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CS Professional · Advanced Direct Tax Laws and Practice · Double Taxation Avoidance Agreement (DTAA)

Under the Income-tax Act, 2025 (applicable from the June 2027 session), the Central Government enters into a double taxation avoidance agreement with another country. When a term used in that agreement is defined in the agreement itself, which meaning applies?

A term defined in the tax treaty carries the meaning given in the treaty itself. The Income-tax Act, 2025 definition is used only if the treaty is silent. This respects the contracting states' agreed language, so the treaty definition prevails over domestic law and commentary.

  1. AThe meaning given in the agreement, because the agreement's own definition prevailsCorrect
  2. BThe meaning given in the Income-tax Act, 2025, because domestic law overrides the treaty
  3. CThe meaning given in the OECD Commentary, even if the agreement defines the term
  4. DThe meaning given in the Companies Act, 2013, as the general corporate law

Explanation

Section 159(7)(a) says a term defined in the agreement has the meaning assigned in that agreement. The Income-tax Act definition applies only where the agreement does not define the term. Option B reverses this order of priority.

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