2023 (11) TMI 441 - AT - Income Tax

Foreign tax credit u/s 90/90A - claim of additional/redetermined withholding tax - withholding done by the client initially was at the rate of 10% of the royalty paid and subsequently, the Australian company redetermined the withholding rate to be 15% - HELD THAT - Since the Australian Tax Authorities revised the rate of withholding tax from 10% to 15% vide there letter dated 01.04.2019, the additional withholding tax @ 5% was deducted and paid to the Australian Government on 25.06.2019 and made the claim during the course of assessment proceedings. Moreover, the claim does not impact the income of the assessee but only relates to giving credit for additional taxes paid on the income already declared. Once credit for foreign withholding tax has been allowed @ 10%, the subsequent revisional rate of tax is also required to be allowed. Considering all we are of the opinion that the CIT(A) has rightly directed the Assessing Officer to allow the claim of additional withholding tax paid by the assessee. Thus, we find no reason to interfere with the order passed by the ld. CIT(A) and accordingly, the appeal filed by the Revenue is dismissed.

Summary

Issues involved:
The issues involved in this case pertain to the non-grant of Foreign Tax Credit (FTC) for additional withholding tax deducted by an Australian client company on royalty income, and the dispute over whether the claim for deduction made during assessment proceedings should be allowed.

Issue 1 - Non-grant of Foreign Tax Credit:
The appeal filed by the Revenue challenges the order of the ld. CIT(A) regarding the grant of Foreign Tax Credit (FTC) for additional withholding tax deducted by an Australian client company on royalty income. The assessee, a software developing company, had initially claimed relief under section 90/91 of the Income Tax Act for a certain amount, including withholding tax deducted at 10%. Subsequently, the Australian company revised the withholding tax rate to 15% and deducted additional tax, which the assessee claimed during scrutiny assessment proceedings. The ld. CIT(A) directed the Assessing Officer to allow the claim of additional withholding tax, which the Revenue disputes, arguing that the claim was not made through a return of income.

Issue 2 - Claim for Deduction during Assessment Proceedings:
The second issue revolves around the validity of the claim for deduction of additional withholding tax made by the assessee during the assessment proceedings. The Assessing Officer did not allow the claim of additional tax deduction, leading to an appeal by the Revenue before the Tribunal. The assessee contended that the claim was made due to the revised withholding tax rate imposed by the Australian company after the due date for filing the revised return of income had passed. The ld. CIT(A) supported the assessee's claim, emphasizing that the claim was made during the ongoing assessment proceedings and did not impact the assessee's income but related to giving credit for additional taxes paid on the already declared income.

In conclusion, the Tribunal dismissed the appeal filed by the Revenue, upholding the decision of the ld. CIT(A) to allow the claim of additional withholding tax by the assessee. The Tribunal found that the claim was validly made during assessment proceedings and did not impact the assessee's income, warranting the allowance of the additional tax deduction. The decision was pronounced on the 8th of November, 2023 at Chennai.