TaxTMI 
TaxTMI 
2025 (11) TMI 742
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....isposed of by this common order for the sake of convenience and brevity. ITA No. 585/DEL/2021 [A.Y. 2003-04] [Assessee's Appeal] 3. The grounds raised by the assessee read as under: "1. That on the facts and circumstances of the case and in law, the Ld. AO as well as Hon'ble Dispute Resolution Panel ('DRP') has erred in not granting complete credit of taxes paid by it in Japan on export revenues from sale of software and not restricted owing to nil tax liability on account of business losses or 10A deduction under the Income Tax Act, 1961. 1.1. That on the facts and circumstances of the case and in law, the Ld. AO and Hon'ble Dispute Resolution Panel ('DRP') has erred in not allowing complete credit of taxes paid by assessee in Japan on export revenues from sale of software amounting to Rs 20,39,37,900. 1.2. That on the facts and circumstances of the case and in law, the Ld. AO and DRP has erred in not adjudicating the claim of foreign tax credit and has framed a non-speaking order to that extent apparently ignoring the submissions duly filed by the assessee. 1.3. That on the facts and circumstances of the case an....
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....; Income from other Sources 1,18,217 Total Income (4,48,34,310) 6. During the Assessment Year 2003-04, the assessee earned certain income from its operations in Japan, on which taxes amounting to RS 20,39,37,900/- were withheld in Japan in accordance with the domestic tax laws of that jurisdiction. In its return of income filed in India, the assessee claimed Foreign Tax Credit (FTC) under Section 90 of the Income-tax Act, 1961, read with Article 23 of the India-Japan Double Taxation Avoidance Agreement (DTAA). The Assessing Officer, while completing the assessment, disallowed the FTC claim on the ground that in the same year, the income corresponding to the Japanese receipts was either exempt under Section 10A or neutralized by brought-forward business losses, resulting in no tax liability in India hence no credit could be granted when there was no Indian tax liability against which the foreign taxes paid could be adjusted. Aggrieved by the disallowance, the assessee preferred an appeal, relying heavily on the decision of the Karnataka High Court in Wipro Ltd. v. DCIT and on the ITAT's order for AY 2004-05 in its own case. The present appeal before the ....
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.... Wipro Ltd. (Supra) allowed the claim of foreign tax credit. The relevant paragraphs are given below: "40. As far as ground No. 8 raised by the assessee is concerned, the same relates to non-grant of credit for Foreign Taxes (FTC). The assessee has 3 business segments. Non-SEZ (in which no deduction under section 10AA of the Act had been claimed by the assessee because of losses in this unit) and two SEZ units on which deduction under section 10AA of the Act had been claimed by the assessee. The credit for Foreign Taxes paid were in relation to foreign branches and overseas customers of the non- SEZ units for which no deduction under section 10AA of the Act was claimed by the assessee. The AO denied benefit of FTC for the reason that since the non-SEZ unit was incurring loss, no tax was payable in India. The CIT(A) confirmed the order of the AO. 41. At the time of hearing, it was agreed that the issue with regard to claiming FTC is no longer res integra and has been settled by the Hon'ble Karnataka High Court in the case of Wipro Ltd. v. Dy. CIT[2015] 62 taxmann.com 26/[2016] 236 Taxman 209/382 ITR 179 (Karn.).***** 42. The fact that the Assessee suff....
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.... Tribunals including this Hon'ble Tribunal in assessee's own case. Decision of Hon'ble ITAT, Mumbai Bench in Bank of India vs. ACIT: [2021] 125 taxmann.com 155 (Mum) is distinguishable on facts of the case 1.7 It is submitted that the decision of the Mumbai Bench of the ITAT in case of Bank of India (supra) was rendered in a different factual matrix. The case involved a public sector bank that had earned income from its various overseas banking operations on which income tax had been paid in several foreign countries where it carried on its banking business. In fact, the Hon'ble Tribunal in Para 31 of its order has distinguished the decision of Hon'ble Karnataka High Court in Wipro Ltd. (supra) and observed that since the Wipro decision was rendered in the context of income that was exempt u/s 10A of the Act, the principles laid down therein would not be applicable to Bank of India. The observation of the Hon'ble Tribunal in Para 31 is extracted below: "...In any case, we must always bear in mind the fundamental fact that at best the Wipro decision (supra) can be seen as an authority for full tax credit something similar to Indian ....
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....se of Wipro (supra). The Hon'ble Karnataka High Court gives the following reason for adopting this interpretation: "59. However, the said provision makes it clear that such deduction shall not, however, exceed that part of the income tax (as computed before the deduction is given) which is attributable to the income which is to be taxed in United States. Therefore, an embargo is prescribed for giving such tax credit. In other words, the assessee is entitled to such tax credit only in respect of that income, which is taxed in the United States. This provision became necessary because the accounting year in India varies from the accounting year in America. The accounting year in India starts from 1st of April and closes on 31st of March of the succeeding year. Whereas in America, the Ist of January is the commencement of the assessment year and ends on 31st of December of the same year Therefore, the income derived by an Indian resident, which falls within the total income of a particular financial year when it is taxed in United States, falls within two years in India. Therefore, while claiming credit in India, the assessee would be entitled to only the tax paid for tha....
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....Countries with which India has DTAA Therefore, relief under Section 90 of the Act is to be allowed while computing the tax liability in India by virtue of credit being given to the extent that tax has been paid abroad. Therefore, the tax payable is to be computed on the income to be assessed. Thereafter the credit which is available to the assessee in view of DTAA is to be taken into account and if there is any excess which the assessee has paid into the Indian Treasury, then, he is entitled to the refund of the same which would also carry interest in terms of Section244A of the Act." Based on aforesaid decision, the additional ground for seeking consequential interest u/s 244A of the Act on account of refund determined after including credit of taxes paid in Japan is to be allowed from the first day of assessment year till date of grant of refund considering the taxes paid in Japan as prepaid taxes for the purposes of Section 244A of the Act." 8. Per contra, the ld. DR relied on the orders of the authorities below and has placed written submissions dated 04.09.2025 which read as under: "Issue for Consideration 3. The core issue in the present appeal i....
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....d of taxes already paid in the foreign country by the Indian taxpayer from the Indian exchequer. These questions have practical significance for multinational corporations and Indian resident companies with significant overseas operations and tax withholdings. 6. Under Section 90(1)(a)(ii) of the Income-tax Act, credit of foreign taxes is permitted only against Indian income-tax payable by the assessee on such income. This provision makes the existence of a domestic tax liability a precondition for availing FTC. Where there is no Indian tax payable whether because the income is exempt under Section 10A or adjusted by brought-forward losses there is no legal foundation for granting any foreign tax credit. 7. Article 23 of the India-Japan DTAA further reinforces this principle which is reproduced as below: "ARTICLE 23 1. The laws in force in either of the Contracting States shall continue to govern the taxation of income in the respective Contracting State except where express provisions to the contrary are made in this Convention. 2. Double taxation shall be avoided in the case of India as follows: (a) Where a resident o....
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....credit; it states that each State's domestic tax law continues to apply except where the DTAA expressly provides otherwise. For the present issue, the express contrary provision is in Paragraph 2, which prescribes how India must eliminate double taxation. In other words, absent Paragraph 2, only Indian domestic law would operate; with Paragraph 2, India must follow the credit method as limited by the DTAA's own cap. Paragraph 2 (Relief in the case of India): This paragraph lays down India's method to eliminate double taxation. The key operative sub- paragraph for our case is Paragraph 2(a): * 2(a) (Credit method with cap): "Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in Japan, India shall allow as a deduction from the tax on the income of that resident an amount equal to the Japanese tax paid... **Such deduction... shall not, however, exceed that part of the income-tax (as computed before the deduction is given) which is attributable ... to the income which may be taxed in Japan." Two features are decisive for the assessee, M/s Canon India Pvt Ltd: (i) the....
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....l Indian tax liability on non-exempt income, and the FTC claimed was only a small part of the overall tax paid in India. Thus, the existence of such tax liability satisfied the requirement of Clause 2 of Article 23, and the credit was capped at the amount of Indian tax payable. In the present case, however, no tax was payable in India due to the operation of Section 10A and the set-off of brought-forward losses. As a result, there is no Indian tax liability against which the foreign taxes withheld in Japan can be credited. 10. The ITAT's order for AY 2004-05 in Canon India also does not advance the assessee's case. The Tribunal in that year has not directed the Revenue to issue Revenue and merely stated that the issue was covered by the Wipro decision and directed the Assessing Officer to follow it. The case of Wipro has not dealt with issue of refund on account of allowance of foreign tax credit. The order did not conduct a detailed analysis of Clause 2 of Article 23, nor did it address a nil-tax scenario as in the present year. Even under the Wipro principle, if there is no Indian tax payable, there can be no credit allowable. Importantly, neither Section 90 of t....
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....d the matter reached the Tribunal. 14. The ITAT analyzed the provisions of domestic law under sections 90 and 91 of the Income Tax Act, 1961, along with the India-Japan Double Taxation Avoidance Agreement (DTAA). It reiterated the settled position that FTC is a mechanism for relieving double taxation and cannot exceed the amount of Indian tax payable on the relevant foreign income. In a situation where no Indian tax is payable, no FTC can be allowed. The Tribunal emphasized that granting credit when no Indian tax liability exists would effectively amount to the Indian exchequer subsidizing foreign governments, which is impermissible under law. It further clarified that the term "subjected to tax" means actual liability to tax in India, not a mere notional inclusion in the computation of income. Hence, if the net computation results in a loss, foreign income cannot be considered as subjected to tax in India. 15. The assessee relied on the Wipro decision, which had allowed FTC in a case involving exemption under section 10A. However, the Tribunal distinguished that case, explaining that Wipro involved a statutory exemption, whereas in Bank of India, the overall resu....
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....gainst double taxation and is strictly limited to the amount of Indian tax payable on the foreign income. It cannot be claimed in years of nil Indian tax liability, nor can it be stretched to allow refunds of foreign taxes paid abroad. This ensures that the FTC mechanism functions as a shield against double taxation but not as a subsidy or refund scheme. 20. Further the Karnataka High Court decision in Wipro Ltd. v. DCIT relied upon by the assessee is distinguishable. Firstly, that case pertained to deduction situations where the income was included in the total income but subject to deduction, not outright exemption. Secondly. the ruling predates the Supreme Court decision in CIT v. Yokogawa India Ltd. (2017) 77 taxmann.com 41 (SC), where it was held that income exempt under Section 10A is to be excluded at the stage of computing total income, making such income effectively non-chargeable for that year. Thus, Wipro Ltd. cannot be applied to override the statutory and treaty language that limits credit to income subjected to Indian taxation. Applying the principles of Yokogawa to Canon India's case for AY 2003-04: * The income from Japan was generated....
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....clear that the assessee's claim for refund on account of FTC in the present year is legally unsustainable. The absence of any Indian tax liability leaves no scope for granting credit under either domestic law or treaty provisions. It is therefore respectfully prayed that the Hon'ble Tribunal may be pleased to uphold the disallowance of claim of refund on account of FTC and dismiss the appeal filed by the assessee." 9. The assessee opposed the written submissions filed by the assessee and placed on record its rebuttal dated 13.08.2025 which reiterates the submissions given earlier. The assessee reiterated that Mumbai Tribunal in case of Bank of India [2021] 125 taxmann.com 155 (Mumbai-Trib.) is non-applicable and relied on case laws below: * M/s Sasken Technologies Limited -Vs. JCIT [2022] 140 taxmann.com 241 (Bangalore - Trib.) * M/s Uniparts India Ltd. Vs. CIT (2018-TII-274-ITAT-DEL-INTL) * DCIT Vs. Ramco Systems Ltd. (2023) 156 taxmann.com 640 (Chennai - Trib.) 10. The Assessee further submitted that the issue under consideration is no longer res integra, having already been adjudicated upon by the Hon'ble Jurisdictional Delhi High Cou....
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....;ble High Court of Delhi in the case of M/s HCL Comnet Systems and Service Limited (ITA 546 of 2022) which has agreed with the decision of Hon'ble Karnataka High Court in the Wipro Ltd case. 15. Now that a jurisdictional High Court decision in the case of M/s HCL Comnet Systems and Service Limited is before us, the question of following the binding judicial precedence or not, no longer exist. The question before the hon'ble Delhi High Court in HCL case (supra) and its decision is as under: "3. The appellant/revenue has proposed the following questions of law: "A. Whether on facts and in the circumstances of the case and also on the prevailing law, Hon'ble ITAT is justified in deleting the addition of Rs. 3,93,02,416/- made on account of disallowance of license fees paid to the DoT? B. Whether on facts and circumstances of the case and also on prevailing law, the Hon'ble ITAT was justified in holding the license fee paid by the assesses was properly deductible as revenue expenditure as against capital expenditure held by the Assessing officer? C. Whether on facts and circumstances of the case and also on prevailing law, the Hon'....
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....d questions 'C', 'D', and 'E' are concerned. 9. We are, however, informed by the counsel for the respondent/assessee that an appeal has been preferred by the appellant/revenue with the Supreme Court, against the judgment rendered by the Karnataka High Court in the Wipro Ltd. case. 10. We are also informed that the Special Leave Petition i.e., SLP No. 8381/2021, preferred by the appellant/revenue on 25.05.2021, was admitted on 14.12.2021. 10.1 Given this position, it is made clear that insofar as proposed questions 'C', 'D', and E are concerned, the appellant/revenue will have the liberty to approach the court for reviving the instant appeal, in case it were to succeed in the aforementioned matter pending adjudication in the Supreme Court". 16. In the HCL Comnet case, the question 'C', 'D' and 'E', which are similar to the question in the impugned case, the hon'ble Delhi High Court has given a clear acceptance to the decision of Karnataka High Court in Wipro Ltd., In view of the hon'ble Delhi High Court decision in HCL Comnet, we hold that the issue under consideration is no longer res integra. We are of the consi....
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.... of TDS deduction made in Japan to assessee for the year in consideration. The assessee is, in effect, now asking for interest u/s 244A on the TDS deduction made in Japan and relied on the decision of Hon'ble Bombay High Court in case of CIT v. Tech. Mahindra Limited [2016] 69 taxmann.com 402 (Bombay). 22. Facts in brief is that the assessee filed its original return of income on 31.10.2005 declaring an income of Rs. 10,17,88,599/-, however taxable income was NIL after setting off B/F losses under normal provisions of Act and Tax of Rs. 14,08,332/- was paid on MAT u/s 115JB of the Act claiming Foreign Tax Credit of Rs. 14,08,332/-. The ITR was revised on 29.03.2007 declaring an income of Rs. 10,01,61,438/-, however taxable income was NIL after setting off B/F losses under normal provisions of Act and Tax of Rs. 1,02,768/- was paid on MAT u/s 115JB of the Act claiming Foreign Tax Credit of Rs. 1,02,768/-. The assessee has filed an application u/s 237 wherein it has claimed refund of the entire amount withheld in Japan, basis the India Japan Double Taxation Avoidance Agreement (DTAA) read with section 90(2) of the Income Tax Act, 1961 on account of total taxes of Rs. 4,47,81,6....
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....ountries and, therefore, not sustainable, is beyond our comprehension. The interest which is being paid in terms of the order of the CIT (Appeals) and the Tribunal is in respect of the advance tax and TDS which has been paid by the respondent assessee in India to the Indian State and the same is found to be in excess after giving credit in terms of the DTAA. The other contentions raised by the Revenue is exactly the direction of the Commissioner of Income Tax (Appeals) and the Tribunal i.e. interest is to be paid on refund of amounts paid as advance tax or TDS. 9. We find that both the Commissioner of Income Tax (Appeals) and the Tribunal have while examining the claim for interest on refund granted, considered the fact that the relief under Section 90 of the Act is available in respect of the income tax which is payable both in India as well as in the other Countries with which India has DTAA. Therefore, relief under Section 90 of the Act is to be allowed while computing the tax liability in India by virtue of credit being given to the extent that tax has been paid abroad. Therefore, the tax payable is to be computed on the income to be assessed. Thereafter the credit whi....