TaxTMI 
TaxTMI 
TaxTMI 
2024 (11) TMI 556
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...., 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 not the subject matter of assessment or the subject matter of appeal. ....
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....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 Japanese tax paid in Japan even though the entire amount of income earned by the assessee as well as the taxes withheld in Japan were duly submitted. 4....
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....) 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 distinguish the case of Reliance of Infrastructure Ltd v. CIT (2016) 390 ITR 271 was not appropriate. In the said case, even the excess taxes paid by the taxpayer in Saudi Arabia (i.e. the assessee therein had paid more taxes ....
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....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 or not on the payments to be made by a Japanese client would depend on the position taken by the Japanese tax authorities and Japanese Courts. 5. Without prejudice to our other contentions, it must be noted that in cases where the taxes have already been....
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....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 were concerned, the provisions of section 91, being beneficial to the assessee, held the field........" 10. In view of the said decision, it is humbly submitted that credit for the taxes withheld and deposited in Japan may kindly be allowed and thus, render justice. 11. Without prejudice to the other arguments, it i....
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....r 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 gross receipts in Japan and other foreign jurisdictions are not eligible for deduction from the total income offered in India. No further deduction should be allowed in this regard (paras 49 & 50. 4. The assessing officer is directed to examine the reconciliation of 27 transactions reflecting in AIR submitted by the appellant during the appellate proceedings and p....
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....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 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 w....
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....ntries 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 is placed on the decision of the Hon'ble ITAT in the case of ITTIAM Systems P. Ltd. v. ITO (2021) 86 ITR(T) 611 which had considered the India-Japan, DTAA and allowed FTC in respect of taxes withheld abroad and after relying on the decision of Hon'ble Karnataka High Court in the case of Wipro Ltd. (2015) 382 ITR 179, held as under: "24.......for eliminating double taxation of doubly taxable income in the hands of assessee, it w....
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....s (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 and Malaysia as well. 8. Further, for the sake of completeness and as submitted during the course of hearing, it is respectfully submitted that by and large the judicial views have been consistent that FTC should be granted to the assessee for the taxes paid/deducted abroad under section 90/91 of the Act. Reference may be made to the decision of (i) Tata Sons Ltd. v. DCIT (2011) 10 taxmann.com 87 (Mumbai); (ii) Dr. Rajiv I. Modi v. DCIT (2017) 86 taxmann.com 253 (Ahmedabad); and (iii) Adit....
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....pellant 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 and not applicable to the facts of the Appellant. The decision of AY 2014-15 was again followed by the Hon'ble ITAT in AY 2017-18 (ITA No 982/Mum/2023 dated 30.06.2023) in the case of Assessee's affiliate Cyril Amarchand Mangaldas for AY 2017-18 and AY 2018-19 reported in (2023) 154 taxmann.com 99. Further, Hon'ble ITAT in the case of ITTIAM Systems P. Ltd. v. ITO (2021) 86 ITR(T) 611 allowed FTC in respect of taxes withheld abroad on the basis of India-Japan, DTAA by placing reliance on the decision of Hon'....