Case Law Details
Amarchand & Mangaldas & Suresh A Shroff & Co Vs ACIT (ITAT Mumbai)
The short issue that we are required to adjudicate in this appeal is whether or not the authorities below were justified in declining tax credit under article 23(2) of India Japan Double Taxation Avoidance Agreement [‘Indo Japanese tax treaty’, in short; (1990) 182 ITR (Stat) 380- as amended from time to time], in respect of taxes of Rs 80,55,856 withheld by its clients fiscally domiciled in Japan, on the facts and in the circumstances of this case. As an alternate plea, assessee pleads that, in the event of the assessee being declined the tax credit in respect of the taxes so withheld in Japan, the assessee should at least be allowed a deduction, for the said amount, in computation of its professional income.
Held by ITAT
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 canvassed 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 pari materia 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.
FULL TEXT OF THE ITAT JUDGEMENT
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OFFhand
EXCERPts:
Q
………..
On the subject uniformity of interpretation in the treaty partner jurisdictions, Lord Denning, in the case of Corocraft, said:
“If such be the view of the American Courts, we surely should take the same view. This convention should be given the same meaning throughout all the countries who were parties to it” (1 Q.B. 616). The importance of uniformity of interpretation of expressions which are used in global treaty networks can thus hardly be overemphasized. As was said in the Federal Court in Canadian Pacific Ltd. v. Queen 76 DTC 6120 at p. 6135) in interpreting the 1942 Canada-US Treaty, “While it is true that this Court has the right to interpret the Canada-US Tax Convention and Protocol itself and is no way bound by the interpretation given to it by the United States Treasury, THE RESULT WOULD BE UNFORTUNATE IF IT WERE INTERPRETED DIFFERENTLY IN THE TWO COUNTRIES WHEN THIS WOULD LEAD TO DOUBLE TAXATION. Unless, therefore, it can be concluded that the different conclusion, and I find no compelling reason for doing so.” That situation is to be best avoided, and it can only be so avoided when unless the view of the treaty partner jurisdiction is wholly unreasonable or, to borrow the words of Canadian Federal Court, “manifestly erroneous,” it should be adopted, at least in respect of that transaction, by the other treaty partner as well. ….. UQ
(Para. 10)
The view the Tribunal has taken, by any logic or sound reasoning, rightly so, is in sync with the general pattern and basic objective with which DTAAs are being concluded between two countries. Further, that is the view which might be prudently expected to be eventually upheld even if the matter were to be been taken on for resolution by resort to the ‘Mutual Agreement Procedure’ (MAP)
Moreover, prima facie , some of the aspects dealt with in the landmark Judgment of the SC (India) and the grounds of the decision in re. Azadi Bachao Andolan # could be of every relevance (direct as well as indirect) for supporting the ITAT’s Order in the instant case as the only right and sensibly sustainable view especially from a practical viewpoint.
RESOURCE (on ‘MAP’as Updated) https://www.incometaxindia.gov.in/Documents/MAP-GUIDANCE-7th-August-2020.pdf
# UOI and Anr. v Azadi Bachao Andolan and Anr. (citation -263 ITR 706 (SC) )
Article (critique) Titled “CASE LAW ON TAX TRATIES – NUANCES OF”-
(2007) 295 ITR pg. 17