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The finance ministry today issued a clarification on the applicability of the provision and said that the concerns raised on its language, will be suitably addressed at the time of consideration of the Finance Bill.
It is not clear, though, even after the clarification, whether the amendment will ensure that just by producing TRC, it will be possible to avail tax benefits ignoring double tax avoidance agreement (DTAA) provisions between India and the country of the concerned assesses residence.
However, the market has read it that the government is diluting the provision to remove the requirement of fulfilling the conditions of concerned double tax avoidance agreement (DTAA) or domestic law for taking tax benefits.
The BSE Sensex bounced back from three-month lows to end nearly 57 points higher at 18,918.52 after the clarification. The NSE Nifty rose by 26.65 points to 5,719.70.
Pointing out that concerns had been expressed regarding the clause in the Finance Bill that amends Section 90 of the Income-tax Act dealing DTAAs, the finance ministry today said that Sub-section (4) of section 90 was introduced last year by Finance Act, 2012, and it required an assessee to produce a TRC in order to claim the benefit under DTAA.
DTAAs recognize different kinds of income and they stipulate that a resident of a contracting state will be entitled to the benefits of the agreement.
In the explanatory memorandum to the Finance Act, 2012, it was stated that the Tax Residency Certificate containing prescribed particulars is a necessary but not sufficient condition for availing benefits of the DTAA.
“The same words are proposed to be introduced in the Income-tax Act as sub-section (5) of section 90. Hence, it will be clear that nothing new has been done this year which was not there already last year,” the government has stressed.
It has been pointed out, however, that the language of this sub-section could mean that the TRC produced by a resident of a contracting state could be questioned by the income tax authorities in India.
To remove this apprehension, the finance ministry said, “The government wishes to make it clear that that is not the intention of the proposed sub-section (5) of section 90. The Tax Residency Certificate produced by a resident of a contracting state will be accepted as evidence that he is a resident of that contracting state and the Income Tax Authorities in India will not go behind the TRC and question his resident status”.
The ministry added further that, however, since a concern had been expressed about the language of sub-section (5) of section 90, this concern will be addressed suitably when the Finance Bill was taken up for consideration.
In the case of Mauritius, circular no 789 of April 13, 2000, the government said it continued to be in force, pending ongoing discussions between India and Mauritius.
Finance Minister P Chidambaram had said in his post-budget press conference yesterday that TRC will not be enough to claim benefits under the DTAAs.
The finance minister had stressed that nothing new had been done this year and the explanation which was already there in the memorandum last year had been brought in the Finance Bill.
“It is possible that the memorandum and the new explanation are added in a manner that there is certain ambiguity,” Chidambaram said.
Clarifying the ambiguity, he added, “All double taxation avoidance agreements have two conditions. One is the condition of residency and the other is the condition on the person who is a beneficial owner. These are two separate conditions. TRC certifies that you are a resident. It does not certify you are a beneficial owner. For example, in the case of interest income, dividend income and royalty he must be the residence and also the beneficial owner to claim the benefit.”
Addressing Market Concerns
* Government clarifies TRC provision
* Nothing new in the proposed section in Finance Bill 2013
* Explanation of 2012 brought in the Act this year
* Finance Ministry to address concerns over language of TRC provision
* Tax Authorities will not go behind the TRC and question resident status
* Mauritius circular 789 continues to be in force, pending discussions
