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2017 (1) TMI 720 - AT - Income TaxForeign tax credit - quantification of income for the purpose of computing admissible tax credit - selection of assessment year - treatment to release of retention money - Indo Singapore tax treaty - taxation in source country and resident country - profitability of the projects while computing the Foreign Tax Credit in respect of doubly taxed income - Held that:- Right now, we are dealing with a situation in which a major portion of income, by release of retention money as also by addition of an additional user by the customer, is a somewhat passive income, even though in the nature of business receipt, and as such, to that extent, allocation of all the expenses incurred by the assessee, in respect of such earnings, will not be justified. As regards the income from maintenance contracts, the relates costs have already been allocated and the Assessing Officer has not pointed out any infirmity in the same. In this view of the matter, quantification of income for the purpose of computing admissible tax credit, as done by the assessee and as reproduced earlier, is accepted. The tax credit for both the jurisdictions is to be computed separately but in a similar manner, as is provided in the respective treaties. So far as the tax credit in respect of Indonesian receipts is concerned, as noted above and in view of article 23(1) of the applicable tax treaty, it cannot “exceed the part of the income tax as computed before the deduction is given, which is attributable as the case may be, to the income which may be taxed in that other State”. The income tax is, therefore, required to be computed on proportionate basis The tax has been paid, in this case, on book profits. To the best of our understanding, and particularly in the absence of any other method having been pointed out to us, only way in which be so done is by apportioning the actual tax paid under MAT provisions (i.e. ₹ 54,13,417), in the same ratio as double taxed profit to the overall profits i.e. 35,86,178:4,77,79,403. The amount of tax credit in respect of this income thus comes to ₹ 4,06,315, as against the actual deduction of tax aggregating to ₹ 5,71,878. The tax credit claim is thus admissible to this extent. As for the tax credit in respect of Singaporean receipts, while the formulae for limitation under article 25(2) of the Indo Singapore tax treaty remains broadly the same as it is provided that the credit shall not exceed tax “which is attributable to the income which may be taxed in Singapore” but the first variable i.e. income taxed in both the countries would change. The figure of income taxed in Singapore as also India is 53,23,085. The MAT paid, relatable to this income, will be arrived at by dividing the same in the ratio 53,23,085:4,77,79,403 The amount of tax payable in respect of Singapore income, by the same formulae, works out to ₹ 6,03,107 which is clearly less than ₹ 5,41,029 which was deducted at source in Singapore. The tax credit of ₹ 5,41,029 in respect of Singaporean receipts is thus clearly admissible. As against tax credit claim of ₹ 11,12,907, the tax credit of ₹ 9,47,344 is thus indeed admissible. To this extent, the claim of the assessee is upheld. - Decided partly in favor of assessee.
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