Residence Country Can't Deny Credit On Taxes Levied By Source Country: Mumbai ITAT Grants Treaty Benefit To Amarchand Mangaldas
Pankaj Bajpai
24 Oct 2024 3:37 PM IST
The Mumbai ITAT ruled that tax credit cannot be denied in cases where the interpretation of the residence country about the applicability of a treaty provision is not the same as that of source jurisdiction about the provision and yet the source country had levied taxes directly or by way of tax withholding. The Bench of Beena Pillai (Judicial Member) and Ratnesh Nandan...
The Mumbai ITAT ruled that tax credit cannot be denied in cases where the interpretation of the residence country about the applicability of a treaty provision is not the same as that of source jurisdiction about the provision and yet the source country had levied taxes directly or by way of tax withholding.
The Bench of Beena Pillai (Judicial Member) and Ratnesh Nandan Sahay (Accountant Member) clarified that that the DTAA provisions eliminate double taxation in all cases where the state of source has imposed its tax by applying to an item of income.
Facts of the case
The assessee/ Appellant has provided professional services to clients in Japan, without having a fixed base or presence for more than 183 days in Japan. Although TDS was deducted by Japanese entities and credit of Rs.1,10,93,772/- was claimed in the ITR filed in India by the assessee. The AO however denied credit of such withholding tax to assessee in India as a receipt is not taxable in Japan and thus, the tax was not required to be withheld, as it was in nature of independent personal services.
Observation of the Tribunal
The Bench found that the Coordinate Bench had already decided an identical issue in favour of the appellant during AY 2014-15.
The Coordinate Bench has held that Article 14 of the India-Japan DTAA was applicable only to individuals and thus not applicable to the Appellant, which is a partnership firm, added the Bench.
The Bench reiterated that the fees earned by the Appellant firm in Japan was taxable as fees for technical services under Article 12 and that the FTC ought to have been granted to the appellant firm for the taxes withheld in Japan.
Further, the Bench reiterated that when the source jurisdiction has taken a reasonable and bonafide view, which is not manifestly erroneous, that taxes should be withheld at source, then FTC should be provided by the resident jurisdiction even though the legal position in the residence jurisdiction may not be the same.
Accordingly, the ITAT concluded that India should provide FTC for the taxes withheld in Japan, following the decision in case of Assessee's affiliate Cyril Amarchand Mangaldas for AY 2017-18 and AY 2018-19.
Thus, respectfully following the decision of the coordinate bench, the ITAT held that the appellant is entitled to get FTC in respect of tax withheld in Japan, and allowed Assessee's appeal.
Counsel for Appellant/ Assessee: Sunil M. Lala
Counsel for Respondent/ Revenue: Soumendu Kumar Dash
Case Title: Amarchand Mangaldas & Suresh A Shroff & Co. versus ACIT
Case Number: ITA No.852/M/2024
