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TMI Blog2021 (10) TMI 1011X X X X Extracts X X X X X X X X Extracts X X X X ..... Karnataka High Court in the case of Wipro vs DCIT [2015] 62 taxmann.com 26 (Karnataka) and other judicial precedents placed by the appellant on record on the ground that decision of the Karnataka High Court in the case of Wipro vs DCIT is in appeal before the Hon'ble Supreme Court. 2. That on the facts and circumstances of the case and in law, the Ld. AO has erred in withdrawing credit of taxes paid by appellant in Japan on export revenues from sale of software duly allowed in the original assessment order passed under section 143(3) of the Act dated 22 December 2006 without making any adverse inference on the same. 3. That on the facts and circumstances of the case and in law, the Ld. AO has erred in considering incorrect MAT tax rate @ 8.25% instead of the statutory rate of 7.69% provided under section 115JB of the Act. 4.That on the facts and in the circumstances of the cafe and in law, the Ld. AO has erred not granting interest under section 244A(a) of the Act from the first date of the assessment year and under section 244A(b) of the Act from the first date of paymentof tax, on the income-tax refund due, including refund arising on account of foreign tax credit 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king MAT @ 9.75% instead of 7.69% as provided u/s115JB of the Act. 10. It would not be out of place to point out that during the original assessment proceedings, there was no error in calculation of net liability. It is only in the remand proceedings, and in particular, the rectification order that the Assessing Officer calculated the MAT liability incorrectly. 11. In so far as the claim of 100% credit tax paid in Japan is concerned, this issue was considered by this Tribunal in the case of HCL Comet in ITA No. 5555/DEL/2014, 6162/DEL/2013 and 835/DEL/2014. The relevant findings of the coordinate bench read as under: "48. Facts on record show that during the year under consideration, the assessee has PE in USA and accordingly paid tax in USA on the income arising therefrom. The income which was subjected to tax in USA was included in the total income computed for payment of tax in India. However, in respect of the said income earned from USA, the assessee claimed deduction u/s 10A of the Act in the return of income filed in India and did not claim credit of foreign taxes. 49. Subsequently, the Hon'ble High Court of Karnataka in the case of Wipro Ltd [supra] clarified the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into an agreement with the Government of any country outside India for the granting of relief, inter alia, in respect of income-tax chargeable under the Income-tax Act or under the corresponding law in force in that country to promote mutual economic relations, trade and investment." 29. The memorandum explaining provisions in the Finance Bill 2003 reads as follows: "Double Taxation Avoidance Agreements- extending the scope to include agreements for developing mutual trade and investment Under the existing section 90, the Central Government may enter into an agreement with the Government of any country outside India for granting of relief in respect of income on which have been paid both income-tax under the Income-tax Act and incometax in that country, or for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country, etc. In order to encourage international trade and commerce, it is proposed to insert a new clause in sub-section (1) of Section 90 so as to provide that the Central Government may also enter into an agreement with the Government of any country outside India, for granting relief in respect of income-tax c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the notification issued by the Central Government in the Official Gazette in this behalf." 30. Sub-section (1) lays down that the Central Government may enter into an agreement with the Government of another country. Clause (a) (i) contemplates situation when tax is already paid on the same income in both the countries and it empowers the Central Government to grant relief in respect of such double taxation. Clause (b) which is wider than clause (a) provides that any agreement may be made for the avoidance of the double taxation of income under the Act and under the corresponding law in force in that country. Clauses (c) and (d) essentially deals with the agreements made for the exchange of information, investigation of cases and recovery of income tax. With effect from 1.4.2004, clause (a)(ii) was substituted to provide for entering into an agreement for granting relief in respect of income tax chargeable under this Act and under corresponding law in force in that country, to promote mutual economic relations, trade and investment. With this amendment the power of the Central Government has been greatly widened and it can now enter into agreement not only for avoidance of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will prevail over the general provisions contained in the Income Tax Act, 1961. In fact the Double Taxation Avoidance Agreements which have been entered into by the Central Government under Section 90 of the Income Tax Act, 1961, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective country except where provisions to the contrary have been made in the agreement. Thus where a Double Taxation Avoidance Agreement provided for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income Tax Act. Where there is no specific provision in the agreement, it is the basic law i.e., Income tax Act that will govern the taxation of income." 35. It is necessary to notice that if no tax liability is imposed under this Act, the question of resorting to the agreement would not arise. No provision of the agreement can possibly fasten a tax liability where the liability is not imposed by the Act. 36. The Apex Court had an occasion to go into the validity of the agreements entered into under these provisions and their enforceability in the case of Union of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sure is needed to give effect to the agreement or treaty. When it comes to fiscal treaties dealing with double taxation avoidance, different countries have varying procedures. In the United States such a treaty becomes a part of municipal law upon ratification by the Senate. In the United Kingdom such a treaty would have to be endorsed by an order made by the Queen in Council. Since in India such a treaty would have to be translated into an Act of Parliament, a procedure which would be time consuming and cumbersome, a special procedure was evolved by enacting section 90 of the Act." 37. It is in this background, when we notice Section 90 of the Act - relief from double taxation is granted in the following circumstances. Firstly, Section 90 (1)(b) of the Act speaks about avoidance of double taxation i.e., Central Government may enter into an agreement with the Government of any country for the avoidance of double taxation of income under this Act and under the corresponding law in force in other country i.e., when tax is payable on income under this Act as well as under the corresponding law in that country they could agree to tax in one country. This happens even before pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, if the benefit is extended to a portion of the income say for example 90% and 10% is subjected to tax then to that extent the assessee would be entitled to benefit of tax credit as he has paid tax in the foreign jurisdiction as per Section 90 (1)(a)(i) of the Act. 41. In this connection, it is contended on behalf of the Revenue that if the income is chargeable to tax in India, then only the assessee can have the benefit of tax credit in respect of the tax paid in foreign jurisdiction. In respect of exemption under Section 10A, the income derived is not included in the total income. It is not charged to income tax. Therefore, Section 90 of the Act has no application at all. 42. Section 4 of the Act is the charging section. It provides, "Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and (subject to the provisions (including provisions for the levy of additional income tax) of this Act) in respect of the total income of the previous year of every person". Sub-section (2) of Section 4 provides, "In respect of income ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chapter VI-A deductions are given from out of the gross total income. The term "gross total income" is defined in section 80B(5) to mean the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter. As per the definition of gross total income, the other provisions of the Act will have to be first given effect to. There is no reason why reference to the provisions of the Act should not include Section 10A. In other words, the gross total income would be arrived at after considering section 10A deduction also. Therefore, it would be inappropriate to conclude that section 10A deduction is to be given effect to after Chapter VI-A deductions are exhausted. 52. Section 10A (1) speaks of "deduction". The deduction is of profits and gains for a period of ten consecutive assessment years. The said deduction is from the total income of the assessee. Therefore, the total income before allowing the said deduction includes the profits and gains from the business referred to in Section 10A(1). Section 5 of the Act explains the scope of total income to mean all income from whatsoever source derived. Section 4 of the Act charges this t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional duty etc. under the Act, as already noticed, flows from the provisions of Section 25(1) of the Act. The power to exempt includes the power to modify or withdraw the same. The liability to pay customs duty or additional duty under the Act arises when the taxable event occurs. They are then subject to the payment of duty as prevalent on the date of the entry of the goods. An exemption notification issued under Section 25 of the Act had the effect of suspending the collection of customs duty. It does not make items which are subject to levy of customs duty etc. as items not leviable to such duty. It only suspends the levy and collection of customs duty, etc. wholly or partially and subject to such conditions as may be laid down in the notification by the Government in "public interest". Such an exemption by its very ;nature is susceptible of being revoked or modified or subjected to other conditions. The supersession or revocation of an exemption notification in the "public interest" is an exercise of the statutory power of the State under the law itself as is obvious from the language of Section 25 of the Act.' 55. Similarly, the Apex Court in the case of Wallace Flo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates, whether directly or by deduction. Such deduction shall not, however, exceed that part of the income-tax (as computed before the deduction is given) which is attributable to the income which may be taxed in the United States." 59. 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 allow as a deduction from the tax on the income of the resident, amount equal to the income 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 such tax paid in United States of America. The said provision does not speak of any income tax being paid by the resident Indian under the Income-tax Act as a condition precedent for claiming the said benefit. Where the Indian resident pays no tax on such income derived, whereas the said income is taxed in the United States, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in the United States. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id in the same calendar year in United States of America is to be accounted for two financial years in India. Of course, this exercise should be done by the assessing authority on the basis of the material to be produced by the assessee." 53. The issue raised by the ld. DR has been answered by the Hon'ble High Court of Karnataka and therefore, needs no separate adjudication. Respectfully following the decision of the Hon'ble Karnataka High Court, we direct the Assessing Officer to consider the claim of foreign tax credit as per the directions of the Hon'ble Karnataka High Court mentioned elsewhere. The assessee is directed to furnish necessary evidences before the Assessing Officer. The additional ground is, accordingly, decided in favour of the assessee." 12. We find that the India-Japan DTAA is worded in similar lines with that of India-USA DTAA. Therefore, the aforesaid decision quoted by this Tribunal [supra] squarely applies on the facts of the case in hand. Therefore, we direct accordingly. 13. Next ground relates to application of incorrect rate of MAT. 14. We direct the Assessing Officer to consider the applicable rate of MAT for the year under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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