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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 ..... ware 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 differential tax liability arising on account of above recomputation. However, the assessee, towards the end of assessment proceedings vide its letter dated 09.11.2017 made another submission before the Ld. AO that the impugned amount of Rs. 4,59,49,268/- is to be allowed u/s 37 of the act. The Ld. AO premised that the claim of the assessee was untenable in view of prohibition on the said claim placed by provisions of 40(a)(ii) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase 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 was submitted that the alternate claim made, again during the course of assessment proceedings, u/s 37(1) was only based upon an inadequate understanding of the contemporaneous statute governing the matter. The Ld. DR submitted that the orders passed by the lower authorities is based upon correct understanding and appreciation of the facts of the case in the light of judicial pronouncements covering the matter. The Ld. DR con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esponding 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 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. 2[(2A) Notwithstanding anything contained in sub-section (2), the provisions of Chapter X A of the Act shall apply to the assessee ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement 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 previous year proves that in respect of his income which accrued or arose to him during that previous year in Pakistan he has paid in that country, by deduction or otherwise, tax payable to the Government under any law for the time being in force in that country relating to taxation of agricultural income, he shall be entitled to a deduction from the Indian income-tax payable by him- (a) of the amount of the tax paid in Pakistan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion‖,- ------------------------- --------------------- (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 tax levied includes any sum eligible for relief of tax under section 90A;]..." 6.3 Lastly the provisions of section 37(1) of the IT act provides as under:- ".....37. General.-(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 1*** and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 taxpayer earns overseas income and is exposed to taxes in foreign tax jurisdiction, then it is liable to get credit for such taxes paid in overseas jurisdiction while submitting his final tax liabilities in the domestic tax jurisdictions. The idea is to avoid double taxation of the same income. Section 90 and 91 of the act prescribe in exquisite details as to how and how much of the taxes paid in foreign tax jurisdiction wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 claimed u/s 90 and 91 does not becomes automatically allowable u/s 40(a)(ii). 7.4 Assuming that a taxpayer is allowed to claim the ineligible part of foreign taxes paid which could not be claimed by it u/s 90 and 91 of the act under section 37 of the act, that proposition alone would defeat the purpose of providing graded allowance prescribed in section 90/91. It is pertinent to note that the scheme of allowance mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee 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, 1961 and Section 10(4) of the income Tax Act, 1922 contain the same wording with regard to disallowance of tax or rate. Relevant portion of the 1922 Act reads as "any sum paid on account of any cess, rate or tax levied on the profits or gains of any business, profession or vocation or assessed at a proportion of or otherwise on the basis of any such profits or gains". Now when the law contained in Section 40(a) (ii) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 order of Hon'ble Bombay High Court in the case of Reliance Industries supra does not come to the rescue of the assessee. 7.11 We have also noted that The Hon'ble ITAT, Ahmedabad in DCIT Vs. Elite Core Technologies Pvt. Ltd., has exhaustively discussed the above issue of allowability of foreign tax credit u/s 37(1) in great detail in its impugned order before reaching at its conclusion that the same is not permissible. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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