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Home › All Judgements › DCIT vs. Mastek Limited (ITAT Ahmedabad)

DCIT vs. Mastek Limited (ITAT Ahmedabad)

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COURT:
CORAM:
SECTION(S):
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COUNSEL:
DATE: (Date of pronouncement)
DATE: May 16, 2012 (Date of publication)
AY:
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CITATION:

Click here to download the judgement (mastek_foreign_taxes_deduction.pdf)


Foreign income-tax is deductible u/s 37(1). Bar in s. 40(a)(ii) does not apply to foreign taxes

The assessee paid Rs.42.57 lakhs in Belgium as income-tax and claimed that as deduction u/s 37(1). The AO rejected the claim by relying on s, 40(a)(ii) which provides that any sum paid on account of tax levied on profits or gains of business shall not be allowable as a deduction, though the CIT (A) allowed the claim on the ground that the bar in s. 40(a)(ii) did not apply to foreign taxes. On appeal by the department, HELD dismissing the appeal:

The term “tax” is defined in s. 2(43) to mean income-tax chargeable under the provisions of this Act. S. 37(1) allows a deduction of all taxes and rates. Taxes levied in foreign countries whether on profits or gains or otherwise are deductible u/s 37(1) not hit by s. 40(a)(ii). It is also not application of income. The same view has been taken by ITAT Mumbai in South East Asia Shipping Co & Tata Sons Ltd and the department’s Reference Applications u/s 256(1) & 256(2) were rejected and the issue has reached finality.

Note: Tata Sons was followed without noticing that in Tata Sons itself (43 SOT 27) for a later year a contrary view was taken after full discussion. Also see KEC International 63 ITD 278 (Mum) where the earlier Tata Sons was not followed. However, if foreign TDS is deducted, only the net is assessable as per Ambalal Kilachand 210 ITR 844 (Bom) & Yawar Rashid 218 ITR 699 (MP)

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