TaxTMI 
TaxTMI 
2017 (4) TMI 121
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....hat the portfolio management expenses and interest charges incurred have no nexus with the overseas dividend and interest income. Alternatively and without prejudice to ground number 2 and 2.1, the portfolio management expenses and the interest charges amounting to Rs. 1,79,506 should have been allowed as deductible expenses from the overseas capital gains income offered to tax under the head "Capital Gains" by the learned CIT(A). The learned CIT(A) failed to consider this alternative ground taken before him. 4. The appellant is an individual, resident in India, and is in employment of JP Morgan India Pvt Ltd as Managing Director and Global head of technology research of the company. He had entered into transactions for sale and purchase of various foreign securities and the income arising from such transactions was offered to tax as capital gains. These transactions are said to have taken place through non discretionary trading accounts maintained in this regard with the portfolio managers i.e. Credit Suisse (Zurich and Singapore branch) and UBS (Singapore branch). The assessee had also offered to tax income from interest and dividend on these securities. During the relev....
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.... with the income earned. Subsequently, in the remand proceedings, the AO, on the basis of letter filed from Credit Suisse, has agreed that such expenses might have been incurred by the assessee. However, the basis of claim made by the assessee @ 25% of the total expenditure is not explained. The assessee himself has admitted that he has claimed 25% of the total expenses being the expenses in relation to the income earned by him. In this context, the narration of expenses by the Credit Suisse is noticeworthy. The Credit Suisse has termed these expenses as 'safeguarding expenses'. The nexus or connection with the income as pointed out by the AO remained unanswered, even at the appellate stage. I am of the view that mere certificate from Credit Suisse will not entitle the appellant to make a arbitrary claim of expenses @ 25% of the total amount paid. Accordingly, the action of the AO in making an addition of Rs. 1,79,506/- is confirmed." 6. The assessee is aggrieved and is in further appeal before us. 7. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of applicable legal position. 8. We find that t....
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..... We, therefore, uphold the plea of the assessee. The Assessing Officer is, accordingly, directed to grant deduction of Rs. 1,79,506. 9. Ground no. 2 is thus allowed. 10. In ground no. 3, the assessee has raised the following grievances: 3. The learned Commissioner of Income Tax (Appeals) erred in law and on facts in disallowing relief by way of tax credit amounting to Rs. 3,72,698 claimed deductible u/s 90 of the Act in respect of the dividend income earned outside India. 3.1. The learned Commissioner of Income Tax (Appeals) erred in law as well as on facts in disallowing the relief by way of tax credit claimed under section 90 in accordance with the DTAA between India and USA in respect of the foreign taxes withheld from the overseas dividend income solely on the ground that the evidences do not bear the name of the appellant and are not signed by appropriate person from Credit Suisse/issuing authority defying the evidentiary value of the same. It is submitted that it be so held now and credit for Rs. 3,72,698 as claimed by the appellant be granted to him. 3.2. The learned Commissioner of Income Tax (Appeals) erred in law as well as on facts by accepting the overse....
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....e granted in respect of the taxes withheld in the United States. As to the manner in which tax credits are to be computed, we find guidance from the text of art. 25(2)(a) of the Indo-US DTAA which is as follows : "Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in the United States, India shall allow a deduction from the income of that resident an amount equal to income-tax paid in the United States, whether directly or by way of deduction. Such deduction shall however not exceed that part of income-tax (as computed before the deduction is given) which is attributable to the income which is taxed in the United States" 14. So far as the rates at which dividend income of resident of India can be brought to tax, in accordance with Indo US tax treaty, we find guidance from article 10 of the said tax treaty which is as follows: ARTICLE 10- Dividends 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. 2. However, such dividends may also be taxed in the Contracting State of which the company paying the divide....
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....y except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State. 15. What follows from an analysis of these provisions of the Indo US tax treaty is this. As long as a person, resident in India in terms of the treaty provisions, has been taxed in respect of his dividend earnings in the United States, whether directly or by way of tax withholdings, in accordance with the provisions of article 10, the tax credit will be available to him, against his tax liability in India in respect of such dividend income, subject to the condition that such tax credit will not exceed the Indian income tax liability in respect of the income in question. As we deal with this aspect of the matter, it is also essential to bear in mind the fact that in order to avail the treaty benefits, it....
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....basis, dealing with the tax levied in the other contracting state (i.e. US) and the income in respect of which such tax is levied. As for 25% tax withholding from US dividend income, it is not the applicable withholding rate but the maximum tax withholding rate. It is, therefore, not essential that the entire US tax levy in respect of dividend income is @ 25% only. As a corollary to the this position, the actual admissible withholding under article 10 is bound to be an amount lower than 25% because in some of the cases, the applicable US tax rate could even be 15%. These factors apart, in the case before is, there are some tax deductions at rates other than 15% and 25%. For example, in the case of Vanuguard, at page 59A of the paper-book filed before us, the tax withholdings are @ 20%. The tax credit in respect of this tax withholding- as also other similarly placed securities, therefore, cannot be more than 20% of dividend income in any event, even though the basis of 20% tax withholding is not at all clear. It is also not clear which are the cases in which tax withholding rate is 10% and in which cases the tax withholding rate is 25%. While computing the admissible tax credits, a....