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Tweaking with treaty provisions : A lawyer’s perspective on the Direct Taxes Code bill, 2009

TAX TREATIES AND the rules of interaction of double tax conventions with domestic laws, have become extremely important in determining the tax liablility of the tax payer. Treaties can be given overriding effect over domestic law or choose a middle-push between the two worlds, making the tax-payer eligible for treaty benefits.

The law under the Income Tax Act, 1961 in India
The Income Tax Act of 1961 made a departure from the prevailing situation under the Income Tax Act of 1922. The 1961 Act specifically provides that the provisions of an agreement for avoidance of double taxation shall prevail if beneficial to the tax payer in comparision with the domestic law provision. The Supreme Court of India came out emphatically in support of double tax avoidance agreements in Union of India v Azadi Bachao Andolan [2003] 263 ITR 706 (SC). The challenge to the treaties was repelled owing to the scheme relating to the charging provisions [Section 5] and the unbridled provision directing the treaties to apply where beneficial to the assessee [Section 90].

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