TMI Blog2023 (9) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... P that no foreign tax credit can be granted to the assessee. It is not disputed that the same income has been offered in USA and suffered tax thereon. Therefore, an income that has already suffered tax, if the same suffers tax in other countries that would amount to double taxation which is not the intent of law. If the finding of lower authority regarding place of effective management is presumed to be correct, in that case, no tax could be charged as the transaction took place off shores and income was generated in USA. Therefore, considering the totality of the facts, we hereby direct the AO to allow foreign tax credit to the assessee. Grounds raised by the assessee are hence, allowed. - SHRI G.S. PANNU, PRESIDENT SHRI KUL BHARAT, JUDICIAL MEMBER For the Appellant : Shri Pradeep Dinodia, CA For the Respondent : Shri Bhuvnesh Kulshrestha, CIT DR ORDER PER KUL BHARAT, JUDICIAL MEMBER : The present appeal filed by the assessee is directed against the order of Assessing Officer passed u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 ( the Act ) dated 15.07.2022 for the Assessment Year ( AY ) 2018-19 . 2. The assessee has raised followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income for the year under consideration on 30.10.2018 declaring total income at INR 1,16,81,110/-. The case was selected for limited scrutiny for the reason Double Taxation relief u/s 90/91 . Thereafter, a draft assessment order was passed u/s 143(3) of the Act on 28.09.2021 whereby the claim of the assessee regarding foreign tax credit amounting to INR 28,73,223/- was rejected. Against this, the assessee filed its objection before Ld. Dispute Resolution Panel ( DRP ). Ld.DRP also did not accept the objections of the assessee and rejected the claim of the assessee. Thereafter, the AO passed the impugned assessment order thereby, disallowing the claim of the assessee regarding foreign tax credit. 4. Aggrieved against this, the assessee preferred appeal before this Tribunal. 5. Apropos to Grounds of appeal Nos. 1 to 5 raised by the assessee are against the rejection of claim of foreign tax credit. 6. Ld. Counsel for the assessee vehemently argued that authorities below were not justified in not granting the foreign tax credit amounting to INR 28,73,223/-. The assessee is a company and is a wholly owned subsidiary of Sage Metals Private Limited ( SMPL ), a company inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers in U.S. SII collects the goods exported by Sage India to the US at the US port and then undertakes their storage, marketing, distribution in USA only. Residential Status and Taxability of SII as per the provision of Income Tax Act The assessee company is a foreign company domiciled in USA and accordingly its incomes are taxable in the USA as per US domestic law based on source taxation rule by virtue of its incorporation. Thus, the assessee company since its incorporation had been paying tax only in USA in earlier years. However, in AY 2018-19, SII was deemed to be resident in India and the income of SII also became liable to be taxed in India based on place of effective management (POEM) as a result of introduction of the POEM provisions vide see 6(3)(ii) of the Income Tax Act effective from A Y 2017-18 which provide as follows: A company is said to be a resident in India in any previous year, if- (i) it is an Indian company; or (ii) its place of effective management, in that year, is in India. Explanation.-For the purposes of this clause place of effective management means a place where key management and commercial decisions tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During the DRP proceeding, the assessee company had explained the matter via virtual hearing attended on 27.12.2021 14.06.2022 and had also furnished the minutes of the board meetings held for the year under consideration for determining the Place of Effective Management (POEM) vide letter dated 14.06.2022 (Refer Page No. 205-208 of PB). The Hon'ble DRP passed its directions on 16.06.2022, confirms the draft order of the Ld. AO and rejected the objections of the assessee by holding that assessee has not been able to prove that it has a POEM in India and no proof has been given by the assessee that the directors were present in India on the date of meeting. The Ld. DRP also determined the status of the assessee as non-resident in India. (Refer Para 4.7 to 4.10 of DRP Directions) Thereafter, the Ld. AO passed the final assessment order on 15.07.2022 u/s 143(3) r.w.s 144C(13) of the Act incorporating the directions of the Hon'ble DRP and rejected the foreign tax credit (FTC) as claimed by the assessee and determined the status of the assessee as non-resident in India. However in the table given on the first page of assessment order the residential status of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for a non-resident is relevant, reproduced as follows: Subject to the provisions of this Act, tile total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- a) is received or is deemed to be received in India in such year by or on behalf of such person; or b) accrues or arises or is deemed to accrue or arise to him in India during such year. Further, section 9 of the Act defines income that shall be deemed to accrue or arise in India. In the present case, sub clause (i) which pertains to the taxability due to business connection is relevant, reproduced as follows: 9.(1) The following incomes shall be deemed to accrue or arise in India:- (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India On perusal and analysis of the above, any income arising to a non- resident which is received or deemed to be received or accrues or arises or is deemed to be acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Basis of Charge to Tax - India USA DTAA - Article 7 Article 7 of the DTAA states, the profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment (Article 5) situated therein. Relevant extract of Article 7 of India US DTAA is reproduced herein below for your reference. Article 7 - The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in tile other Contracting State through a permanent establishment situated therein. The aforesaid Article provides that if the income earned by the recipient is in the nature of business income, then it shall be taxable only in the state of their residence (i.e. USA in the instant case). However, it may also be taxed in the other state (i.e. India) if such person. has any permanent establishment in India. In the instant case, it is undisputed that, SII has no PE in India. Refer No-PE Declaration at Pg. No. 134 of PB. Therefore, it's income will be taxed only in USA. Hence, from the, above facts and on perusal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as tire case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. Therefore, as per See 90(2), where the government has entered into agreement with the Government of any country outside India for granting relief of tax, the provisions of this Act shall apply to the extent they are more beneficial to the assessee. Rule 128(1) of the Income Tax Rules, 1962 provides that Foreign Tax Credit is allowable in the year in which the income corresponding to such tax has been offered to tax or assessed to tax in India. Since, during the year under consideration the assessee company has offered all the income earned in USA to tax in India as depicted in the computation of income (Enclosed at Pg. No. 114 of PB) and not disputed by Id. AO, therefore, the company shall be eligible to claim the benefit of foreign tax paid in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nforced by the appellate authorities and the Court. Accordingly, it is submitted, that if a charge to tax in India is not imposed on a receipt sourced in India, under the domestic Indian Income tax Act, then the same cannot be brought to tax in India through the DTAA that India has with the other contracting state. Thus, the Ld. AO rejecting the claim of Foreign Tax Credit (FTC) by relying on the DTAA provision, is bad in law, since it was not opted for by the assessee, as the provisions of the Act being more beneficial to the assessee. Therefore, rejecting the FTC credit of the assessee by applying the supremacy of Article 4(3) of India USA DTAA over Income Tax provisions are erroneous, illegal and against the principle of law, which are prayed not to be upheld. Erroneous interpretation of the application of the Place of Effective Management (POEM) Provision - Sec 6 (3)(ii) It is respectfully submitted that the Ld. AOIDRP had erred in law by determining that application of the Place of Effective Management (POEM) is not available at the choice of the assessee. (Refer Para 8.2 of the Final Assessment order). Relevant extract of the order is as below. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign companies which become resident in India due to the introduction of the Place of Effective Management (POEM) provisions as per the section 6(3)(ii) of the Income Tax Act. The language of the notification, overrides the provisions of the Income Tax Act including the provisions of the Act relating to the computation of total income and provides special provisions in relation to avoidance of tax applying with exceptions, modifications and adoptions, as maybe applicable to foreign companies which are deemed as resident as per the provision of see 6(3)(ii) of the Act i.e. due to applicability of POEM. As per the clause (xiii) of the above notification, a foreign company to whom POEM applies shall be entitled to relief or deduction of taxes paid in accordance with the provisions of section 90 91 of the Act. Relevant extract of notification dated 22 nd June 2018 is reproduced herein below for your reference. A. in a case where a foreign company is said to be resident in India on account of its Place of Effective Management (hereinafter referred to as PoEM) being in India under sub-section (3) of section 6 of the Act in any previous year and such foreign company has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r submitted that in addition to the above finding of the Ld. AO, the Hon'ble DRP in Para 4.9 4.10 rejected the FTC Credit by holding that assessee has not been able to prove that it has a POEM in India and no proof has been given by the assessee that the directors were present in India on the date of meeting. It is submitted that Hon'ble DRP specifically directed the assessee to submit minutes of board meetings held by the assessee in India, which was furnished before the DRP (as well as Ld. AO. at the time of assessment). However the proof of the directors present in India though available with the assessee in the form of passports and details of travel journey as per the official website of USA, was not asked by Ld. DRP. Thus the basis on which Hon'ble DRP rejected the residential status of the assessee and consequent FTC claim, is not correct on the facts of the case of the assessee. GROUND NO.5 - WITHOUT PREJUDICE TO GROUND NO.2 TO 4, THE LD. DRP/AO HAVE GROSSLY ERRED IN LAW AND ON FACTS, IN DISALLOWING THE FOREIGN TAX CREDIT (FTC) CLAIMED BY THE ASSESSEE SUCH THAT IT RESULTS IN CASE OF DOUBLE TAXATION WHICH IS AGAINST THE PRINCIPLES OF TAXATION. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief or deduction of taxes paid in accordance with See 90 or 91 of the Act. Your honor would appreciate that section 91 applies to the cases where there is no agreement 'exist between the countries. When the POEM rule provides the benefit of FTC with the countries with no agreement, it cannot provide for the denial of FTC credit for the countries with which there exists an agreement. This is not the intention of law it is respectfully submitted. However, in the instant case the Ld. AO had rejected the Foreign Tax Credit to the assessee without considering the fact, that the income pertaining to the foreign tax credit which has already suffered tax in the USA is also offered to tax in India. A copy of the extract of the US Tax Return reflecting the income offered in USA and tax paid therein is enclosed at Pg. No. 124-129 of PB and the copy of bank statement of tax paid in USA enclosed at Pg. No. 130-133 of PB. Therefore, rejecting the Foreign Tax Credit in India on one hand and taxing the same income in India on the other would lead to the situation of gross double taxation which is against the principles of taxation. In support of the above, reliance is placed the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. Reliance is also placed on - Laxmipat Singhania v. CIT [(1969) 72 ITR 291] (sq] - It is a fundamental rule of the law of taxation that, unless otherwise expressly provided, income cannot be taxed twice H.H. Prince Azam Jha Bahadur v. Expenditure tax Officer [[1972] 83 ITR 92 (SC)] - It is only when there are general words of taxation and they have to be interpreted that they cannot be so interpreted as to tax the subject twice over to the same tax. There is nothing in the Act which does away with the principle that, in the absence of an express provision, the same item will not be taxed over again. Bhim Sen Khosla v. CIT [133 ITR 667 (Delhi) (Hq] - The impugned interest income was assessable under section 8 only in the previous year of its receipt, i.e., the assessment year 1961-62. It is a fundamental rule of the law of taxation that, unless otherwise provided, income cannot be taxed twice. Consequently, it was necessary for the department to consider the most appropriate manner to work at the relief thus admissible to the assessee Considering the above facts and jurisprudence, it is respectfully submitted that taxing the income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DT dated 22.06.2018 i.e. Notification 29/2018 the benefit would be available to the assessee. It is contended that the relevant evidences regarding place of effective management was provided to the Ld.DRP. Reliance was placed upon the judgement of Hon ble Gujarat High Court in the case of Pr. CIT Vs. Adani Infrastructure Developers Pvt. Ltd. (2021) 129 taxmann.com 54 (Gujarat). Before us, Ld. Counsel for the assessee has also pointed out regarding the US tax return reflecting the income offered in US and tax paid therein. After considering the facts placed before us, we are unable to affirm the view of Ld.DRP that no foreign tax credit can be granted to the assessee. It is not disputed that the same income has been offered in USA and suffered tax thereon. Therefore, an income that has already suffered tax, if the same suffers tax in other countries that would amount to double taxation which is not the intent of law. Moreover, if the finding of lower authority regarding place of effective management is presumed to be correct, in that case, no tax could be charged as the transaction took place off shores and income was generated in USA. Therefore, considering the totality of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
