Foreign Tax Credit allowed against Minimum Alternate Tax for China royalty income under Indo-China Tax Treaty section 90

ITAT Ahmedabad allowed assessee's claim for Foreign Tax Credit against Minimum Alternate Tax liability for taxes paid in China on royalty income. The tribunal held that under Article 23(2) of Indo-China Tax Treaty and section 90, FTC is allowable against both normal tax and MAT provisions without differentiation. Since effective tax rate on royalty in India (11.22%-11.33%) exceeded China's 10% rate, entire Chinese tax credit was permitted. FTC was allowed in AY 2008-09 despite corresponding income being offered in AY 2007-08, following amended section 199 provisions. The tribunal rejected revenue's appeal and allowed assessee's cross-objection regarding MAT credit restrictions.

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Issues Involved:

1. Eligibility of Foreign Tax Credit (FTC) for taxes paid in China for the Assessment Year 2008-09.
2. Allowance of FTC against Minimum Alternate Tax (MAT) liability.
3. Timing and applicability of FTC claims for taxes withheld in China.
4. Application of Rule 128 and retrospective amendments concerning FTC.
5. Condonation of delay in filing the appeal by the assessee.

Issue-wise Detailed Analysis:

1. Eligibility of FTC for Taxes Paid in China:
- The assessee company, engaged in manufacturing Wind Turbine Generators, received royalty income from its subsidiary in China, which was taxed at 10% under the Indo-China Tax Treaty. The assessee did not initially claim FTC under Section 90 of the Income Tax Act due to late receipt of Tax Withholding Certificates (TWC).
- The Assessing Officer (AO) rejected the FTC claim as it was not made in the original or revised return. However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the claim, stating that the denial was on a technicality, with no objections on the merits.
- On appeal, the Tribunal upheld the CIT(A)'s decision, allowing FTC for the taxes paid in China, as the treaty and Section 90 of the Act support such claims.

2. Allowance of FTC Against MAT Liability:
- The Revenue challenged the allowance of FTC against MAT liability, arguing that the CIT(A) erred in granting this credit. The Tribunal, however, referenced precedents where FTC was allowed against MAT, noting that the Indo-China Tax Treaty and the Act do not differentiate between tax liability under normal provisions and MAT.
- The Tribunal concluded that the assessee is eligible to claim FTC against tax liability computed under Section 115JB of the Act, consistent with judicial precedents like the case of Larsen & Tubro Ltd.

3. Timing and Applicability of FTC Claims:
- The assessee argued that the FTC should be allowed in the year the tax is deducted, irrespective of when the income is offered. The Tribunal agreed, citing Section 199 and various judicial precedents, which support the allowance of TDS credit in the year of deduction.
- The Tribunal noted that Rule 128, introduced in 2017, does not apply to the assessment year in question (2008-09), and thus the FTC should be allowed as claimed by the assessee.

4. Application of Rule 128 and Retrospective Amendments:
- The Tribunal addressed the CIT(A)'s reliance on amendments and Rule 128, clarifying that these provisions apply prospectively from 2018 and not to the assessment year 2008-09.
- The Tribunal emphasized the principle that legislation is presumed not to have retrospective operation unless explicitly stated, citing the Supreme Court's decision in CIT vs. Vatika Township (P.) Ltd.

5. Condonation of Delay in Filing the Appeal:
- The assessee's appeal was filed with a delay of 32 days, attributed to an inadvertent mistake by the accountant. The Tribunal condoned the delay, noting no serious objection from the Revenue and recognizing the mistake as neither willful nor wanton.

Conclusion:

The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, affirming the eligibility of FTC for taxes paid in China for the Assessment Year 2008-09, including against MAT liability, and recognized the timing of FTC claims based on the year of tax deduction. The Tribunal also clarified the non-applicability of Rule 128 for the assessment year in question and condoned the delay in filing the appeal by the assessee.

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