TaxTMI 
TaxTMI 
2009 (10) TMI 595
X X X X Extracts X X X X
X X X X Extracts X X X X
....gard to ground No. 1, we find that the assessee had claimed that it should be taxed at the rate of 40% and this claim was made by way of following note in the return: "In view of article 24 of the Agreement for Avoidance of Double Taxation between India and Mauritius the assessee submits that its status is equivalent to 'domestic company' as defined in section 2(22A) of the Income-tax Act, 1961 and hence the tax rate of 40% will be applicable to it as against the normal tax of 55% applicable to other 'non-resident' companies and surcharge shall not be payable by it as it is a non-resident company as defined in section 6(3)". 3. However, the Assessing Officer was of the view that in view of the Ruling of Authority for Advance Rulings in A.A.R. No. 362 of 1997 in the case of Societe Generale wherein it was held that a non-domestic company has to pay taxes at the given rate in the Finance Act. Accordingly, he applied the tax rate of 55%. 4. On appeal, the CIT(A) observed that there was no limitation or restriction to the non-discrimination provision provided in DTA Agreement and once some provision was discriminatory then the same cannot be applied because provision of DTAA h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rates so provided in DTAA. But, where no such rates on an income or a category of income on the status of an assessee have been prescribed in DTAA, then there cannot be any conflict with the Income-tax Act. Therefore, DTAA as such would not prevail over the Income-tax Act, and hence, rates as applicable to domestic companies cannot be applied to non-domestic companies. In the instant case, no rates for charging non-domestic companies have been provided in DTAA with Korea. Hence, it could not be said that DTAA with Korea was in conflict with the Income-tax Act. Article 25(1) provides that Contracting States would not discriminate 'nationals' of other Contracting State in the matter of taxation, and if that 'national' is working 'under same circumstances', then taxation on such enterprise would not be less favourable than the taxation on the enterprises of that other State. Based on article 25(1) and article 25(2), the assessee submitted that it was discrimination that domestic companies were subjected to lower rates whereas the non-resident company (PE) in India of foreign bank was subjected to higher rates and that it was discrimination to tax the PE of foreign bank at higher ra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stinction between domestic company and non-domestic company is the declaration of dividend or making arrangement therefore. Indian domestic company has to declare dividend or make prescribed arrangement therefore. But there is no such thing binding upon the non-domestic company, as they do not have the shareholders in Inola. Thirdly, the domestic banking company has to abide by the additional conditions imposed by Reserve Bank of India about advantages to agriculture or to weaker sections of society. The percentage of advantages to priority sector is more in case of domestic banking company. Hence, it could not be said that domestic banking company and non-domestic company are working under the same circumstances [Para 9] Therefore, domestic banking company and non-domestic banking company do not function under 'same circumstances' and, hence, discrimination clause in article 25 of the Indo-Korean DTAA is not applicable [Para 9.1] Section 2(22A) shows that not only Indian company but also any other company can be termed as domestic company, provided it has made prescribed arrangement for distribution of dividend (Including dividend on preference shares) payable out of Income-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enterprises belonging to the same sector of activities. Even though, broadly Indian domestic bank and PE of the assessee bank were engaged in banking activities but the activities were not the same; they might only be similar. Secondly, co-operative societies are charged with different rates looking to their social involvement and upliftment of poor and the prospects of their betterment though co-operative sector. Clauses (6), (1) and (8) of Model Conventions on article 25(2) provide that it will not be a discrimination, if the Contracting State provides special privilege to public bodies, or whose activities are performed for public benefit, or to its own bodies being Integral part of the State, etc. Therefore, it was not acceptable to compare co-operative societies with non-resident banking companies upon whom there is no such social burden. Further, Explanation to section 90, so introduced with effect from 1-4-1962 is an integral part of section. It clearly lays down that charging of foreign company at a higher rate would not be treated as less favourable [Para 12]." 6. In view of the above decision and the amended provision, we set aside the order of the learned CIT(A) and d....