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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI AMARJIT SINGH & SHRI MS. KAVITHA RAJAGOPAL
Date of Hearing 20.06.2023 Date of Pronouncement 30.06.2023 आदेश / O R D E R Per Amarjit Singh (AM): This appeal filed by the assesse is directed against the order passed by the CIT(A) NFAC, Delhi, dated 07.03.2023 for A.Y. 2017-18. The assessee has raised the following grounds before us: “1.1 The Commissioner of Income Tax (Appeal) erred in confirming the AO's stand in denying the credit of Rs.3,58,088/-being tax withheld by the Japanese clients. 1.2 The Commissioner of Income Tax (Appeals) ought not to have confirmed the stand of AO in denying the credit for taxes withheld by the Japanese clients.
P a g e | Amarchand & Mangaldas & Suresh A Shroff & Co. Vs. CIT(A), NFAC 2.1 The Commissioner of Income Tax (Appeal) erred in not considering the honourable ITAT order passed for the Assessment year 2014-15 for petitioner in it's owned case for the identical matter which was submitted during the hearing before CIT(A). 2.2 The Commissioner of Income Tax (Appeal) ought to have considered the honourable ITAT order passed for the Assessment year 2014-15 for petitioner in it's owned case for the identical matter which was submitted during the hearing before CIT(A).
The Petitioner firm reserves its rights to add, delete or amend any of the grounds of appeal.”
2. Fact in brief is that return of income declaring total income of Rs.786,60,513/- was filed on 30.10.2017. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 23.08.2018. During the course of assessment the assessing officer noticed that assessee has claimed relief u/s 90 of the Act in respect of income received for services rendered in Japan. The assessing officer was of the view that credit of withholding tax is not allowable to assessee in India as the receipt is not taxable in Japan. On query, the assesse explained that assesse has provided professional services to clients in Japan and it did not have a fixed base or presence for more than 183 days in Japan. However, TDS has been deducted by Japanese entities, therefore, credit of Rs.3,58,088/- was claimed in Income Tax return filed in India by the assesse. The assesse has also placed reliance on various judicial pronouncements as referred in its submission placed at page no. 4 to 6 of the assessment order. However, the assessing officer stated that credit of such withholding tax is not allowable to the assessee in India as the receipt is not taxable in Japan. The assessing officer has also referred Article 14 of DTAA with Japan that the income derived by a resident of a contracting state in respect of professional services or other activities of an independent character shall be taxable only in that contracting state unless if the assesse has a fixed base regularly available to him or his presence in the other contracting state exceed 183 days during the taxable years. The AO observed that in the P a g e | Amarchand & Mangaldas & Suresh A Shroff & Co. Vs. CIT(A), NFAC case of the assessee since professional receipt derived by the assesse was in the nature of independent professional services, therefore, same was not subject to tax in Japan therefore, claim of foreign tax credit of Rs.3,58,088/- was denied to the assessee.
3. Aggrieved, the assesse filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assesse.
During the course of appellate proceedings before us the ld. Counsel at the outset submitted that identical issue on similar facts in the case of the assessee itself for the assessment year 2014-15 the coordinate bench of the ITAT Mumbai has decided in favour of the assesse. On the other hand, the ld. D.R. supported the order of lower authorities.
Heard both the sides and perused the material on record. During the course of assessment the AO has disallowed the claim of credit of foreign tax withholding made by the Japanese clients of the assesse. The assesse firm has provided legal services to certain clients based in Japan for which the clients paid legal fees after withholding tax @ 10% under Article 12 of the India Japan Double Taxation Avoidance Agreement (DTAA). Article 12 of the DTAA provides that income from professional services or other activities of independent character would be taxable in the resident country i.e India. However, clause 4 of Article 12 provides that such payments would not be constitute as fees for technical services only if such payment is made to an individual for carrying out independent personal services referred to in Article 14. Since, assessee is a partnership firm and exception for payment referred in Article 14 would be applicable only for individual, therefore, the fees received by the assessee would not be covered under the such exception and accordingly would be subject to withholding tax in Japan. In this P a g e | Amarchand & Mangaldas & Suresh A Shroff & Co. Vs. CIT(A), NFAC regard we have perused the decision of coordinate bench of ITAT in the case of the assessee for AY. 2014-15. The relevant operating part of the decision is reproduced as under: 9. In view of these discussions, there is a valid school of thought that in the scheme of the Indo Japanese tax treaty, article 14 for independent personal services holds the field for the individuals only- particularly in the light of the exclusion clause under article 12(4) being restricted to payment of fees for professional services to individuals alone. There is no dispute that the provisions of article 14 and article 12 are overlapping inasmuch as what is termed as professional service could also be covered by the fees for technical service particularly as the definition of the fees for technical services is on 'classical model' of much wider scope and not on the 'make available model' now in vogue in many tax treaties. The only reason for which exclusion from article 12 was canvassed by the Assessing Officer was that rather specific provisions of article 14 have to make way for rather general provisions of article 12, but then when we hold that, in the context of Indo Japan tax treaty, article 14 comes into play only for individuals, this proposition ceases to hold good in the present context. As a corollary to this legal position, and the exclusion clause under article 12(4) not being triggered on the facts of this case as such, it is indeed reasonably possible to hold that the payments in question were rightly subjected to tax withholding in Japan. The judicial precedents cited by the authorities below are in the context of the tax treaties other than Indo Japan tax treaty, and the provisions of the Indo Japan tax treaty are not in pari materia with the provisions of those tax treaties. These judicial precedents deal with the tax treaties that India has entered into with China, U.K. and the USA, but then all the three treaties are, in the material respects, differently worded vis-à-vis the Indo-Japanese tax treaty that we are presently dealing with. It is, therefore, not even necessary, even if we have our reservations on correctness of these decisions, to refer the matter to the larger bench for reconsideration of the principle laid down therein. Suffice to say, on the facts of this case, the conclusions arrived at by the Japanese tax authorities, directing tax withholdings from the payments made to the assessee by its Japanese clients, cannot be said to unreasonable or incorrect. In the light of these discussions, as also bearing in mind entirety of the case, we hold that the assessee was wrongly declined tax credit of Rs.80,55,856 on the facts of this case. We, therefore, direct the Assessing Officer to grant the said tax credit to the assessee. As we have upheld the plea of the assessee with respect to the admissibility of the foreign tax credit, we see no need to deal with the alternate plea of the assessee seeking deduction of the taxes so withheld abroad in the computation of its income.”
Following the decision of coordinate bench of ITAT as referred supra we direct the Assessing Officer to allow the claim of foreign tax credit as directed by the ITAT in the above referred decision. Therefore, the ground of appeal of the assesse is allowed.