The concept of giving credit for the taxes paid in foreign country against the income earned in that country first seems to have emanated in USA during 1918 after World war-I. After technical amendments, the Act was passed in 1958 where tax payers were allowed to carry their unused foreign taxes forward five years or back by two years. Latter on countries have started signing in DTAA’s with other countries to address this double taxation issue specifically to ease out the tax burden of their residents. Thus, relief for taxes paid in foreign country is given to tax payer while taxing the same income in the home country and this is termed as Foreign Tax Credit (FTC).
The concept of
claiming deduction or credit of taxes paid in Source State against tax liability
in Residence State is called Foreign
Tax Credit.
Foreign
Tax credit – Indian perspective
India has recognized the concept
of Foreign Tax Credit in the Income Tax Act, it is specifically addressed by
Section 90 and Section 91 of the Income Tax Act, 1961. Section 90 discusses claiming of FTC in a case where India has
entered into a Double Taxation Avoidance Agreement (DTAA) with another country
and such DTAA provides for claiming of such FTC and Section 91 addresses
credit for those cases where India has not
entered into a DTAA with the country where the income arises for a taxpayer
i.e. no DTAA is in force with that overseas jurisdiction. Under these sections, if the taxpayer is a resident of
India, and he has paid taxes outside India, he can claim a credit of such
foreign taxes paid against his tax payable in India.
Prescribe
the method of allowing the foreign tax credit [Rule 128]
In line with various decisions of
the court and to put rest to the ambiguity on the subject, CBDT had notified
Rule 128 to prescribe the method of allowing the foreign tax credit. Salient
features of the rule are given below :-
Applicability of the rule 128
(i)
Comes into force with effect from 01.04.2017.
(ii)
Available only for residents for the
amount of foreign taxes paid by him in a foreign country.
(iii)
Credit is available only if income
corresponding to the taxes is offered for tax or assessed to tax in India
during the year in which the credit is claimed.
(iv)
In the cases where the income for
which the foreign taxes paid or deducted is offered to taxes for more than one
year, the credit will be given across the years in the same proportion to which
the income is offered to tax in India.
Text
of Rule 128 of Income Tax Rules, 1962
FOREIGN TAX CREDIT.
128. (1) An assessee, being a resident
shall be allowed a credit for the amount of any foreign tax paid by him in a
country or specified territory outside India, by way of deduction or otherwise,
in the year in which the income corresponding to such tax has been offered to
tax or assessed to tax in India, in the manner and to the extent as specified
in this rule :
PROVIDED that in a case where income
on which foreign tax has been paid or deducted, is offered to tax in more than
one year, credit of foreign tax shall be allowed across those years in the same
proportion in which the income is offered to tax or assessed to tax in India.
(2)
The foreign tax referred to in sub-rule (1) shall mean,—
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(a) |
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in respect of a country or specified territory outside
India with which India has entered into an agreement for the relief or
avoidance of double taxation of income in terms of section 90 or section 90A,
the tax covered under the said agreement; |
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(b) |
|
in respect of any other country or specified territory
outside India, the tax payable under the law in force in that country or
specified territory in the nature of income-tax referred to in clause (iv) of
the Explanation to section 91. |
(3)
The credit under sub-rule (1) shall be available against the amount of tax,
surcharge and cess payable under the Act but not in respect of any sum payable
by way of interest, fee or penalty.
(4)
No credit under sub-rule (1) shall be available in respect of any amount of
foreign tax or part thereof which is disputed in any manner by the assessee:
PROVIDED that the credit of such disputed tax
shall be allowed for the year in which such income is offered to tax or
assessed to tax in India if the assessee within six months from the end of the
month in which the dispute is finally settled, furnishes evidence of settlement
of dispute and an evidence to the effect that the liability for payment of such
foreign tax has been discharged by him and furnishes an undertaking that no
refund in respect of such amount has directly or indirectly been claimed or
shall be claimed.
(5)
The credit of foreign tax shall be the aggregate of the amounts of credit
computed separately for each source of income arising from a particular country
or specified territory outside India and shall be given effect to in the
following manner:—
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(i) |
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the credit shall be the lower of the tax payable under the
Act on such income and the foreign tax paid on such income : |
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PROVIDED that
where the foreign tax paid exceeds the amount of tax payable in accordance
with the provisions of the agreement for relief or avoidance of double
taxation, such excess shall be ignored for the purposes of this clause; |
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(ii) |
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the credit shall be determined by conversion of the
currency of payment of foreign tax at the telegraphic transfer buying rate on
the last day of the month immediately preceding the month in which such tax
has been paid or deducted. |
(6)
In a case where any tax is payable under the provisions of section 115JB or
section 115JC, the credit of foreign tax shall be allowed against such tax in
the same manner as is allowable against any tax payable under the provisions of
the Act other than the provisions of the said sections (hereafter referred to
as the "normal provisions").
(7)
Where the amount of foreign tax credit available against the tax payable under
the provisions of section 115JB or section 115JC exceeds the amount of tax
credit available against the normal provisions, then while computing the amount
of credit under section 115JAA or section 115JD in respect of the taxes paid
under section 115JB or section 115JC, as the case may be, such excess shall be
ignored.
(8)
Credit of any foreign tax shall be allowed on furnishing the following
documents by the assessee, namely:—
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(i) |
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a statement of income from the country or specified
territory outside India offered for tax for the previous year and of foreign
tax deducted or paid on such income in Form No.67 and verified in the manner
specified therein; |
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(ii) |
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certificate or statement specifying the nature of income
and the amount of tax deducted therefrom or paid by the assessee,— |
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(a) |
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from the tax authority of the country or the specified territory
outside India; or |
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(b) |
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from the person responsible for deduction of such tax; or |
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(c) |
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signed by the assessee: |
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PROVIDED that
the statement furnished by the assessee in clause (c) shall be valid if it is
accompanied by,— |
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(A) |
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an acknowledgement of online payment or bank counter foil
or challan for payment of tax where the payment has been made by the
assessee; |
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(B) |
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proof of deduction where the tax has been deducted. |
(9)
The statement in Form No.67 referred to in clause (i) of sub-rule (8) and the
certificate or the statement referred to in clause (ii) of sub-rule (8) shall
be furnished on or before the due date specified for furnishing the return of
income under sub-section (1) of section 139, in the manner specified for furnishing
such return of income.
(10)
Form No.67 shall also be furnished in a case where the carry backward of loss
of the current year results in refund of foreign tax for which credit has been
claimed in any earlier previous year or years.
Explanation.
- For the purposes of this rule 'telegraphic transfer buying rate' shall have
the same meaning as assigned to it in Explanation to rule 26.
Basic
Credit Provision - Eligibility to claim FTC [ Rule 128(1)]
Rule 128(1) provide
that a resident assessee will be eligible to claim FTC if any tax has been paid
by him in a country or specified territory outside India. Grant of FTC shall be
allowed only in the year in which the income corresponding to such tax has been
offered to tax or assessed to tax in India.
Assessee being a
resident shall be allowed a credit for the amount of any foreign tax paid by
him in a country or specified territory outside India:
(a) By way of deduction or otherwise
(b)
Year of credit – In the year in which income corresponding to such tax has been
offered to tax / assessed to tax in India – Where income has been offered to
tax in more than one year, foreign tax credit shall be allowed across those
years proportionately
The rule further
provides that where income on which foreign tax has been paid or deducted, is
offered to tax in more than one year, credit of foreign tax shall be allowed
across those years in the same proportion in which the income is offered to tax
or assessed to tax in India.
Eligible
Foreign Taxes on which relief is allowed [Rule 128(2)]
Rule 128(2) provide that where a
Double Taxation Avoidance Agreement (Covered
under section 90/90A of the Income Tax Act) has been
entered between India and the foreign country, eligible foreign tax shall be
the taxes covered under the respective DTAA.
No DTAA with India (Section 91 of
Income Tax Act) – Tax payable under the law in force in that country (as
referred to in clause (iv) of Explanation to section 91)
However, where no DTAA has been
entered between India and the foreign country, eligible foreign tax shall mean
the tax payable under the law in force in that country in the nature of
income-tax referred to in clause (iv) of the Explanation to section 91 of the
Act.
Foreign Tax Credit available
against (i.e. Utilization of Foreign
Tax credit) [Rule 128(3)]
(a)
Foreign Tax credit is eligible for adjustment against the tax, surcharge
and cess payable under the Income Tax Act.
(b)
Foreign Tax credit cannot be adjusted against interest, fee or penalty
payable under the Income Tax Act.
(c)
Foreign Tax credit is not available in case foreign tax or part thereof
is disputed by the assesse in any manner.
Eligible Foreign
Taxes on which relief is allowed
Where
a Double Taxation Avoidance Agreement (DTAA) has been entered between
India and the foreign country, eligible foreign tax shall be the taxes covered
under the respective DTAA.
However, where no DTAA has been entered between India
and the foreign country, eligible foreign tax shall mean the tax payable under
the law in force in that country in the nature of income-tax referred to in
clause (iv) of the Explanation to section 91 of the Act.
Determination
of Foreign Tax Credit (FTC)
quantum
(a) FTC UNDER NORMAL
PROVISIONS:
(i)
Calculate credit for each source of
income separately for a specific country and aggregate
(ii)
The rate of exchange to be taken for
this purpose is TT buying rate on the last day of the month immediately
preceding month in which the tax is paid or deducted.
(iii)
The tax payable under the act on
such income or the foreign tax paid whichever is lower is eligible as FTC.
However, while considering the foreign tax paid, it cannot exceed the amount
arrived as per DTAA with that country.
(iv)
Aggregate credit eligible for each
country arrived above to calculate total FTC eligibility.
(b) FTC UNDER MAT
(i)
FTC is to be calculated similar to
that of normal provisions
(ii)
FTC adjusted against MAT cannot
exceed tax credit available under normal provisions
Mechanism to compute the amount of FTC
available
(i) The FTC shall be computed for each
source of income arising from each country.
(ii) The credit allowable shall be lower of tax
payable under the Income Tax Act on such income and actual foreign tax paid on
such income.
(iii)
In case where the foreign tax paid exceeds the amount of tax payable according
to the Double Tax Avoidance Agreement, such excess shall be ignored.
Disputed Foreign
Tax Credit - No credit shall be available in
respect of any amount of foreign tax or part thereof which is disputed in any
manner by the assessee [Rule 128 (4)]
Rule 128(4) provide that no credit of foreign tax (part or full) which is
disputed in any manner shall be available.
However, proviso to sub-rule 4 takes
into consideration situation where the dispute in relation to foreign tax
credit has settled. Proviso to sub-rule 4 provides that credit of such disputed
tax shall be allowed for the year in which such income is offered to tax or
assessed to tax in India if the assessee within six months from the end of the
month in which the dispute is finally settled, furnishes the following:
(a) evidence of settlement of
dispute,
(b) evidence of discharge of such
disputed foreign tax, and
(c) an undertaking that no refund in
respect of such amount has directly or indirectly been claimed or shall be
claimed.
Manner of calculating of Foreign
Tax Credit [Rule 128 (5)]
Rule 128(5) provide that credit of
foreign tax shall be the aggregate of the amounts of credit computed separately
for each source of income arising from a particular country. Further, the
credit allowable shall be the lower of the tax payable under the Act on such
income and the foreign tax paid on such income.
Proviso to clause (i) of sub-rule 5
clarifies that where foreign tax paid exceeds tax payable in accordance with
DTAA, such excess shall be ignored. In other words:
(a)
Credit of foreign tax shall be the aggregate of amounts of credit computed
separately for each source of income arising from a particular country or
specified territory
(b) Amount of Credit, lower of the two:
(i)
tax payable under the Act on such income or
(ii)
the foreign tax paid on such income
Excess of foreign tax paid over and
above tax payable in accordance with DTAA shall be ignored
In other words, a separate
calculation would be required to be made on each and every stream of income
arising from each and every foreign country individually in accordance with the
manner prescribed. The aggregate of such different FTCs computed from each and
every stream of income above from different foreign countries shall be the
credit of foreign tax paid allowable from the tax payable in India.
For the above purpose, FTC from each
and every stream of income arising from each and every foreign country shall be
lower of:
(i)
the tax
payable under the Act on each and every such stream of income, or
(ii)
the foreign
tax paid on each and every such stream of income
Conversion Rate to be applied
Credit
shall be determined by conversion of the currency of payment of foreign tax at
the telegraphic transfer buying rate on the last date of the month immediately
preceding the month in which such tax has been paid/ deducted.
Foreign Tax Credit
available also against MAT / AMT [Rule 128 (6)& (7)
(a) FTC available against Minimum Alternate Tax
(MAT) / Alternate Minimum Tax (AMT)
(b) No impact on MAT/AMT credit
–
Where the amount of foreign tax credit available against the tax payable under
the provisions of section 115JB or 115JC exceeds the amount of tax credit
available against the normal provisions, then while computing the amount of
credit under section 115JAA or section 115JD in respect of the taxes paid under
section 115JB or section 115JC, as the case may be, such excess shall be
ignored.
However, sub-rule 7 of the Rules come as a rider on sub-rule
6 and provides where the amount of FTC available against the tax payable under
the provisions of section 115JB or 115JC exceeds the amount of tax credit
available against the normal provisions, then while computing the amount of
credit under section 115JAA or section 115JD in respect of the taxes paid under
section 115JB or section 115JC, as the case may be, such excess shall be
ignored. The said rule is clarificatory and will obviate taking claim of excess
FTC twice, first, directly upon payment of taxes when being paid under MAT and
second, indirectly by means of MAT credit against future tax liabilities.
Documentation Requirement for
claiming Foreign Tax credit
(FTC) [Rule 128 (8)]
In accordance with Rule 128, in order to claim FTC, the
taxpayer is required to file following documents on or before due date of filing of return:
(1)
Furnish a
statement of (a) foreign income offered to tax and (b) foreign tax deducted or paid on such
income in Form No. 67 dully verified and certified by a Charted Accountant on
or before furnishing return of income under section 139(1).
(2)
Produce Certificate or statement specifying (a) Nature of income and (b)
amount of tax deducted therefrom or paid by the taxpayer:
(i)
From the tax
authority of the foreign country, or
(ii)
From the
Person responsible for deduction of such tax at source, or
(iii) A self declaration statement Signed by the assesse and
it should be accompanied with –
(a)
An acknowledgment of online payment or challan or bank counterfoil for proof of
payment of tax, if tax is paid by the assesse
(b)
In case of deduction, proof of payment of taxes outside India.
Form No. 67 shall also be furnished in a case where the
carry backward of loss of the current year results in refund of foreign tax for
which credit has been claimed in any earlier previous year or years.
KEY
NOTE
Self
declaration signed by the assessee shall be valid only if it is accompanied by
an acknowledgement of online tax payment or bank counter foil or slip or challan
for tax payment where the payment of foreign tax has been made by the assessee
and proof of deduction where tax has been deducted.
Furnishing of Form 67 [Rule 128
(9) & (10)]
(a) These documents required to be provided by
due date of filing of return of income under section 139(1).
(b) Form 67 would also be required in a case
where the carry backward of loss of the current year results in refund of
foreign tax for which credit has been claimed in any earlier years.
(c) Form 67 is divided into Part A and Part B.
Part A requires details such as name, PAN, address , source of income, taxes
paid abroad, foreign tax credit claimed country-wise and source of income wise.
Part B requires details of refund of foreign tax credit arising out of carry
backward of losses and details of disputed foreign tax credit.
Procedure
for filing Form 67
The CBDT, vide notification no. 9/2017 dated 19.09.2017 has
prescribed the procedure for filing Form 67 which have been enumerated here:
(a) Form 67 is to be prepared and submitted
online for taxpayers who are mandated to file their income tax returns electronically;
(b) This form is available on the e-filing portal of the
income tax department in the taxpayer’s account.
(c) Digital Signature Certificate (DSC) or Electronic
Verification Code (EVC) is mandatory to submit Form 67
(d) Submission
of Form 67 shall precede the filing of return of income
Timeline to submit the claim of FTC
The statement in Form No. 67 and a certificate or statement as referred above
shall be furnished on or before the due date specified for furnishing return of
income under section 139(1) of The Income Tax Act. This form needs to be filed
online.
What conversion rate should be adopted
For the purpose of converting foreign currency into Indian rupee, Telegraphic
Transfer Buying Rate on the last day of the previous month in which the tax has
been paid or deducted shall be adopted. Telegraphic Transfer Buying rate is the
rate adopted by the State Bank of India for buying such currency.
Conditions
(1) Credit is allowed in the year in which the income
corresponding to such tax is offered/assessed in India upon the assesse within
six months from the end of the month in which dispute is finally settled
furnishes
(i)
Evidence of
settlement of dispute;
(ii) Evidence that the liability for payment of such
foreign tax has been discharged; and
(iii) Undertaking that no refund in respect of such amount
is directly or indirectly been claimed.
(2) FTC shall not be available if the foreign tax is a
disputed one;
(3) FTC shall be available against the amount of tax,
surcharge and cess payable under the Indian tax laws but not against interest,
fee or penalty;
(4) FTC
shall be the aggregate of the amounts of credit computed separately for each
source of income arising from a particular country;
(5) FTC
shall be lower of, tax payable on such income under the Indian tax laws and the
foreign tax paid;
(6)
FTC shall be determined by
conversion of the currency of payment of the foreign tax at the Telegraphic
Transfer Buying Rate on the last day of the month immediately preceding the
month in which such tax has been paid or deducted.
Indian
resident is eligible for foreign tax credit on taxes paid in the UK on
remuneration income
It was held that the assessee
being a resident of India is eligible for Foreign Tax Credit (FTC) as per
Article 24 of the India-UK tax treaty on taxes paid in UK on remuneration
income. The assessee, a salaried employee was on an international assignment to
the UK during the year 2011-12. The assessee claimed relief under Section 90 of
the income-tax Act, 1961 read with Article 24 of the tax treaty. The Assessing
Officer invoked Article 16(2) of tax treaty and did not allow the relief
claimed by the assessee as the assessee’s stay in the UK was not more than 183
days.
The
assessee contended that as per provisions of Article 24 of the tax treaty if
income of an Indian tax resident is taxed in UK then the same shall be liable
to FTC in India. The tax credit would be limited to the proportionate taxes
payable on the double tax income in India. Further, the assessee was in the UK
for a period exceeding 183 days, hence, Article 16(2) was not applicable.
The
assessee was working in the UK for more than 183 days. Besides this the tax
department was aware of the fact that the taxpayer had paid taxes for the
remuneration received in the UK. Therefore, Article 16(2) does not apply in the
present case. As per the provisions of Section 90(2) and Article 24 of the tax
treaty, the claim made by the assessee was valid and, therefore, the Assessing
Officer as well as the CIT(A) was not right in making and sustaining the
addition in that respect. (Related Assessment year : 2012-13) – [Kapil Dev Ranwan v. DCIT – Date of
Judgement : 05.11.2020 (ITAT Delhi)]
Foreign
Tax Credit is allowed in India on proportionate basis
It was held that the amount of
tax paid in respect of income arising in a foreign country and subjected to tax
both in India and the foreign country shall be allowed as FTC against Indian
tax payable in respect of such profits or income in such manner that the credit
should not exceed the Indian tax which is proportionate to the income arising
in the other country. (Related Assessment Year : 2009-10) – [Elitecore Technologies (P) Ltd. v. DCIT –
Date of Judgement : 20.03.2018 (ITAT Ahmedabad)]
RNRO
can claim foreign tax credit under section 91
Assessee-individual was “not ordinarily resident in
India”, declared his income under the head “salaries” for the proportionate
period for which he was employed with his employer in USA M/s Allen & Co.
USA. Assessee filed his return of income declaring total income of Rs.
86,26,410/– on basis of stay in India
and claimed refund of Rs. 4,00,000/-. Assessee claimed total tax liability of
the assessee in proportion to salary income offered for taxes in India at Rs.
28,55,171/– and claimed foreign taxes paid in United States against the salary
of Rs. 28,55,171 restricted up to the amount of tax payable of Rs. 25,15,181/–.
Advance tax paid of Rs 4 Lakhs was claimed as refund due. Assessing Officer
held that assessee was only entitled to proportionate credit of federal taxes
paid in USA against the Indian income-tax liability. Accordingly, he accepted
the returned income of the assessee at Rs. 86,26,410/– however granted the
credit of the foreign taxes paid to the extent of only Rs. 22,51,920/–. The
question arose for consideration was whether assessee could claim tax relief
under section 91 of the Income-tax Act with respect to the federal tax and
state income-tax or not and assessee a not ‘ordinarily resident’ could also
claim relief/deduction under section 91 or not. It was held even though
assessee was covered by the scope of India US and India Canada tax treaties, so
far as tax credits in respect of taxes paid in these countries were concerned,
the provisions of Section 91, being beneficial to the assessee, hold the field.
As Section 91 did not discriminate between state and federal taxes, and in
effect provides for both these types of income taxes to be taken into account
for the purpose of tax credits against Indian income-tax liability, assessee
was, in principle, entitled to tax credits in respect of the same. Of course,
tax credit in respect of foreign income-tax was restricted to actual income-tax
liability in India, in respect of income on which taxes had been so paid
abroad. Provisions of section 91(1) provide relief/deduction of taxes paid with
respect to a person who was a ‘resident’ in India. The provisions of section 6
of the Income-tax Act provide for qualification of the persons who are
residents in India. The provisions of section 6(6) carve out another category
of person in ‘Resident’, who is said to be ‘not ordinarily resident’ in India.
However, such persons are also ‘residents’. The category is also called a
‘resident but not ordinarily resident’ in India. Therefore persons who are
‘resident but not ordinarily resident’ in India are forming larger group of the
persons who are “residents” in India. In view of this, the benefit of section
91(1) was allowable to a person who was “not ordinarily resident” in India.
(Related Assessment Year : 2011-12) – [Aditya Khanna v. ITO (International
Taxation) - Date of Judgement : 17.05.2019 (ITAT Delhi)]
Foreign Tax Credit is allowed in
India in proportion to the income arising in the foreign country and the
balance is allowed as business expenditure
During
the Assessment Year 2010-11, the taxpayer had some receipts from the contract
in Singapore and Indonesia. As per the rules of the income tax in those
countries, the tax had been deducted on the payment. The taxpayer therefore
claimed the deduction on account of taxes paid in those countries from the
income tax payable on the income in India. The Assessing Officer after
examining the provisions of Section 90 of the Act and the relevant clauses of
India-Singapore and India-Indonesia tax treaties, allowed only part of the tax
paid as against full credit of foreign tax deducted claimed by the taxpayer.
For this purpose, he computed proportionate profit on the receipts from these
countries and calculated the income which was being taxed again in India. For
calculating the Foreign Tax Credit (FTC), the Assessing Officer calculated the
tax payable on that proportionate income and allowed the credit off the
proportionate tax out of the FTC. The Ahmedabad Tribunal held that the amount
of tax paid in respect of income arising in a foreign country and subjected to
tax both in India and the foreign country shall be allowed as a FTC against
Indian tax payable in respect of such profits or income in such manner that the
credit should not exceed the Indian tax which is proportionate to the income
arising in the other country. The Ahmedabad Tribunal also held that when FTC is
not allowed in India on the taxes paid abroad for carrying out business
activity then such taxes should be allowed in the hands of taxpayer as
‘business expenditure’ under Section 37 of the Act. – [Elitecore Technologies (P) Ltd. v. DCIT [2018-TII-121-ITAT-AHM-INTL]
Foreign Tax Credits Available For Exempt Indian Income
It was held that Wipro is eligible to claim tax credit on
foreign taxes paid in relation to exempt income under section 10A of Income Tax
Act, 1961, which provides tax exemptions to income arising to newly established
free trade zones on export of software etc. it was further held that merely
because an exemption has been granted under the Act leading to no actual
payment of the tax does not mean that such income is not "liable to
tax" and thereby not eligible for foreign tax credit.
In this case, assessee claimed the credit of taxed paid
outside India in relation to income eligible for deduction under Section 10A of
the Act. The Assessing Officer denied the claim of the assessee holding that
credit claimed under Section 90 of the Act is only applicable for grant of
relief in respect of income on which taxes have been paid both under the Act
and the Income-tax Act in the foreign country. The Court in this case, has
extensively dealt with the pre and post amendment provisions of Section 90(1)
of the Act and has concluded that merely because an exemption has been granted
in respect of the taxability of a particular source of income, it cannot be
formulated that the entity is not liable to tax. The Court further took note of
the fact that the exemption granted under the Act has the effect of suspending
the collection of income-tax for a period of 10 years and does not make the
said income not leviable to income-tax. It was, therefore, concluded by the
Court that the case of the assessee would fall under the provisions of Section
90(1)(a)(ii) of the Act. The Special Leave Petition filed by the Income-tax
Department against the order of the High Court has been granted by the Apex
Court, leaving the decision of the High Court to be adjudicated upon by the
Supreme Court. – [Wipro
Ltd. v. DCIT (2016) 382 ITR 179 (Karn.)]
State taxes paid in foreign
countries cannot be disallowed under Section 40(a)(ii) of the Income-tax Act,
1961, if the same are not eligible for relief under Section 90 or 91 of the Act
With
respect to the foreign tax credit relating to income which is exempt in India,
the Tribunal observed that the taxpayer would be eligible to avail tax credit
under Section 91 of the Act if India does not have any tax treaty with such
country. Where the respective tax treaty provides for a specific tax credit
benefit even in respect of income on which the tax has not been paid in India,
the taxpayer would be eligible for tax credit under Section 90 of the Act.
However, certain tax treaties do not provide for such benefit unless the income
is subjected to tax in both the countries. Accordingly, the Tribunal directed
the Assessing Officer to grant credit to the taxpayer. – [Tata Consultancy Service Ltd. v. ACIT (2020) 203 TTJ 146 (ITAT Mumbai)]
Tax credit is available even if the
same is not deposited with the overseas Government in the year in which the
income is taxable. – [Vijay Electricals (2015) 54 taxmann.com 19 (ITAT
Hyderabad)]
Merely
because the taxpayer’s income is exempt from tax due to a limited tax holiday
provided under the Income Tax Act, does not mean that foreign tax credit can be
simply denied
The
Court rejected the argument of the Revenue that only if the income is
chargeable to tax in India could the assessee claim benefit of foreign tax
credit (under the India-Canada DTAA). It held that income under section 10A of
the Act was chargeable to tax under section 4 and 5 of the Act but no tax is
charged because of the exemption given under section 10A only for a period of
10 years and therefore merely because the exemption was granted, it could not
be postulated that the assessee was not liable to tax. It further held that the
benefit of foreign tax credit has been extended and hence payment of tax in
both jurisdictions was not sine qua non for granting relief. – [Wipro Limited v. DCIT –
TS-565-HC-2015(KAR)]
Foreign income - taxes paid abroad in respect of
income earned overseas not eligible for deduction under section 37(1). Despite
bar in DTAA, credit for State taxes to be given under section 91 in addition to
Federal taxes
It was held that the taxes paid
abroad in respect of income earned overseas is not allowable as deduction as
expenditure incurred for earning income under section 37 of Indian Income-tax
Act, 1961. (Related Assessment year : 2000-01) – [DCIT v. Tata Sons (2010) (ITAT Mumbai)
Foreign tax credit cannot exceed
Income-tax payable in India - Section 90 : Double taxation relief – Income-tax
paid in USA – Credit for foreign tax can be allowed to the extent of foreign
tax liability in India is brought to NIL and no refund can be issued out of
that
As per article 25(2)(a) of DTAA
between India and USA, deduction on account of income-tax paid in USA from
income-tax payable in India cannot exceed Indian income-tax liability Indian in
respect of such liability; therefore there is no basis for view that taxes paid
in USA are to be refunded to assessee in case he has no income-tax liability in
respect of income in India. (Related Assessment year : 1993-94) - [JCIT v.
Digital Equipment India Ltd. (2005) 277 ITR 15: 94 ITD 340 : 93 TTJ 478 (ITAT
Mumbai)]
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