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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Nature of Business

Section 159 of the Income-tax Act, 2025 allows tax treaties to be entered for avoiding double taxation. Which statement correctly reflects the stance of the section towards evasion and avoidance?

Section 159 permits agreements to avoid double taxation but only without creating opportunities for non-taxation or reduced taxation through evasion or avoidance, expressly including treaty shopping. It also allows exchange of information to prevent and investigate evasion or avoidance.

  1. ATreaties must avoid double taxation without creating opportunities for non-taxation or reduced taxation through evasion or avoidance, including treaty shoppingCorrect
  2. BTreaties may freely permit non-taxation so long as the income is earned outside India
  3. CTreaty shopping is expressly encouraged to attract foreign investment
  4. DTreaty provisions never allow exchange of information on evasion cases

Explanation

Section 159(3)(b) states the avoidance of double taxation must not create opportunities for non-taxation or reduced taxation through evasion or avoidance, including treaty shopping. Section 159(3)(c) separately permits exchange of information for preventing evasion or avoidance, which rules out the last option. The other options contradict the text.

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