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2024 (12) TMI 810 - AT - Income TaxForeign Tax Credit (FTC) for taxes paid in China by the assessee - FTC against Minimum Alternate Tax (MAT) liability - HELD THAT - As in view of Article 12 of Indo-China Tax Treaty, SETL has deducted tax at source @ 10% while disbursing royalty in question to the assessee company. As per Article 23(2) of the Indo-China Tax Treaty, where resident of India derives royalty income which has been taxed in China, India shall allow as deduction from tax on income of that resident amount equal to income tax paid in China whether directly or by way of deduction. Accordingly, assessee is eligible to claim of such FTC in view of provisions of section 90 of the Act. As per section 115JB, if tax payable on book-profit is more than tax payable on income under normal provisions , then book profit shall be deemed to be the deemed income of such assessee and Minimum Alternative Tax shall be payable thereon (i.e. tax shall be payable at the rate prescribed u/s. 115JB ). Article 23(2) of the Indo-China Tax Treaty, provides the assessee shall get credit of tax paid in China from its tax liability in India . Thus the Scheme of the Act does not differentiate between tax liability calculated under section 115JB and under the normal provisions of Act . Accordingly, the assessee company is eligible to claim FTC against tax liability computed in accordance with Section 115JB of the Act. Quantification of claim of FTC - As per Article 23(2) of Indo-China Tax Treaty, deduction of FTC shall not exceed that part of income-tax (as computed before deduction is given) which is attributable to income which may be taxed in China. Thus effective rate of tax paid on royalty income in India (rate at which royalty income has been subjected to tax in India ) @ 11.22% for AY 2007-08 and 11.33% for AY 2008-09 Whereas the rate of tax on royalty income in China is 10%. Since assessee has paid tax on such royalty income in India at a higher rate as compared to tax paid on such royalty income in China , the assessee is eligible for entire Tax Credit effected in China as FTC. CIT(A) has rightly held that assessee is eligible for FTC vis- -vis royalty offered for tax in the A.Y.2008-09, such findings does not require any interference. Thus there is no merits in the ground raised and the Revenue appeal is liable to be dismissed. Whether FTC can be claimed in Asst. Year 2008-09, when the corresponding royalty income was been offered for tax in the previous Asst. Year 2007-08? - It is to be stated that the manner in which FTC is to be claimed is not defined under the DTAA. Hence, one needs to refer and rely upon domestic provisions. Under domestic provisions, credit for TDS has been provided for under Chapter XVII of the Act. Section 199 deals with Credit for tax deducted . Section 199 has been amended w.e.f. 01.04.08 (ie. from Asst. Year 2008-09) such that if tax is deducted and paid to the Government, then irrespective of the fact that corresponding income pertains to that previous year or any other year, the TDS credit is to be given in the year in which tax is deducted and paid to Govt. In view of the amended provisions and judicial precedents cited above, in our considered view the assessee company is eligible for TDS credit in the present Asst. Year 2008-09 even though corresponding income was offered by the assessee in the previous Asst Year 2007-08. It is well settled Principle of law and as per CBDT's Circular No. 14 of 1955, it is the duty of Tax Authority to make available to the tax-payer concerned any legitimate and legal tax relief to which such tax payer is entitled to, but was omitted to claim for one or the other reason. Accordingly, FTC in question is liable to be allowed since assessee is legitimately eligible for the same. Similarly, Article 265 of The Constitution of India, 1950 states that no tax can be levied except by Authority of Law. This further implies that any tax collected contrary to law has to be refunded. Accordingly, FTC is liable to be allowed in Asst. Year 2008-09 even though corresponding income has been offered in the Asst. Year 2007-08. MAT credit - CIT(A) failed to appreciate that second proviso to S.115JAA(2A) has been inserted by the Finance Act, 2017 w.e.f. 01.04.2018. Hence, the said proviso is applicable prospectively. Accordingly, the said proviso referred to and relied upon by CIT(A) is not applicable for the present Asst. Year 2008-09. It is well settled legal principles with respect to retrospective applicability of any amendment as held in the case of CIT vs. Vatika Township (P.) Ltd.) 2014 (9) TMI 576 - SUPREME COURT (LB) - CIT(A) was not justified in directing AO to restrict the MAT credit u/s 115JAA in subsequent years to the extent of withholding tax allowed in current year. In any case, the assessee company has never claimed MAT credit as is evident from the Return of Income filed. Such direction of Ld CIT A is absolutely unwarranted. Assessee ground allowed.
Issues Involved:
1. Eligibility of Foreign Tax Credit (FTC) for taxes paid in China for the Assessment Year 2008-09. 2. Allowance of FTC against Minimum Alternate Tax (MAT) liability. 3. Timing and applicability of FTC claims for taxes withheld in China. 4. Application of Rule 128 and retrospective amendments concerning FTC. 5. Condonation of delay in filing the appeal by the assessee. Issue-wise Detailed Analysis: 1. Eligibility of FTC for Taxes Paid in China: - The assessee company, engaged in manufacturing Wind Turbine Generators, received royalty income from its subsidiary in China, which was taxed at 10% under the Indo-China Tax Treaty. The assessee did not initially claim FTC under Section 90 of the Income Tax Act due to late receipt of Tax Withholding Certificates (TWC). - The Assessing Officer (AO) rejected the FTC claim as it was not made in the original or revised return. However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the claim, stating that the denial was on a technicality, with no objections on the merits. - On appeal, the Tribunal upheld the CIT(A)'s decision, allowing FTC for the taxes paid in China, as the treaty and Section 90 of the Act support such claims. 2. Allowance of FTC Against MAT Liability: - The Revenue challenged the allowance of FTC against MAT liability, arguing that the CIT(A) erred in granting this credit. The Tribunal, however, referenced precedents where FTC was allowed against MAT, noting that the Indo-China Tax Treaty and the Act do not differentiate between tax liability under normal provisions and MAT. - The Tribunal concluded that the assessee is eligible to claim FTC against tax liability computed under Section 115JB of the Act, consistent with judicial precedents like the case of Larsen & Tubro Ltd. 3. Timing and Applicability of FTC Claims: - The assessee argued that the FTC should be allowed in the year the tax is deducted, irrespective of when the income is offered. The Tribunal agreed, citing Section 199 and various judicial precedents, which support the allowance of TDS credit in the year of deduction. - The Tribunal noted that Rule 128, introduced in 2017, does not apply to the assessment year in question (2008-09), and thus the FTC should be allowed as claimed by the assessee. 4. Application of Rule 128 and Retrospective Amendments: - The Tribunal addressed the CIT(A)'s reliance on amendments and Rule 128, clarifying that these provisions apply prospectively from 2018 and not to the assessment year 2008-09. - The Tribunal emphasized the principle that legislation is presumed not to have retrospective operation unless explicitly stated, citing the Supreme Court's decision in CIT vs. Vatika Township (P.) Ltd. 5. Condonation of Delay in Filing the Appeal: - The assessee's appeal was filed with a delay of 32 days, attributed to an inadvertent mistake by the accountant. The Tribunal condoned the delay, noting no serious objection from the Revenue and recognizing the mistake as neither willful nor wanton. Conclusion: The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, affirming the eligibility of FTC for taxes paid in China for the Assessment Year 2008-09, including against MAT liability, and recognized the timing of FTC claims based on the year of tax deduction. The Tribunal also clarified the non-applicability of Rule 128 for the assessment year in question and condoned the delay in filing the appeal by the assessee.
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