Referred Sections:
Section 90
Section 5,
Referred Cases / judgments
Bhavin A. Shah vs. ACIT (2017) 151 DTR (Ahd) (Trib) 97.
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "D" NEW DELHI
BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER
&
SHRI AMIT SHUKLA, JUDICIAL MEMBER
I.T.As. No.201, 202, 203, 204 & 205/DEL/2015
Assessment Years: 2007-08, 2008-09, 2009-10, 2010-2011 &
2011-12
M/s. Uniparts India Limited, vs. CIT, Circle-18(1),
Block-5, C-6 &7, Gripwell New Delhi.
House LSC, Vasant Kunj,
New Delhi.
TAN/PAN: AAACU 0545D
(Appellant) (Respondent)
Appellant by: Shri R.S. Singhvi & Shri Satyajeet
Goyal, C.A.
Respondent by: Shri Amit Jain, Sr.D.R.
Date of hearing: 03 04 2018
Date of pronouncement: 02 07 2018
ORDER
PER AMIT SHUKLA, J.M.:
The aforesaid appeals have been filed by the assessee
against the impugned order of even date, date 10.11.2014,
passed by ld. CIT (Appeals)-XXI, New Delhi, in relation to the
order passed u/s.154 for the Assessment Years 2007-08 to
2011-12. Since same issue is involved in all the appeals,
arising out of identical set of facts, therefore, same were heard
together and are being disposed of by way of this consolidated
order. In appeal for the Assessment Year 2007-08, the
assessee has taken following grounds:-
I.T.As. No.201 to 205/Del/2015 2
1. That the order of the Ld. Appellate Authority is arbitrary,
unjustified, unlawful and against the law and facts of the case.
2. That the Ld. Appellate Authority, without appreciating the facts of
the case, has disallowed the claim of the assessee Company for credit
of withholding tax amounting to Rs. 26,99,165/- deducted by M/s
Uniparts USA Ltd., USA on interest paid to the assessee Company.
3. That the Ld. Appellate Authority has failed to appreciate the fact
that the assessee Company had to suffer double tax on interest
income earned from Uniparts USA Ltd. as a sum of Rs. 26,99,165/-
has been deducted by Uniparts USA Ltd., USA as "With-holding Tax,
the credit of which has not been allowed to the assessee Company
and the assessee Company had also paid income tax on interest
earned from Uniparts USA Ltd. in India as per the provisions of
Income Tax Act, 1961.
4. That Ld. Appellate Authority has not considered the fact that the
assessee Company is resident in India since its registered office and
the manufacturing units are situated in India and in accordance with
the provisions of sec. 5(1) of the Income Tax Act, 1961 is liable to be
taxed on all its income in India whether earned in India or outside
India. Accordingly, interest income earned in USA is also liable to be
taxed in India and thus eligible to take credit of "Withholding Tax"
deducted on income earned in USA."
Except for the variation in the figures for the amount of
withholding tax, all the grounds are identically worded in the
other assessment years impugned before us.
2. The facts in brief qua the issue are that assessee who is
resident of India has a wholly owned subsidiary in USA
named as M/s. Uniparts USA Ltd. The assessee has advanced
I.T.As. No.201 to 205/Del/2015 3
interest bearing fund to its wholly owned US subsidiary on
which interest income has accrued to the assessee from such
loan. The US subsidiary has remitted the interest to the
assessee in India after withholding the tax @15% in view of
the Article 11 of India US DTAA. The said interest income has
been duly disclosed in the return of income filed by the
assessee in the Assessment Years 2007-08 to 2011-12. The
details of return of income, interest income earned from US
subsidiary and TDS deducted by the US Company are as
under:-
Sl No. A.Y Return Total Interest Interest from TDS in USA
Income income USA
2007-O8 22,89,44,971/- 63,49,477/- 1,57,06,146/- 26,99,165/-
1
28,02,32,440/- 2,81,79,606/- 1,71,85,174/- 31,61,892/-
2
2008- 09
3 2009-10 13,76,59,264/- 2,30,21,801/- 1,68,23,768/- 22,42,301/-
4 2,73,84,015/- 1,94,48,930/- 11,48,784/-
(-)
2010-11 20,26,91,934/-
5 1,28,71,281/- 51,77,715/- 38,10,326/-
(-) 99,48,505/-
2011-12
Total 1,30,62,468/-
3. The assessee in the return of income has claimed the
credit of tax deducted at source in USA in terms of Article 25
of the Indo-US DTAA. Since the said credit was not allowed to
the assessee in the intimation u/s. 143(1), the assessee filed
an application u/s.154 seeking the credit against the tax
withheld in USA for the Assessment Years 2007-08 to 2011-
12. The assessee's contention before the Assessing Officer was
I.T.As. No.201 to 205/Del/2015 4
that the said interest income has been reflected by the
assessee in its books of account as well as in the return of
income and the tax deducted at source by the subsidiary
company at the rate applicable in the DTAA before making the
payments has to be given credit as per Article 25 of the DTAA.
The Assessing Officer however noted that assessee itself has
stated that this interest was not taxable in USA and therefore,
he has not filed any return of income in USA. The Assessing
Officer rejected the assessee's claim after observing and
holding as under:-
"a. DTAA envisages relief from tax payable on an income in the
residence country, where tax is also payable on the same income in
the source country, thus ensuring that same income is not subject to
taxation in two countries. In other words where an assesses is
taxable in respect of a particular income in one country and has
paid tax thereon and filed its Return of Income in that country
including that income and the same income is also taxable in India,
then in such a situation the assessee can claim credit for tax paid
in such other country by submitting a copy the Return of income
filed in that country, wherein the said income & tax paid thereon is
duly reflected.
b. There is no scheme in D'J'AA for the residence country to
give credit to the tax withheld in the source country, even though
the corresponding income is not taxable in such source country,
chiefly because the said income has not suffered any double
taxation. Here it is pertinent to state that TDS or withholding of tax
is only a mode of collection of tax (as a precautionary measure) and
is not the ultimate test of taxability of such income, in case of any
YDS or Withholding of Tax which is not due from the assessee then
such tax collecting authority is bound to return the same to the
I.T.As. No.201 to 205/Del/2015 5
assessee as the said income is not chargeable to tax at all.
c. In the Instant case, assessee has itself stated that it is not
taxable in USA and ha.: not filed any Return of Income in USA. Its
only contention is that tax has been with held in USA on the income
which has been offered for taxation in India and hence credit for
such tax withheld in USA should be given and be accordingly
refunded in India. Thus, it is clear that in this case, the interest
income is not taxable in USA but has only been withheld. In such a
situation the assessee is eligible for a refund in respect of tax so
withheld in USA., which was not due in the first place, as the
assessee is not taxable in that country. Thus the procedure
available with the assessee is to make a claim of refund in USA on
tax withheld on an income, which is not at all taxable in USA."
4. Ld. CIT (A) too has confirmed the action of the Assessing
Officer in the following manner:-
"3.3 I have considered the order of the AO and the submissions of
the assessee and I do not find any merit in the submissions of the
assessee. The provisions of section 90 under the head Double
Taxation Relief under Chapter-IX provides for relief from double
taxation if the income of the assessee is taxable both in India and
in the contracting state i.e. USA as per the DTAA with USA vide
Article 25(2)(a). But in the present case the assessee has received
the interest income which is taxable in India as the assessee is
resident in India but the same interest income is not taxable in USA
as the assessee is not a resident of USA. The interest income paid
by the USA company i.e. Uniparts USA Ltd. is a deductor and payer
of interest and is apparently an expenditure for that company and
there is no question of the same being taxable in USA. It is not
known as to under what circumstances the TDS was made by the
deductor in USA when the same is not taxable in USA. It is
I.T.As. No.201 to 205/Del/2015 6
apparently a case of TDS made by the deductor in USA which is
otherwise a wholly owned subsidiary of the assessee company. It
is never argued or pleaded or proved that the interest income
offered by the assessee for taxation in India is also taxable in USA
as per the US Internal Revenue Code. So no case is made out by the
assessee that the interest income has suffered double taxation both
in India and in USA to claim any relief u/s 90(l)(a). After considering
all the facts and circumstances of the case, I am of the view that
the assessee is not eligible for any TDS credit in India or for any
relief under the DTAA with USA and accordingly the appeal of the
assessee is dismissed."
5. Before us, ld. counsel for the assessee, Shri R.S.
Singhvi, submitted that, once TDS has been deducted by the
US company while remitting the interest, and the same
interest income has been declared as income assessable to
tax in India in terms of Section 5, then credit of the tax has to
be given as per Article 25 of the DTAA. The observation of the
ld. CIT (A) that the assessee should have taken refund in US
is not correct, because interest income was liable to be
withholding tax in US as per Article 11 of DTAA and domestic
laws of US and as such there was no occasion for the
assessee to claim refund of the tax deducted. He also made
reference to the Rule 128 which pertains to foreign tax credit
which shall be allowed to the resident with the tax paid by
him outside India. He further relied upon the judgment of
ITAT Ahmedabad Bench in the case of Bhavin A. Shah vs.
ACIT (2017) 151 DTR (Ahd) (Trib) 97. Thus, he submitted
that Assessing Officer could not have denied the credit of tax
I.T.As. No.201 to 205/Del/2015 7
paid on US on the interest income which has been shown in
the return of income in India.
6. On the other hand, learned Department Representative
strongly relied upon the order of the Assessing Officer and ld.
CIT (A) and submitted that onus was on the assessee to show
that the tax which has been withheld by the US company was
actually not subjected to tax as per the domestic law of US
which has been noted by the Assessing Officer and therefore,
both Assessing Officer and ld. CIT (A) has rightly denied the
credit to the assessee.
7. We have heard the rival submissions and also perused
the relevant findings given in the impugned order. Herein
these cases, only issue involved in all the appeals is
allowability of claim of withholding tax credit deducted by US
based subsidiary of the assessee company in USA on payment
of interest loan. It is not in dispute that interest income
earned by the assessee from US Company is liable for tax in
India as per Section 5. The US subsidiary company while
remitting the interest payment for the impugned Assessment
Year has withheld the tax in accordance with Articles 11 and
25 of Indo-US DTAA @ 15% of the gross amount which is the
rate prescribed in paragraph 2 of Article 11. The said credit
has been denied by the Revenue authorities on the ground
that; firstly, assessee has not filed its return of income in US
for claiming the refund of the withholding tax if the said
amount is not taxable in US; secondly, there is no scheme
I.T.As. No.201 to 205/Del/2015 8
under the DTAA for the resident to give credit of the tax
withheld in the source country if the same is not taxable in
the source country, therefore, it is not a case of double
taxation; thirdly, which is the ground taken by the ld. CIT(A)
to deny the credit is that, interest paid by the US company
who is a deductor is actually an expenditure for that company
and therefore, there is no question of same being taxable in
USA; and lastly, it has not been shown as to under which
provision the TDS was made by the deductor in USA. First of
all, the relevant clause of Article 11 (which is relevant for
deciding the first appeal) reads as under:-
ARTICLE 11
INTEREST
1. Interest arising in a Contracting State and paid to a resident of the
other Contracting State may be taxed in that other State.
2. However, such interest may also be taxed in the Contracting State
in which it arises, and according to the laws of that State but if the
beneficial owner of the interest is a resident of the other Contracting
State, the tax so charged shall not exceed :
(a) 10 percent of the gross amount of the interest if such interest
is paid on aloan granted by a bank carrying on a bona fide banking
business or by a similar financial institution (including an insurance
company) ; and
(b) 15 per cent of the gross amount of the interest in all other
cases."
8. Ergo, paragraph 1 clearly states that if the interest is
arising in a source state which is paid to the resident state
then it may be taxed in the resident state. This inter alia
I.T.As. No.201 to 205/Del/2015 9
means that interest arising in a source state is liable to be
taxed in the resident state. Paragraph 2 however lays down
that such interest may also be taxed in the source state in
which it arises and according to law of the source state but if
the beneficial owner is the resident state then the tax was
charged shall not exceed 10% as per clause (a) and 15% as
per clause (b). Thus, interest can also be taxed in the source
state in which it arises according to laws of the source state
and then in that case the tax so charged shall not exceed 10%
or 15%. It can be inferred that the taxability of the interest in
the source state has to be in accordance with the laws of that
state; and if such tax has been deducted, then Article 25 of
the said treaty provides credit of such taxes which has to be
given by the resident state which is clear from paragraph 2 of
the Article 25. The relevant paragraphs 1 and 2 of Article 25
read as under:-
ARTICLE 25
RELIEF FROM DOUBLE TAXATION
1. In accordance with the provisions and subject to the limitations of
the law of the United States (as it may be amer.zed from time to time
without changing the general principle hereof), the United States shall
allow to a resident o: citizen of the United States as a credit against
the United States tax on income--
(a) the income-tax paid to India by or on behalf of such citizen or
resident; and
(b) in the case of a United States company owning at least 10
per cent of the voting stock of a company which is a resident of
India and from which the United States company receives
I.T.As. No.201 to 205/Del/2015 10
dividends, the income- tax paid to India by or on behalf of the
distributing company with respect to the profits out of which the
dividends are paid.
For the purposes of this paragraph, the taxes referred to in
paragraphs 1(b) and 2 of Article 2 (Taxes Covered) shall be considered
as income taxes.
2. (a) Where a resident of India derives income which, in accordance
with the provisions of this Convention, may be taxed in the United
States, India shall allow as a deduction from the tax on the income of
that resident an amount equal to the income-tax in the United States,
whether directly or by deduction. Such deduction shall not, however,
exceed that part of the income-tax (as computed before the deduction
is given) which is attributable to the income which may be taxed in the
United States."
Thus, the paragraph 2 clearly provides that if the resident of
India derives income which may be taxed in US, then India
has to allow the deduction from the tax on the income of the
resident on the amount equal to the tax paid in US with a
deductee.
9. Here in this case it is not in dispute that tax has been
deducted by the source state, i.e., USA on the interest income
of the resident of India, however, it is not clear under which
provision such amount of interest paid by the US Company to
the Indian Company is liable for tax under the US laws. The
TDS certificate perhaps will give the clarity in this regard,
because there might be mention of provision or code under
which the tax has been withheld. Thus, for the limited
purpose the matter is remanded back to the Assessing Officer
I.T.As. No.201 to 205/Del/2015 11
to examine the TDS certificates which shall be submitted by
the assessee; or assessee can provide any other documents to
show that withholding of the tax by the US Company is in
accordance with the law of the US State. If the TDS certificate
is produced by the assessee, then such tax which has been
withheld, Assessing Officer has to give credit of such
withholding tax by the US Company which is the mandate of
Article 25. Accordingly, with this direction the matter is
restored back to the file of the Assessing Officer.
10. In the result, the appeal of the assessee is partly allowed
for statistical purposes.
Order pronounced in the open Court on 2nd July, 2018.
sd/-
[J.S. REDDY] [AMIT SHUKLA]
ACCOUNTANT MEMBER JUDICIAL MEMBER
DATED: 2nd July, 2018
PKK:
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
Assistant Registrar
I.T.As. No.201 to 205/Del/2015 12
Date
1. Date of dictation .06.2018
2. Date on which the typed draft is .06.2018
placed before the dictating member
3. Date on which the typed draft is
placed before the Other Member
4. Date on which the approved draft
comes to the Sr.P.S./PS
5. Date on which the fair order is
placed before the Dictating Member
for pronouncement
6. Date on which the fair order comes
back to the Sr.P.S./PS
7. Date on which the final order is
uploaded on the website of ITAT
8. Date on which the file goes to the
Bench Clerk
9. Date on which the file goes to the
Head Clerk
10. The date on which the file goes to
the Assistant Registrar for signature
on the order
11. Date of dispatch of the order
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