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2021 (1) TMI 1106 - AT - Income TaxForeign tax credit available - Eliminating double taxation of doubly taxable income in the hands of assessee - difference in FTC available to assessee on taxes paid in USA, Japan and Germany vis-s-vis Korea - HELD THAT:- India US DTAA - A perusal of the aforesaid provision makes it clear that, if a resident Indian derives income, which may be taxed in United States, India shall allowed as a deduction from the tax on the income of the resident, an amount equal to the tax paid in United States of America, whether directly or by deduction. The conditions mandated in the treaty is that if any "income derived" and "tax paid in United States of America on such income", then tax relief/credit shall be granted in India on tax paid in United States of America. India Japan DTAA - Article 23(2) of India Japan DTAA deals with elimination of double taxation. India Germany DTAA - All these clauses are identically worded as Article 25(2)(a) of India US DTAA. Relevant clauses for elimination of double taxation in the treaties under consideration states that, foreign tax credit shall not 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". We also note that, these clauses uses the expression 'income', which essentially means 'income' embedded in the gross receipt, and not the 'gross receipt' itself. We therefore do not agree with the computation adopted by Ld.AO. For eliminating double taxation of doubly taxable income in the hands of assessee, it would be necessary to establish the taxes paid by assessee in USA, Japan, and Germany. The condition stipulated is very clear that FTC is available on taxes paid in these countries. India- Korea DTAA - On perusal of the said Article, we find that, in India FTC is available to the taxes paid in Korea and such credit shall not exceed the taxes payable in India on doubly taxed income. Thus there is a difference in FTC available to assessee on taxes paid in USA, Japan and Germany vis-s-vis Korea. In the present facts of the case, respective treaty countries withheld taxes against income from the source state at a particular rate. Article 25 of Indo U.S Treaty, Article 23 (2) of Indo-Japan Treaty and the Indo-Germany Treaty, allows FTC in India to the extent of tax paid in these countries, whereas, Article 23 of Indo-Korea Treaty allows FTC which shall not tax payable on such doubly taxable income in India. We note that authorities below failed to understand the treaty provisions applicable in present facts with these countries regarding granting of FTC to assessee. On perusal of treaty provisions, we are of the view, that assessee is eligible for FTC in full, amounting to taxes paid in USA, Japan and Germany. We draw support from decision of Hon’ble Karnataka High Court in case of Wipro [2015 (10) TMI 826 - KARNATAKA HIGH COURT] Only in case of Korea, FTC is limited to taxes payable on such doubly taxed income in India, before any deduction. In other words, FTC is limited to or taxes paid in Korea or India, whichever is less. AO is therefore directed to grant FTC in respect of taxes paid in USA, Japan and Germany. In case of taxes paid in Korea, FTC will be tax actually paid in Korea or payable in India on such doubly taxable income, which ever is lower. Income earned income from Taiwan - We note that, India has not entered into double taxation avoidance agreement with Taiwan. Therefore, foreign tax credit available to assessee against taxes paid in Taiwan will be computed in accordance with section 91 of the Act. The said provision provides for deduction of tax paid in any country from the Indian Income tax payable by assessee of a sum calculated on such doubly taxed income, even though there is no agreement under Section 90 for the relief or avoidance of double taxation. Explanation (iv) defines the expression income tax in relation to any country includes any excess profit tax or business profits tax charged on the profits by the Government of any part of that country or a local authority in that country. Therefore, even in the absence of an agreement under Section 90 of the Act, by virtue of the statutory provision, the benefit conferred under Section 91 of the Act is extended to the income tax paid in foreign jurisdictions. We have dealt with FTC available to assessee in respect of foreign taxes paid by assessee in Japan, Korea, Germany and USA. For year under consideration credit has to be computed in similar manner as has been tabulated by assessee for assessment year 2013-14 reproduced hereinabove. Our observations for assessment year 2013-14 in allowing tax credit to assessee is applied mutatis mutandis for year under consideration. Insofar as Taiwan is concerned, section 91 also interprets computation of foreign tax credit to assessee in the similar manner. Section 91 contemplates the situation where there is no agreement between the Central Government and the other country concerned for the grant of relief in respect of income which has suffered taxation in both the countries or for the avoidance of double taxation of the same income. This section lays down its own conditions for and extent of the relief contemplated to be given to an assessee. The first condition is that the assessee should be a resident in India as per term defined in Section 6 of the Act. The second condition is that the income which has accrued or arisen outside India to such resident in India should not be deemed to accrue or arise to him in India. The third condition is that such resident-assessee should have paid income-tax on such income under the law in force in that country. Once these three conditions are fulfilled, such resident-assessee would be entitled to the deduction from the Indian income-tax, as is payable by him, of a sum calculated on the doubly taxed income at the Indian rate of tax or the rate of tax of the other country concerned, whichever is the lower. Thus, as per section 91 of the Act, in case of Tiwan, FTC is to be computed based on rate of tax applicable in India or Korea, whichever is less, on such doubly taxable income. We are of the view that assessee is eligible for FTC in full, amounting to taxes paid in USA, Japan and Germany. We draw support from decision of Hon’ble Karnataka High Court in case of Wipro( [2015 (10) TMI 826 - KARNATAKA HIGH COURT] In case of Korea, FTC is limited to taxes payable on such doubly taxed income in India, before any deduction. In other words, FTC is limited to or taxes paid in Korea or India, whichever is less. In case of Tiwan, FTC is to be computed based on rate of tax applicable in India or Korea, whichever is less, on such doubly taxable income. AO is thus directed to compute FTC accordingly.
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