Non-discrimination relief under the India-Korea DTAA was denied where the statutory explanation limited rate comparison for a foreign bank.

The non-discrimination clause under the India-Korea DTAA was read with the Explanation to section 90(2), which treats taxation of a foreign company at a higher rate than a domestic company as not amounting to less favourable treatment. On that basis, a foreign bank could not compare its tax treatment with an Indian co-operative society carrying on banking activities to claim the lower rate available to that entity. The statutory Explanation was treated as integral to section 90(2) and limited the treaty-based comparison invoked by the assessee. The claimed non-discrimination benefit was therefore unavailable, and the higher rate applicable to the foreign company was sustained.

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Issues: Whether the assessee, a foreign bank, was entitled to claim the benefit of the non-discrimination clause in the India-Korea Double Taxation Avoidance Agreement so as to be taxed at the rate applicable to a co-operative society rather than at the higher rate applicable to a foreign company.

Analysis: The dispute turned on the scope of the Explanation inserted in section 90(2), which declared that taxation of a foreign company at a rate higher than that of a domestic company would not be regarded as less favourable treatment. The assessee sought to compare itself with an Indian co-operative society carrying on banking activities and contended that the treaty protection extended beyond comparison with a domestic company. The Tribunal held that the statutory Explanation formed an integral part of section 90(2) and specifically neutralised any claim based on a higher rate of tax on a foreign company when compared with a domestic company. On that basis, no comparison with the tax rate applicable to a co-operative society could be made for the foreign bank.

Conclusion: The assessee was not entitled to the non-discrimination benefit claimed, and the higher rate of tax applicable to the foreign company was sustained.

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