2021 (8) TMI 909 - AT - Income Tax

Tribunal directs reassessment of Foreign Tax Credit & Section 80G deduction in line with DTAA provisions

The Tribunal partly allowed the appeal, directing the Assessing Officer to recompute the Foreign Tax Credit (FTC) in accordance with the prescribed method ... Claim of Foreign Tax Credit under Section 90 - Whether lower authorities are not justified in failing to appreciate that the case of the Appellant falls under Section 90(1)(a)(ii) and hence the appellant is eligible for relief in respect of tax paid in Tanzania? - whether the tax deducted at source in Tanzania is not an income that accrues or arises outside India and therefore, the same cannot be included in the total income of the Appellant? - HELD THAT:- In the case of section 90(1)(a)(i), relief is granted in respect of income on which income tax is paid in both the countries. Whereas, u/s. 90(1)(a)(ii) of the Act, relief is granted in respect of income tax chargeable in both the countries - under clause (i) assessee should have paid tax in both countries, whereas under clause (ii) it is enough if the income is chargeable to tax in both the countries and there is no mandate that the tax should have been paid in both the countries. He also brought to our attention Article 23 of DTAA between India & Tanzania. What is said in the case of India-Korea DTAA is squarely applicable to the facts of the present case. We have already referred to the observations of this Tribunal in the case of Ittiam Systems Pvt. Ltd. [2021 (1) TMI 1106 - ITAT BANGALORE] in the earlier paragraphs. Accordingly, relief u/s. 90 to be given on the amount which is lower of the following i.e., Tax paid on income outside India; or payable in India on such doubly taxable income, whichever is lower. Steps to compute the double taxation relief are as follows:- (i) Compute global income i.e., aggregate of Indian income and foreign income; (ii) Compute tax on such global income as per the slab rates applicable as per Indian Income-tax Act; (iii) Compute average rate of tax (i.e., global income divided by amount of tax); (iv) Compute amount by multiplying foreign income with such average rate of tax; and (v) Compute tax paid in foreign country. The amount of relief shall be lower of (iv) & (v) i.e., tax paid on income outside India and tax payable under the Indian Income-tax. We direct the AO to grant FTC as above. This ground is partly allowed. Deduction u/s 80G - AR submitted that this issue though raised before the CIT(Appeals), but he failed to adjudicate the same. The evidence is available to the extent of ₹ 3,78,000 for payment of donation and the assessee is entitled to donation u/s. 80G - HELD THAT:- After hearing both the parties, we remit this issue to the file of AO for fresh decision on this issue with a direction to the assessee to provide necessary evidence in support of the claim of deduction u/s. 80G. Issues Involved:1. Justification of the Commissioner (Appeals)'s Order.2. Assessment in defiance of CBDT instructions/scrutiny norms.3. Restriction of Foreign Tax Credit (FTC) under Section 90.4. Denial of deduction under Section 80G for donations.Issue-wise Detailed Analysis:1. Justification of the Commissioner (Appeals)'s Order:The assessee argued that the Commissioner (Appeals)'s order was not justified in law and on the facts and circumstances of the case. This ground was general in nature and not specifically pressed during the hearing, thus it was dismissed as not pressed.2. Assessment in Defiance of CBDT Instructions/Scrutiny Norms:The assessee contended that the Assessing Officer (AO) made the assessment in defiance of instructions/scrutiny norms provided by the CBDT for cases selected under CASS. This ground was also not pressed at the time of hearing and was dismissed as not pressed.3. Restriction of Foreign Tax Credit (FTC) under Section 90:The main issue revolved around the restriction of the FTC to Rs. 3,71,874/- against the claimed Rs. 1,71,80,438/-. The AO restricted the FTC based on the total revenue as per financial statements rather than the total income as per the provisions of the Act. The CIT(Appeals) upheld the AO's decision, referencing Article 23 of the DTAA, which limits the deduction to the portion of tax attributable to income taxed in Tanzania.The Tribunal analyzed the relevant DTAA provisions and previous case law, particularly the Tribunal's decision in Ittiam Systems Pvt. Ltd. v. ITO. It was concluded that the FTC should be computed by considering the global income, the average rate of tax, and comparing the tax paid in the foreign country with the tax payable in India on the doubly taxable income. The relief should be the lower of the tax paid in Tanzania or the tax payable in India on the doubly taxable income.4. Denial of Deduction under Section 80G for Donations:The assessee claimed a deduction under Section 80G for donations amounting to Rs. 3,78,000/-. The AO disallowed the deduction due to lack of evidence, and the CIT(Appeals) did not adjudicate this issue. The Tribunal remitted this issue back to the AO for fresh consideration, directing the assessee to provide necessary evidence to support the claim.Conclusion:The appeal was partly allowed. The Tribunal directed the AO to recompute the FTC as per the detailed method provided and to reconsider the deduction under Section 80G based on the evidence to be furnished by the assessee.