Allowing the appeal the Tribunal held that under the Double Taxation Avoidance Agreements with the U. S. A., Japan and Germany, if a resident Indian derives income, which may be taxed in that country, India shall allow as a deduction from the tax on the income of the resident, an amount equal to the tax paid in such country. For eliminating double taxation of doubly taxable income in the hands of the assessee, it would be necessary to establish the taxes paid by the assessee in U. S. A., Japan, and Germany. Thus, foreign tax credit was available in full on taxes paid in these countries. Relied on Wipro Ltd. v. Dy. CIT (2016) 382 ITR 179 (Karn) (HC). As regards the provisions of the Double Taxation Avoidance Agreement with Korea, foreign tax credit was available in India for the taxes paid in Korea and such credit shall not exceed the taxes payable in India on the doubly taxed income. Thus, there was a difference in the foreign tax credit available on taxes paid in the U. S. A., Japan and Germany vis-a-vis Korea. In the case of Korea, foreign tax credit was limited to taxes payable on such doubly taxed income in India. In other words, credit was limited to taxes paid in Korea or India, whichever was less. As regards income from Taiwan India had not entered into a Double Taxation Avoidance Agreement with Taiwan. Therefore, foreign tax credit available to the assessee against taxes paid in Taiwan was to be computed in accordance with section 91 of the Act. The provision for deduction of a sum calculated on such doubly taxed income paid in any country from the Indian Income-tax payable by an assessee. The assessee would be entitled to deduction from the Indian Income-tax, payable by him, of a sum calculated on the doubly taxed income at the Indian rate of tax or the rate of tax of the other country concerned, whichever was lower. Thus, under section 91 of the Act, in the case of Taiwan, foreign tax credit was to be computed based on the rate of tax applicable in India or Korea, whichever was less, on such doubly taxable income. (AY. 2013-14, 2014-15)
Ittiam Systems Pvt. Ltd. v. ITO (2021) 86 ITR 611 /211 TTJ 367 / 201 DTR 191 (Bang.)(Trib.)
S. 90 : Double taxation relief-Foreign tax credit-Tax paid in USA, Japan and Germany-Credit available on all taxes paid in these countries-Tax paid in Korea-Limited to taxes payable on doubly taxes in India-Tax paid in Taiwan-No double taxation avoidance agreement with Taiwan-Foreign tax credit computed based on rate of tax applicable in India or Taiwan, whichever is less, on doubly taxable income-DTAA-India-USA-Japan-Germany-Korea. [S. 91, Art. 25, 23(2), 23(2), 23]