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

Under a notified agreement, Indira Pharma Ltd, an Indian resident, is taxed in India at a rate that is more beneficial to it than the treaty rate. A foreign company, Orion Inc., is taxed in India at 40% while domestic companies are taxed at a lower rate. Which statement is correct under section 159 of the Income-tax Act, 2025?

Where an agreement applies, the Act applies to the extent it is more beneficial to the assessee. A higher tax rate on a foreign company than on a domestic company is not regarded as less favourable treatment, and Chapter XI applies even if it is not beneficial.

  1. AThe Act's provisions apply to an assessee to whom the agreement applies only to the extent they are more beneficial to that assessee; and a higher rate on a foreign company is not regarded as a less favourable chargeCorrect
  2. BThe agreement always overrides the Act, even where the Act is more beneficial
  3. CA higher rate on a foreign company is always treated as discriminatory under the agreement
  4. DThe Act's provisions apply and Chapter XI can be overridden if the agreement is more beneficial

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(5) says a higher rate on a foreign company than on a domestic company is not a less favourable charge. Section 159(6) says Chapter XI applies even if it is not beneficial, so the last option is wrong.

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