Being 'liable to taxation' is a prerequisite for being a resident (under most double taxation avoidance agreements (DTAAs)). Therefore, fiscally transparent entities (as they do not pay taxes) would not be residents and thus would not be entitled to treaty benefits. However, the Hon'ble Income Tax Appellate Tribunal, Mumbai Bench, has recently held that fiscally transparent entities would be eligible for treaty benefits.1 The same needs to be analysed in light of the judgments given by the Hon'ble Supreme Court of India and views of various nations around the globe.
This article considers the various scenarios that could pose problems in the interpretation of DTAA and its applicability to partnerships where different countries treat them differently. It also analyses the Indian position with regard to interpretation of DTAA, the reservations that it has taken against the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention on Income and on Capital (Condensed Version), 22 July 2010 (hereinafter 'OECD Commentary'), and the justifiability of the same.
Intertax