Delhi ITAT Allows Foreign Tax Credit to Shardul Amarchand Mangaldas on Overseas Legal Fees

ACIT Vs Shardul Amarchand Mangaldas & Co. (ITAT Delhi)

Delhi ITAT Allows Foreign Tax Credit to Shardul Amarchand Mangaldas on Overseas Legal Fees

The Delhi ITAT dismissed the Revenue’s batch of appeals and upheld the grant of Foreign Tax Credit (FTC) to Shardul Amarchand Mangaldas & Co. in respect of taxes withheld overseas on professional fees earned from foreign clients. The Tribunal held that legal and consultancy fees received from jurisdictions such as Japan, China, Malaysia, Uganda, Sri Lanka, Poland and Oman were eligible for FTC under section 90/90A read with Rule 128, where the gross income had been offered to tax in India and the assessee had duly filed Form 67 along with the requisite foreign tax withholding certificates.

The Assessing Officer had denied the FTC on the ground that the receipts constituted independent personal services under the relevant DTAA articles rather than fees for technical services (FTS). Rejecting this view, the Tribunal relied on the Mumbai ITAT decisions in Amarchand & Mangaldas & Suresh A. Shroff & Co. and Cyril Amarchand Mangaldas, holding that under the India–Japan DTAA, legal fees earned by a partnership firm were covered by Article 12 (FTS) and not Article 14 relating to independent personal services. Consequently, the taxes withheld in Japan and other treaty jurisdictions were eligible for credit in India.

The Tribunal also rejected the Revenue’s plea for remand, observing that there was no dispute regarding the assessee having offered the foreign receipts to tax in India, furnished Form 67 and the foreign tax certificates, or complied with Rule 128. Since all statutory conditions for claiming FTC had been satisfied, the Revenue’s appeals for all the assessment years were dismissed.

Cases Discussed

• DCIT v. Cyril Amarchand Mangaldas (ITAT Mumbai), 154 taxmann.com 99
• Amarchand & Mangaldas & Suresh A. Shroff & Co. (ITAT Mumbai), 122 taxmann.com 248

FULL TEXT OF THE ORDER OF ITAT DELHI

1. These batch of appeals have been filed by the Revenue against a common order passed by the learned CIT(A) u/s 250 of the Income Tax Act, 1961 dated 29^th December, 2025 in following appeal numbers:

2. The ld. CIT(A) has considered Appeal No. NFAC/2017-18/10022110 for AY 2018-19(being ITA No.2328/Del/2026 herein) as the “Lead Year” and has held that the findings of the Lead Year are applicable mutatis mutandis to other appeals as well because the nature of issues involved, facts involved as also the grievances as were raised by the assessee before the ld. CIT(A) were common.

3. Brief facts as understood from the orders of the authorities below as also from the Synopsis filed by the ld. AR of the assessee are, the assessee is a partnership firm which is engaged in rendering the legal and consultancy services across various practice areas comprising of mergers and acquisitions, taxation, dispute resolution, competition law, regulatory litigation, capital markets and private equity. Such professional and consultancy services are claimed to have been rendered by the assessee to both its Indian clients as well as international clients in the ordinary course of its business. Since the assessee firm is following the cash system of accounting and in accordance with such system, the income as well as expenditure are offered to tax on receipt basis. It is noted that the assessee firm has offered the income earned by it against such services rendered from the overseas clients. Such overseas clients have deducted taxes in accordance with the relevant Double Taxation Avoidance Agreement applicable to the each jurisdiction from which such income has been earned by the assessee. The assessee while offering the gross income from such receipts as taxable in India has claimed the Foreign Tax Credit (FTC) in accordance with section 90/90A of the Income Tax Act, 1961 (for short ‘the Act’) read with Rule 128 of the Income Tax Rules, 1962 (for short ‘the Rules’). While claiming such FTC, the assessee had filed Form No. 67 in respect of each of the years along with the TDS certificates as had been issued to the assessee by its foreign clients in accordance with the requirements for claiming the benefit of FTC in accordance with law. The assessee had treated the rendering of all such consultancy services as “Fee for Technical Services” (FTS) under the relevant articles of the Double Taxation Avoidance Agreement applicable to each of such country from where the assessee had received such professional revenue. However, the Assessing Officer was of the view that such receipts by the assessee is not FTS but fees received by the assessee as independent professional services which are covered under a different article of the respective Double Taxation Avoidance Agreement. For example in respect of receipts from Japan, the assessee claimed that article 12(4) read with article 23 of the Double Taxation Avoidance Agreement with Japan would cover the receipts, however Assessing Officer was of the view that the relevant article under which such receipts fall is article 14 and not article 12(4) of the Double Taxation Avoidance Agreement with Japan. Similarly with regard to the receipts from other countries i.e. China, Uganda, Malaysia, Sri Lanka, Poland and Oman the Assessing Officer referred to the relevant article of independent professional services rather than the articles which according to the assessee covered the receipts as FTS. It is observed that the major receipts by the assessee are from Japan and receipts from other countries constitute only about 2% of the total receipts. The Assessing Officer in accordance with his understanding denied the claim of FTC by making following observations as are noted by him in the Assessment Order for Assessment Year 2018-19:-

1. The nature of services provided by the assessee is clearly of legal nature covered under Article 14 of the DTAA. This nature is also accepted by the assessee firm as can be seen from the above discussion. In lieu of the nature of services provided in this case, Article 14 is clearly attracted as against Article 12 of the DTAA.

2. Article 12, as observed from the plain reading of the DTAA, is attracted in case of Royalties and Fee for technical services.

3. Article 14, as observed from the plain reading of the DTAA, is attracted in case of Independent personal services which explicitly includes professional services including independent activities of lawyers.

4. The Article 14 is applicable for both of individuals as well as partnership firm. The usage of words like He and His are concern-neutral terms. These terms not only apply to individuals but also to other concerns like company, firms, AOP, BOI etc. If any such distinction of category was applicable under Article 14, the DTAA makers/drafters would have clearly indicated. This argument can be corroborated by citing drafting of the Income Tax Act, 1961 wherein applicability and non applicability of the sections to persons like individual/HUF/Firm/Company etc. are clearly mentioned. The non distinction under Article 14 clearly indicates the wisdom of the India Japan DTAA drafters.

5. Taking the argument further, Article 14 mentions the term independent personal services. Here the term independent has been used in relation to the nature of the services rather than the type of persons providing such services. The term independent implies absence of a fixed base or presence for over 183 days in the contracting state which in this case is Japan. The term independent has no relation to the type of persons providing this service be it individual/HUF/Company/Firm etc.

6. The term personal herein Article 14 can be interpreted in the light of Income Tax Act, 1961. Section 2(31) of the Income Tax Act, 1961 defines the categories of person which includes individual as well as a firm. Taking this definition as the guiding light, it can be clearly seen that article 14 of the DTAA is a concern neutral term and well applicable in case of the assessee firm.

7. After the above discussions in the said points, it is clear that the right to deduct taxes in the above case lied with India as against Japan. On the whole it can be safely concluded that a huge loss would be caused to the national exchequer if the relief under section 90 of the Income tax Act, 1961 is allowed to the assessee firm.

8. Hence applicability of section 23 of the India-Japan DTAA is not correct as claimed by the assessee. The right to taxation in this case clearly lied with India and not with Japan. Article 23 only mentions avoidance of double taxation in the case where right to tax lied with Japan and over which India would avoid double taxation. However, in this case, the right to taxation was well within the sovereign rights of India and not with Japan. Hence, the Article 23 of the DTAA is not applicable in the said case.

4. Before the ld. CIT(A), the assessee made exhaustive submissions including various case laws. The ld. CIT(A) after extracting various applicable articles from the DTAA with Japan, Rule 128 of the Rules as also the judgement of ITAT, Mumbai Bench in the case of Amarchand & Mangaldas & Suresh A. Shroff & Co. as reported in 122 com248 has decided the issue in favour of the assessee by holding that Assessing Officer was not justified in denying the credit of FTC to the assessee and has allowed the appeals of the assessee by treating Assessment Year 2018-19 as the Lead Year and by holding that the findings of the Assessment Year 2018-19 are applicable for all other years.

5. Aggrieved with the above order, Revenue is in appeals before us raising following grounds of appeal in AY 2018-19 :-

1. Whether, on the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in allowing Foreign Tax Credit (FTC) u/s 90/91 without applying the statutory tests for admissibility of FTC, including determining the creditability of the foreign levy, its nexus with the corresponding income offered to tax in India, and the year of allowability?

2. Whether the Ld. CIT(A) erred in law in allowing FTC without applying the limitation principle under section 90/91 read with the Rules, i.e. restricting the credit to the Indian tax attributable to such foreign income, thereby permitting allowance of credit beyond statutory limits?

3. Whether the Ld. CIT(A) erred in law in allowing FTC without determining whether the foreign tax claimed relates to the same item of income and the same assessment year in which such income has been subjected to tax in India, especially where foreign withholding is on gross receipts while taxation in India is on net profits/income?

4. Whether the Ld. CIT(A) erred in law in allowing FTC where part of the claim relates to arrangements involving third-party discharge and/or reimbursement, without determining whether such amounts constitute ”foreign tax paid” by or on behalf of the assessee in a manner eligible for credit under section 90/91 read with the Rules and the relevant DTAA?

5. Whether the Ld. CIT(A) erred in law in granting FTC across multiple treaty jurisdictions by applying a common rationale/lead-year approach without independently applying the relevant DTAA provisions governing taxation rights and corresponding relief for each jurisdiction/stream, notwithstanding that treaty language and conditions may differ and materially affect eligibility?

6. Whether, in the facts and circumstances of the case, the Ld. CIT(A) erred in law in not restoring the matter for verification and re-computation where adjudication of FTC necessarily depends on applying statutory conditions and limitation mechanics to underlying evidence and computations, and such application is not demonstrable from the record?

6. Although these grounds are not serially numbered as per the Memorandum of Appeal but for the sake of clarity and ready reference the same have been numbered as Grounds No. 1 to 6 as above.

7. At the time of hearing, ld. Sr. DR has submitted that order passed by the Assessing Officer needs to be upheld as the same has been passed after considering all the relevant provisions of the respective DTAA. He has submitted that the amounts of FTC in respect of each year as also the corresponding income against which such FTC has been claimed is required to be examined by the Assessing Officer. These arguments of ld. DR have been made in view of Ground Nos. 2, 3, 4, 5 & 6 as identified hereinabove. By referring to the various grounds of appeal, he has submitted that the ld. CIT(A) appears to have allowed the credit of FTC without establishing the nexus with the corresponding income offered to tax in India. He has further submitted that the restricting of credit of FTC to the extent of Indian tax attributable of such income also needs verification. He has, therefore, urged upon the Bench to restore back to Assessing Officer for verification of all these facts before the FTC claim is allowed to the assessee.

8. On the other hand, ld. AR of the assessee, has submitted that the assessee firm has been carved out of the erstwhile firm i.e. Amarchand & Mangaldas & Suresh A. Shroff & Co. and this very issue earlier came up in the case of erstwhile firm for Assessment Year 2014-15 wherein the claim of FTC was denied for the identical reasons by the Assessing Officer but, however ITAT has allowed the relief to the assessee by holding and analyzing the DTAA between India and Japan to conclude that it is Article 12(4) read with Article 23 which is applicable to the professional receipts and not Article 14 as had been done by the Assessing Officer in that year. The ld. AR also referred to another judgement of ITAT, Mumbai Bench in the case of DCIT v. Cyril Amarchand Mangaldas for the Assessment Year 2017-18 and Assessment Year 2018-19 which is reported in 154 Taxman.com 99 wherein also a similar controversy was involved which was decided in favour of the said firm to hold that credit FTC is required to be allowed to the firm in respect of taxes deducted on the legal service rendered in Japan. Copies of both the judgements have been placed by the ld. AR on record.

9. As regards the issue of matching the corresponding income against the FTC claim by the assessee, it has been submitted that firstly the Assessing Officer has not raised any doubt on this aspect. In fact, the assessment orders passed by the Assessing Officer for each of these years clearly extract the amount of receipts shown by the assessee in the total income declared by the assessee and the corresponding FTC claimed has also been noted by the Assessing Officer in each of the assessment order. Further, it was submitted that it is factually correct as can be seen from the assessment orders. For example, the assessment order for Assessment Year 2018-19 records the following facts.

The details of such income accrued and tax relief claimed by the assessee is as under:

During the said assessment year, the assessee had provided professional legal services to the clients based in Japan, Malaysia and Uganda. The total income from outside India from Japan, Malaysia and Uganda aggregated to Rs.14,21,50,938/-.

10. Similarly, it was submitted that in the Assessment Order for Assessment Year 2020-21 in Para 3 recorded the income and relief claimed as under.

The details of such income accrued and tax relief claim by the assessee as under:

11. Ld. AR submitted that in all the grounds raised by the department, the only objection is whether the amount of FTC claimed is in accordance with the income offered by the assessee from such foreign jurisdiction in its taxable income. It has been submitted that these grounds in fact do not arise from the orders of the authorities below because the learned Assessing Officer has not denied the credit of FTC in any of the assessment orders because the corresponding income on which the assessee claimed FTC has not been offered to tax. It has, therefore, been submitted that no useful purpose would be served by referring the matters back to the Assessing Officer as it would tantamount to multiplication of proceedings especially in view of the fact that all the relevant facts and figures i.e. the income earned from these foreign jurisdiction and corresponding FTC claimed by the assessee are duly noted by the Assessing Officer in the respective assessment orders and not even an iota of doubt has been expressed by the Assessing Officer in respect of these facts and figures.

12. Further, ld. AR submitted that the ld. CIT(A) has made correct interpretation of the provisions of various Articles as contained in the respective DTAA as also the provisions of section 90/90A of the Income Tax Act read with Rule 128 of the Rules. The ld. AR relied upon the judgements of ITAT, Mumbai Bench in the erstwhile firm i.e. Amarchand & Mangaldas & Suresh A. Shroff & Co. as reported in 122 taxmann.com248 and also on the judgement of ITAT, Mumbai Bench in the case of Cyril Amarchand Mangaldasas reported in 154 taxmann.com99 to conclude that the issues involved are fully covered in favour of the assessee and has submitted that the order of ld. CIT(A) is required to be upheld.

13. Considered the rival submissions and material placed on record. The only issue involved in all these batch of appeals is as to whether when an assessee earns foreign income which is included at gross level into the taxable income, whether the credit of the foreign taxes which are held by the overseas clients is required to be given in India or not and whether it is the relevant article 12(4); for example in case of DTAA with Japan or article 14 which deals with independent personal service would cover the nature of services rendered by the assessee. The ITAT, Mumbai Bench in the case of Amarchand & Mangaldas & Suresh A. Shroff & Co.(Supra) has after analyzing relevant Articles 12(4) and Article 14 with reference to Indo-Japan treaty has finally in Para-8 of the said judgement held as under:

8. In view of these discussions, there is a valid school of thought that in the scheme of the Indo Japanese tax treaty, article 14 for independent personal services holds the field for the individuals only – particularly in the light of the exclusion clause under article 12(4) being restricted to payment of fees for professional services to individuals alone. There is no dispute that the provisions of article 14 and article 12 are overlapping inasmuch as what is termed as professional service could also be covered by the fees for technical service-particularly as the definition of the fees for technical services is on `classical model’ of much wider scope and not on the `make available model’ now in vogue in many tax treaties. The only reason for which exclusion from article 12 was canvased by the Assessing Officer was that rather specific provisions of article 14 have to make way for rather general provisions of article 12, but then when we hold that, in the context of Indo Japan tax treaty, article 14 comes into play only for individuals, this proposition ceases to hold good in the present context. As a corollary to this legal position, and the exclusion clause under article 12(4) not being triggered on the facts of this case as such, it is indeed reasonably possible to hold that the payments in question were rightly subjected to tax withholding in Japan. The judicial precedents cited by the authorities below are in the context of the tax treaties other than Indo Japan tax treaty, and the provisions of the Indo Japan tax treaty are not in parimateria with the provisions of those tax treaties. These judicial precedents deal with the tax treaties that India has entered into with China, U.K. and the USA, but then all the three treaties are, in the material respects, differently worded vis-à-vis the Indo-Japanese tax treaty that we are presently dealing with. It is, therefore, not even necessary, even if we have our reservations on correctness of these decisions, to refer the matter to the larger bench for reconsideration of the principle laid down therein. Suffice to say, on the facts of this case, the conclusions arrived at by the Japanese tax authorities, directing tax withholdings from the payments made to the assessee by its Japanese clients, cannot be said to unreasonable or incorrect. In the light of these discussions, as also bearing in mind entirety of the case, we hold that the assessee was wrongly declined tax credit of Rs.80,55,856/- on the facts of this case. We, therefore, direct the Assessing Officer to grant the said tax credit to the assessee. As we have upheld the plea of the assessee with respect to the admissibility of the foreign tax credit, we see no need to deal with the alternate plea of the assessee seeking deduction of the taxes so withheld abroad in the computation of its income.

14. Respectfully following the aforesaid judgements as also in other judgement of ITAT, Mumbai Bench in the case of Cyril Amarchand Mangaldas (supra), we hold that the order passed by the ld. CIT(A) holding that the assessee is entitled to claim FTC is in accordance with the provisions of law i.e. section 90/90A read with Rule 128 especially when there is no dispute that the assessee made all the compliance as per other provisions i.e. filing of Form 67, filing of TDS certificates issued by foreign jurisdiction etc. Moreover, the undisputed facts in this case are that (i) assessee has rendered services in overseas jurisdictions, (ii) the foreign payers have withheld taxes in accordance with DTAA provisions for which TDS certificates duly authenticated by their revenue authorities are issued, (iii) assessee as resident in India has declared gross receipts in the taxable income in India and claimed FTC for the taxes withheld overseas by filing Form 67, (iv) Rule 128 of the Rules does not contain any restriction for allowing FTC credit in accordance with section 90/90A of the Act. Upon these undisputed facts there remains no reason or justification in denying the taxes withheld by the overseas clients against the gross income declared in India by the resident assessee.

15. In view of our findings given above, the order passed by the ld. CIT(A) for the Assessment Year 2018-19 in ITA No.2328/Del/2026 filed by the Revenue is upheld and appeal filed by the Revenue is dismissed.

16. As the Grounds of Appeal raised by the Revenue as also the facts and circumstances in each of the other appeals are identical to the facts as also the reasons assigned by the Assessing Officer in denying the benefit of FTC to the assessee are identical, all other appeals i.e. ITA Nos.2327, 2329, 2330, 2331 and 2332/Del/2026 to 2332/Del/2026 for Assessment Years 2017-18, 2018-19, 2020-21, 2021-22 and 2022-23 respectively are also dismissed for the identical reasons.

17. To sum up, all the appeals filed by the Revenue are dismissed.

Order pronounced in the open court on this 31^STday of July, 2026.