Double taxation refers to the imposition of tax on the same income or financial transaction in more than one country. This situation generally arises when a person earns income in one country and resides in another. Both countries may assert taxing rights over the same income under their respective laws. In the context of Indian taxation, double taxation becomes relevant primarily for residents earning income outside India or non-residents earning income in India. To mitigate the hardship caused by such taxation, Indian tax laws provide relief mechanisms under both bilateral and unilateral frameworks. The primary statutory basis for double taxation relief in India lies under sections 90, 90A, and 91 of the Income-tax Act, 1961. These provisions aim to ensure that the taxpayer does not suffer an undue tax burden on the same income and promote cross-border economic activity by eliminating tax barriers.
Scope of Section 90 and Bilateral Relief through Agreements
Section 90 of the Income-tax Act empowers the Central Government to enter into agreements with foreign countries or specified territories to avoid double taxation and to facilitate the exchange of information for the prevention of tax evasion. These agreements are referred to as Double Taxation Avoidance Agreements. The fundamental principle underlying such agreements is to allocate taxing rights between the countries concerned to avoid the possibility of the same income being taxed twice. India has entered into comprehensive DTAA agreements with more than 90 countries and limited-scope agreements covering specific sectors such as shipping and air transport with several others. Under these agreements, relief is typically granted using either the exemption method or the tax credit method. The exemption method involves taxing specific income only in one of the contracting states, whereas the tax credit method allows taxation in both countries but provides a credit for the foreign tax paid against the domestic tax liability. India’s DTAA provisions commonly adopt a mix of both these methods depending on the nature of the income and the specific treaty terms.
Legal Interpretation and Enforcement of Treaty Provisions
Judicial interpretation plays a vital role in understanding and applying the DTAA provisions. The general principles established through judicial pronouncements are as follows. Where no tax liability exists under the domestic law, the question of applying treaty provisions does not arise. In other words, a DTAA cannot impose tax liability where none exists under the Income-tax Act. Where a tax liability is imposed under the Act, the treaty can be invoked to reduce or eliminate such liability. In the event of a conflict between the provisions of the Income-tax Act and the DTAA, the provisions of the DTAA, to the extent they are more beneficial to the assessee, prevail over the Act. The appellate authorities and courts have the power to enforce these agreements and uphold the rights and obligations arising from them. For example, if a DTAA provides that interest income is taxable only in the state of residence, and the Act imposes tax on the same income in India, the DTAA would override the domestic law and prevent taxation in India.
Taxability of Specific Income Categories under DTAA Provisions
DTAA provisions often contain detailed articles covering various heads of income, such as dividends, interest, royalties, and fees for technical services. These articles provide rules for determining which country has the right to tax such income and the applicable tax rates. Typically, such provisions prescribe a lower rate of tax in the source country and reserve taxing rights primarily for the country of residence. For instance, a DTAA may provide that dividend income shall be taxed at a maximum rate of 10 percent in the source country if the beneficial owner is a resident of the other contracting state. The source country may also provide relief by exempting the income or granting credit for the foreign taxes paid. These provisions aim to reduce the tax cost of cross-border investments and avoid economic double taxation, where the same income is taxed in both countries without relief. The detailed mechanics of applying these articles involve examining the residential status of the taxpayer, the nature and source of income, the presence of a permanent establishment, and specific conditions stipulated in the treaty.
Unilateral Relief under Section 91 of the Income-tax Act
Where no DTAA exists between India and the foreign country where the income arises, unilateral relief may be claimed under section 91. This provision ensures that resident taxpayers are not doubly taxed on income earned from countries that do not have a bilateral agreement with India. The relief under section 91 is available only if the following conditions are satisfied. The taxpayer must be a resident in India during the relevant previous year. The income must have accrued or arisen outside India during the same year. The taxpayer must have paid tax on such income in the foreign country. Once these conditions are satisfied, the relief is computed by comparing the average Indian rate of tax and the average rate of tax in the foreign country. The lower of the two rates is applied to the doubly taxed income to determine the amount of relief available. The Indian rate of tax is calculated by dividing the total tax liability in India (excluding the relief under sections 90 and 91) by the total income. The foreign rate is computed similarly based on the foreign tax paid and the total foreign income assessed. The relief is allowed as a deduction from the Indian tax liability, ensuring that the taxpayer pays only the higher of the two tax amounts and not both.
Role of Section 90A in Specified Association Agreements
Section 90A extends the benefit of tax relief to agreements entered into by specified associations in India with corresponding associations in foreign territories. Unlike section 90, which is confined to agreements between governments, section 90A permits agreements at the institutional level. These agreements must be notified by the Central Government in the Official Gazette and are legally enforceable. They may provide for relief from double taxation, exchange of tax-related information, or recovery of taxes across borders. The intent behind section 90A is to support collaboration between tax authorities, regulatory bodies, and industry associations in tackling complex issues related to international taxation, especially in emerging areas like digital commerce. Where such agreements are in place, their provisions will override the Income-tax Act if they are more beneficial to the taxpayer. This ensures consistency in the application of international tax rules and minimizes litigation.
Methodology for Calculating Relief Under the Tax Credit Method
In the tax credit method, double taxation relief is granted by allowing the taxpayer to deduct the amount of tax paid in the foreign country from their Indian tax liability. However, the credit cannot exceed the Indian tax attributable to that foreign income. The process involves several steps. First, the total income is computed, including the foreign income. Second, the Indian tax liability is calculated on the total income. Third, the foreign income is isolated, and the Indian tax attributable to that portion is determined. Finally, credit is granted for the lesser of the foreign tax paid or the Indian tax on such foreign income. This mechanism ensures that the taxpayer does not suffer a tax burden exceeding the Indian tax liability. It also aligns with the principles laid down in various DTAA provisions, which typically stipulate that credit shall be limited to the domestic tax payable on the doubly taxed income. This method is frequently used in India’s tax treaties with countries such as the United States, the United Kingdom, and Germany.
Relevance of Tax Residency Certificate and Form 10F
To claim benefits under a DTAA, the taxpayer must obtain a Tax Residency Certificate from the foreign country where they are considered a resident. In addition, the Indian taxpayer is required to furnish Form 10F and certain other documents to the Indian tax authorities to establish eligibility for relief under section 90 or 90A. The certificate must contain prescribed particulars such as the name, status, nationality, tax identification number, period of residency, and address. The submission of this documentation is a mandatory compliance requirement for availing DTAA benefits. Failure to furnish these documents may result in the denial of the treaty benefits and full taxation under domestic law. This compliance mechanism is crucial in preventing treaty shopping and ensuring that only genuine residents of the treaty country can access the benefits.
Enforcement of DTAA Provisions Through Indian Courts
The Indian judiciary has consistently upheld the supremacy of DTAA provisions over conflicting provisions in the domestic tax law. The courts have clarified that once a treaty is notified under section 90, it becomes part of Indian law and must be given effect by the tax authorities. Several landmark decisions have laid down principles for interpreting treaty provisions in a manner that favors the taxpayer. For example, the courts have held that the beneficial provisions of a DTAA override the more stringent provisions of the Income-tax Act. Additionally, they have ruled that the treaty should be interpreted in good faith and accordance with the ordinary meaning of its terms, consistent with the Vienna Convention on the Law of Treaties. Judicial precedents have also recognized that the object and purpose of the treaty should guide its interpretation, particularly where ambiguity exists. The courts have emphasized that treaties are entered into to promote international economic relations and should not be interpreted narrowly to defeat their purpose.
Methods of Double Taxation Relief
There are two main methods for granting relief from double taxation: the exemption method and the credit method. India follows both these methods, depending on the terms of the applicable Double Taxation Avoidance Agreement (DTAA) or under domestic law provisions.
Exemption Method
Under the exemption method, the income that has already been taxed in one country is exempted from tax in the other country. The taxpayer pays tax only in one jurisdiction. This method is followed under some Indian DTAs for specific types of income. There are two types of exemptions: full exemption and exemption with progression. In full exemption, the income is completely exempted from tax in the residence country. In exemption to progression, the income is exempted from tax but is taken into account to determine the tax rate applicable to the remaining income in the country of residence.
Credit Method
Under the credit method, the income is taxed in both countries, but the resident country allows credit for the taxes paid in the source country. India largely follows this method for relief under most of its tax treaties. There are two types of credits: ordinary credit and full credit. In ordinary credit, the resident country allows a credit of the lower of the foreign tax paid or the Indian tax payable on such income. In full credit, the resident country allows a credit equal to the foreign tax paid, even if it exceeds the tax payable in the resident country. India follows the ordinary credit method.
Sections 90 and 91 of the Income-tax Act, 1961
India provides relief from double taxation under Sections 90 and 91 of the Income-tax Act, 1961. Section 90 provides relief under bilateral treaties,, i.e., DTAAs entered into by India with other countries. Section 91 provides unilateral relief where no DTAA exists with the foreign country.
Section 90 – Bilateral Relief
When India enters into a DTAA with another country, Section 90 comes into play. It allows Indian residents to claim relief from double taxation as per the terms of the DTAA. The agreement may provide for either the exemption method or the credit method. The taxpayer can choose to be governed by the provisions of the Act or the treaty, whichever is more beneficial.
Section 91 – Unilateral Relief
Section 91 provides relief to a resident taxpayer when income has been taxed in a country with which India does not have a DTAA. This relief is in the form of credit for foreign tax paid on such income. The relief is available only to residents of India and not to non-residents. The credit is restricted to the lower of the foreign tax paid or the Indian tax payable on such income.
Conditions for Claiming Relief under Section 91
To claim relief under Section 91, the following conditions must be met: the taxpayer must be a resident in India during the relevant previous year; the income must be accrued or received outside India; and the income must be taxed in the foreign country. The relief is calculated on a country-by-country basis and income-by-income basis.
Foreign Tax Credit (FTC) Rules
The Central Board of Direct Taxes (CBDT) has notified rules under the Income-tax Rules, 1962, for claiming foreign tax credit. These rules came into effect on April 1, 2017. The FTC is allowed only if the foreign tax has been paid and not just accrued. The taxpayer must furnish a statement of income from the foreign country, the foreign tax paid, and a certificate from the foreign tax authority or a tax return acknowledgement.
Manner of Claiming FTC
FTC can be claimed by filing Form 67 online before the due date of filing the income tax return under Section 139(1). The form must be filed electronically and must contain details of the foreign income, the foreign tax paid, and supporting documents. FTC is available only against the amount of tax payable under the normal provisions and not under MAT or AMT.
Limitation on FTC
FTC is not allowed in respect of any amount of foreign tax which is disputed in any manner. If the dispute is resolved and the tax is paid, then the credit can be claimed in the year of payment. Also, no credit is allowed for foreign taxes,, which are like interest, penalty, or fee.
Case Study: Relief under Section 90 – India-USA DTAA
Consider an Indian resident who receives interest income from the United States. The US withholds tax on such income at 15 percent. The same income is also taxable in India. Under the India-USA DTAA, the taxpayer can claim a credit of the US tax paid against the Indian tax liability. If the Indian tax on such income is 30 percent, and the US tax paid is 15 percent, then the taxpayer can claim a credit of 15 percent. The balance 15 percent must be paid in India.
Case Study: Relief under Section 91 – No DTAA
Suppose an Indian resident earns professional income from a country with which India does not have a DTAA. The foreign country taxes such income at 20 percent. The income is also taxable in India at 30 percent. Since there is no DTAA, Section 91 applies. The taxpayer can claim relief of 20 percent, being the lower of the Indian tax (30 percent) and the foreign tax (20 percent). The balance 10 percent must be paid in India.
Importance of Documentation
To claim relief, proper documentation is essential. This includes the tax residency certificate (TRC), foreign tax payment certificates, proof of income, DTAA provisions, and return acknowledgements. Without sufficient evidence, the tax authorities may disallow the relief. Taxpayers must retain these documents and submit them when required.
Double Taxation Avoidance Agreements: Scope and Interpretation
DTAA provisions are aimed at resolving conflicts arising from the taxation of the same income in both the source and residence countries. The scope of a DTAA typically covers income from various sources such as employment, business, dividends, royalties, and capital gains. These treaties use allocation rules to determine which country has the taxing rights over a specific type of income. Where both countries retain taxing rights, the DTAA mandates the residence country to provide relief through either exemption or credit methods. The interpretation of DTAA provisions is governed by principles of international law, treaty interpretation rules under the Vienna Convention, and the language of the specific agreement.
Tax authorities and courts in India often rely on judicial precedents and OECD commentary to interpret DTAA provisions, particularly when treaties are silent or ambiguous. One key principle is that treaties should be interpreted liberally to fulfill their object and purpose, namely the avoidance of double taxation and the prevention of fiscal evasion. The classification of income under DTAA articles is vital, as it determines the applicable tax treatment. Courts have consistently held that the DTAA provisions override domestic law in case of conflict, provided the treaty offers more beneficial treatment to the taxpayer.
The definition of terms such as ‘resident,’ ‘permanent establishment,’ and ‘royalty’ must be examined carefully, as these determine the scope of taxation. The existence of a Permanent Establishment (PE) in India, for instance, triggers taxation of business profits under most DTAAs. However, what constitutes a PE can vary across treaties, and judicial interpretation plays a pivotal role in determining its presence.
Interaction of DTAA with Indian Domestic Law
The interaction of DTAA with domestic tax law is governed by Section 90 of the Income Tax Act. Section 90 empowers the Indian government to enter into agreements with other countries to grant relief from double taxation. It also provides that the provisions of the Income Tax Act apply only to the extent they are more beneficial than the provisions of the treaty. This means a taxpayer can choose to be governed by either the provisions of the Act or the DTAA, whichever is more beneficial.
Section 90(2) clarifies this principle of taxpayer advantage. For example, where the Act prescribes a higher tax rate on interest income, but the DTAA caps it at a lower rate, the treaty rate will prevail. Moreover, as per judicial interpretation, the benefit under a DTAA cannot be denied by invoking domestic provisions such as Section 40(a)(i) or Section 195 unless the taxpayer has failed to meet specific procedural requirements. However, to claim treaty benefits, the taxpayer must furnish a valid Tax Residency Certificate (TRC) from the foreign country.
Section 91 of the Income Tax Act applies in cases where India does not have a DTAA with a particular country. It allows for unilateral relief in the form of a tax credit for taxes paid abroad, subject to specified conditions. This ensures that Indian residents are not subjected to double taxation even in the absence of a formal agreement with the foreign country.
The Finance Act, 2012, introduced the General Anti-Avoidance Rules (GAAR), which can override treaty provisions in cases of impermissible avoidance arrangements. This has created a degree of uncertainty in the interpretation of DTAAs. However, the government has issued clarifications to limit GAAR’s application and preserve the sanctity of genuine treaty benefits.
Common Issues in Claiming Double Taxation Relief
Claiming relief under DTAA or domestic law is not without challenges. Several procedural and substantive issues arise in the practical application of these provisions. One major issue is obtaining and submitting a valid TRC from the foreign jurisdiction. The TRC must include prescribed details such as the taxpayer’s name, address, and status of residence. Without a TRC, Indian tax authorities may deny DTAA benefits.
Another frequent issue is the classification of income under the appropriate DTAA article. Income such as royalties, fees for technical services (FTS), and capital gains may be classified differently by the taxpayer and the tax authorities, leading to disputes. For instance, payments for software licenses have been the subject of significant litigation on whether they constitute royalty or business income.
A mismatch in tax years between India and the foreign country can complicate the calculation of credit. Exchange rate fluctuations and timing differences in tax payment and credit claim also pose administrative hurdles. Further, some foreign tax authorities may not issue tax credit certificates promptly, affecting the Indian taxpayer’s ability to claim relief.
In certain cases, foreign taxes paid may not qualify for credit due to differences in the tax base or nature of the income. For example, taxes paid on non-taxable capital receipts or disallowed expenses may not be eligible for credit in India. Similarly, withholding tax paid on gross income abroad, while Indian tax is computed on net income, can result in partial disallowance of the credit.
Documentation and compliance are critical. Taxpayers must maintain detailed records of income, foreign tax payments, TRC, and supporting documents. Failure to comply with procedural requirements under Rule 128 of the Income Tax Rules may lead to disallowance of credit or prolonged litigation.
Judicial Decisions on Double Taxation Relief
Indian courts have played a vital role in shaping the understanding and application of double taxation relief provisions. Several landmark judgments have clarified key issues and set binding precedents.
In the case of Union of India v. Azadi Bachao Andolan (2003), the Supreme Court upheld the validity of the Indo-Mauritius DTAA and the principle that treaty benefits cannot be denied on the grounds of tax avoidance if the taxpayer is a genuine resident of the treaty country. The court ruled that treaty shopping, while undesirable, is not illegal unless prohibited by the treaty itself.
In GE India Technology Centre Pvt. Ltd. v. CIT (2010), the Supreme Court held that the obligation to deduct tax at source under Section 195 arises only when the payment is chargeable to tax in India. This decision protected foreign remittances from indiscriminate withholding, especially where the DTAA exempted such income.
The Delhi High Court in DIT v. Nokia Networks OY (2012) held that the supply of software along with hardware does not constitute royalty, and in the absence of a PE in India, business income is not taxable under the Indo-Finland DTAA. This judgment had significant implications for cross-border software and technology transactions.
In Reliance Infrastructure Ltd. v. ACIT (2012), the Mumbai ITAT allowed credit for taxes paid in the UK despite a mismatch in the assessment years, holding that relief should not be denied on mere procedural grounds if the taxpayer has substantiated the claim with evidence.
Another important decision is Wipro Ltd. v. DCIT (2011), where the tribunal allowed tax credit for foreign taxes paid on income thatwas ultimately exempt in India under Section 10A. The tribunal held that credit should be granted even if the income is exempt under a specific domestic provision, provided the foreign tax has been paid.
These cases illustrate that judicial interpretation has consistently aimed to uphold the taxpayer’s right to claim double taxation relief, provided procedural compliance and genuine documentation arare place.
Rule 128: Foreign Tax Credit Guidelines
Rule 128 of the Income Tax Rules, inserted with effect from 1 April 2017, lays down the mechanism for claiming Foreign Tax Credit (FTC) in India. It applies to all residents who have paid foreign income tax and wish to claim credit against Indian tax liability.
As per Rule 128, FTC is available in the year in which the foreign income is offered to tax in India. It mandates the furnishing of Form 67, along with documentary evidence of foreign tax paid. This includes a certificate from the foreign tax authority, acknowledgment of tax payment, or bank advice evidencing deduction of tax.
The credit is restricted to the amount of Indian tax payable on the same income. No credit is allowed for foreign tax that is disputed or refunded unless it is subsequently resolved. If the foreign tax is refunded in a later year, the taxpayer must inform the Indian tax authorities and pay the differential tax in India.
FTC is allowed against both the Minimum Alternate Tax (MAT) under Section 115JB and regular income tax. However, it is not available for interest, penalty, or fees levied under foreign tax laws. Any unutilized credit cannot be carried forward to future years.
The rule also specifies that foreign income and taxes must be converted into Indian currency using the Telegraphic Transfer Buying Rate (TTBR) on the last day of the month preceding the month in which the income is due or paid. This ensures consistency in foreign exchange conversion for tax purposes.
Non-filing of Form 67 within the due date of filing the return may lead to disallowance of FTC, although some courts have taken a lenient view if the delay is adequately explained. Taxpayers must ensure timely and accurate compliance with Rule 128 to safeguard their FTC claims.
Strategic Considerations for Taxpayers
Taxpayers engaged in cross-border transactions must adopt a proactive approach to manage their tax obligations and avoid double taxation. Strategic tax planning should begin with understanding the applicable DTAA, if any, between India and the foreign country. The correct classification of income under the relevant article is essential to determine taxability and relief.
Maintaining tax residency status, obtaining a TRC, and preserving supporting documents are critical for claiming treaty benefits. Taxpayers should also assess the existence of a PE in the foreign country to avoid unexpected tax liability. In case of potential PE exposure, restructuring business operations or entering into Advance Pricing Agreements (APAs) may help mitigate risks.
Taxpayers must align their income recognition in both jurisdictions to optimize tax credit availability. For example, aligning financial year-end and ensuring consistent recognition of revenue can ease the process of FTC computation. Where foreign tax laws differ significantly, professional advice should be sought to assess tax credit eligibility.
Compliance with Indian reporting requirements, including filing of Form 67, obtaining foreign tax credit certificates, and maintaining records, is non-negotiable. Taxpayers should also be aware of any changes in treaty provisions, domestic law amendments, and evolving judicial trends that may impact their relief claims.
Engaging with tax professionals, leveraging technology for tax documentation, and implementing internal controls for cross-border payments can enhance the accuracy and defensibility of FTC claims. In case of disputes, timely representation before the assessing officer and, if required, appellate authorities can safeguard the taxpayer’s rights.
Tax Residency Certificate (TRC) and Form 10F Requirements
To claim the benefits under a Double Taxation Avoidance Agreement (DTAA), a non-resident must obtain a Tax Residency Certificate (TRC) from the government of their country of residence. This certificate acts as proof of residency for tax purposes and is mandatory to avail DTAA benefits. Additionally, the Indian Income Tax Rules require such taxpayers to submit Form 10F along with the TRC to provide prescribed details that may not be available in the TRC. Without these documents, Indian authorities can deny DTAA benefits. Form 10F typically includes the applicant’s status (individual, firm, company), nationality, country of residence, tax identification number, and a declaration that the taxpayer is a resident of the country issuing the TRC.
General Anti-Avoidance Rule (GAAR) and Treaty Shopping
GAAR provisions are aimed at curbing aggressive tax avoidance strategies, including treaty shopping—where entities set up shell companies in tax-favorable jurisdictions just to avail DTAA benefits. Under GAAR, the Indian tax authorities are empowered to deny tax treaty benefits if an arrangement is found to be an “impermissible avoidance arrangement.” GAAR came into effect in India from the assessment year 2018–19. It empowers tax authorities to disregard any structure created with the main purpose of obtaining tax benefits and not for genuine commercial purposes. For example, routing investments through Mauritius to avail of zero capital gains tax under the old India-Mauritius DTAA is no longer effective after protocol amendments and GAAR enforcement.
Limitation of Benefits (LOB) Clauses
Several DTAAs signed by India now include a Limitation of Benefits (LOB) clause. These clauses specify certain conditions that entities must satisfy to be eligible for treaty benefits. LOB provisions are intended to ensure that only genuine residents of a country can claim DTAA benefits and prevent treaty abuse. A typical LOB clause may require a minimum level of expenditure or ownership structure to be maintained by the entity in the other country. For instance, the India-Singapore and India-Mauritius treaties contain LOB clauses that limit capital gains tax exemptions to entities meeting specific conditions related to business operations and residency.
Impact of Multilateral Instrument (MLI)
India is a signatory to the OECD’s Multilateral Instrument (MLI), which seeks to implement tax treaty-related measures to prevent base erosion and profit shifting (BEPS). The MLI modifies India’s DTAs with other signatories to incorporate anti-abuse provisions, such as the Principal Purpose Test (PPT), which denies treaty benefits if the principal purpose of the arrangement is to obtain a tax benefit. As a result of the MLI, many Indian DTAAs now automatically incorporate stronger anti-avoidance rules and minimum standards for transparency and cooperation. The PPT is a widely used provision under the MLI and plays a crucial role in ensuring that only genuine transactions qualify for tax relief.
Case Study: GAAR in Action
Consider an Indian company that sets up a wholly-owned subsidiary in a tax haven like Cyprus purely to benefit from a favorable DTAA, with no commercial substance or real operations in Cyprus. Under GAAR, Indian tax authorities can disregard the existence of this subsidiary and tax the income in India, denying treaty benefits. The ruling in the case of Vodafone India Services Pvt. Ltd. is a prime example where the Supreme Court initially ruled in favor of the taxpayer, but later developments and the introduction of GAAR changed the landscape significantly.
Case Study: Principal Purpose Test (PPT)
In a post-MLI scenario, an Indian firm investing in a European country via a shell company set up in the Netherlands to benefit from a lower withholding tax rate under the India-Netherlands DTAA may be denied benefits if the tax authorities determine that the principal purpose of setting up the shell entity was to claim treaty relief. Under the PPT clause, the tax department has the authority to examine the real intent and economic substance behind such arrangements and deny treaty relief if the arrangement fails the test.
Digital Economy and Challenges in Double Taxation Relief
With the rise of the digital economy, cross-border transactions have become more complex, posing challenges in determining the source and residence of income. Concepts such as Significant Economic Presence (SEP) have been introduced to tax digital companies operating without a physical presence. These developments may lead to overlapping tax claims by multiple jurisdictions, thereby complicating the double taxation relief process. India has introduced the Equalization Levy and is revising its approach to defining source-based taxation, which could lead to further legal disputes regarding DTAAs.
Recent Judicial Trends
Recent court rulings have reaffirmed the importance of substance over form in granting double taxation relief. Courts have emphasized the need for actual business activities, control, and decision-making to be located in the treaty country, failing which the benefits can be denied. For instance, in McDowell & Co. Ltd. v. CTO, the Supreme Court laid down the principle that colorable devices and sham transactions would not be recognized in the eyes of the law. Similarly, in AB Holdings v. ITO, the ITAT denied treaty relief as the entity was found to be a conduit with no commercial substance.
Conclusion
Double taxation relief in India is governed by a combination of domestic law provisions and international tax treaties. While the intent is to avoid taxing the same income twice, the system is designed to ensure that only genuine taxpayers receive the benefit. Taxpayers must ensure proper documentation, economic substance, and adherence to anti-abuse provisions like GAAR, LOB, and PPT. With the evolving global tax landscape, particularly in the context of the digital economy and MLI adoption, navigating double taxation relief provisions requires a sound understanding of both legal requirements and practical enforcement trends. Case laws serve as crucial tools in interpreting these provisions and understanding their real-world implications.