Rajeev Sureshbhai Gajwani vs. ACIT (ITAT Ahmedabad – Special Bench)

DATE: (Date of pronouncement)
DATE: March 10, 2011 (Date of publication)

Click here to download the judgement (rajeev_gajwani_80HHE_non_discrimination.pdf)

Despite bar in s. 80HHE, Non-Residents eligible for deduction in view of non-discrimination clause in DTAA

The assessee, a citizen of America and a non-resident, exported software from a PE in India and claimed deduction u/s 80HHE in respect of the profits earned from export of computer software by invoking the provisions of Article 26 (2) of the India-USA DTAA. He claimed that in view of Article 26(2), he could not be treated less favourably than a resident assessee. The AO & CIT (A) rejected the claim on the ground that the benefit of s. 80HHE was available only to Indian companies & residents. On appeal, the matter was referred to the Special Bench. HELD by the Special Bench:

(i) Article 26(2) of the India-USA DTAA provides that the taxation of a PE of an enterprise of a Contracting State in the other Contracting State shall not be less favorably levied in that other State than the tax levied on enterprises of that other Contracting State carrying on the same activities. In simple language, Article 26(2) means that taxation of a PE of a USA resident shall not be less favorable than the taxation of a resident enterprise carrying on the same activities. The result is that the exemptions and deductions available to Indian enterprises would also be granted to the US enterprises if they are carrying on the same activities. As the assessee was carrying on the “same activities” of export of software as done by residents, it was entitled to s. 80HHE deduction as admissible to a resident assessee (Automated Securities Clearance Inc vs. ITO 118 TTJ (Pune) 619 reversed; Metchem Canada Inc vs. DCIT 99 TTJ (Mum) 702 referred to);

(ii) If the provisions contained in the DTAA are capable of clear and unambiguous interpretation, it is not necessary to refer to the commentary on the OECD Model Convention, the US Technical Explanation or decisions of any foreign jurisdiction (CIT vs. PVAL Kulandagan Chettiar 267 ITR 654 (SC) followed).

For more on the law of non-discrimination see Daimler Chrysler India vs. DCIT 120 TTJ 803 (Pune) and Central Bank of India vs. DCIT
3 comments on “Rajeev Sureshbhai Gajwani vs. ACIT (ITAT Ahmedabad – Special Bench)

    In the inset -Note above, which, presumably, is that of the Editor, a reference has been made to the earlier decision of the Pune Bench of the Tribunal in re. Daimler Chrysler India. A critical analysis of that decision, though founded on entirely different sets of facts, etc., was made in the published article- Section 79 of Income -tax Act v Article 24 of Indo-German Treaty – (2009) 181 Taxman 10. It might be worthwhile, especially having regard to certain crucial aspects highlighted in that article, to ascertain about further developments, if any, and the present status / the outcome.



    I do not as yet know the further developments in the DCI’S case referred in my Post of March 10th.

    Be that as it may, to add:

    It is observed that, in the above referred order of the ITAT (Pune) (that is, in ASCI’s case), the reasoning given / the grounds on which the ITAT has disagreed and rejected the assessee’s reliance on article 26 (as per India-USA tax treaty) are, in one’s view, prima facie quite sound and logical. However, in Daimler Chrysler India’s (DCI’s) case, in disposing of the point of issue in asessee’s favour, the scope of article 26 (as per the Indo-German tax treaty, same as in India-USA treaty) has been discussed and decided upon quite differently.

    Incidentally, as is the convention, what is delivered by ITAT has to be referred as – ‘order’; not ‘judgment’.


    Error: Corresponding article in Indo-german treaty is – article 24 (not article 26)

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