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TMI Blog2023 (7) TMI 998X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in a situation where the tax had actually been paid. In view of the rationale provided by us hereinabove, this argument is completely misconceived. The concept of tax sparing is embedded in several DTAAs which have been executed by India, such as with France, Jordan and Oman, apart from Thailand. Insofar as the Indo-Thailand DTAA is concerned, credit for tax sparing works for residents of Thailand, as well as India. This is a mechanism which is engrafted in DTAAs to incentivize investment for economic development. Interdiction of such provisions would, in our view, be detrimental to the larger public interest. Thus, for the foregoing reasons, we are disinclined to interfere with the impugned order passed by the Tribunal. No substantial question of law arises for our consideration. - HON'BLE MR. JUSTICE RAJIV SHAKDHER AND HON'BLE MS. JUSTICE TARA VITASTA GANJU For the Appellant Through: Mr Kunal Sharma, Sr Standing Counsel with Ms Zehra Khan, Adv. For the Respondent Through: Mr Ved Jain with Mr Nischay Kantoor, Advs. RAJIV SHAKDHER, J.: Prefatory Facts 1. The above-captioned appeals, which are four (4) in number, are directed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me for AY 201011 on 13.10.2010. The income declared for the said AY was Rs. 11,41,46,171/-. The return of income (ROI) was processed under Section 143 (1) of the Income Tax Act, 1961 [hereafter referred to as, Indian Income Tax Act ]. 7.1 The ROI was picked up for scrutiny, whereupon it was discovered that the respondent/assessee had claimed tax credit amounting to Rs. 1,60,74,706/- in respect of tax, which it would have to ordinarily pay in Thailand on dividend received from its Thai subsidiary, but for the statutory regime obtaining in Thailand, which exempted levy of tax in that country. 7.2 It is important to note at this stage that the respondent/assessee had included in its ROI, dividend income amounting to Rs. 68,81,05,808/- earned from its Thai subsidiary. 8. But for the exemption granted under the statutory regime obtaining in Thailand, the respondent/assessee would have to pay tax, in Thailand, at the rate of 10% on dividend received by it from its Thai subsidiary. On account of this, the respondent/assessee claimed tax credit for the amount quantified at the said rate, i.e., 10%, under the provisions of paragraphs 2 3 of the Article 23 of the Indo-Thai DTA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion extended under the statutory regime prevailing in Thailand. (v) The respondent/assessee did not pay tax, for reasons other than those provided in Article 23(2) of the Indo-Thai DTAA. (vi) The exemption relied upon by the respondent/assessee was, in fact, extended to its Thai subsidiary. The exemption permitted the Thai subsidiary to not pay tax on the dividend distributed by it. In the hands of the respondent/assessee, however, the dividend distributed and/or remitted to the respondent/assessee, became its income, and hence, the respondent/assessee cannot be allowed to rely upon the exemption under Thai law, to claim tax credit in India, under the Indian Income Tax Act. (vii) The Tribunal, erroneously, interpreted provisions of Thai statues, which, being in the domain of foreign law, presented pure questions of fact. Given this position, the Tribunal ought to have remanded the matter to the AO. (viii) In the given facts, the respondent/assessee could have claimed benefit of under Article 23(2) of the Indo-Thai DTAA, only if it had paid tax in Thailand. Since the respondent/assessee had not paid tax in Thailand, it was rightly declined tax credit by the AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onvenience, the said Article is extracted hereafter: ARTICLE 23 ELIMINATION OF DOUBLE TAXATION 1. The laws in force in either of the Contracting State shall continue to govern the taxation of income in the respective Contracting States except where provisions to the contrary are made in this Convention. 2. The amount of Thai tax payable, under the laws of Thailand and in accordance with the provisions of this Convention, whether directly or by deduction, by a resident of India, in respect of profits or income arising in Thailand, which has been subjected to tax both in India and in Thailand, shall be allowed as a credit against the Indian tax payable in respect of such profits or income provided that such credit shall not exceed the Indian tax (as computed before allowing any such credit) which is appropriate to the profits or income arising in Thailand. Further, where such resident is a company by which surtax is payable in India, the credit aforesaid shall be allowed in the first instance against income-tax payable by the company in India and as to the balance, if any, against surtax payable by it in India. 3. For the purposes of the credit referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flict, the provisions of the Indo-Thai DTAA would prevail. This is also the mandate of Section 90(2) of the Indian Income Tax Act. The said provision, explicitly, states that the provisions of the said Act shall apply only to the extent that they are more beneficial to the assessee, when examining issues concerning grant of relief of tax, in avoidance of double tax, in relation to an assessee to whom any DTAA applies. 17.1 Paragraph 2 of Article 23 allows tax credit against tax payable in India under the Indian Income Tax Act, qua Thai tax payable under the laws of Thailand, and in accordance with the provisions of Indo-Thai DTAA, whether directly or by deduction, by a resident of India concerning profits or income arising in Thailand, which is subjected to tax both in India and in Thailand. Paragraph 2 specifies the caveat that tax credit cannot exceed the amount of tax payable under the Indian Income Tax Act (as computed before allowing any such credit), which is appropriate to the profits of income, arising in Thailand. 17.2 Where the resident is a company which is liable to pay sur-tax in India, the aforementioned tax credit is to be allowed in the first instance agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the term tax payable would mean tax, which is owed or due, although not paid. However, the meaning of the expression has to be found in the treaty executed between two Contracting States. The treaties/ DTAAs often (as in the instant appeals) define the term tax payable . The intent of the Contracting States has to be, thus, ascertained from the term, as contained in the DTAA, and not what would ordinarily be the meaning of a given expression or term. 19. Therefore, the meaning of the expression Thai tax payable or Indian tax payable has to be found in the definition embedded in the DTAA/treaty. 20. As is seen from a plain reading of Article 23 of the Indo-Thailand DTAA, credit for notional tax is granted to give a fillip and/or incentivize economic development/activity. This is a decision which is taken by Contracting States and therefore, unless there is ambiguity, the interpretation which is to be given to the expression Thai tax payable or Indian tax payable is to be based on a plain reading of what is provided in paragraphs 3 and 5 of Article 23. The said paragraphs exemplify mutuality of interests in giving stimulus to investment for securing economic develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment Promotion Act had not kicked in, the dividend income would have suffered tax at the rate of 10% under Section 70 of the Thai Revenue Code. For the sake of easy reference, the relevant provisions of the Investment Promotion Act and the Thai Revenue Code, are extracted hereafter: Investment Protection Act Section 34. Dividends derived from a promoted activity granted an exemption of juristic person income tax shall be exempted from computation of taxable income throughout the period the promoted person receives the exemption of juristic person income tax. Thai Revenue Code Section 70. A company or juristic partnership incorporated under foreign laws and not carrying on business in Thailand but receiving assessable income under Section 40 (2)(3)(4)(5) or (6) which is paid from or in Thailand, shall be liable to pay tax. The payer of income shall deduct corporate income tax from such assessable income at the corporate income tax rate and remit it to the local Amphur office together with the filing of a tax return in the form prescribed by the Director General within 7 days from the last day of the month in which such income is paid. Section 54 shall also a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities. 27. To sum up the entire edifice, the appellant/revenue's appeals are based on the proposition that tax credit as claimed, could not be extended to the respondent/assessee, because it had not paid tax in Thailand, i.e., that benefit under Article 23 of the Indo-Thai DTAA could only be extended in a situation where the tax had actually been paid. In view of the rationale provided by us hereinabove, this argument is completely misconceived. The concept of tax sparing is embedded in several DTAAs which have been executed by India, such as with France, Jordan and Oman, apart from Thailand. 28. Insofar as the Indo-Thailand DTAA is concerned, credit for tax sparing works for residents of Thailand, as well as India. This is a mechanism which is engrafted in DTAAs to incentivize investment for economic development. 29. Interdiction of such provisions would, in our view, be detrimental to the larger public interest. 30. Thus, for the foregoing reasons, we are disinclined to interfere with the impugned order passed by the Tribunal. 31. According to us, no substantial question of law arises for our consideration. 32. The ITA No. 573/2019 concerning AY 2010- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agriculture, forestry and fishery and the carrying on of a plantation ; (v) any other undertaking entitled to the privileges accorded under the laws of either Contracting State on the promotion of industrial investment ; and (vi) any other undertaking which may be declared to be an industrial undertaking for the purposes of this article by the competent authority of the Contracting State in which the undertaking is situated. 4. The provisions of paragraphs (1) and (2 ) shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident through a permanent establishment situated therein or performs in that other State independent personal services from a fixed base situated therein and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of article 7 or article 14, as the case may be, shall apply. 5. Where a company which is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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