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TMI Blog2021 (10) TMI 1011X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal by the assessee is preferred against the order dated 30.03.2021 framed u/s 143(3) r.w.s 254 of the Income tax Act, 1961 [hereinafter referred to as 'The Act' for short]. 2. Modified grounds of appeal of the assessee read as under: 1. That on the facts and circumstances of the case and in law, the Ld. AO has erred in not allowing complete credit of taxes paid by appellant in Japan on income from sale of software amounting to INR 3,96,12,848 under Article 23 of India-Japan Double Taxation Avoidance Agreement. 1.1 That on the facts and circumstances of the case and in law, the Ld. AO has erred in not allowing complete credit of foreign taxes paid by appellant in Japan, by completely disregarding the decision of Karnataka High Court in the case of Wipro vs DCIT [2015] 62 taxmann.com 26 (Karnataka) and other judicial precedents placed by the appellant on record on the ground that decision of the Karnataka High Court in the case of Wipro vs DCIT is in appeal before the Hon ble Supreme Court. 2. That on the facts and circumstances of the case and in law, the Ld. AO has erred in withdrawing credit of taxes paid by appellant in Japan on export revenues fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter back to the TPO for fresh adjudication. 8. In the remand proceedings, the assessee filed additional objections before the DRP claiming the entire amount of ₹ 3,96,12,848/- withheld by Canon Inc. Japan as tax credit. This claim was made in view of the Hon'ble Kerala High Court decision in the case of Wipro Ltd 382 ITR 179. However, the DRP did not adjudicate upon this additional addition. 9. Subsequent to DRP s directions, the Assessing Officer passed final assessment order which was rectified on 22.07.2021, which is under appeal. In the impugned order, the Assessing Officer has noted that the only reason for not allowing foreign tax credit is pendency of the issue before the Hon'ble Supreme Court. Further, the Assessing Officer calculated MAT liability by taking MAT @ 9.75% instead of 7.69% as provided u/s115JB of the Act. 10. It would not be out of place to point out that during the original assessment proceedings, there was no error in calculation of net liability. It is only in the remand proceedings, and in particular, the rectification order that the Assessing Officer calculated the MAT liability incorrectly. 11. In so far as the claim of 100% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax in that country; or... 28. The notes on clauses to Finance Bill, 2003 which explains Clause 43 seeking amendment to the Act reads as follows: Clause 43 seeks to amend section 90 of the Income-tax Act relating to agreement with foreign countries. The existing provisions of the said section, inter alia, provide that the Central Government may enter into agreement with the Government of any country outside India for granting of relief in respect of income on which have been paid both income-tax under the Income Tax Act and income-tax in that country, or for the avoidance of double taxation of income under that Act and under the corresponding law in force in that country, etc. It is proposed to substitute clause (a) of sub-section (1) of the said section to provide that the Central Government may enter into an agreement with the Government of any country outside India for the granting of relief, inter alia, in respect of income-tax chargeable under the Income-tax Act or under the corresponding law in force in that country to promote mutual economic relations, trade and investment. 29. The memorandum explaining provisions in the Finance Bill 2003 reads as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. (2A) Notwithstanding anything contained in sub- section (2), the provisions of Chapter X-A of the Act shall apply to the assessee even if such provisions are not beneficial to him. (3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf. 30. Sub-section (1) lays down that the Central Government may enter into an agreement with the Government of another country. Clause (a) (i) contemplates situation when tax is already paid on the same income in both the countr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axed and that he has paid tax both in India and in the foreign country on the same income. Section 91 makes it clear that if a person who is residing in India has paid tax in any country with which, there is no agreement under Section 90 for the relief or avoidance of double taxation, income tax if deducted or otherwise paid as per law in force in that Country, then he shall be entitled to the deduction from the Indian Income Tax payable by him in a sum computed on such doubly taxed income, at the Indian rate of tax or the rate of tax of the said country, whichever is lower or the Indian rate of tax, if both the rates are equal. 34. In fact, the Circular No.333 dated April 2, 1982 clarifies the legal position. The said circular reads as under:-- The correct legal position is that where a specific provision is made in the Double Taxation Avoidance Agreement, that provision will prevail over the general provisions contained in the Income Tax Act, 1961. In fact the Double Taxation Avoidance Agreements which have been entered into by the Central Government under Section 90 of the Income Tax Act, 1961, also provide that the laws in force in either country will continue to g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try into an international treaty in time either of war or peace. The executive power of the Union is vested in the President and is exercisable in accordance with the Constitution. The Executive is qua the State competent to represent the State in all matters international and may by agreement, convention or treaty incur obligations which in international law are binding upon the State. But the obligations arising under the agreement or treaties are not by their own force binding upon Indian nationals. The power to legislate in respect of treaties lies with the Parliament under entries 10 and 14 of List I of the Seventh Schedule. But making of law under that authority is necessary when the treaty or agreement operates to restrict the rights of the citizens or others or modifies the law of the State. If the rights of the citizens or others which are justiciable are not affected, no legislative measure is needed to give effect to the agreement or treaty. When it comes to fiscal treaties dealing with double taxation avoidance, different countries have varying procedures. In the United States such a treaty becomes a part of municipal law upon ratification by the Senate. In the Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same benefit. If the contracting country agrees to extend the said benefit, then the assessee gets the relief. In another scenario, though the said income is exempt in this country, by virtue of the agreement, the amount of tax paid in the other country could be given credit to the assessee. Thus for the payment of income tax in the foreign jurisdiction, the assessee gets the benefit of its credit in this country. 40. However, if the contracting country is not agreeable to extend the said benefits, then in terms of the agreement and probably in terms of the exemption granted, the assessee would be entitled to benefit only in this country on account of the exemption and the benefit in the other country is not extended. Thus when exemption is granted in respect of the income chargeable to tax under this Act in respect of which no benefit is granted in the corresponding country the assessee gets no benefit. However, if the benefit is extended to a portion of the income say for example 90% and 10% is subjected to tax then to that extent the assessee would be entitled to benefit of tax credit as he has paid tax in the foreign jurisdiction as per Section 90 (1)(a)(i) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee. 44. This provision provides for a deduction of profits or gains derived from export by an undertaking for a period of ten years. The profits and gains derived by such undertaking would form part of the income chargeable to income tax under Sections 4 and 5 of the Act. Therefore, when an assessee is having several undertakings, one of which falls under Section 10A, the assessee's entire income from all the undertakings is computed to arrive at the total income. However, the income from such undertaking falling under Section 10A has to be deducted from the total income. 51. If section 10A is to be given effect to as a deduction from the total income as defined in Section 2(45), it would mean that section 10A is to be considered after Chapter VI-A deductions are given from out of the gross total income. The term gross total income is defined in section 80B(5) to mean the total income computed in accordance with the provisions of this Act, before making any deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome tax chargeable under the Income Tax Act or under the corresponding law in force in that country, to promote mutual economic relations, trade and investment. Therefore, the statute by itself is not granting any relief. But, by virtue of the statute, if an agreement is entered into providing for such relief, then the assessee would be entitled to such relief. 53. Relying on the judgments in the case of Wallace Flour Mills Co. Ltd. v. Collector of Central Excise [1989] 4 SCC 592, and in the case of Kasinka Trading v. Union of India [1995] 1 SCC 274, it was held that merely because exemption has been granted in respect of the taxability of particular source of income, it cannot be formulated that the entity is not liable to tax as contended by the respondents. 54. In fact the Apex Court in the case of Kasinka Trading (supra), a case arising under Customs Act at para 21 has held as under: 'The power to grant exemption from payment of duty, additional duty etc. under the Act, as already noticed, flows from the provisions of Section 25(1) of the Act. The power to exempt includes the power to modify or withdraw the same. The liability to pay customs duty or additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is not liable to tax. The said exemption granted under the statute has the effect of suspending the collection of income tax for a period of 10 years. It does not make the said income not leviable to income tax. The said exemption granted under the statute stands revoked after a period of 10 years. Therefore, the case falls under Section 90(1)(a)(ii). 57. In the background of this legal position, we have to look into the Double Taxation Agreements entered into between India and United States, Canada. (1) INDO-US AGREEMENT: 58. Article 25 of the Indo - US Double Taxation Agreement deals with Relief from double taxation. Clause 2(a) is the relevant provision. It reads as under: 2.(a) Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in the United States, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in the United States, whether directly or by deduction. Such deduction shall not, however, exceed that part of the income-tax (as computed before the deduction is given) which is attributable to the income which may be taxe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see would be entitled to only the tax paid for that relevant financial year in America, i.e., the income attributable to that year in America. In other words, the income tax paid in the same calendar year in United States of America is to be accounted for two financial years in India. Of course, this exercise should be done by the assessing authority on the basis of the material to be produced by the assessee. 52. In view of the above, we are of the considered view that the facts of the case in hand are in parity with the facts considered by the Hon'ble Karnataka High Court [supra] wherein Article 25 of Indo US DTAA has been elaborately explained by the Hon'ble High Court. The most relevant findings of the Hon'ble High Court are as under: Therefore, while claiming credit in India, the assessee would be entitled to only the tax paid for that relevant financial year in America, i.e., the income attributable to that year in America. In other words, the income tax paid in the same calendar year in United States of America is to be accounted for two financial years in India. Of course, this exercise should be done by the assessing authority on the basis of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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