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2023 (9) TMI 95 - AT - Income TaxDenial of Foreign tax credit - as per DR where there was company has dual residency, the benefit of Treaty be available. He further submitted that Ld.DRP has given a finding that the assessee could not prove the place of effective management - assessee vehemently argued that the assessee company is a foreign company domiciled in USA and accordingly, its income is taxable in USA as per the US laws - HELD THAT - We find merit in contention that if the assessee is a company treated as non-resident by the AO then no income sourced outside India would liable to be taxed in India in purview of section 4, section 5 and section 9 of the Income Tax Act. Ld. Counsel for the assessee took us through various clauses of the Treaty under the provision of India US DTAA. It is the say of the assessee that even Notification/Circular issued by CBDT dated 22.06.2018 i.e. Notification 29/2018 the benefit would be available to the assessee. We are unable to affirm the view of Ld.DRP that no foreign tax credit can be granted to the assessee. It is not disputed that the same income has been offered in USA and suffered tax thereon. Therefore, an income that has already suffered tax, if the same suffers tax in other countries that would amount to double taxation which is not the intent of law. If the finding of lower authority regarding place of effective management is presumed to be correct, in that case, no tax could be charged as the transaction took place off shores and income was generated in USA. Therefore, considering the totality of the facts, we hereby direct the AO to allow foreign tax credit to the assessee. Grounds raised by the assessee are hence, allowed.
Issues Involved:
1. Validity of the final assessment order. 2. Determination of residential status and taxability of income. 3. Rejection of Foreign Tax Credit (FTC). 4. Double taxation concerns. 5. Penalty proceedings under Section 270A. 6. Interest charged under Sections 234A, 234B, 234C, and 234D. Summary: Issue 1: Validity of the Final Assessment Order The assessee challenged the final assessment order passed by the Assessing Officer (AO) under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961, dated 15.07.2022, for the Assessment Year 2018-19, claiming it to be "bad in law and on the facts of the assessee's case." Issue 2: Determination of Residential Status and Taxability of Income The assessee, a wholly-owned subsidiary of an Indian company, argued that it should be considered a non-resident company, thus not subject to Indian tax laws for income earned in the USA. The AO and the Dispute Resolution Panel (DRP) determined the assessee to be a non-resident but still taxed its income earned outside India, leading to contradictory findings. The Tribunal found merit in the assessee's contention that if deemed a non-resident, no income sourced outside India should be taxed in India under Sections 4, 5, and 9 of the Income Tax Act. Issue 3: Rejection of Foreign Tax Credit (FTC) The assessee's claim for FTC amounting to INR 28,73,223 was rejected by the AO and upheld by the DRP. The Tribunal noted that the assessee had offered its US-sourced income to tax in India based on the Place of Effective Management (POEM) rules. The Tribunal found that the rejection of FTC by applying the supremacy of Article 4(3) of the India-USA DTAA over Income Tax provisions was erroneous. The Tribunal highlighted that the CBDT notification dated 22.06.2018 specifically allows FTC for companies deemed resident in India due to POEM. Issue 4: Double Taxation Concerns The Tribunal emphasized that taxing the same income in both the USA and India would result in double taxation, which is against the principles of taxation. The Tribunal cited various judicial precedents to support the argument that income should not be taxed twice. The Tribunal directed the AO to allow FTC to the assessee to avoid double taxation. Issue 5: Penalty Proceedings under Section 270A The Tribunal noted that the penalty proceedings initiated under Section 270A were consequential in nature and dependent on the outcome of the primary issues. Issue 6: Interest Charged under Sections 234A, 234B, 234C, and 234D The Tribunal found the interest charges under these sections to be consequential and dependent on the resolution of the primary issues. Conclusion The Tribunal allowed the appeal of the assessee, directing the AO to grant the foreign tax credit and avoid double taxation. The Tribunal emphasized that the same income should not be taxed twice and that the assessee's compliance with POEM rules should not be used against it. The order was pronounced in the open Court on 10th April 2023.
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