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CA Final · Direct Tax Laws & International Taxation · Double Taxation Relief

Zephyr Global Inc, a foreign company resident in a treaty country, has a branch in India. The treaty has a non-discrimination clause. Indian tax on its branch profits is charged at a rate higher than the rate applicable to a domestic company. Also, the company's arrangement attracts the general anti-avoidance provisions under Chapter XI of the Act, which are not beneficial to it. Which statement is correct under section 159?

A higher rate on a foreign company than on a domestic company is not regarded as less favourable charge under section 159(5), and Chapter XI applies even if not beneficial to the assessee under section 159(6), notwithstanding the beneficial-provision rule in section 159(4).

  1. AThe higher rate is treated as less favourable charge, so the treaty bars it; Chapter XI applies only if beneficial
  2. BThe higher rate is not regarded as less favourable charge, and Chapter XI applies even though not beneficialCorrect
  3. CThe higher rate is not regarded as less favourable charge, but Chapter XI cannot apply because the treaty is more beneficial
  4. DThe higher rate is permitted only if the treaty expressly says so, and Chapter XI applies only with Central Government approval

Explanation

Section 159(5)(a) states that charging a foreign company at a rate higher than that of a domestic company is not regarded as less favourable charge. Section 159(6) provides that, despite the beneficial-provision rule in section 159(4), Chapter XI applies even if not beneficial to the assessee. Hence option B is the only correct one.

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