TMI Blog2017 (4) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... ef by way of tax credit claimed deductible u/s 90 - dividend income earned outside India - Indo US tax treaty - Held that:- There is no scope of sweeping generalizations while computing tax credit. The tax credit computation is to be done on a case to case basis, dealing with the tax levied in the other contracting state (i.e. US) and the income in respect of which such tax is levied. As for 25% tax withholding from US dividend income, it is not the applicable withholding rate but the maximum tax withholding rate. It is, therefore, not essential that the entire US tax levy in respect of dividend income is @ 25% only. As a corollary to the this position, the actual admissible withholding under article 10 is bound to be an amount lower than 25% because in some of the cases, the applicable US tax rate could even be 15%. These factors apart, in the case before is, there are some tax deductions at rates other than 15% and 25%. We are, therefore, not inclined to accept the learned counsel’s suggestion for restricting the tax credit to 25% of the dividend income, nor do we think that it is proper to examine all these evidences, in detail, for the first time at the stage of proceedings bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During the relevant previous year, the assessee had incurred total management expenses of ₹ 6,37,828 and he claimed a deduction, of 25% of expenses so incurred i.e. ₹ 1,59,459, on account of, as portfolio managers termed it, safeguarding expenses and of ₹ 20,046 on account of interest paid to the portfolio managers. It was also explained that since income from dividends and interest arising from these securities is duly offered to tax, these expenses are admissible as deductions. The Assessing Officer declined the claim, and, while doing so, observed as follows: 4. In the return of income the assesses has claimed expenses under section 57 of the IT. Act amounting to ₹ 1,79,506/-. The assessee was asked to submit details and evidence of expenses claimed along with justification for claim. The assessees vide submission dt. 20.12.2011 submitted copy of advices issued by 'Credit Suisse' towards safe custody charges for securities. The expenses u/s.57 are allowable only if it is laid out or expended wholly and exclusively for the purpose of making or earning such income. In the assessee's case the expenses claimed has no connection/nexus with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable legal position. 8. We find that there is no dispute, as evident from the stand taken by the Assessing Officer in remand report and as recorded by the CIT(A) in paragraph 6.2 of his order, that expenses were incurred for earning of income but , the objection of the Assessing Officer was that 25% of total expenses is hypothetical and on the higher side considering the nature of transactions . Once it is an undisputed position that the expenses were incurred for earning of income, the mere fact that the expenses are high or that the expenses are claimed only in part cannot be reason enough to make the disallowance. We have noted that the related securities were held by Credit Suisse and UBS and that these entities have charged the assessee for safekeeping of securities and their administration . The copies of invoices, as also letter confirming the charges, are filed before us, and we find no infirmities in these documents. The expenses so incurred by the assessee are in the nature of expenses incurred on portfolio manager. As the expenses so incurred by the assessee admittedly related to the safekeeping and administration of securities in question, income from which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) erred in law as well as on facts by accepting the overseas dividend income from the evidences furnished by the appellant but not the figures of the foreign taxes withheld from the same thereby only partly accepting the evidentiary value of the furnished statements. 3.3. Without prejudice to the above, the appellant contends that in case the evidences submitted are not perceived to be authentic, the overseas dividend income shall also be reduced from the taxable income of the appellant. 11. During the course of scrutiny assessment proceedings, the Assessing Officer declined the tax credit claim of the assessee, in respect of tax of ₹ 3,72,698 deducted from its dividend earnings in the United States, on the ground that relief will be available on actual payment made in the return of income filed in USA and tax paid thereon and that tax credit cannot be given on simply TDS deducted from foreign dividend income . Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. It was explained by the assessee that he is resident in India for this assessment year, and that even his income earned in USA is subject to tax in hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed : (a) 15 per cent of the gross amount of the dividends if the beneficial owner is a company which owns at least 10 per cent of the voting stock of the company paying the dividends; (b) 25 per cent of the gross amount of the dividends in all other cases. Sub-paragraph (b) and not sub-paragraph (a) shall apply in the case dividends paid by a United States person which is a Regulated Investment Company. Sub-paragraph (a) shall not apply to dividends paid by a United States person which is a Real Estate Investment Trust, and sub-paragraph (b) shall only apply if the dividend is beneficially owned by an individual holding a less than 10 per cent interest in the Real Estate Investment Trust. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 3. The term dividends as used in this Article means income from shares or other r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also essential to bear in mind the fact that in order to avail the treaty benefits, it is not sufficient that the assessee is a resident of India under the Income Tax Act. The assessee is also required to satisfy the requirements of Article 4 for being termed as resident of a contracting state , i.e. India. In order to grant the tax credit, therefore, the Assessing Officer has to first examine whether the assessee is a resident of India under article 4 of the Indo US tax treaty, that amounts shown as dividends are actually in the nature of dividends, that US tax withholding is in accordance with the provisions of article 10, and, if that be so, grant a foreign tax credit for the amount of such tax withholding or Indian tax liability in respect of the related income- whichever is less. In case the US tax actually levied is in excess of the rate specified under article 10, the amount eligible for tax credit will remain confined to the amount computed on the basis of the rate prescribed under the Indo US tax treaty. 17. The assessee has filed detailed paper-book before us which has supporting evidences for tax withholding and the bank advices. These details were also filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which cases the tax withholding rate is 25%. While computing the admissible tax credits, all these aspects need to be examined including whether the characterization of income as dividend is correct, so as to ensure correct tax credit computation. We are, therefore, not inclined to accept the learned counsel s suggestion for restricting the tax credit to 25% of the dividend income, nor do we think that it is proper to examine all these evidences, in detail, for the first time at the stage of proceedings before this Tribunal. In our considered view, all these issues and evidences should be examined properly at the stage of the Assessing Officer in accordance with the scheme of the Act as set out above. In our considered view, the right course of action will be to remit the matter to the file of the Assessing Officer with the directions to compute the admissible tax credit in accordance with our observations above. The assessee is directed to furnish all the requisite evidence before the Assessing Officer, and will also be at liberty to raise such legal and factual issues as he may be advised to. The Assessing Officer will decide the matter afresh in accordance with the law, in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
