DTAA benefits applicable to partnership firms in India, UK

CBDT clarifies that the term 'person' in DTAA includes partnerships in either country that have already suffered tax once

Ending uncertainty over tax treatment, the Central Board of Direct Taxes (CBDT) has said that benefits under the India-UK Double Taxation Avoidance Agreement (DTAA) would be applicable to partnership firms in the UK as well as India.

Apprehensions that the term 'person' in the DTAA does not specifically include partnership were brought to the notice of the CBDT and clarity was sought on whether the provisions of the treaty are applicable to a partnership.

The CBDT said the provision of the DTAA would be "applicable to a partnership i.e. a resident of either India or the UK, to the extent that the income derived by such partnership, estate or trust is subject to tax in that state as the income of the resident either in its own hand or in the hands of its partner or beneficiaries".

Amit Maheshwari, Partner, Ashok Maheshwary and Associates, said the clarification would end the "confusion" in case of partnerships following an amending protocol to the DTAA which was notified in February 2014 with effect from December 27, 2013.

"The circular is clarificatory in nature on the revision of India-UK DTAA by stating that the treaty benefits would be available to the partnerships if their profits are taxed in the UK either in the hands of the partners of the firm.

"This has been the bone of contention between the revenue authorities and UK partnerships. This will put an end to the confusion being there in the minds of UK tax payers," he said.

DTAA is a pact between two countries with an objective to avoid taxation of the same income in both countries. India has comprehensive DTAA with over 80 countries.