TaxTMI 
TaxTMI 
2026 (10) TMI 336
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.... on the issues of "Double Taxation Relief under Section 90/9 of the Act". The assessee, during the course of scrutiny proceeding explained the contract with Huawei Technologies Nepal Co. Private Limited which had deducted TDS @ 5%and against which foreign tax credit was claimed. 3. The Learned AO further questioned the assessee and sought certain documents to verify the claim made by the assessee under Section 90/91 of the Act to this effect that what was the rate of conversion of currency considered in the matter, what was the date considered for conversion, reconciliation of amount claimed to have been deducted under Section 90/91 of the Act and the amount claimed as TDS required and further that an affidavit stating under oath that the certificate under Section 90/91 of the Act produced is true and genuine in response whereto the assessee duly submitted the details. 4. Subsequently, Form No. 67 against which relief under Section 90/91Aof the Act was sought for by the Ld. AO which was duly filed before theLd. AO. Thereafter, the Ld. AO on detailed questioning and upon perusal of the documents furnished by the assessee accepted the returned income filed by the assessee by an....
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....the assessee had to work out net profit earned from foreign countries and only tax credit equal to the tax payable on such net profit can be given. The assessee has not submitted these calculations. The assessee has shown net profit of Rs. 14,32,19,316/- against total receipts of Rs. 1,80,10,48,992/- which comes to net profit rate of 7.95%. Accordingly, net profit rate of 7.95% should be applied to the foreign receipts and allowable credit u/s 90/91 should be worked out as under: Foreign Receipts from Nepal Nettaxable profit in India 7.95% on foreign receipts Tax plus surcharge payable in India on such profit Foreign TDS allowed Excess credit allowed u/s90/91 8,65,14,112/- 68,77,872/- 23,80,293/- 43,25,706/- 19,45,413/- From the above, it is seen that the assessee would have earned a net profit of Rs. 68,77,872/- from foreign countries and has set off foreign tax credit against the net profit earned from Indian operations which is not permissible under Income tax Act. The mistake has resulted in excess credit of foreign tax u/s 90/91 amounting to Rs. 19,45,413/- 3. The above mistake is apparent from record and comes under the purview ....
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.... the assessee has worked out allowable claim u/s 90/91 with reference to receipts (and not income) from Nepal. This approach is incorrect because as per the clause "Avoidance of Double Taxation" - of Article 23 of DTAA with Nepal, allowable relief u/s 90 needs to be worked out with reference to "income" and not "receipts". Here, it is also pertinent to note that deduction u/s 90/91 cannot exceed the part of income tax which is attributable to the income which may be taxed in other country. From the above, it is clear that the assessee has to claim credit of foreign tax with reference to income earned from Nepal and not the total receipts from that country. In other words, foreign tax credit cannot exceed the tax payable in India on income earned from foreign countries. So, the assessee had to work out net profit earned from foreign countries and only tax credit equal to the tax payable on such net profit can be given. The assessee has not submitted these calculations. The assessee has shown net profit of Rs. 14,32,19,316/- against total receipts of Rs. 1,80,10,48,992/- which comes to net profit rate of 7.95%. Accordingly, net profit rate of 7.95% should be applied to the f....
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....ion of the DTAAs with Nepal is reproduced as under: ARTICLE 23 METHODS FOR ELIMINATION 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 provisions to the contrary are made in this Agreement. Where income is subject to tax in both Contracting States, relief from double taxation shall be given in accordance with the following paragraphs of this Article. 2. Double Taxation shall be eliminated as follows: In India: (a) Where a resident of India derives income which, in accordance with the provisions of this Agreement, may be taxed in Nepal, India shall allow as a deduction from the tax on the income 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 may nevertheless, ....
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....the appellate authority concurs with the AO's findings and upholds the disallowance of the excess FTC of Rs. 19,45,413/-. The total tax relief under Sections 90/91 is accordingly restricted to Rs. 23,80,293/-, as computed by the AO. The appellant's submissions do not provide sufficient grounds to overturn the AO's decision. Therefore, the appeal on these grounds is hereby dismissed." 9. The Learned Counsel appearing for the assessee submitted before us that making this addition warrants for calling out of new records outside the assessment record which is not permissible under the provision of Section 154 of the Act for rectification of any error apparent on the face of the order passed by Ld. AO. The Ld. DR relied upon the order passed by the authorities. 10. We have heard the parties and perused the records. 11. In this regard, the Ld AR has relied upon the judgement passed in the matter of Asian Art Printers (P.) Ltd. Vs. IAC, reported at 38 TTJ 371 passed by the Coordinate Bench wherein the ITO made enquiries about the expenditure in question and upon considering the explanation rendered by the assessee didn't find the expenditure or any portion thereof as ....