Indian Court Ruling Comes Down In Favour Of Tax Treaties

by Lorys Charalambous, Tax-News.com, Cyprus

07 June 2004

In a recent ruling by India’s Supreme Court, it was held that the double taxation avoidance agreement between India and Malaysia overrides the domestic Income Tax Act, a judgement that may also have a substantial impact for firms benefiting from the Indo-Mauritius tax treaty.

Dismissing an appeal brought by the commissioner of income tax, Chief Justice S Rajendra Babu and Justice G P Mathur ruled that India's tax laws did not apply to income derived by NRIs from immovable property in Malaysia, since that property fell outside the remit of the Indian Tax Act.

According to Section 90 of the Income Tax Act: “Where the central government has entered into an agreement with the government of any other country outside India for granting relief of tax, or for avoidance of double taxation, then in relation to the assessee to whom such agreement applies, the provisions of the Act shall apply to the extent they are beneficial to the assessee.”

The ruling confirms that the Indian government will have difficulty in challenging the working of the Indian tax treaty with Mauritius. There have been concerns that firms from third countries were routing investment into India via the Indian Ocean jurisdiction to avoid Indian income taxes.

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