Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: TDS :: Central Excise rule to resale the machines to a new company :: list of goods taxed at 4% :: VAT Audit :: VAT RATES :: ACCOUNTING STANDARDS :: empanelment :: articles on VAT and GST in India :: ACCOUNTING STANDARD :: form 3cd :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TAX RATES - GOODS TAXABLE @ 4% :: due date for vat payment :: cpt
« News Headlines »
 CBDT releases Income Tax Return statistics for last two fiscals
 CBDT issues second round of Certificates of Appreciation to tax payers for their contribution towards Nation building
 FinMin looks at cut in corporation tax
 Draft Rules for prescribing the method of valuation of fair market value in respect of the trust or the institution-Chapter XII-EB of the Income-tax Act, 1961- reg.
 India is moving towards a flawed GST
 ICAI to organise two-day international conference in Hyderabad
 Here's how to calculate tax payable on your capital gains
 Income Tax calculations for the financial year 2016-17
 CPE Events 17 October - 22 October 2016
 High Court raps I-T Department for wrong tax demand
  CBDT signs 5 advance pricing pacts with Indian taxpayers

Higher rate of tax on foreign companies
October, 10th 2006
The various tax treaties which India has made with a large number of countries invariably contain a provision of non-discrimination against foreign enterprises. The non-discrimination clause in effect provides that a foreign enterprise in India will not be subjected to any taxation which is more burdensome than the taxation to which Indian enterprises are subjected to under similar conditions. The aforesaid non-discrimination clause is on the lines of an article contained in the UN Model of tax treaties, which reads as under: Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nations of that other State in the same circumstances are or may be subjected. This provision shall, notwithstanding the provisions of article 1, also apply to persons who are not residents of one or both of the Contracting States. Despite the above internationally accepted position it is surprising that Explanation to Section 90 of the Income-tax Act provides that the charge of tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge of levy of tax in respect of such foreign company. The true effect of the aforesaid explanation is that a higher rate of tax can be imposed on a foreign company in India compared to the tax chargeable from an Indian company. It has been pointed out in these columns earlier also that the aforesaid explanation to Section 90 will have a far reaching implication on foreign companies operating in India because by operation of law a higher rate of tax will not be regarded as a discrimination against the foreign companies. A recent case of Chohung Bank vs Deputy Director of Income-tax (2006) 102 ITD 45 is a glaring example of the above mentioned provision of law. In the said case, a banking company based in Korea had a branch in India. The said branch (called assessee-company) was involved in normal banking activities including financing of foreign trade and foreign exchange transactions. The assessee claimed that the tax rate as applicable to Indian companies carrying on similar business should be applied in its case instead of the tax rate applicable to non-resident companies and in this regard relied upon article 26 of the Agreement for Avoidance of Double Taxation between India and Korea. Accordingly, the foreign banks income was taxed at the rate of 48% instead of at the rate applicable to a domestic company i.e. 35% as claimed by the assessee company. The ITAT Mumbai after considering Section 90 of the Income-tax Act and the non-discrimination clause in the Tax Treaty with Korea, ultimately held that the provision of non-discrimination has nothing to do with the rate of tax. The tribunal further observed that a tax treaty does not prevail over the Finance Act; hence, over the tax rates. The tribunal took all the pains to justify their decision that if a foreign company is made to pay tax at higher rate as compared to a domestic company, this does not amount to any less favourable discrimination against the foreign company. This may be a brilliant argument, but is certainly devoid of justice. If foreign enterprises are discriminated against by imposing higher rate of tax, it is certainly a question mark on India's commitment to the tax treaties made with other sovereign States. H P Aggarwal
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Our Portfolio

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions