Wipro Ltd. v. DCIT [2015] 62 taxmann.com 26 (Karnataka High Court)
The Karnataka High Court allowed credit of taxes paid outside India (which includes states taxes) in respect of an income which is exempt in India by virtue of Section 10A.
Facts
- The assessee (‘Wipro Limited’) paid tax in foreign countries in respect of profit attributable to its permanent establishment (PE) situated outside India.
- Being an Indian company, assessee was liable to pay tax in India on its worldwide income including the profits attributable to its Permanent Establishments and, accordingly, it claimed relief under Section 90 in respect of taxes paid outside India.
- The assessee also made a claim for tax relief against the State Taxes paid in USA and Canada.
- AO disallowed assessee’s claim of foreign tax credit on the ground that the income in respect of which claim was made do not form part of total income as per Section 10A.
- AO also rejected assessee’s claim for tax relief against the State Taxes paid in USA and Canada. The contention of the AO was that DTAA with USA and Canada allows credit of the taxes paid under the Income Tax Act in India and Federal tax in USA and Canada. Therefore, the claim for relief for the State Taxes paid was not admissible under respective DTAA.
- On appeal, CIT(A) set aside the order of AO. However, on further appeal by revenue before the tribunal, the tribunal confirmed the order of AO.
- Aggrieved by the order of tribunal, assessee filed the instant appeal before the High Court.
The High Court held in favour of assessee as under-
- Section 90(1)(a)(ii) provides relief from double taxation where the income of the assessee is chargeable under the income-tax Act as well as in the corresponding law in force in the foreign country. Hence, as per section 90(1)(a)(ii), what is important is that income should be chargeable to tax in either country and not subjected to tax.
- Income under Section 10A is chargeable to tax under Section 4 and is includible in the total income under Section 5, but no tax is charged on such income because of the exemption given under Section 10A. Merely because the exemption has been granted in respect of the taxability of the said source of income, it cannot be postulated that the assessee is not liable to tax.
- Therefore, assessee would be entitled to take credit of income tax paid in a country outside India in relation to income eligible for deduction under section 10A.
- As far as issue related to credit of states taxes is concerned, section 91 provides relief from double taxation where no agreement relating to avoidance of double taxation exist with a foreign country.
- Explanation (iv) to Section 91 defines the expression income tax in relation to any country to include any excess profit tax or business profits tax charged on the profits by the Government of any part of that country or a local authority in that country.
- The intention of the Parliament is very clear. The Income tax in relation to any country includes income tax paid not only to the Federal Government of that Country, but also any income tax charged by any part of that country meaning a State or a local authority, and the assessee would be entitled to the relief of double taxation benefit with respect to the latter payment also.
- Therefore, even though, India has not entered into any agreement with the State of a Country, the income tax paid in relation to that State is also eligible for tax credit.
- Hence, the argument that in the absence of an agreement between India and the State, the benefit of Section 90 is not available to the assessee is ex-facie illegal and requires to be set aside.
