Beneficial provisions of Treaty and Act to be compared for each source of income and not in aggregate

As per the provisions of section 115A(1)(b), the rate of tax on royalty payments in connection with the agreements entered into before 1-6-2005 is 20% and the tax agreements entered into on or after 1-6-2005 is 10%. These tax rates have been prescribed separately under sub-clause (A) and sub-clause (B). Each of these sub-clauses is mutually exclusive and independent of each other.

A foreign company has to, therefore, compute tax on its income under each of the above sub-clause (i.e. each source of income) separately as per the provisions of the Act or the Treaty, whichever is more beneficial. Therefore, it is not correct to compare the tax on royalty income as per the Act and as per the Treaty on an aggregate basis - IBM WORLD TRADE CORPORATION v. DDIT [2012] 20