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TMI Blog2025 (2) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... and 91, would be available for deduction under any other statute of the Income tax act 1961. Prohibition u/s 40(a)(ii) applies to these foreign taxes or not? -The argument propounded by assessee are not found to be satisfactory for the very reason that section 2 of the act begins with a clause "in this act, unless the context otherwise requires", and which goes on to indicate that the definition is to be understood in the context of the situation. The clear, unambiguous legislative intent appearing from insertion of provisions of 40(a)(ii) is that any sum paid by a tax payer on account of any amount of money, be it be any rate or tax levied on the profits or gains of any business or profession would not be allowed as a deduction. As undisputed fact of the case that the amounts of foreign taxes claimed as the deduction by the assessee are in respect of taxed levied on its component of income earned in foreign tax jurisdiction and hence the same cannot be allowed under the provisions of section 40(a)(ii). It is pertinent to note that explanation 1 to section 40(a)(ii) excludes amounts of monies eligible for relief u/s 90 and 91 of the act. Now what cannot be claimed u/s 90 and 91 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The only issue raised by the assessee through its five grounds of appeals concerns the action of the Ld. AO in not allowing deduction in respect of foreign taxes paid u/s 37(1). Before proceeding further it is necessary to examine the brief factual matrix of the case as discernable from the material available on records. 3.0 As per facts available in assessment order the assessee company is engaged in the business of software development and had filed its return of income declaring an income of Rs. 11,53,57,290/-. The case was selected under the limited scrutiny CASS category and reasons, inter-alia, included large deduction claimed under chapter VIA and large deduction claimed u/s 90/91. During the course of assessment proceedings the Ld. AO noted that assessee had claimed foreign tax credit amounting to Rs. 8,93,06,247/- within the meanings of 90/91 of the IT act. The Ld.AO records that during the course of assessment proceedings the assessee filed its letter dated 22.09.2017 stating that it is eligible for claim of relief u/s 90 only to the tune of Rs. 4,33,56,979/- and that the balance amount of Rs. 4,59,49,268/- is to be disallowed. The assessee also agreed to pay the differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed its reliance upon the judgement of Hon'ble Bombay High Court in the case Reliance Infrastructure Ltd. (2016). The Ld. Counsel submitted that in the said case Hon'ble High court has held that section 40(a)(ii) will not apply in respect of taxes paid abroad which is not eligible for relief u/s 91. It was contended that the impugned judgement has been followed by Hon'ble Coordinate Bench of the Mumbai Tribunal in the case of Bank of India 125 taxman.com 155, Hon'ble Ahmadabad tribunal in the case of Virmati Software and Telecommunication Ltd 145 taxman.com134. It was submitted that Hon'ble Ahmadabad tribunal followed the decision of Hon'ble Bombay High Court in the case Reliance Infrastructure Ltd. (2016) while ignoring its own decision in case of Elite Core Technologies Pvt. Ltd supra. 5.0 The Ld. DR has fiercely supported the order of the Ld.AO and its confirmation by the Ld. First Appellate Authority. It was argued that the assessee had itself, upon commencement of scrutiny proceedings curtailed its claim of foreign tax credit and had withdrew its claim qua an amount of Rs. 4,59,49,268/- as against the original claim of Rs. 8,93,06,247/- made in the return of income. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be, or (ii) income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or (b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, or (c) for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country or specified territory, as the case may be, or investigation of cases of such evasion or avoidance, or (d) for recovery of income-tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be, and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement. (2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sub-section (1) is defined under the said agreement, the said term shall have the same meaning as assigned to it in the agreement; and where the term is not defined in the said agreement, but defined in the Act, it shall have the same meaning as assigned to it in the Act and explanation, if any, given to it by the Central Government.] 6.1 Further section 91 of the act reads as under:- "....91. Countries with which no agreement exists.-(1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal. (2) If any person who is resident in India in any previo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax charged on the profits by the Government of any part of that country or a local authority in that country...." 6.2 Similarly relevant provisions of section 40(a)(ii) reads as under:- "....40. Amounts not deductible.-Notwithstanding anything to the contrary in 3[section 30 to 38], the following amounts shall not be deducted in computing the income chargeable under the head ―Profits and gains of business or profession‖,- ------------------------- --------------------- (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. 5[Explanation 1.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.] 221 1[Explanation 2.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 91 is not hit by mischief of section 40(a)(ii) of the act and hence can be claimed u/s 37(1). The Ld. Counsel of the assessee subscribed to the view that its case is therefore not hit by mischief of section 40(a)(ii) of the act as well as that the decision of Hon'ble Ahmadabad tribunal in the case of Virmati Software and Telecommunication Ltd 145 taxman.com134 based upon the decision of Hon'ble Bombay High Court in the case Reliance Infrastructure Ltd. (2016), while ignoring its own decision in case of Elite Core Technologies Pvt. Ltd, supra supports its claim. 7.1 Hon'ble Apex Court has, in several judicial pronouncements concerning interpretation of statute, postulated that wherever the provisions of statute are unambiguously clear and do not offer divergent meanings, no case of their interpretation is required to be made. This brings us to the question of analysis and applicability of various statutory provisions seminal to the controversy at hand. Section 90 and 91 of the act have been brought on the statute with the solitary objective of preventing double taxation of income of a taxpayer who has both domestic as well as overseas income. Thus, the law postulates that when a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to only domestic income tax calculated as per the provisions of the income tax act and would not include taxes calculated in foreign tax jurisdiction. 7.3 The argument propounded by the Ld. Counsel of the assessee are not found to be satisfactory for the very reason that section 2 of the act begins with a clause "in this act, unless the context otherwise requires", and which goes on to indicate that the definition is to be understood in the context of the situation. The clear, unambiguous legislative intent appearing from insertion of provisions of 40(a)(ii) is that any sum paid by a tax payer on account of any amount of money, be it be any rate or tax levied on the profits or gains of any business or profession would not be allowed as a deduction. It is an undisputed fact of the case that the amounts of foreign taxes claimed as the deduction by the assessee are in respect of taxed levied on its component of income earned in foreign tax jurisdiction and hence the same cannot be allowed under the provisions of section 40(a)(ii). It is pertinent to note that explanation 1 to section 40(a)(ii) excludes amounts of monies eligible for relief u/s 90 and 91 of the act. Now what cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g upon its earlier order in assessee's case for AY-2012-13, it was, confirming the action of the Ld.AO, concluded that "..it is only the profit which should be considered while determining the tax in the foreign country and the same to be compared the tax India...". 7.7 We have noted that the Hon'ble Madras High Court in CIT Vs Kerala Lines Ltd. (1994) 74 Taxman 3 (Madras) while holding that the payment made by the assessee in foreign ports as income tax, has observed at para No. 4, that ",.. taxes paid by the assessee could, at best, be considered as an application of profits earned by the assessee and division thereof between the assessee and the foreign port authorities and the payment made by the assessee cannot be treated as having expended for earning profit.". Consequently in the light of ratio laid down by Hon'ble Jurisdictional High Court the claim of the assessee for deduction u/s 37(1) of foreign tax payment would become ineligible. 7.8 The decision of the Hon'ble Bombay High Court in the case of Reliance Infrastructure Ltd. Vs. CIT (76 taxman.com 256 Bom. (2010) supra also does not supports the case of the assessee. Firstly Section 40(a)(ii) of the Income Tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order it has been observed that ".. Section 10(4) of the 1922 Act or section 40(a)(ii) of the present Act do not contain any words indicating that the profits and gains spoken of by them should be determined in accordance with the provisions of the Act. All they say is that it must be a rate or tax levied on the profits and gains of business or profession." 7.10 Further, the Hon'ble Madras High Court in 'Sundaram Industries Ltd. Vs. CIT (1986)' held at para no. 18 of its order that " it is true that the word tax' has been defined in section 2(43) as already indicated. But having regard to the purpose and context in which that word is used in section 40 it is obvious that the words 'any rate or tax levied' must be read as 'any rate or any tax levied. The word 'any' will, therefore, qualify both rate' and tax' and once we hold that the word any' will qualify tax' also, then 'any tax' will necessarily take in taxes other taxes other than the tax under the 1961 Act also". In the light of above clear and candid rulings of the Hon'ble Jurisdictional High Court as well as the Hon'ble Supreme Court, it can be concluded that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of India. Once we are aware about a particular position that Hon'ble Supreme Court has taken, it is not open to us to reach a conclusion which is, or can be perceived as, in defiance to the position taken by Hon'ble Supreme Court. May be, if the views expressed were by our jurisdictional High Court, or by any of Hon'ble High Courts after taking into account the views expressed by Hon'ble Supreme Court on that issue, things may have been little different, but that is not the case here." 8.0 Accordingly, after careful consideration of the facts of the case, contemporaneous statutory provisions, catena of judicial pronouncements referred by the rival parties, we are of the considered view that no case is made out in favour of the assessee to allow its claim of foreign taxes of Rs. 4,59,49,268/- u/s 37(1) of the act. Thus, we are of the view that the order of the Ld. AO and its confirmation by the Ld. First Appellate Authority is based upon the correct understanding and appreciation of facts of the case, inter-alia, including statutory provisions and judicial pronouncements. The Order of the Ld. CIT(A) is confirmed and all the grounds of appeal raised by the assesse ..... 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