The
Karnataka High Court allowed credit of taxes paid outside India (which includes
states taxes) in respect of an income which is exempt in India by virtue of
Section 10A
Facts
a) The
assessee (‘Wipro Limited’) paid tax in foreign countries in respect of profit
attributable to its permanent establishment (PE) situated outside India.
b) Being
an Indian company, assessee was liable to pay tax in India on its worldwide
income including the profits attributable to its Permanent Establishments and,
accordingly, it claimed relief under Section 90 in respect of taxes paid
outside India.
c) The
assessee also made a claim for tax relief against the State Taxes paid in USA
and Canada.
d) AO
disallowed assessee’s claim of foreign tax credit on the ground that the income
in respect of which claim was made do not form part of total income as per
Section 10A.
e) AO
also rejected assessee’s claim for tax relief against the State Taxes paid in
USA and Canada. The contention of the AO was that DTAA with USA and Canada
allows credit of the taxes paid under the Income Tax Act in India and Federal
tax in USA and Canada. Therefore, the claim for relief for the State Taxes paid
was not admissible under respective DTAA.
f) On
appeal, CIT(A) set aside the order of AO. However, on further appeal by revenue
before the tribunal, the tribunal confirmed the order of AO.
g) Aggrieved
by the order of tribunal, assessee filed the instant appeal before the High
Court.
The
High Court held in favour of assessee as under-
1) Section
90(1)(a)(ii) provides relief from double taxation where the income of the
assessee is chargeable under the income-tax Act as well as in the corresponding
law in force in the foreign country. Hence, as per section 90(1)(a)(ii), what
is important is that income should be chargeable to tax in either country and
not subjected to tax.
2) Income
under Section 10A is chargeable to tax under Section 4 and is includible in the
total income under Section 5, but no tax is charged on such income because of
the exemption given under Section 10A. Merely because the exemption has been
granted in respect of the taxability of the said source of income, it cannot be
postulated that the assessee is not liable to tax.
3) Therefore,
assessee would be entitled to take credit of income tax paid in a country
outside India in relation to income eligible for deduction under section 10A.
4) As
far as issue related to credit of states taxes is concerned, section 91 provides
relief from double taxation where no agreement relating to avoidance of double
taxation exist with a foreign country.
5) Explanation
(iv) to Section 91 defines the expression income tax in relation to any country
to include any excess profit tax or business profits tax charged on the profits
by the Government of any part of that country or a local authority in that
country.
6) The
intention of the Parliament is very clear. The Income tax in relation to any
country includes income tax paid not only to the Federal Government of that
Country, but also any income tax charged by any part of that country meaning a
State or a local authority, and the assessee would be entitled to the relief of
double taxation benefit with respect to the latter payment also.
7) Therefore,
even though, India has not entered into any agreement with the State of a
Country, the income tax paid in relation to that State is also eligible for tax
credit.
8) Hence,
the argument that in the absence of an agreement between India and the State,
the benefit of Section 90 is not available to the assessee is ex-facie illegal
and requires to be set aside- Wipro Ltd.
v. DCIT [2015] 62 taxmann.com 26 (Karnataka)
