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TMI Blog2024 (12) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - Shri T.R. Senthil Kumar, Judicial Member And Shri Makarand Vasant Mahadeokar, Accountant Member For the Assessee : Shri Soumitra Choudhary, A.R. For the Revenue : Shri Rignesh Das, Sr. D.R. ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- These cross appeals are filed by the Revenue and the Assessee as against the appellate order dated 15-07-2019 passed by the Commissioner of Income-Tax (Appeals)-8, Ahmedabad arising out of the assessment order passed under section 143(3) of the Income Tax Act 1961 (hereinafter referred as the Act ) relating to the Assessment Year 2008-09. 2. This is the second round of litigation before this Tribunal. Brief facts in the first round is that the assessee is a company engaged in the business of manufacturing Wind Turbine Generators [WTG], Rotor blades, etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 21-04-2017 in ITA No.1610/Ahd/2013 set aside the reliefs granted by CIT[A] on account of Tax Credit of Rs. 1,05,43,697/- and also the tax credit of Rs. 1,62,26,344/- granted against MAT payment are without verification of the claim made by the assessee company, thereby set aside the issues to the file of Ld CIT[A] for de-nova adjudication. 3. In the set aside proceedings, Ld CIT[A] after giving show cause to the assessee and calling remand report from the AO and rejoinder from the assessee held that the credit for taxes paid in China will not be available in so far as it relates to claim of tax credit for a sum of Rs. 1,05,43,697/- because as per Article 23[2], credit is to be claimed in respect of income for the relevant assessment year. Since the sum relates to receipt of fees for technical services during the financial year 2006-07, the credit can be claimed relevant for the asst year 2007-08 not for the present asst. year. Thus Ld CIT[A] denied the claim of tax credit for a sum of Rs. 1,05,43,697/- for the Asst. Year 2008-09. 3.1. However Ld CIT[A] for the next issue namely claim for Tax Credit of a sum of Rs. 1,62,26,344/- which relates to taxes paid and fees for technic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uous or capable of more meanings than one, then the Court has to adopt that interpretation which favour s the assessee, more particularly so because the provision relates to imposition of penalty. 5.1. Further more Section 91 of Act provides for relief in respect of taxes paid in a country with which there is no agreement under section 90. The Double Taxation Avoidance Agreement ('DTAA/ tax treaty') entered into under sections 90/90A generally contains a separate Article relating to methods to eliminate double taxation. Most of the DTAAs entered into by India follow the credit method. Article 23(3) of Indo-China Tax Treaty clearly equates the taxes paid in China to tax which would have been payable but for the legal provisions concerning tax deduction exemption or other tax incentives in India. 5.2. It is to be noted that CBDT introduced Foreign Tax Credit (FTC) Rules vide Notification No.54 of 2016 dated June 27, 2016 which came into effect from 01-04-2017. Further Rule 128 of the Income-tax Rules, 1962 deals with the manner of computation of FTC. In Union budget 2017, a new proposal in line with Rule 128 was introduced to restrict the carry forward of MAT/AMT credit. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly or by way of deduction. Accordingly, assessee is eligible to claim of such FTC in view of provisions of section 90 of the Act. 6.1. Further 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. 6.2. In this connection Co-ordinate Bench of the Bangalore Tribunal in the case of DCIT -Vs- Subex Technology Ltd. reported (2015) 63 taxmann.com 124 held as follows: 4. The question is whether credit u/s. 90 of the IT Act, would be given on tax liability under MAT provisions of the Act. We find that a very same issue had come up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the DTAA r.w.s. 90 between India and China does not restricts allowance of subject tax credit of Rs 1,05,43,697/- during the year consideration. 3. The learned CIT(A) failed to appreciate the fact that the Rule 128 providing that foreign tax credit to be allowed in the year of booking of income was introduced prospectively from 1-4-2017 and hence not applicable to the year under consideration and therefore there was no bar on allowing subject foreign tax credit during the year under consideration on the ground that corresponding income was offered in previous year. 4. The learned CIT(A) has erred in law and on facts in directing AO to restrict credit u/s. 115JAA of the Act claimed in the subsequent year to the extent of withholding tax allowed in the current year. 5. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given the same treatment as advance tax paid or TDS and cannot be given a different treatment. In any event, the domestic law with regard to FTC against MAT as enshrined in the Act, is more beneficial to the Assessee and therefore the same may be followed in preference to DTAA and as mandated by Sec.90(2) of the Act. 11.1. Alternatively, Ld Counsel prayed that the difference between the FTC for which MAT credit is given and the taxes paid in China, may be treated as allowable revenue expenditure u/s. 37(1) of the Act, as laid down in the decision of the ITAT Mumbai in the case of Bank of India Vs. ACIT [2021] 125 taxmann.com 155 wherein the ITAT had considered the following question in the aforesaid decision viz., Whether or not the assessee is eligible for a deduction of taxes paid abroad on its income in the respective tax jurisdiction in respect of which the assessee has not been granted any tax credit. The Tribunal following decision of Hon'ble Bombay High Court, in the case of Reliance Infrastructure Ltd. v. CIT reported 390 ITR 271 and allowed in favour of the assessee. 11.2. Further the Appellate Tribunal in the case of Bank of India also distinguished the decision rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o follow the same in letter and in spirit. Whatever arguments learned Departmental Representative seeks to make in support of any other interpretation, than the interpretation adopted by Hon'ble jurisdictional High Court even if was adopted in the light of a concession then made by the learned counsel for the revenue before them, being more appropriate, these arguments may be made before Their Lordships if and when that occasion comes. It is for Their Lordships to take a call on these arguments. We are not inclined to entertain these arguments before us. In the light of these discussions, as also bearing in mind the entirety of the case, we reject the plea of the learned Departmental Representative, uphold the plea of the assessee, and direct the Assessing Officer to allow the deductions in respect of taxes paid by the assessee abroad, in respect of which no foreign tax credit is granted to the assessee, in the light of the decision of Hon'ble jurisdictional High Court in the case of Reliance Infrastructure decision (supra), and examine the matter be afresh in this light. To this extent, this plea of the assessee is upheld. Our conclusions on the second issue 79. The second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owner of property or of unit- holder or of the shareholder, as the case may be, and credit shall be given to him for the amount so deducted on the production of the certificate furnished under section 203 in the assessment made under this Act for the assessment year for which such income is assessable: 14.1. Thus, 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. Reliance is placed on following decisions: 14.2. Sadbhav Engineering Ltd. vs. DCIT - (2015) 153 ITD 234 Ahd; 24. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The brief facts of the case are that the assessee claimed credit for TDS of Rs 1,73,52,062/- for the AV 2006-07 and Rs. 2,25,09,037 in AV 2007-08 which was not allowed by the AO on the ground that the income in respect of the said TDS was not shown by the assessee in view of the provisions of section 199 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment made under this Act for the assessment year for which such income is assessable: (3) The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub-section (2) and also the assessment year for which such credit may be given. Section 199. (1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or of the depositor or of the owner of property or of the unit-holder, or of the shareholder, as the case may be. (2) Any sum referred to in sub-section (IA) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made. 26. The Ld. DR could not cite any contrary decision or any other good reason for which the aforesaid decision of the Co-ordinate Bench of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, such rule has no applicability, where assessee follows cash system of accounting. This can be supported from the illustration that suppose an assessee, who is following cash system of accounting, raises an invoice of Rs. 100 in respect of which deductor deducts TDS of Rs. 10 and deposits to the account of the Central Government. Accordingly the assessee would offer an income of Rs. 100 and claim TDS of Rs. 10. However, in the opinion of the revenue, the assessee would not be entitled to credit of the entire TDS of Rs. 10 but would be entitled to proportionate credit only. Now assumes that Rs. 90 is never paid to the assessee by the deductor. In such circumstances, Rs. 9 which was deducted as TDS by the deductor would never be available for credit to the assessee though the said sum stands duly deposited to the account of the Central Government. Rule 37BA(3) cannot be interpreted so as to say that TDS deducted by the deductor and deposited to the account of the Central Government is though income of the assessee but is not eligible for credit of TDS in the year when such TDS was offered as income. This view is otherwise also not in accordance with the provisions contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle 23(2) of DTAA does not state that FTC is to be allowed only in the year in which corresponding income has been offered. It merely states that 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. In the above such circumstances, Ld CIT(A) was not justified in denying FTC on the ground that corresponding income has not been offered for tax in the year under appeal but has been offered in the Asst. Year 2007-08. Since no such condition has been prescribed either under the DTAA or under the Act or in the decision of ITAT (Ahmedabad Bench) relied upon by Ld CIT(A). 16.1. Further more Ld CIT[A] called for a Remand Report from the Assessing Officer on this issue and Ld AO has not given any adverse report on this issue in his Remand Report which is placed at Pgs.-129-136 @ 132-134 of the Paper Book. In fact the Ld AO, after taking cognizance of Rule 128 inserted w.e.f. 01.04.17, has observed that Rule 128 is not applicable for Asst Year 2008-09. 16.2. It is well settled Principle of law and as per CBDT's Cir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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