Under the context of tax treaties, application of a Limitation of Benefits (LOB) clause would result into denial of treaty benefits if main purpose of the transaction or one of the main purposes of the transaction is to obtain a treaty benefit.
In the backdrop of businesses growing in multi-folds the Governments across the globe have been grappling to provide for regulations to tax upcoming business models and tax their share of revenue. In this backdrop LOB clause is kind of an anti-abuse provision agreed between countries to avoid any treaty-shopping and is expected to be a handful tool for the Tax officers at the time of Tax Assessments. Recently the Mumbai Tribunal in the case of Interworld Shipping Agency LLC vs. DCIT (ITA No.7805/Mum/19) (Mumbai ITAT) had the occasion to dealt with the application or otherwise of LOB clause to a particular transaction. The same is discussed in detail as under:
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