AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (11) TMI 556
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....n, was erroneous and bad in law. 2. The Ld. CIT(A), after having accepted that the decision of learned Assessing Officer ("Ld. AO") was erroneous, ought not to have adopted a different ground for denying the foreign tax credit to the appellant. 2.1. The Ld. CIT(A) ought to have appreciated that the case of the appellant was squarely covered by Appellant's own case pertaining to an earlier period (i.e. AY 2013-14) passed by the Hon'ble Income Tax Appellate Tribunal ("Hon'ble ITAT") reported in (2020) 122 taxmann.com 248 (Mumbai), wherein it was categorically held that the Appellant was eligible to get foreign tax credits for the taxes withheld by its clients in Japan. 2.2. The Ld. CIT(A) ought to have appreciated that the CIT(A)'s scope under section 250 of the Act was restricted to examine the correctness of the decision made by the Ld. AO. Having held that the Ld. AO had erred in holding that the payments are in the nature of 'Independent Personal Services' and that they are in the nature of 'fees for technical services', the Ld. CIT(A) ought not have denied the foreign tax credit on a completely different ground which was....
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.... withheld by its clients in overseas jurisdiction Japan, China, Brazil and Nepal on the ground that the Appellant had not filed its return of income in the relevant jurisdictions. 4.1. The Ld. CIT(A) grossly erred in holding that taxes withheld in the foreign jurisdiction would not amount 'subjected to tax' in the foreign jurisdiction unless income tax return is filed by the assessee in such jurisdictions. 4.2. The Ld. CIT(A) had acted on the basis of his personal surmises and conjectures by holding that it will not be possible to determine the income chargeable to tax in the foreign jurisdiction unless a return of income is filed the said foreign jurisdiction. 4.3. The Ld. CIT(A) had also erred in law and on the facts of the case by holding that gross amount of legal fees received by the assessee in a foreign jurisdiction cannot be equated with the tax payment on the net income. He has also erred in assuming that the income portion of the professional fees has not been considered by the Hon'ble ITAT. 4.4. The Ld. CIT(A) had also erred in law and on the facts of the case by holding that the Ld. ITAT had not analyzed the quantum of Jap....
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....d the taxes withheld in foreign jurisdictions as tax deductible expenses under section 37 of the Act as held by the jurisdictional High Court in the cases of Reliance Infrastructure Ltd. v. CIT (2016) 390 ITR 271 (Bom.) and the jurisdictional Hon'ble Mumbai Bench of ITAT in the case of Bank of India v. ACIT (2021) 125 taxmann.com 155, etc. 6.1. The Ld. CIT(A) erred in holding that withholding tax would not amount to final payment of taxes and that the final tax would be paid by filing return of income on the net income and only then such taxes could be allowed as tax deductible expenditure, whereby completely ignoring the fact that taxes of 'fees for technical services' shall have to be withheld on the gross income as per the relevant DTAA. 6.2. The Ld. CIT(A) ought not to have held that 'withholding of tax' would not be considered as 'subjected to tax', ignoring the decision of this Hon'ble ITAT in the case of Bank of India v. ACIT (supra), wherein it was categorically held that withholding of taxes on the dividend income had resulted in "subjected to tax" in the foreign country. 6.3. The Ld. CIT(A)'s attempt to distin....
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....ers and not to entitles engaged in rendering professional services like corporate law firms such h as the assessee. Accordingly, our Japanese clients were directed by Japanese tax authorities to deduct tax under Article 12 of the India- Japan DTAA and deposit the taxes to its credit while making payments to the assessee. 3. We admit that certain decisions rendered by the Indian judiciary (i.e. jurisdictional ITAT in the case of Maharashtra State Electricity Board 90 ITD 793 and DCIT Vs Chandbourne & Parke LLP (2005) 2 SOT 434), have held that legal services provided by a partnership firm would fall within the ambit of 'Independent Personal Services". 4. However, it is important to note that these decisions have been rendered by the Indian judiciary in respect of payments made by Indian residents to non-residents towards legal services rendered by a non-resident partnership firms and not in the context of an Indian partnership firm receiving income from a non-resident client. In any case, decisions of the Indian judiciary do not have any binding effect on the Japanese tax authorities or Japanese judiciary. Hence, the analysis of whether tax needs to be withheld....
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....tion of Article 14 of the DTAA as the same would tantamount to the violation of the provisions of the CBDT Circular. 9. We would also like to place our reliance on the decision of the jurisdictional ITAT in the case of Tata Sons Ltd. Vs DCIT (2011) 10 taxmann.com 87, wherein it was held that the taxes paid abroad should be taken into account for the purpose of computing admissible tax credits under the provisions of the IT Act, if not under the DTAA. The relevant extract is as follows: "It was incorrect to proceed on the assumption that State Income-tax paid in USA, or in Canada, cannot be taken into account for the purposes of computing admissible tax credits. It was so for the elementary reason that the provisions of a tax treaty, based on which tax credits are said to be inadmissible, cannot be pressed into service to decline a benefit to the assessee which is otherwise available to him, even in the absence of such a tax treaty, under the provisions of the Income-tax Act." "........Accordingly, even though the assessee was covered by the scope of India US and India Canada tax treaties, so far as tax credits in respect of taxes paid in those countries w....
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....rther on ITAT Mumbai order in case of Maharashtra State Electricity Board, 90ITD 793(mum) and DCIT vs. Chandbourne & Parke LLP (2005) 2 SOT 434 (mum) as referred in ITA No. 756/Kol/2015. Similar ratio may also be applied in the matter of claim of withholding of taxes on receipts from other countries/foreign clients. 5. Aggrieved by the order of the Ld. AO, the appellant filed appeal before the Ld. CIT(A) who vide impugned order decided the appeal as under: - 1. "The CIT (Appeals) has the power of enhancement of assessment in the facts of the present case, as the subject matter of the assessment was claim of foreign tax credit u/s 90 of the Act, which has been considered expressly or by clear implication by the AO from the point of view of taxability of the assessee (paras 6.3 to 6.5). 2. The assessment for the impugned AY 2016-17 is enhanced by rejecting all the foreign tax credit claims, in respect of the taxes withheld abroad in treaty partner jurisdictions. Therefore, the Assessing Officer is directed to disallow the foreign tax credit claim of Rs. 1,32,31,618/- relating to taxes withheld in Japan, and Malaysia (para 42). 3. The taxes withheld on gr....
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.... in Japan for more than 183 days (which is a prerequisite for taxability under Article 14), no tax was liable to be deducted in Japan and consequently, FTC cannot be granted to the Appellant in India for the taxes wrongly withheld in Japan. For this purpose, the AO had relied on the decisions of (i) Ershisanye Construction Group India P Limited v. DCIT (ITA No. 756/Kol/2015); (ii) Maharashtra State Electricity Board v. CIT 90 ITD 793; and (iii) DCIT v. Chandbourne & Parke LLP (2005) 2 SOT 434. 3. During the pendency of appeal before the Ld. Commissioner of Income tax (Appeals) ("Ld. CIT(A)"), the Hon'ble Mumbai Income Tax Appellate Tribunal ("Hon'ble ITAT") had decided the identical issue in favour of the Appellant in one of the earlier years (i.e. AY 2014-15) reported in (2020) 122 taxmann.com 248 (Mumbai). The Hon'ble ITAT has held that Article 14 of the India-Japan DTAA was applicable only to individuals and thus not applicable to the Appellant, which is a partnership firm. It further held that the fees earned by the Appellant firm in Japan was taxable as fees for technical services under Article 12 and that the FTC ought to have been granted to the Appellan....
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....plicable from AY 2017-18 onwards, the Ld. CIT(A) proceeded to deny FTC in AYs 2015-16 and 2016-17 because according to him, the Appellant's income had not been "subjected to tax" in Japan since the Appellant had not filed any "return" of income in Japan. Further, the Ld. CIT(A), for the same reasons as above, made the enhancement by disallowing the FTC granted by the AO in respect of the tax deducted at source in the other countries viz. Brazil, China, Nepal (AY 2015-16) and Malaysia (AY 2016-17). 5. It is respectfully submitted that the aforesaid reasoning of the Ld. CIT(A) is not in accordance with the law to say the least. As self-evident from the perusal of Article 23 of India-Japan DTAA (reproduced by the Ld. CIT(A)'s AY 2015-16 order at Para 14 (page 13), there is no requirement whatsoever to file any return of income in source jurisdiction to claim FTC in India. What is relevant for grant of FTC in India is that taxes should have been paid/deducted at source/withheld abroad. Since it is undisputed that that the taxes have been deducted abroad in the case of Appellant, it is submitted that the FTC ought to have been allowed. In support of the above, reliance ....
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....er reliance is also placed on the judgement of the Hon'ble Delhi High Court in the case of BDR Finvest (P.) Ltd. v. DCIT (2024) 161 taxmann.com 583 wherein it was held that "taxes withheld shall have to be treated as taxes paid on behalf of the assessee" (please refer para 21.2 and 21.4 of the said judgement). Further, it would be pertinent to point out that even in the case of ITTIAM Systems P. Ltd. (Supra), FTC was granted with respect to taxes withheld in the source jurisdictions (please refer para 6 of the order read with paras 20 and 24). Copies of the aforementioned decisions have been already handed over to the Hon'ble Bench during the course of hearing. 7. As regards FTC with respect to the other countries (namely Nepal, Brazil, China and Malaysia), the Ld. CIT(A) has used the same reasoning as mentioned above in Para 4 above. The Ld. DR has also relied on the same arguments that he made with respect to India-Japan DTAA for denying the FTC for taxes withheld in the aforesaid countries. Thus, the same submissions made by the Appellant in Para 5 and Para 6 above are being humbly reiterated for the FTC with respect to the taxes deducted in Nepal, Brazil, China....
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....id in the foreign jurisdiction. We have considered the facts of the case, rival submissions and the judicial position on this issue. It is found that the Hon'ble ITAT, Mumbai has already decided the identical issue in favour of the Appellant in AY 2014-15 reported in (2020) 122 taxmann.com 248 (Mumbai). The Hon'ble ITAT has held that Article 14 of the India-Japan DTAA was applicable only to individuals and thus not applicable to the Appellant, which is a partnership firm. It further held that the fees earned by the Appellant firm in Japan was taxable as fees for technical services under Article 12 and that the FTC ought to have been granted to the Appellant firm for the taxes withheld in Japan. Further, it held that when the source jurisdiction has taken a reasonable and bonafide view, which is not manifestly erroneous, that taxes should be withheld at source, FTC should be provided by the resident jurisdiction even though the legal position in the residence jurisdiction may not be the same. Accordingly, the Hon'ble ITAT held that India should provide FTC for the taxes withheld in Japan. As regards the decisions relied on by the AO, it held that same were distinguishable an....