Treaty non-discrimination protects software export deduction claims by a non-resident with an Indian permanent establishment.

A non-resident enterprise with a permanent establishment in India could claim deduction under section 80HHE by relying on article 26(2) of the India-USA DTAA. Although the domestic provision limits the deduction to an Indian company or a person resident in India, section 90(2) gives treaty provisions primacy where more beneficial. Because the assessee carried on software export, an activity also undertaken by resident enterprises eligible for the deduction, the residence-based restriction could not be used to deny treaty parity. The deduction was therefore available on the same footing as to a resident person in India.

---

---

Issues: Whether a non-resident assessee resident in the USA, carrying on export of software through a permanent establishment in India, was entitled to deduction under section 80HHE of the Income-tax Act, 1961 by invoking article 26(2) of the India-USA Double Taxation Avoidance Agreement.

Analysis: Section 80HHE grants the deduction only to an Indian company or a person resident in India. However, section 90(2) gives primacy to the treaty where its provisions are more beneficial. Article 26(2) requires that taxation of a permanent establishment of an enterprise of one contracting State in the other contracting State shall not be less favourably levied than the taxation imposed on enterprises of that other State carrying on the same activities. The business carried on by the assessee was export of software, an activity also carried on by resident enterprises eligible for deduction under section 80HHE. The treaty provision was held to cover this differential treatment, and the domestic restriction based on residence could not be applied to deny the treaty benefit.

Conclusion: The assessee was entitled to deduction under section 80HHE on the same footing as a resident person in India.

---