TaxTMI 
TaxTMI 
2023 (9) TMI 95
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....fall within the Place of Effective Management (POEM) Rules, there by denying the credit of Foreign Tax, while at the same time taxing the income of the assessee company which is wholly earned outside India (USA), in India. 3. That the Ld. AO and the Hon'ble DRP have grossly erred in law and in facts in failing to appreciate that, once the assessee's residential status is determined to be of a non-resident in India, then the income earned in USA by it, is not liable to be tax in India as per the provisions of section 4, 5 & 9 of the Income Tax Act and consequently the entire taxes paid in India are to be refunded to the assessee. 4. That the Ld. DRP and consequently the Ld. AO have grossly erred in law and in facts, in rejecting the claim of allowing foreign tax credit (FTC) of Rs. 28,73,223/- on wholly illegal, erroneous and untenable grounds in law and on facts of the assessee's case. 5. Without prejudice to ground no. 2 to 4, the Ld. DRP and consequently the Ld. AO have grossly erred in law and on facts, in disallowing the Foreign Tax Credit (FTC) claimed by the assessee such that it results in case of double taxation which is against the pr....
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.... income. It was stated that SII on the basis of place of effective management rules introduced by Finance Act, 2016. It was deemed to be resident in India and the income was liable to be taxed in India. The AO after considering this contention and submissions of the assessee, rejected its claim regarding foreign tax credit and also initiated penalty proceedings u/s 270A of the Act. Further, Ld. Counsel for the assessee reiterated the submissions as made before the lower authorities and submitted that the assessee is a company, incorporated in US in the year 1999, domiciled in USA and only US sourced income which is taxable in USA and has been so taxed in US. There has never been any income earned by the assessee outside USA and no income has been brought to tax by the Revenue right from 1999 till date in India. The assessee does not have any income other than US sourced income. During the year under consideration, the assessee company suo-moto treated itself as resident in India by applying the place of Effective Management (POEM) rules as per section 6(3)(ii) of the Act. He further reiterated the submissions dated 24.02.2023. For the sake of clarity, the submissions are reproduced....
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....ied in Para 5.4 of the assessment order. (Refer Pg. No. 10-11 of the ITAT Appeal Set) S. No. Name Address of KMP Responsibility of KMP 1. Vinod Kumar D-14A18, Model Town- III, Delhi-110009 Responsible for overall activities of the Agarwal organization. 2. Rama Krishnan B- Floor, Gulmohar Park, New Delhi 11 Responsible for marketing. Accordingly, the assessee company treated itself to also be Tax Resident in India based on Place of Effective Management (POEM) rules as a result of introduction of the POEM provisions vide see 6(3)(ii) of the Income Tax Act w.e.f. 01.04.2017. Accordingly, the assessee company had filed its return of Taxable income in India for the A.Y 2018-19 on 30.10.2018 showing itself Resident in India (Refer Pg. No. 40-113 of PB) declaring total income of Rs. 1,16,81,110/- offering the income earned USA to tax in India and claiming the taxes paid in USA as a Foreign Tax Credit (FTC) as per the CBDT notification no. 29/2018 dated 22.06.2018 issued under POEM. (Refer Pg. No. 172-176 of PB). The draft order of assessment dated 28.09.2021 U/S 143(3) r.w.s. 144C of the Income Tax Act was passed by the Ld. AO wh....
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.... r.w.s 144C of the Act while rejecting the Foreign Tax Credit (FTC) of the assessee had determined the status of the assessee as non-resident. (Refer Para 8.2 of Assessment Order). Relevant extract of order as below. "The fact that is emphasized here is that the change of tax residency based on criteria of place of effective management is not available at the choice of the assessee company. Therefore, the assessee company's status in India will continue to be a non-resident like other earlier years. Hence, the foreign tax credit of taxed paid in USA shall not be provided to the assessee." Ld. AO determined the status of assessee as non-resident but failed to appreciate that in the case of non-resident the income sourced outside India shall not be taxable in India and only be taxable in the state where the income earned and received i.e. U.S.A in the instant case. It is submitted that the assessment to tax the foreign sourced income of a non- resident assessee is ultra vires the Income Tax Act, 1961 and is prayed not be upheld. The Taxability of non-resident in India in purview of sec 4, See 5 and See 9 of the Income Tax Act is presented below for your....
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....essee is being treated as a non-resident by the Ld. AO then no income sourced outside India is liable to be taxed in India in-purview of section 4,5 & 9 of the Income Tax Act at the threshold. Your honour's attention is invited to a recent notification no. 119/2021 issued by the Central Board of Direct taxes (CBDT) dated 11^th October, 2021 (Refer Pg. No. 177-178 of PB) which dispenses with the "Requirement of Furnishing the return of income by a non-resident not being a company or a foreign company". The notification clarifies, that if a foreign company does not earn any income in India, during the previous year, other than a specified income, then the foreign company is exempted to file the ITR for the relevant previous year. Though, the said notification is applicable for the AY 2021-22 and onwards, whereas, the year under consideration is AY 2018-19, the intention of the CBDT is clear, that if a non-resident, not being a company or a foreign company does not have income sourced in India, then the such a non-resident is not liable to furnish the income tax return u/s 139 of the Act. Based on the above, it is hereby submitted that in the present cas....
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.... determined as a non- resident by the Ld. AO., it is respectfully submitted. GROUND NO. 4 - THAT THE LD. DRP AND CONSEQUENTLY THE LD. AO HAVE GROSSLY ERRED IN LAW AND IN FACTS, IN REJECTING THE CLAIM OF ALLOWING FOREIGN TAX CREDIT (FTC) OF RS. 28,73,223/- ON WHOLLY ILLEGAL, ERRONEOUS AND UNTENABLE GROUNDS IN LAW AND ON FACTS OF THE ASSESSEE'S CASE. * Applying the supremacy of Article 4(3) of India USA DTAA over Income Tax provision which are erroneous and against the principle of law. It is hereby submitted that the Ld. AO erred in law and in the facts of the assessee's case in rejecting the Foreign Tax Credit (FTC) by relying on the Art 4(3) read with Art 4(1) of India USA DTAA, without considering the provisions of the Income Tax Act and the rules thereunder. Relevant Extract of Article 4 of the India USA DTAA is as below. "4(1) For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature, provided, howeve....
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.... sword. A Double Tax A voidance Agreement between two sovereign states, is a mechanism used to provide relief from double taxation based on the domestic taxation laws of the contracting states. The charge to tax is created by the domestic taxation laws of each state. It is an accepted principle that standalone provisions in a tax treaty do not give the power to a source contracting state to impose tax on an income which is otherwise taxable only in the state of residence. On the other hand, once an income is taxable in the source state, the treaty provisions are referred to determine whether the treaty has any beneficial provisions, that allow for the country of residence to claim sole taxing rights or allow for the country of source to limit its right to tax. Essentially, the domestic law in the form of the Income Tax Act is the one and only law to that creates a charge to tax when the income is sourced in India. A DTAA can only act as a shield against double taxation; it cannot wield the sword and bring within the ambit of taxation an income which is not otherwise taxable under the domestic law of the source state. Reliance is placed on the ruling of Ka....
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....the Income Tax Act, then it is the duty of the assessee to adhere to such provisions and declare the income considering the impact of such provisions with proper disclosures in return of income. The assessee is not expected to wait for the revenue authorities to assess the income of the assessee as per the provisions of law. Similarly the provision of POEM were introduced in Income Tax Law through See 6(3)(ii) which deems the assessee as resident in India based on placed of effective management in India. Thus making voluntary compliance of law and declaring itself as resident cannot be used against the assessee by invoking the argument that it is not open to the assessee to choose residential status based on effective management, it is respectfully submitted. Therefore, alleging that the applying the change of tax residency based on the criteria of POEM is not available at the choice of the assessee is totally erroneous and against the principle of law, thus prayed not to be upheld. * Not following the specific guidelines dated 22nd June 2018 (notification 29/2018) notified pursuant to POEM which specifically allows the Foreign Tax Credit (FTC) It is resp....
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....h exceptions, modifications and adaptations specified here under: ............... (xiii) The foreign company shall be ell titled to relief or deduction of taxes paid in accordance with the provisions of section 90 or section 91 of tile Act. In this respect, reliance is placed the judicial pronouncements of the Hon'ble Supreme Court in the case of CIT v. Shahzada Nand & Sons[1966] 60 ITR 392 (sq, Union of India v. India Fisheries (P.) Ltd. AIR 1966 SC 35 and State of Gujarat v. Patel Ramjibhai AIR 1979 SC 1098 which have laid down that, when there is conflict between a general and special provision, the latter shall prevail or the general provisions must yield to the special provisions. It is further submitted that the deeming provisions of POEM create an artificial dual residency which is not created as per the provisions of the DTAA. Thus, a unilateral Indian domestic law deeming provision which is introduced to prevent double non taxation, beyond that which is envisaged by the DTAA, cannot be and should not be used to create unjust double taxation of a tax compliant assessee. Your honours will appreciate that the POEM provisions have no int....
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..... Relevant extract of the section 90 & 91 of the Act is refer below for your reference. "90. (1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India,- (a) for the granting of relief in respect of- (i) income on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be, or" '91. (1) If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax- payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal. Further, in the ca....
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....sessed as income for the Previous Year 2013-14 relevant to the Assessment Year 2014-15. However, as stated above, the said amount was brought to tax by the Income Tax Authority in the Assessment Year 2012-13. Clearly, the same amount cannot be taxed twice over. 21. As observed above, it is clear that the amount of Rs. 1,51,67,868/- cannot be taxed twice. In the aforesaid view, it was apposite for the Commissioner to have revised the assessment order for the Assessment Year 2014-15 in light of the reassessment order dated 08.12.2017, whereby the amount of Rs. 1,51,67,868/- was brought to tax in an earlier Assessment Year (Assessment Year 2012-13). 23. The petition is allowed in the aforesaid terms. " Hon'ble High Court of Gujrat in the case of PCIT v. Adani Infrastructure & Developers (p.) Ltd. [2021] 129 taxmann.com 54 (Gujarat) has held that "We have heard the rival contentions of both parties and perused the relevant materials available on record Admittedly there is 110 provision under the Act to tax the same ill come twice as done ill the instant case. The contention of the assessee that the impugned income has been offered to tax in the subsequent....
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....S SEC 270A ARE ON WHOLLY ILLEGAL AND UNTENABLE GROUNDS SINCE THERE WAS NO MISREPORTINGIUNDER-REPORTING OF ANY INCOME, NOR ANY DEFAULT ACCORDING TO LAW BY THE ASSESSEE This ground is consequential in nature GROUND NO. 7 - THAT THE INTEREST CHARGED UIS SEC 234A/234B/234C/234D OF THE ACT IS ON WHOLLY ILLEGAL AND UNTENABLE GROUNDS AND IS PRAYED NOT TO BE UPHELD. This ground is consequential in nature." 7. On the other hand, Ld.CIT DR opposed these submissions and supported the orders of the authorities below. He strongly supported the orders of the lower authorities and submitted that Ld.DRP has categorically noted the fact that where there was company has dual residency, the benefit of Treaty be available. He further submitted that Ld.DRP has given a finding that the assessee could not prove the place of effective management. 8. We have heard Ld. Authorized Representatives of the parties and perused the material available on record and gone through the orders of the authorities below. The only dispute is with regard to not granting the benefit of foreign tax credit to the assessee company. Before us, Ld. Counsel for the assessee vehemently argued that ....