DTAA non-discrimination clause does not override domestic tax rates where foreign and domestic banks are not similarly situated.

The ITAT held that the India-Korea DTAA non-discrimination clause did not override the tax rate fixed by domestic fiscal legislation. Article 25 was confined to nationality-based discrimination and treatment of enterprises in the same circumstances, while the general rate of tax remained governed by the Income-tax Act and Finance Act unless the treaty expressly prescribed a different rate. The Explanation to section 90(2) was treated as clarifying that a higher rate on a foreign company is not, by itself, less favourable treatment. The Tribunal also found that a domestic bank and a foreign bank's permanent establishment were not similarly situated, so the differential rate was not discriminatory.

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Issues: Whether the higher tax rate applied to the permanent establishment of a Korean bank in India was barred by the non-discrimination clause in Article 25 of the India-Korea DTAA, and whether the DTAA could override the rate structure prescribed under the Income-tax Act and the Finance Act.

Analysis: The non-discrimination clause was held to operate in the field of nationality-based discrimination and treatment of enterprises in the same circumstances, but not to control the general rate of tax fixed by the annual fiscal legislation. The agreement was read as governing assessability and relief under the taxing statute, while the rate of tax remained within the domain of Parliament unless the treaty itself specifically prescribed a different rate. The Explanation to section 90(2) was treated as clarificatory and as making it explicit that a higher rate on a foreign company would not, by itself, amount to less favourable treatment. The Tribunal also found that a domestic banking company and a foreign bank's permanent establishment were not in the same circumstances, having regard to residence, dividend distribution arrangements, and additional regulatory obligations.

Conclusion: The higher rate applied to the assessee's permanent establishment did not violate Article 25 of the DTAA, and the treaty did not require the foreign bank to be taxed at the domestic-company rate.

Final Conclusion: The assessee's challenge to the differential rate of taxation failed, and the assessment was sustained.

Ratio Decidendi: A DTAA non-discrimination clause does not, by itself, displace the tax rates fixed by domestic fiscal legislation where the treaty does not specifically prescribe a different rate, and differential treatment based on the distinction between a foreign company's permanent establishment and a domestic company is not discriminatory if they are not in the same circumstances.

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