Section 90(2)

Section 90(2) — the law in short

What the courts have decided on section 90(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• AO v Nestle SA Supreme CourtHelps department
  My protocol has an MFN clause and I applied the lower rate India later agreed with an OECD member. Was I entitled to?
  No, on both counts. A notification under s.90(1) is a mandatory condition before any court, authority or tribunal can give effect to a treaty or to a protocol that alters the existing provisions of law, so an MFN clause does not import a later treaty's rate or scope by itself. And where the clause is triggered by India's treaty with a third state 'which is a member of the OECD', that state must have been an OECD member when it entered the treaty with India, not merely by the time the benefit is claimed.
• Engineering Analysis Centre of Excellence P Ltd v CIT Supreme CourtHelps taxpayer
  You pay a foreign supplier for software. Is that royalty, and must you deduct TDS?
  Not royalty. An end-user licence gives a limited right to use a copyrighted article, not an interest in the copyright, so the payment is not chargeable in India and no tax need be deducted under s.195.
• ADIT v E-Funds IT Solution Inc Supreme CourtHelps taxpayer
  We outsource back-office work to our Indian subsidiary. Does that give us a permanent establishment in India?
  No, not by itself. The Revenue must prove that a fixed place in India was at the disposal of the foreign company and that the foreign company carried on its own business through it. Close association between parent and subsidiary, and the fact that the Indian company depends on the group for its work, do not answer that question, and the functions-assets-risks analysis borrowed from transfer pricing is not the test for whether a fixed place permanent establishment exists.
• Ishikawajima-Harima Heavy Industries Ltd v DIT Supreme CourtHelps taxpayerSuperseded by amendment
  Our turnkey contract has offshore supply and offshore services alongside Indian work. Is the whole contract taxable in India?
  No — a composite turnkey contract can be split. Profits on equipment supplied and paid for outside India, where title passes outside India, are outside the Indian charge, because the contract being signed in India is immaterial and there must be a sufficient territorial nexus. On offshore services the Court read s.9(1)(vii) as requiring the services to be both utilised in India and rendered in India; that second requirement has since been removed retrospectively by statute, so only the offshore supply holding survives on the domestic law side.
• CIT v P.V.A.L. Kulandagan Chettiar Supreme CourtHelps taxpayerValidity unconfirmed
  I am resident in India but my rubber estate and my business are in Malaysia. The treaty says that income may be taxed there. Can India tax it as well?
  No, on this treaty. The Supreme Court dismissed the Revenue's appeals and held that neither the business income from the Malaysian rubber plantations nor the capital gain on the sale of the Malaysian property could be taxed in India. The property was in Malaysia, the permanent establishment was in Malaysia and there was none in India, so the closer personal and economic relations determined fiscal domicile and residence in India became irrelevant. Capital gains is income arising out of immovable property for the purposes of the Act, so Article 6 covered it. The Court declined to decide the semantic question whether may be taxed allocates the taxing power or merely permits it.
• Blackstone Capital Partners Singapore VI v ACIT High CourtHelps taxpayerUnder appeal
  I hold a valid TRC. Can the AO go behind it and reopen my assessment for lack of substance?
  No. A valid tax residency certificate is statutorily the only evidence required to be eligible for treaty benefit, and the Indian authorities cannot disregard a certificate issued by another State's tax authority. Since Article 13(4) of the India-Singapore treaty then protected the capital gains, no income chargeable to tax had escaped assessment and the s.148 notice was invalidated.
• Danisco India P Ltd v Union of India High CourtHelps taxpayer
  My overseas vendor has no Indian PAN — must I withhold 20 per cent under section 206AA when the treaty caps the rate at 10 per cent?
  No. The Delhi High Court held on 5 February 2018 that section 206AA, as it stood, must be read down: where the payee operates from a territory whose government has a double taxation avoidance agreement with India, the rate of deduction is the rate the treaty dictates, not 20 per cent. The petitioner remitted fees for technical services to a Singapore company with no Indian PAN; Article 12 of the India-Singapore treaty caps the tax at 10 per cent. Following Azadi Bachao Andolan, the Court held the treaty takes primacy, and noted that Parliament had itself softened the provision by substituting section 206AA(7) with effect from 1 June 2016.
• CIT v Herbalife International India Pvt Ltd High CourtHelps taxpayer
  I paid administrative fees to my US group company without deducting TDS and the officer has disallowed the whole amount under section 40(a)(i). Can I use the treaty's non-discrimination article?
  Yes, for years before the 2005 amendment. The Delhi High Court held that section 40(a)(i), as it stood for assessment year 2001-02, disallowed a payment to a non-resident for failure to deduct tax while an identical payment to a resident carried no such consequence. That lack of parity in deductibility is discrimination under Article 26(3) of the India-US treaty. Section 90(2) makes the treaty prevail, and the Court rejected the argument that a comparison needs a matching provision in the treaty. The Rs.5.83 crore administrative fee was allowed and the Revenue's appeal dismissed.
• SC Lowy P I (LUX) v ACIT ITATHelps taxpayerValidity unconfirmed
  The AO calls my Luxembourg fund a conduit and invokes the PPT. Is a TRC and some substance enough to answer that?
  Yes, on these facts, but not for the reason this entry previously gave. The Tribunal allowed the India-Luxembourg treaty benefits because the tax residency certificate was valid and unquestioned and the Assessing Officer brought no cogent material to show that the company was in substance a conduit - only views and presumptions. It applied the Delhi High Court's propositions on tax residency certificates, held that the burden of establishing that obtaining a benefit was one of the principal purposes lies on the revenue, and found that burden unmet on a record showing a Luxembourg company that filed and paid tax there, bore real operating costs and held 13.95 per cent of its portfolio in India.
• Saket Kanoi v DCIT ITATHelps taxpayerValidity unconfirmed
  The officer says my client pays no tax in Dubai, so the India-UAE agreement cannot apply to him. Is that right?
  No. The Delhi Tribunal held that a resident of the UAE is entitled to the benefit of the India-UAE agreement even though the UAE levies no tax on him. Being 'liable to tax' in a Contracting State does not require that tax was actually paid; it is enough that the State has the right to tax, whether or not the right is exercised. The Assessing Officer's reasoning that there was no double taxation, so no relief was due, was rejected.
• Samsung R&D Institute India Bangalore P Ltd v JCIT ITATHelps taxpayer
  My foreign group companies ship me handsets, network equipment and other test gear free of cost so that I can test the software I write for them, and I send it back or scrap it when the testing is done. The AO has added the value under s.28(iv) as a benefit arising from my business. Can he?
  No, on these facts. The Bangalore Bench deleted an addition of Rs 7,37,33,056 under s.28(iv) on equipment supplied free of cost by the assessee's associated enterprises for testing software the assessee had developed for them. Two things carried it: the equipment was either returned or destroyed after testing, so nothing irretrievable or of enduring nature was made available to the assessee, and the price for the software development services had already been settled under a Mutual Agreement Procedure resolution between the competent authorities of India and Korea, in which the cost of indirect benefits should have been embedded - so if there were a nexus at all it belongs in a transfer pricing adjustment and not in a second addition under s.28(iv). The same order also deleted a s.40(a)(i) disallowance of depreciation on capitalised software, following the coordinate bench in the assessee's own case. Note what the order does not do: it decides nothing under s.194R.
• DCIT v Total Oil India Pvt Ltd (Special Bench) ITATHelps departmentValidity unconfirmed
  My company paid dividend distribution tax on dividend to a French shareholder. Can I pay at the lower treaty rate on dividends instead of the section 115-O rate?
  No, on the reasoning of this Special Bench. It treated dividend distribution tax under section 115-O as a charge on the domestic company on its own distributed profits, not a tax paid on behalf of the shareholder, following the Bombay High Court in Godrej & Boyce that the company does not act as the shareholder's agent and the charge is not on dividend in the shareholder's hands. It held that Tata Tea, which upheld the constitutional validity of section 115-O, does not support the taxpayer, a precedent being an authority only for what it actually decides. On that footing the shareholder's treaty rate does not limit the section 115-O rate.
• Sameer Malhotra v ACIT ITATHelps taxpayer
  I moved to Singapore with my family. Can the AO's tie-breaker questionnaire alone make me an Indian resident?
  No. A tie-breaker questionnaire is an important aid but cannot be the exclusive basis for the conclusion, and permanence of a home is assessed qualitatively as well as by duration, so a flat taken on rent abroad can be a permanent home. The Tribunal decided the tie-breaker principally on the centre of vital interests - the assessee had moved to Singapore with his family to earn there, so his personal and economic relations for that period were in Singapore - with habitual abode offered as an additional reason. The addition of global income was deleted and the Assessing Officer directed to accept the revised return.
• Brinda Ramakrishna v ITO ITATHelps taxpayerValidity unconfirmed
  I filed Form 67 late and my foreign tax credit was disallowed. Does missing the deadline kill the claim?
  No, on this decision. The Bangalore Tribunal held that Rule 128(9) does not provide for disallowance of foreign tax credit where Form 67 is filed late; filing Form 67 is directory, not mandatory; and the treaty overrides the Act, with the Rules unable to run contrary to the Act. The assessee had claimed credit of Rs 4,73,779 for Australian tax under section 90 read with Article 24 of the India-Australia treaty, filed Form 67 only on 18 April 2020, and had the credit refused. The Tribunal allowed the appeal, and also held the point could be taken in rectification proceedings under section 154.
• Herbalife International India (P) Ltd v ACIT ITATCuts both waysValidity unconfirmed
  I did not withhold tax on an administrative fee paid to my US parent. Can the Assessing Officer disallow the whole expense under section 40(a)(i) when a payment to an Indian party would not be disallowed?
  No, where the India-USA treaty applies. The Delhi Tribunal held that Article 26(3) of that treaty forbids exactly this discrimination: a disbursement to a resident of the other State must be deductible on the same conditions as a payment to a resident. As section 40(a)(i) then stood, non-deduction of tax led to disallowance only for payments to non-residents, so an Indian payer would prefer a resident supplier. Article 26(3) neutralises that, and by section 90(2) the more beneficial treaty provision prevails. The Tribunal therefore held section 40(a)(i) could not be invoked, even assuming the sum was chargeable in India, and left the chargeability question open.
• In re Vanenburg Group B.V. Advance RulingHelps taxpayerValidity unconfirmed
  Our Dutch company is moving its Indian subsidiary's shares to another group company in the Netherlands. If the gain is exempt under the treaty, do we still have to withhold, file a return and do a transfer pricing study?
  No, on all four counts. The Authority ruled that no taxable capital gain arose in India on Vanenburg Group B.V.'s proposed transfer of its shares in Cordys R&D (India) Pvt Ltd to Cordys Holding B.V., because article 13(5) of the India-Netherlands agreement leaves such gains taxable in the Netherlands where the transfer is part of a corporate reorganisation and the alienator holds at least ten per cent of the transferee. It followed that the transferee need not withhold under section 195, that no return was required under section 139, and that the transfer pricing provisions in sections 92 to 92F did not apply. The ruling binds only Vanenburg.
• Brown and Root Inc v CIT Advance RulingHelps taxpayer
  Our US company laid a submarine pipeline offshore India as a subcontractor. The work took 39 days. Does that give us a permanent establishment under the India-US treaty?
  No. The Authority ruled that Brown and Root Inc, a US company, had no permanent establishment in India and so the revenue from its subcontract with Hyundai Heavy Industries was not taxable here. The work - installing a 12-inch submarine gas pipeline between offshore platforms using the vessels Subtec 1 and Captain BO - ran 39 days, from 30 November 1996 to 7 January 1997. Article 5(2)(k) of the India-US convention makes a construction or installation project or supervisory activity a permanent establishment only where it continues more than 120 days in any twelve months. Falling short of that, article 7 was not attracted. The ruling binds only that applicant.
• CBDT Circular 1/2025 on the Principal Purpose Test CBDT Circulars & InstructionsHelps taxpayer
  The officer says the PPT in the MLI destroys my Mauritius capital gains exemption on shares bought in 2015. Does the Board's own circular help?
  Yes, on both points. The Board says the PPT is intended to apply prospectively — from the date the treaty or protocol carrying it enters into force, or from the MLI's entry into effect for that treaty under Article 35 — and that the grandfathering provisions in the India-Cyprus, India-Mauritius and India-Singapore treaties stay outside the PPT altogether and are governed by the treaties' own clauses. It also tells officers to treat the exercise as fact-specific and case-by-case rather than as a rule of thumb.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.