2022 (1) TMI 941 - AT - Income Tax

Credit for withheld tax - Foreign Tax Credit - On receipt of tax credit certificates in the financial year 2013-14, the assessee admitted the same as business income and claimed tax credit u/s.90 for whole of the amount in the return of income filed - HELD THAT - AR before us also produced the computation of income and balance sheet as on 31.03.2014, wherein the certificate of tax credit issued by Omega Simulation Co. Ltd., Japan which proves that taxes were deducted only during financial year 2013-14 under DTAA of Indo-Japan. Both the parties below have recorded concurrent finding that the assessee company has not made any claim for credit towards the above stated withholding tax in earlier assessment years prior to the relevant assessment year 2014-15. We noted that the income has accrued in financial year 2013-14 relevant to assessment year 2014-15 and the assessee has correctly accounted this income in this very assessment year. Once the assessee has accounted for this income in this year and also claimed that tax credit, we are of the view that CIT(A) has rightly allowed the claim u/s.199 of the Act. We find no infirmity in the order of CIT(A) and hence the same is confirmed - Appeal filed by the Revenue is dismissed

Summary

Issues:
- Allowance of credit for withheld tax for multiple assessment years
- Applicability of Rule 128 to the case

Issue 1: Allowance of credit for withheld tax for multiple assessment years

The appeal by the Revenue challenged the order of the Commissioner of Income Tax (Appeals) allowing credit for withheld tax for assessment years 2008-09 to 2014-15, totaling ?1,22,50,673. The Revenue contended that only the tax credit of ?31,18,928 pertaining to the assessment year 2014-15 should be allowed, not for all the years. The Revenue argued that credit for taxes of prior assessment years cannot be given, and Rule 128, introduced in 2017, should not apply. The assessee, engaged in software development, had exported software to Japan and received withholding tax credit certificates in 2013-14, claiming the amount as business income for 2014-15. The Assessing Officer (AO) allowed credit for only the tax paid in Japan for 2014-15, denying the rest. The CIT(A) noted that the assessee had not claimed credit in earlier years and directed the AO to allow the full credit for 2014-15. The Tribunal upheld the CIT(A)'s decision, stating that once the income was accounted for in 2014-15 and tax credit claimed, the allowance was justified under section 199 of the Act.

Issue 2: Applicability of Rule 128 to the case

The assessee relied on a CBDT notification and Rule 128 regarding Foreign Tax Credit, emphasizing that the income corresponding to foreign tax should be offered to tax in India for the credit to be allowed. The computation of income and balance sheet confirmed taxes were deducted in 2013-14 under the Indo-Japan DTAA. Both lower authorities found no previous claims for credit in earlier years. The Tribunal agreed that since the income accrued in 2013-14 relevant to 2014-15 and was correctly accounted for in that year, the CIT(A) rightly allowed the claim under section 199 of the Act. The Tribunal confirmed the CIT(A)'s decision, dismissing the Revenue's appeal.

In summary, the Tribunal upheld the CIT(A)'s decision to allow credit for withheld tax for multiple assessment years and confirmed that Rule 128 was applicable to the case. The Tribunal found the assessee's claim justified based on the proper accounting of income and tax credit in the relevant assessment year, leading to the dismissal of the Revenue's appeal.