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CA Final · Direct Tax Laws & International Taxation · Application and Interpretation of Tax Treaties

While interpreting an undefined term in an India tax treaty, an Indian tax officer relies on the principle that a term not defined in the treaty has the meaning under the Income-tax Act. Which statement is consistent with section 90(3) of the Act?

A term undefined in both the treaty and the Act carries the meaning given in a Central Government notification, provided it is not inconsistent with the Act or treaty. Section 90(3) provides this mechanism, so OECD Commentary or foreign domestic law does not automatically fill the gap.

  1. AAny term used in the treaty but not defined in it or the Act has the meaning assigned to it in the notification issued by the Central Government in this behalfCorrect
  2. BUndefined terms always take the meaning given in the OECD Commentary regardless of any notification
  3. CUndefined terms are read as having the meaning in the other contracting state's domestic law
  4. DUndefined terms render the treaty provision inoperative

Explanation

Section 90(3) states that any term in the treaty not defined in the Act or the treaty has the meaning assigned in the notification issued by the Central Government, if not inconsistent with the Act or the treaty. The OECD Commentary is persuasive but cannot override the notification, so option B is wrong.

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