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

Under a treaty with Country X, Kaveri Pvt Ltd, an Indian company, finds that the Income-tax Act, 2025 provisions are more favourable on a particular income than the treaty. Which statement is correct under section 159 of the Act?

The provisions of the Act apply to the extent they are more beneficial to the assessee, notwithstanding the treaty. However, Chapter XI provisions apply to the assessee even if they are not beneficial to him, because section 159(6) overrides the beneficial-provision rule for that Chapter.

  1. AThe provisions of the Act apply to the extent they are more beneficial to the assessee, except that Chapter XI provisions apply even if not beneficialCorrect
  2. BThe treaty must always prevail even where the Act is more beneficial
  3. CThe Act applies in all cases, including Chapter XI, only if more beneficial
  4. DThe assessee must choose either the treaty or the Act as a whole for all incomes

Explanation

Section 159(4) states that where an agreement applies, the Act's provisions apply to the extent they are more beneficial to the assessee. Section 159(6) overrides this for Chapter XI, which applies even if not beneficial. Hence the first option states the rule and the exception correctly; the others ignore either the beneficial rule or the Chapter XI override.

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