The New Delhi Income Tax Appellate Tribunal (ITAT) ruled that if a taxpayer company situated in India has earned export income from Japan and taxes were already withheld there, then the taxpayer shall be granted complete credit of foreign taxes (FTC) paid under section 90 of the Income Tax Act, read with India-Japan Double Taxation Avoidance Agreement (DTAA), even if such income was exempt under section 10A or neutralized by brought-forward losses.
At the same time, the Appellate Tribunal clarified that the said taxpayer cannot seek interest under section 244A of the Income Tax Act, on refund arising from allowance of FTC, since there was no excess payment to the Indian exchequer by way of advance tax, TDS, or TCS, after taking into account FTC.
The Division Bench comprising Challa Nagendra Prasad (Judicial Member) and Naveen Chandra (Accountant Member) observed that Canon India (the appellant) be granted complete credit of taxes paid by it in Japan on export revenues from the sale of software and not restricted owing to nil tax liability on account of business losses or 10A deduction under the Income Tax Act.
Reference was made to the decision of the Karnataka High Court in the case of Wipro Ltd. v. DCIT [236 Taxman 209/382 ITR 179 (Karnataka)], where Canon India was declared eligible for the entire credit of foreign taxes deducted in Japan, even if the taxability was nil consequent to the deduction under section 10A, brought forward losses.
Briefly, the appellant, engaged in trading and distribution of imaging and optical products, had earned income from its operations in Japan, on which taxes were withheld in Japan in accordance with the domestic tax laws of Japan. Accordingly, while filing its ITR, the appellant claimed Foreign Tax Credit (FTC) under section 90 of the Income Tax Act, read with Article 23 of the India-Japan DTAA.
The AO, however, disallowed the FTC because in the same year, income corresponding to Japanese receipts was either exempt under section 10A or neutralised by brought-forward business losses, resulting in no tax liability in India. This disallowance was upheld by the DRP.
Case Relied On:
Comnet Systems and Services Ltd. [IT Appeal No. 546 of 2022 dated Nov 23, 2023]
Case Distinguished:
CIT v. Tech. Mahindra Ltd. [2017] 397 ITR 748 (Bombay)
Appearances:
Advocates Himanshu Sinha, Jainender Singh Kataria, and Prashant Meherchandani, for the Appellant/ Taxpayer
CIT Vijay B. Basanta, for the Respondent/ Revenue
