Foreign tax credit for Japanese withholding upheld on professional fees under the India-Japan treaty.

ITAT Mumbai held that foreign tax credit was allowable where Japanese clients withheld tax on professional fees paid for services rendered in Japan. Applying the India-Japan tax treaty and following its earlier order in the assessee's own case, the Tribunal found that the withholding in Japan was not shown to be unreasonable or incorrect on the facts. The denial of foreign tax credit was therefore unsustainable, and the disallowance was set aside in favour of the assessee.

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Issues: Whether the assessee was entitled to foreign tax credit for tax withheld by Japanese clients on professional fees received for services rendered in Japan.

Analysis: The assessee had received fees from clients in Japan for professional services and tax was withheld in Japan. The dispute turned on the application of the India-Japan tax treaty, particularly the interaction between the provisions dealing with professional services and independent personal services. The Tribunal followed its earlier decision in the assessee's own case for an earlier assessment year and held that, on the facts, the withholding made in Japan was not shown to be unreasonable or incorrect. Accordingly, the denial of foreign tax credit was not sustainable.

Conclusion: The assessee was entitled to foreign tax credit, and the disallowance was set aside in favour of the assessee.

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