|Amarjit Singh (JM), Pramod Kumar (VP)
|Domestic Tax, International Tax
|Tax Credit, Taxation of foreign branches
|December 11, 2020 (Date of pronouncement)
|December 23, 2020 (Date of publication)
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|(i) The fact that profits of foreign branches of a resident are taxed outside India under tax treaties does not imply that the said income is not taxable in India. The entire global income has to be taxed in India. The assesseee is entitled to credit for taxes paid abroad, as admissible under the treaty or the domestic law. (ii) S. 115JB applies to banking companies after the 2012 amendment. Even profits of foreign branches which are taxed under the tax treaties are also liable for MAT. (iii) The argument that S. 90 overrides S. 115JB and so the incomes taxed abroad should be excluded from taxation of book profits u/s 115 JB is not correct. Treaty protection come normally into play for taxation of a non-resident in India, i.e. source country taxation, and not for taxation of a resident in whose hands global income is to be taxed anyway. All that one gets in the residence jurisdiction, by the virtue of tax treaties, is tax credits for the taxes paid abroad.
The effect of Hon’ble Supreme Court’s judgment in Kulandagan Chettiar (267 ITR 654) that income taxable in the source jurisdiction under the treaty provisions cannot be included in total income of the assessee is clearly overruled by the legislative developments. It is specifically legislated that the mere fact of taxability in the treaty partner jurisdiction will not take it out of the ambit of taxable income of an assessee in India and that “such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement”. A coordinate bench of this Tribunal, in the case of Essar Oil Ltd (supra) also proceeded to hold that this notification was retrospective in effect inasmuch as it applied with effect from 1st April 2004 i.e. the date on which sub-section 3 was introduced in Section 90.