Substituted DTAA rate applies for the full previous year when a notification replaces the earlier tax provision.

A substituted DTAA tax rate notified under section 90 was treated as replacing the earlier rate provision in full, so the new lower rate applied for the entire previous year and not only from the notification date. The analysis applied the principle that a substituted provision operates as a repeal of the former provision and comes into force in its place. On that basis, the assessee was entitled to the revised 10% rate for assessment year 2006-07, and the issue was resolved in favour of the assessee and against the revenue.

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Issues: Whether the substituted rate of tax under the DTAA, introduced by notification under section 90, applied for the entire previous year for assessment year 2006-07.

Analysis: The relevant notification deleted the earlier paragraph governing tax on royalties and fees for technical services and replaced it with a new provision prescribing a lower rate. A substituted provision operates as a repeal of the earlier provision and brings the new provision into force in place of the old one. On that principle, the revised DTAA rate was applicable for the full fiscal year and not confined only to transactions after the notification date.

Conclusion: The assessee was entitled to the benefit of the substituted 10% rate for the entire previous year. The question was answered in favour of the assessee and against the revenue.

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