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TMI Blog2019 (4) TMI 1611X X X X Extracts X X X X X X X X Extracts X X X X ..... , as the issue of allowability of deduction u/s 37(1) of foreign tax credit on which tax credit is not available u/s 90 has been admitted by+ case of Tata Sons [ 2013 (2) TMI 735 - BOMBAY HIGH COURT] , the same being a debatable issue, no revisionary proceedings u/s 263 is tenable. Thus, the 3rd ground of appeal is allowed. MAT computation u/s 115JB - add back the Income-tax paid in Spain while computing book profit u/s. 115JB - AO has after detailed examination, allowed Income-tax paid in Spain (in excess of foreign tax credit equivalent to MAT) vide order u/s 143(3)r.w.s 144C - HELD THAT:- As mentioned earlier, as per clause (a) to Explanation 1 to section 115JB(2) of the Act, income tax paid or payable, which is debited to the profit and loss account is to be added back while computing book profits u/s 115JB of the Act. Thus as per section 115JB of the Act, only taxes specified in Explanation 2 can be added back while computing book profits. In this regard we may refer to the decision in Rashtriya Chemicals Fertilizers Ltd [ 2018 (3) TMI 1564 - ITAT MUMBAI]. The CBDT Circular No. 1/2009 dated 27.03.2009 containing Explanatory Notes to Finance Act, 2008 clarifies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2 The Ld. CIT ought to have appreciated the fact that the appellant had paid the applicable taxes and had correctly claimed the deduction in respect of provision for leave encashment in return of income. 2.3 The Ld. CIT has erred in law and on facts in treating the assessment order passed u/s. 143(3) r w s. 144C of the Act for the captioned assessment year as erroneous without appreciating the fact that in appellant's own case for AY 2012-13, the Dispute Resolution Panel vide directions dated 26.12.2016 has allowed the claim of provision for leave encashment. 3.1 During the year, the assessee has claimed a deduction of ₹ 39,03,03,000/- in respect of provision for leave encashment for which it made appropriate disclosure in the computation of income and tax audit report. During the proceedings u/s 263 of the Act, the CIT observed that in Annexure 12 of the tax audit report, provision for leave encashment of ₹ 39,03,03,000/- was not considered for disallowance u/s 43B on the basis of the decision in the case of Exide Industries Ltd. v. UoI 292 ITR 470 (Cal.), wherein the provisions of section 43B(f) was held as arbitrary and uncons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quent 2nd interim order dated 08.05.2009, wherein it has laid down condition for claiming deduction for provision for leave encashment and thereby the stay initially granted by it vide first interim order gets vacated. The Supreme Court held that the assessee can claim deduction by paying tax as if section 43B(f) is on the statute book but at the same time it would be entitled to make a claim in its return of income. The Ld. counsel submits that in fact the view taken by the CIT is contrary to the decision of the Supreme Court and hence unsustainable in law. The Ld. counsel also submits that on the same issue the ITAT, Mumbai in the case of an affiliate of the assessee i.e. TML Distribution Co. Ltd . (2017) (ITA No. 3427/M/2014 dated 13.01.2017) has held that where the assessee has paid tax on provision for leave encashment (as specified in the 2nd order of the Supreme Court dated 08.05.2009) and has made a claim for deduction, then the said claim should be allowed. It is also stated that the Dispute Resolution Panel (DRP) in assessee s own case for AY 2012-13 has allowed the claim for provision for leave encashment. It is finally argued that no revisionary proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Supreme Court, wherein it was submitted before the AO that provision for leave encashment has been made post payment of taxes in line with the Supreme Court decision in Exide Industries Ltd. (supra). In view of the above facts, we allow the 2nd ground of appeal. 4. The 3rd ground of appeal 3.1 The Ld. CIT has erred in law and on facts in directing the AO to disallow the foreign taxes paid in Spain on which no relief u/s. 90 of the Act could be claimed disregarding the fact that the AO has after detailed examination, allowed deduction of Income-tax paid in Spain (in excess of foreign tax credit equivalent to MAT) vide order u/s. 143(3) r.ws. 144C of the Act. 3.2 The Ld. CIT has erred in not appreciating the fact that the term'tax used in section 40(a)(ii) of the Act means Income-lax chargeable under the provision of this Act as per section 2(43) of the Act and that since, the said foreign taxes is paid outside India, i.e. in Spain, it is not covered within the ambit of section 40(a)(ii) of the Act. 3.3 The Ld. CIT ought to have appreciated the fact that the appellant has rightly clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o) Therefore, on the Explanation being inserted in Section 40(a)(ii) of the Act, the tax paid in Saudi Arabia on income which has accrued and/or arisen in India is not eligible to deduction u/s 91 of the Act. Therefore, not hit by Section 40(a)(ii) of the Act. Section 91 of the Act, itself excludes income which is deemed to accrue or arisen in India. Thus, the benefit of the Explanation would now be available and on application of real income theory, the quantum of tax paid in Saudi Arabia, attributable to income arising or accruing in India would be reduced for the purposes of computing the income on which tax is payable in India. ( p) It is not disputed before us that some part of the income on which the tax has been paid abroad is on the income accrued or arisen in India. Therefore, to the extent, the tax is paid abroad on income which has accrued and/or arisen in India, the benefit of Section 91 of the Act is not available. In such a case, an Assessee such as the applicant assessee is entitled to a deduction u/s 40(a)(ii) of the Act. This is so as it is a tax which has been paid broad for the purpose of arriving global income on which the tax paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.1 During the proceedings u/s 263, it was the contention of the assessee that foreign tax paid is not the income tax payable under the Act and hence it is not required to be added back while calculating tax liability u/s 115JB of the Act. The CIT observed that in respect of foreign sourced income on which taxes have been paid abroad, government provides relief by treating them as income tax paid under the Act by incorporating foreign tax paid in the Income Tax Act by virtue of section 90 and 91 and CBDT has notified Rule 128 for claiming foreign tax credit vide Notification S.O. 2213E dated 27.06.2016. Accordingly, the CIT directed the AO to withdraw the allowance made in this regard as the aforesaid claim was held to be erroneous and prejudicial to the interest of revenue. 5.2 Before us, the Ld. counsel of the assessee submits that as per clause (a) to Explanation 1 to section 115JB(2) of the Act, income tax paid or payable, which is debited to the profit and loss account is to be added back while computing book profits. The relevant portion of the Explanation is reproduced as under: Explanation 1. For the purposes of this section, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of Explanation 2 to section 115JB as added by the Finance Act 2008 (with retrospective effect from 01.04.2001) the amount of income tax specifically includes the following components: i. Any tax on distributed profits u/s 115-O or on distributed income u/s 115R; ii. Any interest charged under this Act; iii. Surcharge, if any, as levied by the Central Acts from time to time; iv. Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and v. Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time. 5.4.1 Thus as per section 115JB of the Act, only taxes specified in Explanation 2 can be added back while computing book profits. In this regard we may refer to the decision in Rashtriya Chemicals Fertilizers Ltd . (ITA 3625/M/17) dated 14 February 2018, Reliance Industries Ltd. (ITA 5769/M/13) dated 16 September 2015, Vintage Distilleries Ltd. (130 TTJ 79) (Delhi ITAT). The CBDT Circular No. 1/2009 dated 27.03.2009 containing Explanatory Notes to Finance Act, 2008 clarifies the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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