2024 (11) TMI 1016 - AT - Income Tax

Professional services income from Japan, Nepal, Singapore gets tax relief under India-Japan DTAA Article 12 and 14

The ITAT Mumbai allowed tax relief for income earned by the assessee from professional services in Japan, Nepal and Singapore. The tribunal relied on ... Tax relief in regard to income earned in Japan, Nepal and Singapore - Income earned by the assessee from professional services in forieng countries - HELD THAT:- As perused the decision of Amarchand & Mangaldas & Suresh A. Shroff & Co. [2023 (6) TMI 1445 - ITAT MUMBAI] pertaining to AY 2017-18 wherein the provisions of Article 12 and Article 14 of the India- Japan Double Taxation Avoidance Agreement are discussed and it is held that Article 12 of the DTAA provides that income from professional services or other activities of independent characters would be taxable in the resident country, i.e., India. However, clause 4 of the Article 12 provides that such payments would not constitute ‘fee for technical services’ only if such payment is made to an individual for carrying out independent professional services referred to in Article 14. Thus conclusions arrived at by the Japanese tax authorities, directing tax withholdings from the payments made to the assessee by its Japanese clients, cannot be said to unreasonable or incorrect, and hold that the assessee was wrongly declined tax credit on the facts of this case Thus, we find merit in the submission of the assessee and allow the claim of deduction. Decided against revenue. Issues Involved:1. Whether the tax relief for income earned in Japan, Nepal, and Singapore was correctly allowed by the CIT(A) under the provisions of Article 14 of the Double Taxation Avoidance Agreements (DTAAs) with these countries.2. Whether the foreign tax credit claimed by the assessee for taxes withheld in Japan, Nepal, and Singapore is allowable under section 90 of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Tax Relief under Article 14 of DTAAs:The primary issue revolves around the interpretation of Article 14 of the DTAAs with Japan, Nepal, and Singapore, which deals with Independent Professional Services. The Assessing Officer (AO) contended that the income earned by the assessee from professional services in these countries was not taxable there due to the lack of a fixed base or sufficient presence as required by Article 14. Consequently, the AO denied the tax relief claimed by the assessee, asserting that the income was not taxable in the source countries, and thus, tax credit was not allowable.The CIT(A) allowed the assessee's appeal by referencing the ITAT Mumbai's decision in similar cases, such as Amarchand & Mangaldas & Suresh A. Shroff & Co., where it was held that the Japanese tax authorities interpreted Article 14 as applicable only to individuals and not to entities like law firms. Therefore, the tax withheld under Article 12 was deemed appropriate, and the foreign tax credit was allowed. The CIT(A) concluded that the facts of the present case were identical to those cases, and thus, the tax relief under Article 14 was correctly allowed.2. Foreign Tax Credit under Section 90:The second issue concerns the foreign tax credit claimed by the assessee for taxes withheld in Japan, Nepal, and Singapore. The AO denied this credit, arguing that the income was not taxable in those countries under Article 14, and thus, the withholding tax was not in conformity with the DTAAs.The ITAT upheld the CIT(A)'s decision, reiterating the findings from previous cases that the taxes withheld were in line with the DTAAs' provisions. The Tribunal emphasized that the Japanese tax authorities' direction to withhold tax was not unreasonable or incorrect. The ITAT referred to the precedent set in Amarchand & Mangaldas & Suresh A. Shroff & Co., where it was determined that the credit for such taxes should be allowed since the withholding was consistent with the treaty provisions. The Tribunal directed the AO to grant the foreign tax credit, affirming that the assessee was entitled to the credit under section 90 of the Income-tax Act, 1961.In conclusion, the appeals filed by the Revenue were dismissed, with the ITAT confirming the CIT(A)'s decision to allow the tax relief and foreign tax credit claimed by the assessee. The Tribunal's judgment was based on the consistent application of the relevant DTAAs and the precedents set in similar cases.