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TMI Blog2018 (9) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee Company for credit of withholding tax amounting to Rs. 26,99,165/- deducted by M/s Uniparts USA Ltd., USA on interest paid to the assessee Company. 3. That the Ld. Appellate Authority has failed to appreciate the fact that the assessee Company had to suffer double tax on interest income earned from Uniparts USA Ltd. as a sum of Rs. 26,99,165/- has been deducted by Uniparts USA Ltd., USA as "With-holding Tax, the credit of which has not been allowed to the assessee Company and the assessee Company had also paid income tax on interest earned from Uniparts USA Ltd. in India as per the provisions of Income Tax Act, 1961. 4. That Ld. Appellate Authority has not considered the fact that the assessee Company is resident in India since its registered office and the manufacturing units are situated in India and in accordance with the provisions of sec. 5(1) of the Income Tax Act, 1961 is liable to be taxed on all its income in India whether earned in India or outside India. Accordingly, interest income earned in USA is also liable to be taxed in India and thus eligible to take credit of "Withholding Tax" deducted on income earned in USA." Except for the variation in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... country, where tax is also payable on the same income in the source country, thus ensuring that same income is not subject to taxation in two countries. In other words where an assesses is taxable in respect of a particular income in one country and has paid tax thereon and filed its Return of Income in that country including that income and the same income is also taxable in India, then in such a situation the assessee can claim credit for tax paid in such other country by submitting a copy the Return of income filed in that country, wherein the said income & tax paid thereon is duly reflected. b. There is no scheme in D'J'AA for the residence country to give credit to the tax withheld in the source country, even though the corresponding income is not taxable in such source country, chiefly because the said income has not suffered any double taxation. Here it is pertinent to state that TDS or withholding of tax is only a mode of collection of tax (as a precautionary measure) and is not the ultimate test of taxability of such income, in case of any YDS or Withholding of Tax which is not due from the assessee then such tax collecting authority is bound to return the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the facts and circumstances of the case, I am of the view that the assessee is not eligible for any TDS credit in India or for any relief under the DTAA with USA and accordingly the appeal of the assessee is dismissed." 5. Before us, ld. counsel for the assessee, Shri R.S. Singhvi, submitted that, once TDS has been deducted by the US company while remitting the interest, and the same interest income has been declared as income assessable to tax in India in terms of Section 5, then credit of the tax has to be given as per Article 25 of the DTAA. The observation of the ld. CIT (A) that the assessee should have taken refund in US is not correct, because interest income was liable to be withholding tax in US as per Article 11 of DTAA and domestic laws of US and as such there was no occasion for the assessee to claim refund of the tax deducted. He also made reference to the Rule 128 which pertains to foreign tax credit which shall be allowed to the resident with the tax paid by him outside India. He further relied upon the judgment of ITAT Ahmedabad Bench in the case of Bhavin A. Shah vs. ACIT (2017) 151 DTR (Ahd) (Trib) 97. Thus, he submitted that Assessing Officer could not have d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and according to the laws of that State but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed : (a) 10 percent of the gross amount of the interest if such interest is paid on aloan granted by a bank carrying on a bona fide banking business or by a similar financial institution (including an insurance company) ; and (b) 15 per cent of the gross amount of the interest in all other cases." 8. Ergo, paragraph 1 clearly states that if the interest is arising in a source state which is paid to the resident state then it may be taxed in the resident state. This inter alia means that interest arising in a source state is liable to be taxed in the resident state. Paragraph 2 however lays down that such interest may also be taxed in the source state in which it arises and according to law of the source state but if the beneficial owner is the resident state then the tax was charged shall not exceed 10% as per clause (a) and 15% as per clause (b). Thus, interest can also be taxed in the source state in which it arises according to laws of the source state and then in that case the tax so charged shall not exceed 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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