Interpretation of ‘terms’ used in an agreement entered into u/s 90 and 90A Income Tax Act

By | February 24, 2018
(Last Updated On: February 24, 2018)

CBDT CIRCULAR NO.2/2018 [F.NO.370142/15/2017-TPL]DATED 15-2-2018

43. Clarification with regard to interpretation of ‘terms’ used in an agreement entered into under section 90 and 90A.

43.1 Under the provisions of section 90 of the Income-tax Act, power has been conferred upon the Central Government to enter into an agreement with the Government of any country outside India for granting relief in respect of income on which income tax has been paid both under the Income-tax Act and the income tax law in that foreign country, avoidance of double taxation of income, exchange of information for the prevention of evasion or avoidance of income-tax or recovery of income-tax. Similar provisions are provided in section 90A of the Income-tax Act in the case of an agreement entered into by any specified association in India with any specified association in the specified territory outside India.

43.2 It is further provided in section 90 and 90A that any ‘term’ used but not defined in this Act or in the agreement referred to in sub-section (1) of respective provisions shall have the meaning assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf, unless the context otherwise requires, provided the same is not inconsistent with the provisions of this Act or the agreement.

43.3 One of the recommendations of the Income-tax Simplification Committee, in its final report, is bringing in more clarity in the Income-tax Act in respect of interpretation of ‘terms’ used in an agreement entered under section 90 or 90A for the purposes of its application in order to reduce the avoidable litigation related to taxation of non- residents.

43.4 In the light of above discussion and to bring in clarity to avoid litigation, a new Explanation 4 has been inserted in sections 90 and 90A respectively of the Income-tax Act so as to provide that where any ‘term’ used in an agreement entered into under sub-section (1) of Section 90 and 90A of the Income-tax Act is defined under the said agreement, the said term shall be assigned the meaning as provided in the said agreement and where the ‘term’ is not defined in the agreement, but is defined in the Income-tax Act, it shall be assigned the meaning as provided in the Income-tax Act and explanation, if any, given to it by the Central Government.

43.5 Applicability: These amendments take effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent years.

Leave a Reply

Your email address will not be published.