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2015 (6) TMI 164 - ITAT MUMBAI

2015 (6) TMI 164 - ITAT MUMBAI - [2015] 40 ITR (Trib) 212 (ITAT [Mum]) - Mistake rectifiable u/s 154 - order u/s 154 read with section 143(3) and 250 withdrawing the claim for credit of foreign TDS - period of limitation - Held that:- In the instant case, the assessee has sought for rectification in the order u/s 143(3) passed by the A.O. on 26-12- 2008 which is within the period of 4 years from the end of the financial year in which the assessment order was passed. Accordingly we hold that the .....

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account the sea change made in the provision after the aforesaid amendment. Prior to the amendment by Finance Act 2000, the Act provided that any profits and gains to which the provisions of section 10A apply “shall not be included in the total income of the assessee”. However, after the amendment w.e.f. A.Y. 2001-02 the profits and gains to which the provisions of section 10A apply are not excluded from total income and instead “a deduction of such profits and gains…..” shall be allowed from th .....

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f under para 2a of Article 23 of Double Tax Avoidance Convention between India and Japan as applicable to the assessment years under consideration. Since here we are concerned with the treatment to be given to the resident of India in relation to taxes paid in Japan., the same is covered by Paragraph 2 of Article 23 and not by paragraph 3 of Article 23 which provides for treatment to be given in relation to taxes paid in India by resident of Japan.

On the one hand the assessee is bein .....

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India without giving effect to the provision of section 10A for the reason also of Article 24 of Double Taxation Avoidance Convention between India and Japan. Thus we direct the A.O. to allow credit for foreign TDS against the tax levied on the corresponding income eligible for deduction u/s 10B of the Act in India for all the three years under consideration i.e. assessment years 2003-04, 2004-05 and 2005-06. - I .T.A. No.5750/Mum/2010, I .T.A. No.5751/Mum/2010, I .T.A. No.8705/Mum/2011 - Dated .....

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as under:- 1. The learned (ld) CIT(A)-XIV, Mumbai, erred in upholding the order passed by the Assessing Officer (AO) under section 154 of the Income-Tax Act, 1961 (the Act), for the A Y 2003-04. 2. The ld CIT(A) erred in reckoning the time limit under section 154(7) of the Act, from the date of Intimation under section 143(1)(a) of the Act, dt. 12.3.2004, because the aforesaid Intimation cannot be treated as an "order" as contemplated under section 154 of the Act. 3. The ld CIT(A) err .....

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ct that the impugned application under section 154 was filed by the appellant before the AO as a request of the AO in his letter dt. 29.4.2008. 6. The Id CIT(A) erred in holding the claim of the appellant in respect of credit for foreign TDS as a debatable issue, when this issue had never been touched or dealt with by the AO. 7. The Id CIT(A) erred in not appreciating that as per section 199 of the Act, any TDS shall be treated as a payment of tax on behalf of the taxdeductee, viz. the appellant .....

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Income-Tax Act, 1961 (the Act), for the AY 2004-05. 2. The ld. CIT(A) erred in not taking into consideration the fact that the aforesaid order under section 154 of the Act, was passed by the AO in view of a Grievances Petition filed by the appellant before the CIT-6, Mumbai, vide letter dt.29.12.2007. 3. The Id. CIT(A) erred in not taking into consideration the fact that the impugned application under section 154 was filed by the appellant before the AO as a request of the AO in his letter, dt. .....

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CIT(A) erred in rejecting the claim of the appellant in respect of credit for foreign TDS. 7. The Id CIT(A) grossly erred in deciding the aforesaid appeal on the basis of the facts for the A Y 2003-04 and not the facts for the current A Y, 2004-05. 8. All the aforesaid Grounds of Appeal are without prejudice to one another. 4. The grounds raised by the assessee in A.Y. 2005-06 read as under:- 1. The learned (ld) CIT(A)-14, Mumbai, erred in upholding the order passed by the Assessing Officer (AO) .....

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CIT(A). 4. The ld CIT(A) erred in ignoring the detailed written submissions made by the appellant, in support of its claim regarding credit for foreign TDS, by simply stating the fact that such a claim was not allowed by the CIT(A) for the AY 2004-05. 5. The ld CIT(A) failed to appreciate that there were two different issues involved in the appeal before him, the one, whether the issue under consideration was a debatable one and the other, whether on merits, the appellant was entitled to the cre .....

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2003-04 and 2004-05, in the case of the appellant. 5. In all these appeals, the assessee is aggrieved for not giving credit of tax deducted at Japan in respect of its income which had also brought in the tax net in India. The assessee is also aggrieved by the action of the lower authorities for holding that there was no mistake in the order passed u/s 143(1) and 143(3) of the Act for assessment years 2003-04 and 2004-05 insofar as there was an omission on the part of the A.O. to consider and mak .....

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e any observation with regard to the assessee s claim nor given any credit for the foreign tax while issuing demand notice. Similarly, return of income for A.Y. 2004-05 was filed on 30-10-2004 wherein credit for foreign tax of ₹ 2,47,21,726/- was claimed. TDS Certificates were filed on 12-01-2005 which was misplaced by the A.O. and therefore, subsequently photo copies were filed. The A.O. passed the assessment order u/s 143(3) of the Act on 20-12- 2006 without giving any credit for foreign .....

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omitted to consider the assessee s claim for deduction of foreign tax and accordingly there was an apparent mistake in the order which is liable for rectification u/s 154 of the Act. 8. With regard to the merit of the assessee s claim, he contended that the income of the assessee was not exempt u/s 10A of the Act insofar as there was amendment by the Finance Act, 2000, w.e.f. 01-04-2001. As per the ld. A.R. w.e.f. A.Y. 2001-02, the profits and gains to which the provisions of section 10A apply .....

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0B is a provision in the nature of an exemption. Plainly, s. 10B as it stands is not a provision in the nature of an exemption but provides for a deduction . 9. The ld. A.R. further highlighted the following observations of the Hon ble Bombay High Court negating the contention on the ground that section 10B was not a provision in the nature of an exemption but only provided for a deduction:- 'The AO was plainly in error in proceeding on the basis that because the income is exempted, the loss .....

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plain language of s. 10B." 10. He further relied on the decision of the judgment of Hon'ble Karnataka High Court in the case of ITO & Anr. V. Stumpp, Schedule & Somappa (P) Ltd. (1997) 106 ITR 399 (Kar) wherein it was held that a deduction does not mean that corresponding income has not been charged to tax. In the words of Hon'ble High Court: ''The heading of Chapter III of the IT Act is "Incomes which do not form part of total income." Chapter IV deals wit .....

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ticular connotations. Income connotes what comes in and in general receipts by an assessee. Receipts are classified as capital or revenue, and receipts of revenue nature are treated as income. Capital receipts except in so far as they are liable for capital gains, and deemed to be income for that purpose, are not treated as income. Sec. 2(9) of the Act provides that the words and expressions used in the Act but not defined in it and defined in the IT Act shall have the meanings respectively assi .....

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ill stronger footing than the case decided by Hon'ble Karnataka High Court (supra). In that case deduction was under Chapter VI-A which provides for deduction in the course of computation of total income. The heading of Chapter VI-A is "Deductions to be made in computing total income" whereas deduction u/s. 10A with effect from assessment year 2001-02 is from total income i.e. after computation of income chargeable to tax is complete. 12. The ld. A.R. heavily relied on the decision .....

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voided when the basis object of the treaty might be defeated or frustrated in so far as the particular item under consideration is concerned. 13. At Para 70 of the judgment Hon'ble Supreme Court quoted from the commentary of Phillip Baker on Article 4 of the DECD Double Tax Convention: "It seems clear that a person does not have to be actually paying tax to be "liable to tax" - otherwise a person who had deductible losses or allowances, which reduced his tax bill to zero would .....

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nuously urged on behalf of the respondents that avoidance of double taxation can arise only when tax is actually paid in one of the Contracting States." 14. The judgment of Hon'ble Supreme Court in the case of Azadi Bachao Andolan (supra) has been followed by ITAT Bangalore in the case of Wipro Ltd. v. DCIT (2005) 96 ITJ (Bang) 211. Wipro Limited, like the assessee herein, enjoyed in India exemption/ deduction u/s. 10A/80HHE of the Act. The question arose whether Wipro was eligible for .....

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notional deduction of tax as respects incentive provisions of Income Tax Act, 1961 of India. This position is clear from Paragraph 3c. of Article 23 of the Convention. This Sub-Para in relation to the assessment years under consideration reads as under: "c. For the purposes of the credit referred to in sub-paragraphs (a) and (b) above, there shall be deemed to have been paid by the taxpayer the amount which would have been paid as Indian tax under the laws of India and in accordance with th .....

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e further submitted that the provision of section 10A is covered by the above quoted Article has been made explicit by the exchange of letter between Government of India and Government of Japan as would be seen from the letter dated 07.03.1989 addressed to Mr. Fijiro Noda, ambassador of Japan to India by Mr. G.N. Gupta, Chairman CBDT and replied on the same date by Mr. Fijiro Noda to Mr. G. N. Gupta. This correspondence is placed at page 51 to 53 of the assessee s compilation. 17. As per the ld. .....

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purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned Contracting State." As per the ld. A.R. Article 24 of the Convention envisages parity of tax liability between the residents of India and Japan. By virtue of Paragraph 3c of Article 23 the resident of Japan obtains tax relief as if the Indian tax has not been reduced by the provisions of section 10A. On the same logic the tax r .....

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en without applicable deduction of tax at source, as long as related payments are taken into account by the recipients in computation of their income, and taxes in respect of such income are duly paid and related income tax returns are duly filed by the resident recipients under section 139(1). However, as section 40(a)(i) does not have an exclusion clause similar to second proviso to Section 40(a)(ia), so far as payments made to nonresidents, without deduction of applicable tax deduction at sou .....

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re examining the issue of deduction parity, we have to examine the position of deductibility in respect of a similar payment, i.e. without deduction of tax at source, made to a resident Indian taxpayer. To this extent, in the light of the legal position prevailing as on now and as there is no binding judicial precedent contrary to coordinate bench decision in the case of Rajeev Kumar Agarwal (supra), there is indeed an element of discrimination, in terms of Article 24(3) of the India Japan DTAA, .....

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e other hand, it was contended by the ld. D.R. that assessee s claim for foreign tax is governed by Article 23 of India Japan DTAA, wherein Article 23(2) provides that the deduction will not exceed that part of the income tax which is attributable to the income which may be taxed in Japan. As per the ld. D.R., it is clear from Article 23(2) that deduction shall not exceed that part of the income tax which is attributable to the income which is taxed in Japan. He further contended that when it co .....

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d the rival contentions, orders of authorities below and deliberated upon the judicial pronouncements cited at bar by the ld. A.R. and ld. D.R. in the context of factual matrix of the case. From the record we found that in the return of income filed for A.Y. 2003-04, the assessee has claimed credit of foreign tax paid amounting to ₹ 4,49,911/-. However, along with the return of income TDS documents of ₹ 43,12,672/- were enclosed. The A.O. did not make any discussion with regard to th .....

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d. The A.O. directed the assessee to file application u/s 154 on 29-4-2008 and accordingly the assessee filed application u/s 154 of the Act on 29-4-2008. The A.O. passed order u/s 154 of the Act on 29-7-2008 wherein credit for foreign tax was declined firstly on the plea that the application filed u/s 154 on 29-4-2008 was after expiry of 4 years from the end of financial year 2003-04 and even otherwise it was a debatable issue that could not be considered as mistake rectifiable u/s 154 of the A .....

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this reason, no credit was allowed for TDS claim of ₹ 449,911/- even in the intimation issued u/s 143(1) which was passed on 12-03-2004. Thus the ld. CIT(A) confirmed the action of A.O. to the effect that rectification application filed by the assessee on 29-4-2008 was beyond the time limit from the date of order passed u/s 143(1) of the Act. Even on merit, the ld. CIT(A) held that income which was taxed in Japan has not been taxed in India, therefore, there was no double taxation and the .....

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to CIT - VI vide letter dated 29-12-2007. Thereafter at the instance of A.O. the assessee filed application u/s 154 of the Act on 29-4-2008. Order u/s 154 of the Act was passed by the A.O. on 29-7-2008 wherein he observed that the claim of foreign tax made by the assessee was a debatable issue, hence, it was not a mistake rectifiable u/s 154 of the Act. In an appeal filed before the ld. CIT(A), the ld. CIT(A) vide his order dated 20-5-2010, following the same reasoning given in A.Y. 2003-04, dis .....

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r, the A.O. passed order u/s 154 read with section 143(3) and 250 of the Act dated 3-6-2010 withdrawing the claim for credit of foreign TDS. The A.O. further observed that no tax was attributable in India based on Article 23 of DTAA between India and Japan meaning thereby income on which tax has been paid in Japan was exempted under Chapter III of the Act and it did not form part of total income of the assessee. 25. In an appeal filed before the ld. CIT(A), the ld. CIT(A) confirmed the action of .....

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ed by the assessee. 26. With regard to the A.O. and the ld. CIT(A) s observation for A.Y. 2003- 04 to the effect that assessee s application filed u/s 154 was barred by limitation, we found that the A.O. has reckoned the period of 4 years from the last day of financial year 2003-04 which is without any basis or support from the provisions of section 154 of the Act. However, the ld. CIT(A) has reckoned the period of 4 years from the date of intimation u/s 143(1) of the Act which intimation was un .....

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was charged tax in Japan was not chargeable to tax in India being exempt under the provision of section 10A of the Act and therefore assessee was not eligible to claim credit for the tax deducted in Japan. This view of the lower authorities are not in consonance with the provisions of section 10A as amended by Finance Act 2000 w.e.f. 1-4-2001 and do not take into account the sea change made in the provision after the aforesaid amendment. Prior to the amendment by Finance Act 2000, the Act provid .....

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expression 'total income' is defined in the provisions of section 2(45) of the Act as meaning the total amount of income computed in the manner laid down in this Act. The provisions of section 4 of the Act which is the charging section postulates that income tax shall be charged for any assessment year at the rates prescribed for that year in respect of the total income of the previous year of every person. As we have seen the effect of section 10A is to allow a deduction from 'tota .....

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f an exemption. Plainly, s. 10B as it stands is not a provision in the nature of an exemption but provides for a deduction." 28. In the case of Hindustan Unilever Limited vs. DCIT 325 ITR 302 (Bom) the assessee had 4 units eligible u/s. 10B. The assessee made profit in 3 units and loss in 1 unit. According to Assessing Officer since the income of the unit was exempt from taxation, the loss of the unit could not have been set off against the normal business income. Negating this contention o .....

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to a deduction in respect of the profits of the three eligible units while the loss sustained by the fourth unit could be set off against the normal business income. In these circumstances, the basis on which the assessment is sought to be reopened is contrary to the plain language of s. 10B." 29. ITAT, Mumbai In the case of Capegemini India (P) Ltd. vs. Addl. CIT (2011) 141 TTJ (Mumbai) (UO) 33 by following the above judgment of Hon ble Bombay High Court held that loss from section 10A un .....

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a. 30. The Hon ble Karnataka High Court in the case of Stumpp, Schedule & Somappa (P) Ltd. (supra) held that proceeds on the basis that a deduction does not alter the basic fact that the gross amount has been charged to tax. Accordingly Hon'ble Karnataka High Court further observes: "If the contention for the appellants is to be accepted as correct then even) kind of deduction or allowance for expenses made in the computation of the total income under the IT Act would have to be tre .....

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s payment of tax. Liability to taxation is a legal situation; payment of tax is a fiscal fact. For the purpose of application of Art. 4 of the DTAC, what is relevant is the legal situation, namely, liability to taxation, and not the fiscal fact of actual payment of tax." 32. It is clear from the above discussion that after amendment by Finance Act, 2000 w.e.f. 1-4-2001 deduction u/s 10A being from the total income leads to the conclusion that there is charge of income tax in India also on t .....

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and not by paragraph 3 of Article 23 which provides for treatment to be given in relation to taxes paid in India by resident of Japan. In this respect the decision of ITAT Delhi in the case of Mitsubishi Corporation India Pvt. Ltd. v. DCIT ITA No. 5042/Del/2011 pronounced on 21.10.2014 clinches the issue. In that case the assessee Mitsubishi Corporation India Pvt. Ltd (MCI) was assessed to tax in India as a company resident in India. It was wholly owned subsidiary of Mitsubishi Corporation Japa .....

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ses under the amended provisions of section 40(a)(ia) by virtue of deductees payment of taxes the deductor assessee is deemed to have deducted and paid the tax on such sums. Revenue argued that the relevant amendment had been made in the provisions of section 40(a)(ia) but there was no similar amendment in the provisions of section 40(a)(i) applicable to the payments made to non-residents. In this manner the Revenue argued that MCI was not protected against the mischief of section 40(a)(i) and t .....

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ents made to the residents of the other Contracting State i.e. under Article 24(3), nondiscrimination against capital held by the residents of the other Contracting State i.e. under Article 24(4). It is not at all necessary that the assessees, in whose cases this non-discrimination is invoked, should be resident of, or even a national of, the other contracting state. In this view of the matter, we are unable to accept the plea of Mr. Kapila that since assessee before us is not resident of the ot .....

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invoked for the assessee before us, though, as a matter of fact, non-discrimination protection is being invoked in respect of the payments made to a tax resident of treaty partner country, i.e. Japan in this case. What is being sought by the assessee in the present case is deduction neutrality so far as payments made to the resident tax payers in India vis-a-vis payments made to non-residents fiscally domiciled in Japan are concerned. The treaty protection is thus being sought in respect of the .....

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