TaxTMI 
TaxTMI 
2021 (1) TMI 1106
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....82 ITR 179. 3. That the [earned CIT[A] erred in restricting the foreign tax credit claimed by the appellant by applying a blanket formula to the entire income and granting the tax credit as a proportion to the Income returned instead of granting the credit in full for the actual tax withheld, under the facts and circumstances of the appellant's case. 4. Without prejudice to the above, the Appellant ought to have been allowed a deduction of foreign taxes paid under section 37(1) read with section 40(a)(ii) of the Act to the extent relief of FTC is denied to the Appellant having regard to the ratio of the decision of the Hon'ble Bombay High Court in the case of Reliance Infrastructure Ltd. reported in 390 ITR 271. 5. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered." Asst.Yr.2014-15 "1. That the learned CIT[A] erred on facts and in law in restricting the claim of Foreign Tax Credit (FTC) to Rs. 71,11,538/- as against Rs. 2,36,78,371/- claimed by the Appellant. 2. That the Learned CT[A] erred in not grantin....
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.... worked out to effective tax rate of 14.32% in respect of income tax outside India and the effective tax rate in India worked out to be 32.45%. Hence as 14.32% being lower than 32.45% the entire amount of Rs. 1,80,54,300/- was claimed as foreign tax credit under section 90 of the Act. 4. As per Ld. AO, assessee wrongly compared rate of tax outside India with the rate of tax in India. He was of the opinion that assessee compared the effective rate of tax outside India on the basis of ratio of withheld tax 2 total receipts on which tax is withheld, whereas 4 effective rate in India the same has been computed on the basis of ratio of total tax payable to income on which tax is calculated. Ld.AO was of the opinion that the effective tax rate outside India was calculated by assessee on receipts whereas the effective tax rate payable in India was calculated on income. He was of the opinion that it is a mismatch there is difference of 9.9% between effective tax rate outside India on receipts and effective tax rate in India on income. Ld.AO was of the opinion that as per DTAA, relief has to be calculated based on deduction from tax on income of that resident and not the receipts. Ld.AO ....
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....any/Japan. So for the purpose of determining FTC available to the appellant it is important to work out the income of the appellant in relation to the receipts of royalty and license fee from these three countries. The approach of the appellant, that receipt and to be considered as income which is doubly taxed i.e. in India as well as in these three other countries, is not correct. Here it is important to note that if the argument of the appellant that receipt from foreign countries should he considered as income included in the income shown in the return of income in India is accepted then it would lead to a very anomalous situation as the income of the appellant would be 100% from foreign as there are no expenses but in India it will be having loss which would be as follows: Total receipts of the business Rs. 59,34,99,200/- Less Foreign Receipts Rs. 13,07,41,769/- Balance receipts of' the business Rs. 46,27,57,431/- Total expenditure claimed in computation of income Rs. 51,01,60,030/- Business Loss Rs. 4,74,02,599/- Such an approach of the appellant can thus not he accepted. Since actual details of expenditure in relation 10 these foreig....
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.... proportion. This proportion is worked out as follows: Total receipts of the appellant from Korea Rs. 2,30,55,146/- %age of business income to business receipts as in para 4.7 14.038% Income of the appellant from Korea (included in total income as in the income tax return filed) @14.038% of the receipts Rs. 32,36,481/- Total income subject to Indian Tax Rs. 12,94,29,350/- Ratio of income from Korea to total income subject to Indian Tax 2.50% Total tax on the income subject to Indian Tax Rs. 4,19,93,351/- The tax paid in Korea for which credit can he claimed- 2.50% of Rs. 4,19,93,351/- Rs. 10,50,076/- 4.11. So as against withheld tax of Rs. 33,86,167/- paid by the appellant in relation to receipts from Korea. the appellant would get credit of foreign tax to the extent of Rs. 10,50,076/-. 4.12. Considering above, total credit available to the appellant in relation to foreign taxes paid by it works out to Rs. 59,54,729/- (Rs. 10,50,076+49,04,653) as against credit of Rs. 46,21,684/- allowed by the AO. 9. Ld.CIT(A) thus gave a further relief of Rs. 10,50,076/-. Assessee also raised additional ground, wherein it sorted re....
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....rnataka High Court in case of Wipro Ltd (supra) is on a different issue wherein Hon'ble Court considered FTC against income exempt under section 10A/10AA of the Act. Whereas, in the present facts, income on which taxes are withheld in respective countries are taxable in India. And therefore facts in present assessee is distinguishable with that in case of Wipro Ltd (supra). He also submitted that, alternatively the issue may be remanded to Ld.AO to re-examine in the light of the additional ground raised by assessee before Ld.CIT(A) to be considered. 16. We have perused submissions advanced by both sides in light of records placed before us. 17. For sake of convenience it is necessary to reproduce the relevant clauses of double taxation agreement with the countries in respect of which foreign tax credit has been claimed by assessee. India US DTAA 18. Article 25 of the Indo - US Double Taxation Agreement deals with Relief from double taxation. Clause 2(a) is the relevant provision. It reads as under: "2.(a) 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 as ....
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....he Federal Republic of Germany, the Republic of India shall allow as a deduction from the tax on such income of that resident an amount equal to the income-tax paid in the Federal Republic of Germany, whether directly or by deduction, and as a deduction from the tax on such capital of that resident an amount equal to the capital tax paid in the Federal Republic of Germany. Such deduction in either case shall not, however, exceed that part of the income-tax or capital tax (as computed before the deduction is given) which is attributable, as the case may be, to the income or the capital which may be taxed in the Federal Republic of Germany." (emphasis supplied) 22. All these clauses are identically worded as Article 25(2)(a) of India US DTAA. 23. Relevant clauses for elimination of double taxation in the treaties under consideration states that, foreign tax credit shall not exceed the part of the income tax as computed before the deduction is given, "which is attributable as the case may be, to the income which may be taxed in that other State". We also note that, these clauses uses the expression 'income', which essentially means 'income' embedded in t....
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....es payable on such doubly taxed income in India, before any deduction. In other words, FTC is limited to or taxes paid in Korea or India, whichever is less. 30. Ld.AO is therefore directed to grant FTC in respect of taxes paid in USA, Japan and Germany. In case of taxes paid in Korea, FTC will be tax actually paid in Korea or payable in India on such doubly taxable income, which ever is lower. Accordingly, Ground No.1-3 raised by assessee stands allowed for statistical purposes. 31. As we have allowed Grounds 1-3, Ground No.4 need not be adjudicated as it is an alternative plea raised by assessee. In the result appeal filed by assessee allowed for assessment year 2013-14 for statistical pruposes. Assessemnt Year 2014-15: 32. In assessment year 2014-15 assessee had earned income from Taiwan. Assessee also has earned income during the year under consideration from Japan, Korea, Germany and USA. 33. Ld.CIT(A) for asst. year 2014-15 decided as under: 4.5. The dispute is regarding interpretation of following words in relation to DTAA with USA/Germany/Japan: "Such deduction shall not, however, exceed that part of the Incometax (as computed before th....
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....ii) Percentage of business income to business receipts = (i) x 100/(ii) =12.48% Effective rate of tax in India = Tax payable/Total income = 3,58,17,499/10,53,76,580 = 33.99% 4.8. Thus the income of the appellant in comparison to its receipt is 12.48%. On the basis of the same, the income of the appellant from USA/Germany/Japan would be Rs. 11,63,94.860/- from USA/Germany/Japan would be Rs. 1,45,26,078/-. At an effective rate of tax of 33.99% on income of appellant in India, the corresponding tax on Rs. 1,45,26,078/- would be Rs. 49,37.414/- . So as against withheld tax of Rs. 1,59,66,837/- paid by the appellant in relation to receipts from USA/Germany/Japan, the appellant would get credit of foreign tax to the extent of Rs. 49,37,414/-. 4.9 As regards DTAA with Korea, the relevant words which need to be interpreted are: "The credit shall not, however, exceed that proportion of Indian tax which the income from sources within Korea bears to the entire income subject to Indian tax." 4.10 In case of Korea the restriction of credit foreign tax available to a resident of India is determined by the proportion of Ind....
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....of the same shows that the question of law involved in the said case was totally different. The issue of computation of FTC, as in the case under consideration, was never before the High Court. The relevant question of law before the Hon'ble High Court was as follows: "Whether the Tribunal was right in holding that credit for income tax paid in a country outside India in relation to income eligible for deduction u/s10A would not be available u/s90(1)(a)?" "Whether the appellate authorities were correct in revising the finding of the AO that the credit for taxes paid in foreign countries being income which falls u/s 10A of the Act does not fall part of the total income to the extent of 90% for which deduction is allowable as it falls under Chapter III and does not therefore partake the nature of total income chargeable to tax as per provisos of section 4 of the Act and therefore not entitled to?" 34. It is submitted that, total receipt from Taiwan was Rs. 68,40,688/- and withholding tax paid by assessee in Tiwan was Rs. 13,39,875/-. Ld.AR submitted that tax payable on the said receipts from Taiwan as per Indian Income tax is 32.44% (as was applicable during the ....
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....ofits by the Government of any part of that country or a local authority in that country. Therefore, even in the absence of an agreement under Section 90 of the Act, by virtue of the statutory provision, the benefit conferred under Section 91 of the Act is extended to the income tax paid in foreign jurisdictions. 39. In the preceding part of this order, we have dealt with FTC available to assessee in respect of foreign taxes paid by assessee in Japan, Korea, Germany and USA. For year under consideration credit has to be computed in similar manner as has been tabulated by assessee for assessment year 2013-14 reproduced hereinabove. 40. Our observations for assessment year 2013-14 in allowing tax credit to assessee is applied mutatis mutandis for year under consideration. 41. Insofar as Taiwan is concerned, section 91 also interprets computation of foreign tax credit to assessee in the similar manner. Section 91 contemplates the situation where there is no agreement between the Central Government and the other country concerned for the grant of relief in respect of income which has suffered taxation in both the countries or for the avoidance of double taxation of the same in....