2021 (10) TMI 1011 - AT - Income Tax

Credit of tax paid in Japan - claim of foreign tax credit - Disallowing complete credit of taxes paid by appellant in Japan on income from sale of software under Article 23 of India-Japan Double Taxation Avoidance Agreement - HELD THAT - We find that the India-Japan DTAA is worded in similar lines with that of India-USA DTAA. Therefore, the aforesaid decision quoted by this Tribunal in HCL COMNET SYSTEMS AND SERVICES LTD VERSUS THE DY. C.I.T CIRCLE 12 (1) NEW DELHI 2020 (7) TMI 169 - ITAT DELHI squarely applies on the facts of the case in hand. Therefore, we direct accordingly. Application of incorrect rate of MAT - We direct the Assessing Officer to consider the applicable rate of MAT for the year under consideration as per provisions of law.

Issues Involved:
1. Non-allowance of complete credit of taxes paid in Japan on income from the sale of software under Article 23 of the India-Japan Double Taxation Avoidance Agreement (DTAA).
2. Withdrawal of credit for taxes paid in Japan on export revenues from the sale of software allowed in the original assessment order.
3. Incorrect MAT tax rate application.
4. Non-granting of interest under section 244A(a) and 244A(b) of the Income Tax Act on the income-tax refund due.

Issue-wise Detailed Analysis:

1. Non-allowance of complete credit of taxes paid in Japan:
The appellant contended that the Assessing Officer (AO) erred by not allowing complete credit for taxes paid in Japan on income from the sale of software, amounting to INR 3,96,12,848, under Article 23 of the India-Japan DTAA. The AO disregarded the Karnataka High Court's decision in the case of Wipro vs. DCIT, which was in appeal before the Supreme Court. The Tribunal referenced the decision in the case of HCL Comet, where the Karnataka High Court clarified the law regarding foreign tax credit under section 90(1)(a)(ii) of the Act. The court held that income under section 10A is chargeable to tax under section 4 and includible in the total income under section 5, but no tax is charged due to exemptions under section 10A. The Tribunal directed the AO to consider the foreign tax credit claim as per the Karnataka High Court's directions, requiring the appellant to furnish necessary evidence.

2. Withdrawal of credit for taxes paid in Japan:
The appellant argued that the AO erred in withdrawing the credit for taxes paid in Japan on export revenues from the sale of software, which was allowed in the original assessment order under section 143(3) without any adverse inference. The Tribunal noted that during the remand proceedings, the AO incorrectly calculated the MAT liability and withdrew the foreign tax credit based on the pending Supreme Court issue. The Tribunal directed the AO to reconsider the foreign tax credit claim in line with the Karnataka High Court's decision.

3. Incorrect MAT tax rate application:
The appellant contended that the AO applied an incorrect MAT tax rate of 8.25% instead of the statutory rate of 7.69% provided under section 115JB of the Act. The Tribunal found that the AO had calculated the MAT liability incorrectly during the remand proceedings and directed the AO to apply the correct MAT rate as per the law.

4. Non-granting of interest under section 244A:
The appellant argued that the AO erred by not granting interest under section 244A(a) from the first date of the assessment year and under section 244A(b) from the first date of payment of tax on the income-tax refund due, including the refund arising from the foreign tax credit. The Tribunal did not provide a detailed analysis of this issue but implied that the AO should follow the correct legal provisions.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the AO to:
- Consider the claim of foreign tax credit as per the Karnataka High Court's directions.
- Apply the correct MAT rate for the year under consideration.
- Follow the legal provisions regarding the granting of interest under section 244A.

The order was pronounced in the open court on 20.10.2021.

← Previous Next →