Foreign Tax Credit Can't Be Denied In Spite Of Accepting Computation: Madras High Court

The Madras High Court has held that the claim of foreign tax credit cannot be denied in spite of accepting the computation.

The bench of Justice Senthilkumar Ramamoorthy, on examining the company tax return and the activity statements, appears prima facie that the petitioner has remitted taxes through the Australian branch. It is clear that foreign tax credit in respect thereof was claimed by the petitioner by filing Form 67 with relevant annexures. On examining the intimation under Section 143(1) and the rectification order, the foreign tax credit was computed by the assessing officer, and the computation tallied with the foreign tax credit claim of the assessee. In spite of accepting the computation of the taxpayer, the tax credit relief was denied.

The petitioner/assessee filed the original return of income on 29.11.2022. The petitioner filed a revised return of income on 29.12.2022. In both the original and revised return of income, the petitioner had claimed the benefit of Foreign Tax Credit under Section 90/90A of the Income Tax Act read with Article 24 of the India-Australia Double Taxation Avoidance Agreement in respect of taxes paid by the Australian branch to the extent of Rs. 1,14,62,414.

In order to make the Foreign Tax Credit claim, the petitioner had uploaded Form 67, the business activity statements filed with the Australian Tax Office, and the company tax return filed in Australia.

Upon return being processed by the Central Processing Centre, under Section 143(1), a demand of Rs. 1,40,47,430 was made.

Upon examining the intimation, the petitioner noticed that a foreign tax credit was not granted. In those circumstances, a rectification petition dated 09.11.2023 was filed.

Since the rectification petition was rejected by once again denying the foreign tax credit, the writ petition was filed.

The assessee contended that the tax liability was about Australian dollars 231,460. The tax liability was duly discharged as evidenced by the petitioner's activity statement. The tax credit was claimed to the extent of Rs. 1,14,62,414 in view of the differential tax rates being applicable in India and Australia, respectively. As per the intimation under Section 143(1), the foreign tax credit was completely denied, although the same intimation computes the foreign tax credit in a sum equal to that claimed by the taxpayer. The rectification order is on the same lines, by which the tax relief is denied, on the one hand, whereas the computation reflects the total value of the foreign tax credit.

The department contended that the matter may be remanded for reconsideration with regard to the foreign tax credit.

The court held that the rectification order dated May 27, 2024, is set aside and the matter is remanded for reconsideration in so far as the Foreign Tax Credit claim is concerned. If there are any dues after taking into consideration such foreign tax credit claim and interest liability arising from, the petitioner shall discharge it.

Counsel For Petitioner: V.Vikram

Counsel For Respondent: V.Mahalingam

Case Title: Thejo Engineering Limited Versus The Deputy Director of Income Tax

Case No.: W.P.No.17394 of 2024

Click Here To Read The Order