What are treaties and domestic law related to DTAA

Some countries follow the system where DTAA overrides the provisions of domestic law. This is known as Monist View. In other countries following Dualistic View the provisions of DTAA are subject to the provisions of domestic law. India has been following broadly the monist view and once a treaty provision exists in regard to certain matter, it prevails over the domestic law provision.

However situations arise where after the treaty comes into operation, changes are made in the domestic law, which makes the domestic law provisions more beneficial to the taxpayer. In such cases if the treaty provisions only are made applicable, the DTAA instead of providing relief to the non-resident results in additional burden on him and, therefore, section 90(2) of the Act provides for application of domestic law provisions in relation to assessees to whom DTAA applies to the extent they are more beneficial to him.

In other words the assessee entitled to benefits of DTAA has the choice to be governed by domestic land in spite of a DTAA existing, if application of domestic law is more beneficial to him.