DCIT -3(4), MUMBAI vs. M/S. TATA CONSULTANCY SERVICES LTD., MUMBAI

Revenue by : Shri Sandeep Raj – CIT DR Assessee by : Shri Porus Kaka with Shri Manish Kanth सुनवाई की ितिथ/ Date of hearing : 09/08/2023 घोषणा की ितिथ/ Date of pronouncement : 27/09/2023 आदेश/ORDER PER VIKAS AWASTHY, JM:

This appeal by the Revenue is directed against the order of Commissioner of Income Tax(Appeals), National Faceless Appeal Centre, Delhi [in short the ‘CIT(A)’] dated 27/02/2023, for the Assessment Year 2017-18.

(i) Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting addition of "State Taxes" paid overseas amounting to Rs 26,48,96,494/- to book profit u/s 215JB by holding that ' State taxes' do not come under the preview of section 40(a)(ii) of the I.T.Act?

(ii) Whether on the facts and circumstances of the case, the Ld CIT(A) erred in deleting the addition of "State Taxes" paid overseas amounting to Rs26,48,96,494/- to book profit u/s 115JB without appreciating that section categorically disallows ' Any rate of taxes' levied on the profit & gain of the business of the assessee?

(iii) Whether on the facts and circumstances of the case, the Ld CIT(A) erred in deleting the addition of "State Taxes" paid overseas amounting to Rs26,48,96,494/- to book profit u/s 115JB without appreciating that the matter has not reached finality and appeals of the Department on this issue are pending before the Hon'ble High Court?

6. We have heard the submissions made by rival sides and have examined orders of authorities below. We have also considered the decisions of the Tribunal on which the ld.Counsel for the assessee has placed reliance in support of his submissions. The solitary issue in appeal is disallowance of State Taxes paid overseas u/s. 40(a)(ii) of the Act. We find that the issue is squarely covered by the decision of Co-ordinate Bench of Tribunal in assessee’s own case in for Assessment Year 2009- 10(supra). The Tribunal after considering the submissions of the assessee has held as under:-

“ 6. We have considered the rival submissions and perused the material on record. From the stage of the assessment proceeding itself, it is the claim of the assessee that the term “tax”, as defined under section 2(43) of the Act would only include taxes chargeable under the Indian Income Tax Act. It is the further case of the assessee that since in respect of the State taxes paid overseas, the assessee is not eligible to claim relief under section 90 or 91 of the Act, it will not be covered under section 40(a)(ii) of the Act. On a perusal of provisions of sub–section (43) of section 2 of the Act, it becomes clear that the term “tax” has been defined to mean any tax paid under the provisions of the Act. Section 40(a)(ii) of the Act says that any rate or taxes levied on the profits or gain in any business or profession would not be allowable as deduction. Explanation–1 to section 40(a)(ii) of the Act inserted by the Finance Act, 2006, w.e.f. 1st April 2006, further clarifies that any sum eligible for relief of tax either under section 90 or 91 of the Act would not be allowable as deduction under section 40(a)(ii) of the Act. It is the say of the assessee that the tax eligible for relief under section 90 of the Act are only those taxes which are levied by Federal / Central Government and not by any local authority of State, City or County. Thus, it is ineligible for any relief under section 90 of the Act. The aforesaid submissions of leaned Sr. Counsel for the assessee, prima facie, is acceptable if one has to strictly go by the meaning of “tax”, defined under section 2(43) of the Act, as it only refers to tax paid under the provisions of the Act. It is also worth mentioning, the State taxes paid by the assessee in DTAA countries are not eligible for relief under section 90 of the Act. Therefore, the issue which arises is, whether it can be allowed as deduction under section 37 of the Act. No doubt, in assessee’s own case in assessment year 2005–06, the Tribunal in the order referred to above following its own decision in DCIT v/s Tata Sons Ltd., [2011] 43 SOT 27 (Mum.), has held that the State taxes paid overseas cannot be allowed as deduction in view of the provisions of section 40(a)(ii) of the Act. However, the aforesaid legal position has substantially changed after the decision of the Hon'ble Jurisdictional High Court in Reliance Infrastructure Ltd. (supra). While interpreting the provisions of section 2(43) of the Act, vis–a– vis section 40(a)(ii) of the Act, the Hon’ble Court held that the tax which has been paid abroad would not be covered within the meaning of section 40(a)(ii) of the Act, since, the meaning of the word “tax” as defined under section 2(43) of the Act would mean only the tax chargeable under the Act. Thus, as per the aforesaid decision of the Hon'ble Jurisdictional High Court, taxes levied overseas which are not eligible for relief either under section 90 or 91 of the Act, would not come within the purview of section 40(a)(ii) of the Act. It is the specific plea of the assessee that the State tax is not covered either under Indo–US or Indo–Canada tax treaty, hence, not eligible for any relief under section 90 of the Act. Pertinently, unlike section 91 read with Explanation–(iv), section 90 does not provide for inclusion of tax levied by any State/ local authority of that country within the expression ‘income tax’. In view of the aforesaid, we direct the Assessing Officer to verify whether the State taxes paid by the assessee overseas are eligible for any relief under section 90 of the Act and if it is not found to be so, assessee’s claim of deduction should be allowed. In view of our decision above, no separate adjudication of grounds no.1.2 is required.” Thus, the Co-ordinate Bench restored the issue to the Assessing Officer to verify whether State Taxes paid overseas are eligible for any relief u/s. 90 of the Act.

Order pronounced in the open court on Wednesday the 27th day of September, 2023.