FINANCE
MINISTRY'S CLARIFICATION ON TAX RESIDENCY CERTIFICATE (TRC)
PRESS RELEASE, DATED 1-3-2013
Concern
has been expressed regarding the clause in the Finance Bill that amends Section
90 of the Income-tax Act that deals with Double Taxation Avoidance Agreements.
Sub-section (4) of section 90 was introduced last year by Finance Act, 2012.
That subsection requires an assessee to produce a Tax Residency Certificate
(TRC) in order to claim the benefit under DTAA.
DTAAs
recognize different kinds of income. The DTAAs stipulate that a resident of a
contracting state will be entitled to the benefits of the DTAA.
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.
However,
it has been pointed out that the language of the proposed sub-section (5) of
section 90 could mean that the Tax Residency Certificate produced by a resident
of a contracting state could be questioned by the Income Tax Authorities in India.
The government wishes to make it clear that that is not the intention of the
proposed subsection (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.
In the
case of Mauritius, circular no. 789, dated 13-4-2000 continues to be in force,
pending ongoing discussions between India and Mauritius.
However,
since a concern has been expressed about the language of sub-section (5) of
section 90, this concern will be addressed suitably when the Finance Bill is
taken up for consideration.