9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (6) TMI 164 - AT - Income TaxMistake rectifiable u/s 154 - order u/s 154 read with section 143(3) and 250 withdrawing the claim for credit of foreign TDS - period of limitation - Held that - In the instant case, the assessee has sought for rectification in the order u/s 143(3) passed by the A.O. on 26-12- 2008 which is within the period of 4 years from the end of the financial year in which the assessment order was passed. Accordingly we hold that the application u/s 154 of the Act was within the time limit laid down u/s 154(7) of the Act. Eligibility to claim credit for the tax deducted in Japan - whether income on which the assessee was charged tax in Japan was not chargeable to tax in India being exempt under the provision of section 10A? - India Japan DTAA - Held that - This view of the lower authorities are not in consonance with the provisions of section 10A as amended by Finance Act 2000 w.e.f. 1-4-2001 and do not take into account the sea change made in the provision after the aforesaid amendment. Prior to the amendment by Finance Act 2000, the Act provided that any profits and gains to which the provisions of section 10A apply shall not be included in the total income of the assessee . However, after the amendment w.e.f. A.Y. 2001-02 the profits and gains to which the provisions of section 10A apply are not excluded from total income and instead a deduction of such profits and gains .. shall be allowed from the total income of the assessee . It means total income must first be determined from which deduction u/s 10A shall be allowed. After amendment by Finance Act, 2000 w.e.f. 1-4-2001 deduction u/s 10A being from the total income leads to the conclusion that there is charge of income tax in India also on the income that has been subjected to tax in Japan. The tax liability of the assessee is equal to the tax payable in India at normal rates. Accordingly assessee qualifies for tax relief under para 2a of Article 23 of Double Tax Avoidance Convention between India and Japan as applicable to the assessment years under consideration. Since here we are concerned with the treatment to be given to the resident of India in relation to taxes paid in Japan., the same is covered by Paragraph 2 of Article 23 and not by paragraph 3 of Article 23 which provides for treatment to be given in relation to taxes paid in India by resident of Japan. On the one hand the assessee is being discriminated against a resident of Japan to whom the incentive of section 10A is expressly passed over in the double taxation relief granted to him against his tax liability in Japan. On the other hand the assessee is being discriminated against an Indian resident who does not earn export income and does business in domestic market only. Thus the treatment sought to be given by Revenue in the case of the assessee yields absurd result. Accordingly assessee should be treated to have paid tax in India without giving effect to the provision of section 10A for the reason also of Article 24 of Double Taxation Avoidance Convention between India and Japan. Thus we direct the A.O. to allow credit for foreign TDS against the tax levied on the corresponding income eligible for deduction u/s 10B of the Act in India for all the three years under consideration i.e. assessment years 2003-04, 2004-05 and 2005-06.
Issues Involved:
1. Validity of the order passed under section 154 of the Income Tax Act, 1961. 2. Time limit for rectification under section 154(7) of the Act. 3. Credit for Foreign Tax Deducted at Source (TDS). 4. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and Japan. 5. Interpretation of section 10A of the Income Tax Act, 1961. 6. Discrimination under Article 24 of the India-Japan DTAA. Detailed Analysis: 1. Validity of the Order Passed Under Section 154 of the Income Tax Act, 1961: The assessee challenged the validity of the orders passed under section 154 by the Assessing Officer (AO) for the assessment years 2003-04, 2004-05, and 2005-06. The AO had dismissed the applications under section 154 on the grounds that the issue was debatable and not a mistake apparent from the record. The Tribunal held that the AO had omitted to consider the assessee's claim for deduction of foreign tax, which was an apparent mistake rectifiable under section 154. 2. Time Limit for Rectification Under Section 154(7) of the Act: The AO and the CIT(A) contended that the rectification applications filed by the assessee were beyond the time limit prescribed under section 154(7). The Tribunal found that the applications were within the four-year time limit from the date of the order passed under section 143(3) and not from the date of intimation under section 143(1). Therefore, the applications were held to be timely. 3. Credit for Foreign Tax Deducted at Source (TDS): The assessee claimed credit for foreign tax deducted in Japan on income that was also brought into the tax net in India. The AO and CIT(A) denied the credit on the grounds that the income was exempt under section 10A and, therefore, not taxable in India. The Tribunal, however, held that after the amendment by the Finance Act, 2000, section 10A provided for a deduction from total income rather than an exemption. Therefore, the income was chargeable to tax in India, and the assessee was entitled to credit for the foreign TDS. 4. Applicability of Double Taxation Avoidance Agreement (DTAA) Between India and Japan: The Tribunal examined the provisions of Article 23 and Article 24 of the India-Japan DTAA. It was held that the DTAA provided for tax relief as if the Indian tax had not been reduced by the provisions of section 10A. Therefore, the assessee was entitled to credit for the foreign tax paid in Japan. 5. Interpretation of Section 10A of the Income Tax Act, 1961: The Tribunal referred to various judicial pronouncements, including the decision of the Hon'ble Bombay High Court in the case of Hindustan Unilever Limited vs. DCIT, which clarified that section 10A was a provision for deduction and not exemption. The Tribunal concluded that the profits and gains to which section 10A applied were not excluded from total income but allowed as a deduction from total income. 6. Discrimination Under Article 24 of the India-Japan DTAA: The Tribunal addressed the issue of discrimination under Article 24 of the DTAA. It was held that the treatment given to the assessee by the authorities resulted in double discrimination. The Tribunal emphasized the principle of parity of tax liability between residents of India and Japan. The assessee was entitled to tax relief as if the Indian tax had not been reduced by the provisions of section 10A. Conclusion: The Tribunal directed the AO to allow credit for foreign TDS against the tax levied on the corresponding income eligible for deduction under section 10A of the Income Tax Act for all three assessment years under consideration. The appeals were allowed in part, and the order was pronounced in the open court on 17th April 2015.
|
