Deemed Tax credits due to economic tax incentive - Indo-Oman DTAA - Article 25

Facts:

Assessee was in receipt of dividends from an Omani company which was formed to spur bilateral trade and economic relations between India and Oman. Based on Article 25 clause (4) they claimed relief from doubly paid tax without having factually paid any tax in Oman. This was negated by the AO and CIT(A). On appeal -

Held in favour of the assessee that economic tax incentivization is possible via tax sparing as in this case. The assessee was entitled to the tax credit.

Article 25(4) (Avoidance of Double Taxation) of the Indo-Oman DTAA reads as under - 

4. The tax payable in a Contracting State mentioned in paragraph 2 and paragraph 3 of this Article shall be deemed to include the tax which would have been payable but for the tax incentives granted under the laws of the Contracting State and which are designed to promote economic development.

Ed. Note: The concept of tax sparing is very much in vogue in DTAA as eventually a DTAA is an outcome of negotiation of the economic and fiscal points of taxation between two States.

Case: DCIT v. Reliable Realtech (P) Ltd. 2024 TaxPub(DT) 826 (Del-Trib)