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Before: Shri V. Durga Rao & Shri Manoj Kumar Aggarwal
O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [NFAC], Delhi, dated 26.05.2023 relevant to the assessment year 2016-17. The Revenue has raised following grounds:
1. The Order of the Ld. CIT (A), NFAC is opposed to law on the facts and in the circumstances of the case.
2. The learned CIT(A) has referred to the decision of the division bench of the ITAT Bangalore in the case of 42 Hertz Software Pvt. Ltd., dated 7/3/2022, wherein the ITAT allowed the claim of FTC, which was filed during assessment proceedings. In the instant case, the assessee has not filed Form-67 electronically as per CPC 2.0 and ITBA and the assessee has not claimed the credit u/s 90/90A in the original and revised return of income and claimed the credit u/s 90/90A in the course of scrutiny proceedings only. The learned CIT(A) has not considered the fact that the cases relied upon are not jurisdictional. Moreover the learned CIT(A) has failed to appreciate that the Order of ITAT Vizag in the case of Muralikrishna Vaddi Vs. ACIT/DCIT, Visakapatnam in ITA.No.269/Viz/2021 dated 14-06-2022 is passed at later date wherein it is held that the word “shall” has been used in the Rule 128 (9) making it mandatory in nature and not directory.
3. For these and such other grounds that may be adduced at the time of hearing it is prayed that the order of the Ld.CIT(A), NFAC may be reversed and that of the Assessing Officer restored.
Brief facts of the case are that the assessee, M/s. Ramco Systems Limited is engaged in the business of software developing and e-filed its return of income for the assessment year 2016-17 on 30.11.2016 admitting current year loss of ₹.5,48,443/- and revised return of income on 29.03.2018 admitting income of ₹ NIL. The case of the assessee was selected for complete scrutiny under CASS and notice under section 143(2) of the Income Tax Act, 1961 [“Act” in short] dated 10.08.2018 was served on the assessee. In response to the notice assessee has submitted copies of basic particulars. On perusal of the records, the Assessing Officer found from Form No. 3CEB filed by the assessee for the financial year 2015-16 that the assessee had entered into certain international transactions and in order to compute arm’s length price, the case has been referred under section 92CA(1) of the Act to the JCIT, Transfer Pricing Officer-2, Chennai on 30.10.2018. Order under section 92CA(3) of the Act dated 30.10.2019 from the Addl. CIT, TPO-3, Chennai has been received by the Assessing Officer with the comments of “No adverse inference is to be drawn regarding the arm’s length price of the international transactions entered into by the assessee during the year”. Accordingly, the Assessing Officer has completed the assessment under section 143(3) r.w.s. 92CA of the Act dated 29.11.2019 by assessing current year loss at NIL under normal provisions and under MAT as per the revised return of income.
Although there was no enhancement of income, the assessee has filed appeal before the ld. CIT(A) seeking relief on account of short grant of credit of foreign tax deducted at source under section 90/90A of the Act amounting to ₹.5,82,86,010/- in the return filed, included a sum of ₹.1,39,27,256/-, being the withholding tax deducted by an Australian client company on the royalty income paid by the said company to the assessee. This withholding done by the client initially was at the rate of 10% of the royalty paid. Subsequently, the Australian company re- determined the withholding rate to be 15% and deducted a further sum of ₹.69,63,628/- being additional tax deduction at 5% of the royalty paid. This additional tax deduction was made on 25.06.2019, much after the due date for filing the revised return of income for the AY 2016-17 for the assessee company had expired. Therefore, the assessee made the additional claim for withholding tax amounting to ₹.69,63,628/- during the scrutiny assessment proceedings. However, the Assessing Officer did not give any credit for the additional withholding tax of ₹.69,63,628/-. After considering the submissions of the assessee and by referring various case law, the ld. CIT(A) directed the Assessing Officer to allow the credit for ₹.69,63,628/-.
Aggrieved, the Revenue is in appeal before the Tribunal. The ld. Dr has submitted that the claim of deduction was not made by way of a return of income and therefore, directing the Assessing Officer to allow the same is not in order and pleaded for reversing the appellate order.
On the other hand, the ld. Counsel for the assessee has strongly supported the order passed by the ld. CIT(A).
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper book filed by the assessee. In this case, in the return of income, the assessee has claimed relief under section 90/91 of the Act amounting to ₹.5,82,86,010/-, which included a sum of ₹.1,39,27,256/- being the withholding tad deducted by an Australian client company on the royalty income paid by the said Australian company to the assessee at the rate of 10% of the royalty paid. The claim made by the assessee was accepted by the Assessing Officer. However, the Australian income tax on the royalty income has been revised from 10% to 15% belatedly and thereby, the assessee was required to deduct additional tax of 5% being ₹.69,63,628/- and the same was made on 25.06.2019, much after the due date for filing the revised return of income for the assessment year 2016- 17 for the assessee company had expired. Therefore, the Assessing Officer has not allowed the claim of additional tax deduction of 5% being ₹.69,63,628/-. On appeal, after considering the submissions of the assessee, the ld. CIT(A) allowed the claim of deduction by observing as under: 6. Decision 6.1 I have carefully considered the grounds of appeal, the statement of facts, the submissions of the appellant and the order appealed against. The only issue in this appeal is against non-grant of Foreign Tax Credit of Rs.69,63,628/- All the grounds of appeal relate to this issue only and are disposed of together in the subsequent paragraphs. 6.2 As discussed in detail at Para 4,1 above, the appellant had received royalty income from its Australian subsidiary, Ramco Systems Australia Pty Ltd, which had initially deducted withholding tax @10% on this income. Due to a review by the Australian Tax Authorities, the subsidiary revised the rate of withholding tax to 15%. The letter dated 1/4/2019 by the Australian company to the Australian taxation office has been perused. The additional withholding tax for the F. Y. 2015-16 has been reflected as $1,42,341, the equivalent INR amount being Rs. 69,63,628/- The total royalty expenses for the F. Y. 2015-16 by the Australian subsidiary are reflected as $28,46,848,
which translates to INR amount of 13,92,72,558/- The additional withholding tax @5% was deducted and paid to the Australian government on 25/6/2019, as seen from the transaction report of the Commonwealth Bank, Australia. The deductor Ramco Systems Australia Pty Ltd issued a withholding tax certificate on 21/8/2019, reflecting differential deduction on royalty of $1,42,343 for the concerned AY. 6.3 There is no dispute that the royalty income of Rs. 13,92,72,558/- has been offered to tax by the appellant in India in the F.Y. 2015-16 (AY 2016-17). Credit for 10% withholding tax on this royalty income, amounting to Rs. 1,39,27,256/- was claimed in the return of income and allowed during the scrutiny proceedings. Thus, there is no dispute that the appellant is entitled to claim credit for the foreign withholding tax under question, in view of the provisions of section 90 and the DTAA between India and Australia. The only Issue of contention is the credit for the additional withholding tax (@5%) amounting to Rs. 69,63,628/- The AO has not given any reasons in the assessment order for not allowing this additional claim made during the course of the assessment proceedings. The appellant had a valid reason for making the claim during the assessment proceedings as the additional deduction was made only in June 2019, much after the due date for filing a revised return u/s 139(5) for AY 2016-17 had expired. It is true that the claim was not made by way of a return of income, but this claim was duly made during the ongoing assessment proceedings. Further, the claim does not impact the income of the appellant but only relates to giving credit for additional taxes paid on the income already declared. The revised Form 67 as well as the withholding tax certificate issued by the deductor were also duly filed before the AO. Once credit for foreign withholding tax has been allowed @ 10%, there is no reason why credit for the additional amount withheld @5% should not be allowed, especially when the corresponding income has been offered to tax in the relevant year. The appellant also gave an undertaking to the AO that credit for these withheld taxes has not been claimed in any other year and that the tax dispute with the Australian Tax Authorities has now ended with the filing of revised PAYG form. 6.4 it is relevant at this juncture to refer to the decision of the ITAT Bangalore Bench (SMC) in Brinda Rama Krishna, order dated 17/11/2021. In this case, the ITAT Bangalore bench held that Rule 128(9) does not provide for disallowance of FTC in case there is delay in filing Form 67 and that filing of Form 67 is a directory but not a mandatory requirement. The ITAT also held that the DTAA overrides the provisions of the Act. The ITAT allowed the claim of the assessee for foreign tax credit. Reference may also be made to the decision of the division bench of the ITAT Bangalore in the case of 42 Hertz Software Pvt. Ltd., ITA No. 29/Bang/2021 dated 7/3/2022, wherein the ITAT allowed the claim of FTC, which was filed during assessment proceedings.
6.5 The provisions of Rule 128 were inserted w.e.f. 1.4.2017 and technically do not apply to the year under consideration. However, the requisite Form 67 and the certificate of foreign withholding tax by the deductor were duly filed before the AO during the assessment proceedings. In view of the above discussion, it is hereby held that the appellant is entitled to claim credit u/s 90 for the additional component of foreign withholding tax of Rs. 69,63,628/- The AO is directed to allow the credit for Rs. 69,63,628/- Grounds No. 1 to 6 are, therefore, treated as allowed. 6.1 The question of foreign tax credit for withholding tax on royalty income is not in dispute. In the return of income, the assessee has claimed 10% of withholding tax on royalty income amounting to ₹.1,39,27,256/- and the Assessing Officer has allowed the same during the scrutiny proceedings. Since the Australian Tax Authorities revised the rate of withholding tax from 10% to 15% vide there letter dated 01.04.2019, the additional withholding tax @ 5% was deducted and paid to the Australian Government on 25.06.2019 and made the claim during the course of assessment proceedings. Moreover, the claim does not impact the income of the assessee but only relates to giving credit for additional taxes paid on the income already declared. Once credit for foreign withholding tax has been allowed @ 10%, the subsequent revisional rate of tax is also required to be allowed. Considering the facts and circumstances of the case, we are of the opinion that the ld. CIT(A) has rightly directed the Assessing Officer to allow the claim of additional withholding tax paid by the assessee of ₹.69,63,628/-. Thus, we find no reason to interfere with the order passed by the ld. CIT(A) and accordingly, the appeal filed by the Revenue is dismissed.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced on the 08th November, 2023 at Chennai.