Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2022 (4) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (4) TMI 274 - ITAT DELHIClaim of foreign tax credit (FTC) u/s 90 or u/s 91 - Applicability or Rule 128 with retrospective effect - withholding tax deducted by the Singapore company on the payment of performance guarantee commission - Income taxable in India - whether tax credit can be allowed to the assessee company on the income offered to tax in India on the tax deducted by the Singapore Company from the Performance Guarantee Commission during the year under assessment? - main reason for denial of the credit by the Assessing Officer and the ld. CIT (Appeals) is that, Performance Guarantee Commission received by the assessee is a business profit in India and directly linked to the business of the appellant HELD THAT:- AO and Ld. CIT (A) have misconstrued the facts and have given a finding that the provision of performance guarantee to the joint venture partner is for the strategic purpose in the course of business activity and it is therefore attributable to the business activity. They have concluded that the performance guarantee given by the appellant should be attributable to business activity and income earned in respect of performance guarantee should be treated as business profit. The appellant is not in the business of providing bank guarantee or performance guarantee as the business of the appellant is providing offshore drilling services to Exploration and production companies in India. P&L reflects that the revenue of ₹ 739.69 Crore out of total revenue of ₹ 752.13 Crore is from the core activity of Service in oil sector. Assessing Officer on these facts cannot change the characteristic of one time income by way of performance guarantee commission as business profit to bring it under Article 7 of the DTAA, and hold that in order to avail tax benefit the assessee must have a PE under Article 7. Here, in this case, Singapore based company, DDHPL had entered into a put/call option deed to buy 12 million shares of another entity M/s. DODL. The seller/vendor is also a Singapore based company M/s. DOSPL. The assessee company provided a performance guarantee in favour of the buyer company i.e. DDHPL to the above vendor company M/s. DOSPL. A sum of USD 15 million was the consideration for which the assessee was to get fee @ 2%. Now this payment of commission of performance guarantee has been treated as business activity of the assessee by the Revenue authorities and then a view has been taken that it is a business profit of the assessee earned from Singapore and received in Singapore and since assessee does not have a PE under Article 7 of Singapore India DTAA, therefore, the entire profit is to be taxed in India. It is neither the case of the Assessing Officer or the assessee that the amount received by the assessee is otherwise not taxable in India. Assessee has offered it for tax under the head ‘other income’ and not offered as ‘income from business operations’. The entire character of the transaction has been changed by the Revenue authorities to treat it as business income, without even examining the terms of the Agreement by which assessee received the fee or the nature of business activity carried out by the assessee. In view of Singapore Taxation Laws the income in question is taxable in Singapore even if the assessee has no PE in Singapore, on account of the fact that commission of Performance Guarantee fees is deductible expenses to the entity paying in Singapore. Thus, we are unable to subscribe to the view taken by the Assessing Officer and the CIT (Appeals) and the same is rejected. Since income is also taxable in India, the assessee is eligible for payment of such tax much less income has suffered tax in Singapore by virtue of provisions of Section 90(1) of the Act. Thus, we direct the Assessing Officer to allow tax credit in both the assessment years 2014-15 and 2015-16 Rule 128 read with Section 295(2)(ha) no longer, still Assessing Officer was obliged to allow withheld tax deductible in Singapore which is offered to tax in the impugned assessment years subject to the compliance under the Rules which shall be made to claim above benefit of tax. Though this Rule has been 1.04.2017, but the foreign tax credit is available to the assessee showing foreign income. Thus, we direct the Assessing Officer to allow tax credit. Appeal of assessee allowed.
|