for an assessee to whom a notified agreement applies, the provisions of the Act apply to the extent they are more beneficial to that assessee. The Act's more favourable computation therefore prevails on that item. Treating the treaty as always overriding ignores the beneficial-provision rule.

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