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2007 (6) TMI 277 - AT - Income TaxIndian resident deriving foreign income - taxability of particular income in both the contracting states - loss incurred by the PE abroad - DTAA with Japan - CIT(A) held that loss incurred by Japan office of the assessee company is not to be taken into account while computing its income taxable in India - HELD THAT:- The law laid down by the Hon'ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan [2003 (10) TMI 5 - SUPREME COURT] is binding on us under art. 141 of the Constitution of India. The prevailing legal position, therefore, is that once an income is held to be taxable in a tax jurisdiction under a DTAA and unless there is a specific mention that it can also be taxed in the other tax jurisdiction, the other tax jurisdiction is denuded of its powers to tax the same. To that extent, the worldwide basis of taxation in the scheme of the Indian IT Act is no longer applicable in a situation provisions of a DTAA entered into u/s 90 apply. Just because the assessee may, in AO's perception, claim treaty protection in a subsequent year, the treaty provisions cannot be thrust on the assessee this year as well. In this view of the matter, the assessee was indeed eligible to claim taxation on worldwide basis, disregard the scheme of taxability under the India Japan tax treaty, and, in effect, claim deduction of loss incurred by the PE in Japan. The CIT(A) was thus justified in his conclusion to the effect that losses of assessee's PE in Japan are to be taken into account while computing assessee's total income liable to tax in India. When the assessee makes profits in the subsequent years, and whether or not the assessee recaptures loss in the subsequent years, its entire PE income remains outside the scope of 'total income' u/s 5 of the Act. In effect, therefore, the loss of the PE abroad is deducted twice. This position may be unintended or even undesirable, as evident from the global concern to neutralise such dual benefits in the international taxation, but that is an inevitable corollary to the legal position existing now. Thus, we approve the conclusion arrived at by the learned CIT(A). His having arrived at right conclusion may have been somewhat fortuitous, in the sense it was without really analyzing the nuances of relevant legal position, but what is material is that he reached the right conclusion. We approve his conclusion and decline to interfere in the matter. In the result, the appeal filed by the AO is dismissed.
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