Wednesday 26 June 2024

Subject to possible taxation

 “Maybe taxed” terminology used in DTAA:

1. There are instances under the Double Taxation Avoidance Agreements (DTAA)s signed with various countries, where the terminology used is ‘shall be taxed’. In such cases there cannot be any doubt as to the position that the income has to be taxed in that state only. 2. But what happens in case the term used is ‘may be taxed’? The questions that arise are whether this does not give absolute power to that State to tax such incomes or whether it intends to give equal power to both the States to tax the same income or it snatches away the power to tax from one State to another? 3. The Central Government had issued a notification 91, dated 28-08-2008, clarifying the expression “may be taxed” as when the term ‘may be taxed’ is used in a DTAA, such income shall be included in total income chargeable to tax in India and relief shall be granted following the method for avoidance of double taxation. It provides that the tax credit shall be allowed for the taxes paid in foreign countries 4. In Essar Oil v. ACIT (28 ITR (Trib.) 609 (Mum.) 2014),  Indo-Oman treaty was in consideration, wherein the Tribunal, while considering the meaning of “may be taxed” in light of 2008 Notification and section 90 of the Income Tax Act, held that the phrase “may be taxed” gives non-exclusive taxing right which enables both the States to have the option to exercise the right with or without limitations. In this situation, the credit of taxes is given under the treaty. 5. It is also clear that the said notification has been introduced in order to remove any ambiguity arising in drafting of the treaty, out of the use of the term ‘may be’. With this for a resident of India, the situation is very clear, if an income which ‘may be’ taxed in other State, India has all the right to tax the same in the assessee’s hand, however credit of taxes paid in that other State has to be given in India in order to eliminate double taxation.

No comments:

Synopsis of GST Circulars

Circular No. 207 / 1 / 2024-GST I Date: 26-06- 2024 Subject: Reduction of Government Litigation - Fixing Monetary L imits for ...