9911796707
TMI Blog2004 (3) TMI 711X X X X Extracts X X X X X X X X Extracts X X X X ..... id in the USA" The issue requiring our adjudication is a purely legal issue and is set out in a very narrow compass of material facts. The assessee is a public limited company incorporated in India, and is engaged in the manufacture, sale and service of various kinds of computers, as also development, sale and export of software. On December 31, 1999 (sic), the assessee company filed its income tax return disclosing a loss of Rs. 12,32,71,394. It appears that a part of this income was also subjected to tax in the United States where the same income was earned. While processing the aforesaid income tax return, the Assessing Officer did not allow the credit on account of taxes paid in the United States. The relevant material facts are clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dable to the appellant. The Assessing Officer is, therefore, directed to grant a refund of Rs. 78,21,905 . . ." According to the Revenue, the above observations made by the Commissioner of Income-tax (Appeals) are entirely unsustainable in law and contrary to the scheme of the Indo-US DTAA. The Revenue, therefore, is in appeal before us. We have heard Smt. Bhatia, learned Commissioner (Departmental Representative), though the assessee was unrepresented before us. We have also carefully perused the orders of the authorities below, and have duly considered the applicable legal position. We consider it useful to reproduce the text of article 25(2)(a) of the IndoUS DTAA which is as follows (see [1991] 187 ITR (St.) 102, 124) : "Where a resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an absurd situation and was not visualized by the Treaty", it cannot but stem from his inability to take note of the fact that certain incomes (e.g., royalties, fees for technical or included services, interest, dividends etc.), are taxed on gross basis in the source country but are only to be taxed on net basis, as is the inherent scheme of income-tax legislation normally, in the country of which the assessee is a resident. In such situations, it is quite possible that while an assessee pays tax in the source country which is on gross basis, he actually ends up incurring loss when all the admissible deductions, in respect of that earning, are taken into account. There is nothing absurd about it. The underlying philosophy of the source rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of this limitation on the foreign tax credit, the innovative theory of crediting the entire tax paid in the US to the assessee and grant of refund to him in case there is no tax liability in India in respect of that income, as enunciated and adopted by the Commissioner (Appeals), is wholly unsustainable in law. Where is the question of refund of taxes paid abroad when FTD (i.e., foreign tax credit), in view of the specific provisions to that effect in the DTAAs, cannot even exceed the Indian income tax liability? It is not the tax payment abroad which is the material figure for the purpose of computing Indian income tax liability, but it is the admissible foreign tax credit in respect of the same which affects such an Indian income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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