TaxTMI 
TaxTMI 
TaxTMI 
2024 (11) TMI 1016
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....an, Nepal and Singapore. The ld.CIT(A) has not considered the provisions of Article 14 of DTAA with Japan, Nepal & Singapore dealing with Independent Professional Services. As per the provisions of Article 14 the income itself is not taxable the tax credit in respect thereof is not allowable. 2. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 3. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 4. The facts in brief are that the return of income declaring the total income of Rs. 144,48,15,300/- was filed. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 21.08.2018. During the course of assessment, the AO noticed that the assessee had claimed relief u/s 90/91 of the Income-tax Act, 1961 at Rs. 80,45,229/- for the income received from services rendered in Japan, Singapore, Nepal and Mauritius. The AO observed that the assessee had provided professional services to clients in Japan, Nepal and Singapore, but, it did not have a fixed base or persons for more than 183 days in Japan and Nepal and 90 days in the case ....
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....sit the taxes to its credit while making the payments to the assessee. The AO therein had held that the credit of such withholding tax was not allowable to the assessee in India as the receipt was not taxable in Japan and thus, the tax was not required to be withheld, as it was in the nature of independent personal services and accordingly, the AO had denied the foreign tax credit claimed by the assessee under section 90 of the Act. Further, the AO had also rejected the alternative claim of the assessee of reducing the turnover to the extent of the foreign tax credit, as the assessee had received the net amount in India. In that case, Hon'ble Tribunal had discussed the provisions of the relevant DTAAs & then pondered over the core issue as below: "Essentially, therefore, it is open to the Assessing Officer to take a call on whether the taxes withheld in the treaty partner jurisdiction could be reasonably said to be in harmony with or in conformity with the provisions of the related tax treaty, and in a case in which he comes to the conclusion that the taxes so withheld in the treaty partner jurisdiction could indeed be reasonably said to be not in harmony with the scheme of taxat....
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....in the relevant fiscal year, in that case, only so much of the income, as is derived from his activities, performed in that other State may be taxed in that other State. 2. The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities, as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants. ..................... .................... ARTICLE 25: AVOIDANCE OF DOUBLE TAXATION - 1. The laws in force in either of the Contracting States shall continue to govern the taxation of income in the respective Contracting States except where express provision to the contrary is made in this Agreement. 3. Where a resident of India derives income which, in accordance with the provisions of this Agreement, may be taxed in Singapore, India shall allow as a deduction from the tax on the income of that resident an amount equal to the Singapore tax paid, whether directly or by deduction. Where the income is a dividend paid by a company which is a resident of Singapore to a company which is a resident of India and which owns directly or indirectly not less than 25 per cent....
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....question : (a) Sections 10(4), 10(4B), 10(5B), 10(15)(iv), 10A, 10B, 33AB, 80-I and 80- IA, insofar as these provisions were in force and have not been modified since the date of signature of this Agreement, or have been modified only in minor respects so as not to affect their general character, (b) any other provision which may subsequently be enacted granting an exemption or reduction of tax which is agreed by the competent authorities of the Contracting States to be of a substantially similar character to a provision referred to in sub-paragraph (a) of this paragraph, if such provision has not been modified thereafter or has been modified only in minor respects so as not to affect its general character. 6. Income which, in accordance with the provisions of this Agreement, is not to be subjected to tax in a Contracting State, may be taken into account for calculating the rate of tax to be imposed in that Contracting State. India-Nepal DTAA provisions are also reproduced below: Article 14 INDEPENDENT PERSONAL SERVICES 1. Income derived by an individual who is a resident of a Contracting State in respect of professional services or other independent activities of a similar c....
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....ncome of that resident, an amount equal to the tax paid in Nepal. Such deduction shall not, however, exceed that portion of the tax as computed before the deduction is given, which is attributable, as the case may be, to the income which may be taxed in Nepal. (b) Where in accordance with any provision of the Agreement, income derived by a resident of India is exempt from tax in India, India may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income. A reading of the above provisions is to be compared with article 14 of Indo-Japan DTAA which is as below: ARTICLE 14-INDEPENDENT PERSONAL SERVICES 1. Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that Contracting State unless he has a fixed base regularly available to him in the Contracting State for the purpose of performing his activities or he is present in that other Contracting State for a period or periods exceeding in the aggregate 183 days during any taxable year or 'previous year' as the case may be. If he has such a fixed base o....
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.... provisions of Article 12 and Article 14 of the India- Japan Double Taxation Avoidance Agreement are discussed and it is held that Article 12 of the DTAA provides that income from professional services or other activities of independent characters would be taxable in the resident country, i.e., India. However, clause 4 of the Article 12 provides that such payments would not constitute 'fee for technical services' only if such payment is made to an individual for carrying out independent professional services referred to in Article 14. The relevant extract of the decision of the ITAT read as under:- "5. Heard both the sides and perused the material on record. During the course of assessment the AO has disallowed the claim of credit of foreign tax withholding made by the Japanese clients of the assessee. The assessee firm has provided legal services to certain clients based in Japan for which the clients paid legal fees after withholding tax @ 10% under Article 12 of the India Japan Double Taxation Avoidance Agreement (DTAA). Article 12 of the DTAA provides that income from professional services or other activities of independent character would be taxable in the resident country i....
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....has entered into with China, U.K. and the USA, but then all the three treaties are, in the material respects, differently worded vis-à-vis the Indo-Japanese tax treaty that we are presently dealing with. It is, therefore, not even necessary, even if we have our reservations on correctness of these decisions, to refer the matter to the larger bench for reconsideration of the principle laid down therein. Suffice to say, on the facts of this case, the conclusions arrived at by the Japanese tax authorities, directing tax withholdings from the payments made to the assessee by its Japanese clients, cannot be said to unreasonable or incorrect. In the light of these discussions, as also bearing in mind entirety of the case, we hold that the assessee was wrongly declined tax credit of Rs. 80,55,856 on the facts of this case. We, therefore, direct the Assessing Officer to grant the said tax credit to the assessee. As we have upheld the plea of the assessee with respect to the admissibility of the foreign tax credit, we see no need to deal with the alternate plea of the assessee seeking deduction of the taxes so withheld abroad in the computation of its income." 6. Following the deci....