Circular No. 333 — Double Taxation Relief & Transfer Pricing

What this is

Circular No. 333 was issued by the Central Board of Direct Taxes on 2 April 1982. Its subject is Double Taxation Relief & Transfer Pricing.

This one is about a tax treaty. India’s treaties enter Indian law by notification under section 90; where the instrument below is that notification, its date decides from when the treaty may be applied, and where it is a circular, it is the Board telling its officers how it reads the treaty — which is not the same thing.

What it does

Directs Assessing Officers to give effect to a tax treaty even where it does not square with the Act. Noticing that officers sometimes withheld effect to a double taxation avoidance agreement because its provisions were not in conformity with the Income-tax Act, the Board states the correct legal position: where the agreement makes a specific provision, that provision prevails over the general provisions of the Act. The agreements entered into under section 90 themselves say that the laws in force in each country continue to govern assessment and taxation except where the agreement provides to the contrary. So where the agreement lays down a particular mode of computing income, that mode is to be followed whatever the Act says; and where the agreement has no specific provision, the Act governs.

Why it was issued

It had come to the Board's notice that officers were declining to apply treaty provisions that departed from the Act.

Who it reaches

Non-residents and foreign companies assessed in India
Residents claiming relief under a treaty
Assessing Officers applying a treaty article against a section of the Act
Payers working out withholding under a treaty rate

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.40A	s.29, s.36
s.90	s.159

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

Double Taxation Relief & Transfer Pricing
SECTION 90 l AGREEMENT WITH FOREIGN COUNTRIES [CORRESPONDING TO SECTION 40A OF THE 1922 ACT]
627. Specific provisions made in double taxation avoidance agreement -Whether it would prevail over general provisions contained in Income-tax Act
1. It has come to the notice of the Board that sometimes effect to the provisions of double taxation avoidance agreement is not given by the Assessing Officers when they find that the provisions of the agreement are not in conformity with the provisions of the Income-tax Act, 1961.
2. The correct legal position is that where a specific provision is made in the double taxation avoidance agreement, that provisions will prevail over the general provisions contained in the Income-tax Act. In fact that the double taxation avoidance agreements which have been entered into by the Central Government under section 90 of the Income-tax Act, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective countries except where provisions to the contrary have been made in the agreement.
3. Thus, where a double taxation avoidance agreement provides for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income-tax Act. Where there is no specific provision in the agreement, it is basic law, i.e., the Income-tax Act, that will govern the taxation of income.
Circular : No. 333 [F. No. 506/42/81-FTD] dated 2-4-1982.

What to watch

The treaty prevails only where it makes a specific provision on the point; a general treaty statement does not displace the Act.
Where the treaty is silent, the Act applies in full, so the treaty is read as an exception and not as a code.
This settles the order of priority and works out no particular article of any agreement.
The circular is issued on section 90 of the 1961 Act, corresponding to section 40A of the 1922 Act as its own heading records.

Where you meet it

In an assessment or a withholding dispute where the Assessing Officer applies the Act's rate or computation in preference to the treaty's.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 27/2017 — Clarification on cash sale of agricultural produce by cultivators/agriculturists 3 November 2017
Circular No. 10/2008 — Clarification Regarding the Meaning of the Expression 'Fish or Fish Products' Used in Sub-clause (iii ) of Clause (f) of 5 December 2008
Notification No. 98 — Income-tax (Eighth Amendment) Rules, 2008 - Insertion of rule 18DDA and Form No. 10CCBD 22 October 2008
Circular No. 3/2008 — Explanatory Notes to the Provisions of the Finance Act, 2007 12 March 2008
Circular No. 8/2006 — 8/2006 dated 06 10 2006 6 October 2006
Circular No. 4/2006 — Clarification Regarding the Meaning of the Expression "The Produce of Animal Husbandry’ Used in Sub-clause (ii) of Claus 29 March 2006

← Circular No. 334 · Circular No. 332A →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.