Double taxation occurs when an individual is required to pay tax on the same income in more than one jurisdiction.
‘X’ is a resident of ‘Y’ country.
Y country follows a residence-based taxation rule.
X has income from a source in ‘Z’ country.
Z country follows a source-based taxation rule.
Governed under Section 90.
Countries can enter into Double Taxation Avoidance Agreements (DTAAs) to provide relief.
Mechanism based on mutual agreements to avoid double taxation.
Governed under Section 91.
Applies when there is no DTAA between two countries.
Home country provides relief for income taxed in another country.
The Central Government can enter agreements:
(a) For granting relief on income taxed under both jurisdictions.
(b) For avoiding double taxation without creating tax evasion opportunities.
(c) For exchange of information to prevent evasion.
(d) For recovery of taxes in either jurisdiction.
No tax liability in one jurisdiction implies no applicability of DTAA.
Income taxed in both countries allows deduction of tax paid in one from the other if applicable.
The individual must be a resident in at least one of the countries; if dual residency exists, Tie Breaker Rule applies.
Inconsistencies between Act provisions and agreements favor the agreement.
Basic law governs in the absence of specific provisions in the agreement.
Certificates confirming residency are binding.
Post A.Y. 2004-05, agreements can exempt income from taxation entirely.
Unclear terms may be defined by the Central Government through notifications.
Income from immovable property taxed if situated in India.
Income attributed to a Permanent Establishment (PE) in India is taxable there.
Other income is taxed per domestic law or treaty, whichever is more favorable.
Immovable Property: Taxable in India if situated there.
Movable Property forming part of PE: Taxable in India.
Other Movable Property: Taxed per domestic law or treaty dependent on residency.
Amendments to the Income Tax Act, 1961 affect DTAAs (e.g., Finance Act 2012).
Example: Income received by Thailand-based companies for services rendered in India was held not taxable under Section 9(1)(vi).
In absence of a Fee for Technical Service (FTS) clause in a DTAA, income may be examined under business profit rules, contingent on the presence of a PE.
Permanent establishment defined as a fixed place of business that conducts enterprise activities. Includes management, branches, offices, factories, workshops, etc.
PE does not include
Facilities merely for storage or display.
Fixed places maintained primarily for preparatory activities.
Warranty for agents acting on behalf does not establish PE unless specific activities are undertaken.
CIT v. Hyundai Heavy Industries Co. Ltd.
No tax on profits from installations in India until contracts concluded.
UAE Exchange Centre LLC
Liaison office activities not generating taxable income unless directly attributable to PE in India.
K T Corporation
Activities of liaison offices which are preparatory don’t constitute a PE.
DIT vs. Samsung Heavy Industries Co Ltd
Income only taxable if PE performs core business activities.
CIT v. Goodyear Tyre and Rubber Co.
Non-resident companies trading with subsidiaries exempt from Indian tax under specific conditions.
Aircon Beibars (FZE) v. DCIT
Income not taxable unless actual receipt conditions meet treaty conditions.
CIT v. Alibaba.com Singapore E-Commerce
Valid tax residency recognition necessary for DTAA benefits.
Payment of Commission to Foreign Airlines Agents
Payments are incidental to the agency contract; thus, Section 194H applies, incorporating commissions.
ONGC v. University of Texas
Payments for research viewed as royalty unless specific criteria under DTAA met.
Understanding the interplay of domestic law and international taxation agreements is crucial for international income taxation and determining tax liabilities.