Indian Tribunal rules on availability of
treaty tax rates upon filing of tax returns
In
a recent judgement, the Mumbai Income Tax Appellate Tribunal (Tribunal)
has held that in order that a foreign company can claim the benefit of tax rates
prescribed in the Double Taxation Avoidance Agreement (DTAA) between its country of residence and India, it must file a tax
return in India and get itself assessed by the Indian Income Tax department (I-T
department). The Indian
resident, making remittance to the foreign company cannot apply the treaty tax
rates for withholding tax at source.
In
a case between I-T Department and Poysha Industrial, Mumbai (taxpayer), the
taxpayer made an interest payment to a German company and two UK based
companies, deducting tax at the rate of 15% and 10% respectively, being the tax
rates under the respective DTAA. The assessing officer disputed the rate and
observed that the appropriate rate for deduction of tax would be 30%. The
assessing officer was of the view that the provisions of the tax treaty would
come into play later and not when tax is deducted at source.
He therefore directed the taxpayer to pay the shortfall.
The Tribunal agreed with the assessing officers views and ordered the
taxpayer to pay the shortfall.
Source:
The Economic Times, April 26, 2002.