TATA COMMUNICATIONS TRANSFORMATION SERVICES LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 14(1)(2), MUMBAI

Briefly, the facts of the case are that the assessment in this case was completed under section 143(3) read with Section 144B of the Act, vide order dated 21.03.2024. The assessee, thereafter, carried the matter in appeal before the ld. CIT(A) against the short credit of TDS, levy of interest, fees and non-grant of interest under section 244A of the Act and, as part of its grounds of appeal, the assessee also raised an additional ground of appeal before the ld. CIT(A), wherein directions were sought to the Assessing Officer to allow deduction under section 37(1) in respect of withholding tax paid abroad (to the extent credit for such tax cannot be claimed by the assessee) by treating the same as business expense incurred in connection with export of services. In support of its ground of appeal, the assessee filed its return of income, Form 67 and also filed written submissions stating that in absence of the taxable income for the year under consideration and consequently no tax liability, it was not able to claim the foreign tax credit and the same be thus allowed under section 37(1) by treating the same as business expenditure incurred in connection with export of services and relied on the decision of Hon'ble Bombay High Court in case of Reliance Infrastructure Limited vs. CIT [2016] 76 taxmann.com 257 and the decision of the Coordinate Mumbai Benches and Ahmedabad Benches.

Referring to the submissions so filed by the assessee, the ld. CIT(A) stated that the assessee has furnished additional submissions under Rule 46A of the Income Tax Rules, 1962. The ld. CIT(A) stated that the said issue was never raised before the Assessing Officer, and now at the

Against the said order and the findings of the ld. CIT(A), the assessee is in appeal before us.

During the course of hearing, the ld. Senior Counsel submitted that it is a case of additional claim which has been raised for the first time before the ld. CIT(A) in respect of which all the necessary material is already available on record and does not require any further fact-finding and therefore, the ld. CIT(A) has wrongly invoked provisions of Rule 46A of the Income Tax Rules, 1962. In this regard, our reference was drawn to the return of income and computation of income filed by the assessee, wherein the assessee has reported foreign tax credit of Rs. 50,41,899/-. Further, our reference was drawn to Form 67 filed for the impugned A.Y. 2022-23, where the assessee has reported a figure of Rs. 50,41,899/-. It was accordingly submitted that the nature and the quantum of foreign tax credit is therefore evident from the return of income/computation of income as well as Form 67 so filed by the assessee and therefore, it is a matter of record. It was fairly submitted that as against the figure of Rs. 50,41,899/-, the assessee has furnished a revised and lower working of Rs. 49,63,752/- before the ld CIT(A) which has apparently been considered as additional evidence resulting in dismissal of the additional ground of appeal. At the same time, it was submitted that given that the assessee could not claim the foreign tax credit, the assessee raised an alternate claim before the ld. CIT(A) by way of the additional ground of appeal, and which has been summarily dismissed by the ld. CIT(A).

Further, our reference was drawn to Section 40(a)(ii) of the Act, and it was submitted that in terms of Explanation 1, foreign taxes which are eligible for relief under Section 90/91 of the Act, attracts disallowance under section 40(a)(ii) of the Act. In other words, foreign taxes which are not eligible for relief under section 90/91 are specifically excluded by Explanation 1 and therefore, do not attract any disallowance under section 40(a)(ii) of the Act and in light of the same, in the instant case, since the foreign taxes are not eligible for relief under section 90/91, the same should be allowed as eligible deduction under section 37(1) of the Act. In support, reliance was placed on the Hon'ble Bombay High Court decision in case of Reliance Infrastructure Limited [2016] 76 taxmann.com 257, which has been followed by the Coordinate Mumbai Benches in case of Tata Consultancy Services Limited vs. ACIT, [2019] 111 taxmann.com 42, and Tata Industries Limited vs. ACIT, [2025] 180 taxmann.com 715. Further, it was fairly submitted that there are two contrary decisions of the Coordinate Ahmedabad Benches in case of DCIT vs. Elitecore Technologies Private Limited, [2017] 80 taxmann.com 6, and by Coordinate Chennai Benches in case of Zoho Corporation Private Limited vs. DCIT, ITA No. 2957/Chny/2018 dated 07.02.2025. However, in view of the binding Hon’ble Bombay High Court decision, the same will take precedence and apply for the matter under consideration.

The ld. DR has been heard, who has relied on the order passed by the ld. CIT(A). It was submitted that given that the assessee has not raised the said claim before the Assessing Officer, the assessee cannot be permitted to raise the said claim before the ld. CIT(A) for the first time and the ld. CIT(A) has rightly rejected the said claim of the assessee invoking provisions of Rule 46A of the Income Tax Rules, 1962. It was submitted that explanation (1) to section 40(a)(ii) clearly debars claim of foreign tax credit eligible for deduction u/s 90/91 of the Act. Further,

We have heard the rival contentions and perused the material available on record. Firstly, on the issue of additional claim made before the ld CIT(A) during the course of appellate proceedings, we find that all relevant information required to examine the said claim was already available on record as can be seen from the return of income where the assessee has claimed foreign tax credit of Rs 50,41,899/-, Form 67 duly filed by the assessee where the assessee has disclosed income from sources outside of India, namely, Maldives, Oman and Singapore totaling to Rs 3,46,36,032/-, amount of taxes paid in foreign countries (by way of withholding taxes) totaling to Rs 50,41,899/-, tax payable in India on such foreign sourced income under normal provisions of the Act totaling to Rs 87,17,196/- and the amount of foreign tax credit claimed amounting to Rs 50,41,899/- and the fact that such foreign taxes have not been allowed while processing the return of income u/s 143(1) and thereafter, in terms of assessment order so passed u/s 143(3) of the Act. We therefore find that where all relevant information is already available on record, the claim so made by the assessee, to allow deduction under section 37(1) in respect of withholding tax paid abroad, where credit for such taxes cannot be claimed by the assessee in terms of section 90/91, by treating the same as business expense incurred in connection with export of services, is a legal claim which deserves to be examined on merits rather than dismissal at the threshold. The fact that the assessee has filed a working revising its claim of foreign tax credit downwards from Rs 50,41,899/- to Rs 49,63,752/- where rest all figures remain the same, cannot be held detrimental enough to deny the whole of the legal claim

In ordinary course, where there is no finding of the ld CIT(A) on a particular matter, we believe that it is essential that the matter is restored to the file of the ld CIT(A) whereby the assessee gets the necessary opportunity to represent its case, and the ld CIT(A) examines the matter and arrive at its findings in accordance with law and where the assessee still feel aggrieved, the matter can be examined in light of the findings of the ld CIT(A) and in the process, we have the benefit of his findings and at the same time, necessary judicial discipline is maintained. However, in this particular case, we find that there is already a decision of the jurisdictional Bombay High Court which has been relied upon in supports of its case by the assessee and therefore, we believe that the matter can be examined at our end especially where the arguments have been canvassed by both sides.

The relevant provisions under consideration are contained in Section 40(a)(ii) of the Act. It provides that notwithstanding anything to the contrary in Sections 30 to 38, in the case of the assessee, any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains shall not be deducted in computing the income chargeable under the head "Profits and Gains of Business or Profession".

Explanation 1 to Section 40(a)(ii) provides that, for the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under

Explanation 2 to Section 40(a)(ii) provides that, for the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under Section 90A of the Act.

Explanation 3 to Section 40(a)(ii) provides that, for the removal of doubts, it is hereby clarified that for the purposes of this sub-clause, the term "tax" shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax.

For the purposes of the present case, what is relevant is Explanation 1 to Section 40(a)(ii) of the Act and the question that arises for consideration is whether the assessee has paid any tax which is eligible for relief of tax under Section 90 or eligible for deduction from Indian income tax payable under Section 91 of the Act. The emphasis is on the “sum eligible for relief/deduction under Section 90/91” of the Act. In the instant case, as evident from Form No. 67, we find that the assessee has earned income from sources outside of India, namely Maldives, Oman, and Singapore, and taxes amounting to Rs. 50,41,899/- have been paid by way of withholding tax on such foreign-sourced income in the respective countries. Further, given the fact that these foreign- sourced incomes are included as part of the income offered to tax under the normal provisions of this Act, the assessee satisfies the necessary conditions in terms of eligibility for relief either under Section 90 or for deduction under Section 91 of the Act. It is not even the case of the assessee that it is not eligible for relief under Section 90/91 of the Act. The fact that the assessee has reported losses under the head “Profits and Gains from Business or Profession” and considering the “income from other sources” and setting off of the unabsorbed depreciation, the

Now, coming to the decision of Hon'ble Bombay High Court in case of Reliance Infrastructure Limited vs. CIT (Supra), which has been relied upon by the ld. Senior Counsel for the assessee. The relevant facts before the Hon'ble Bombay High Court in that case were that the assessee claimed that it should be allowed a deduction of the taxes paid in Saudi Arabia on income which has accrued or arisen in India, in respect of which the benefit of Section 91 of the Act is not available. The assessee explained the same by way of an illustration, wherein it was submitted that in respect of project in Saudi Arabia, the assessee has earned income of say Rs. 1,000/-, which includes an amount of Rs. 150/- which has accrued in India, and therefore, outside the scope of double taxed income for the benefit of Section 91 of the Act. It was submitted that the assessee has however paid taxes on Rs 1000/- in Saudi Arabia @ 10% i.e, Rs 100/.

The Hon'ble Bombay High Court, referred to the provisions of Section 40(a)(ii), read with the Explanation 1, and thereafter, referring to its earlier decision in case of Sardar Inderjit Singh Gill which was held distinguishable, held that the tax which has been paid abroad would not be covered within the meaning of Section 40(a)(ii) of the Act in view of the definition of the word “tax” in Section 2(43) of the Act and to be covered by Section 40(a)(ii) of the Act, it has to be payable under this Act. It further held that to the extent tax is paid abroad, Explanation to Section 40(a)(ii) provides/clarifies that whenever an assessee is otherwise entitled to the benefit of double income tax relief under Section 90 or 91 of the

We find that in the instant case, the taxes paid in the three countries, namely Maldives, Oman, and Singapore, has accrued or arisen outside of India, and is otherwise eligible for relief/deduction under Section 90/91 of the Act and therefore, the said decision does not come to the aid of the assessee in the instant case, rather, we find that the said decision supports the case of the Revenue, as the Hon'ble Bombay High Court has clearly held that Explanation (1) to Section 40(a)(ii) will apply, where the assessee is otherwise entitled to the benefit of double income tax relief under Section 90 or 91 of the Act, and in such cases, the taxes paid abroad would be governed by Section 40(a)(ii) of the Act and cannot be

In light of the same, we need not travel further and deliberate on the decisions of various Coordinate Benches, as we find that the matter stands concluded by the decision of Hon'ble Bombay High Court, though in favor of the Revenue and against the assessee.

In the result, the appeal filed by the assessee is dismissed.