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2019 (8) TMI 895 - HC - Income TaxRate of tax applicable to PE of foreign entity - rate @65% OR rate applicable to a domestic company - DTAA between India and Japan - HELD THAT:- By virtue of Section 90(2), since there is a double taxation avoidance agreement between India and Japan, the provisions of the Act shall apply to a permanent establishment of a Japanese entity in India ‘to the extent they are more beneficial to that assessee'. Also, in terms of the mandate of clause 24(2) of the agreement, ‘the taxation on a permanent establishment - - in the other Contracting State shall not be less favourably levied - - than the taxation levied on enterprise carrying on the same activities.’ By virtue of Clause 24(2) of the said agreement and the statutory recognition thereof in Section 90(2), the permanent establishment of a Japanese entity in India could not have been charged tax at a rate higher than comparable Indian assessees carrying on the same activities. The stand taken in the Tribunal’s order cannot be appreciated or accepted since a similar clause in the double taxation avoidance agreement between India and the Netherlands was interpreted by the Central Board for Direct Taxes and a circular issued thereupon. The Tribunal held, in the present case, that since there was no similar circular, the benefit as available to a permanent establishment of ABN Amro Bank in India could not be extended to this assessee. When there is no dispute that there is a double taxation avoidance agreement in place between India and the country of origin of the assessee in the present case and when such agreement contains a lucid clause as apparent from Article 24(2) thereof quoted above and when Section 90 recognises such an agreement and creates a special status for the relevant permanent establishments, there was no room for either the Commissioner to wait for any dictat from the high command of the CBDT or for the Tribunal to demonstrate similar servile conduct in not appropriately interpreting and giving effect to the clear words of the agreement between the two countries. Tribunal was incorrect in holding that the rate of tax applicable to the assessee was 65%. The Tribunal ought to have held that the rate applicable to the assessee was such rate as applicable to a domestic company carrying on similar activities. In the light of such answer, the two other questions need not be addressed since paragraph 8 of the order admitting the reference recognised that the answer to the first question would cover the entire matter.
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