Monday, March 14, 2016

ITAT allows tax credit for dividend tax foregone by Oman to promote economic developments

a)   Assessee received dividend income from an Omani Company. The assessee was liable to pay tax in India on said dividend income as per Indian Income-tax Act. However, it was not liable to pay any tax on such dividend income in Oman by virtue of exemption granted as per Article 8 (bis) of the Oman Company Income-tax Law.
b)  Assessee included the dividend income in its total income and, thereafter, claimed credit of tax which would have been payable in Oman in respect of such income.
c)   The contention of the assessee was that Article 25 of DTAA between India and Oman allows tax credit in India for the taxes payable in Oman. Even though no taxes were actually paid in Oman by virtue of exemption or so.
d)  Assessing Officer (AO) accepted the contention of assessee and allowed credit of deemed dividend tax which would have been payable in Oman. However, subsequently, Commissioner of Income-tax (CIT) revised the order of AO and disallowed the tax credit so claimed by assessee.

e)   Aggrieved by the order of CIT, assessee filed the instant appeal before the Tribunal.

Presumptive Taxation Scheme in a new Avatar – Bigger and Better

I. Amendments to section 44AD:
The existing provisions contained in the said section (applicable to individual, HUF or partnership firm) provides that notwithstanding anything to the contrary contained in section 28 to 43C, in the case of an assessee engaged in an eligible business having total turnover or gross receipts not exceeding one crore rupees, a sum equal to 8% of the total turnover or gross receipts, or, as the case may be, a sum higher than the aforesaid sum declared by the assessee in his return of income, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profit and gains of business or profession".
Further, under the existing scheme as per proviso to section44AD(2), where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) of section 44AD subject to the conditions and limits specified in section 40(b).

Subsidy relatable to manufacturing cost would be eligible for Sec. 80-IB relief


a)  Assessee, eligible for claiming deduction under Section 80-IB, received subsidy, inter-alia, transport subsidy, interest subsidy and power subsidy from the Government.
b)  Assessee claimed deduction under section 80-IB in respect of subsidy so received from the Government by contending that subsidies were directly relatable to cost of manufacture and/or sale of products.
c)  Assessing Officer (AO) disallowed the deduction so claimed by assessee by holding that deduction under section 80-IB is admissible only in respect of profits derived from eligible business. There is a world of difference between the expression “profits derived from” any business, and “profit attributable” to any business.

d)  The contention of the AO was that subsidies that were allowed to assessee had no close and direct nexus with the business of the assessee but had a close and direct nexus with grants from the Government.