Case Law Details
Thejo Engineering Limited Vs Deputy Director of Income Tax (Madras High Court)
In a recent decision by the Madras High Court, Thejo Engineering Limited challenged a rectification order denying the Foreign Tax Credit (FTC) under the Income Tax Act, 1961. The case highlights the complexities involved in international tax credits and the procedural nuances of their claims. This article delves into the court’s ruling, the facts of the case, and its implications for taxpayers navigating foreign tax credits.
Thejo Engineering Limited, a company with international operations, had claimed a Foreign Tax Credit of Rs. 1,14,62,414 for the assessment year 2022-2023. This claim was based on taxes paid by its Australian branch. Despite the submission of all necessary documentation, including Form 67 and supporting Australian tax records, the Central Processing Centre (CPC) initially denied the credit.
The petitioner filed a rectification petition challenging this denial, but the CPC rejected it, leading to the writ petition filed with the Madras High Court. The petitioner argued that while the computations for the FTC were correctly reflected, the credit itself was unjustifiably denied.
The Madras High Court scrutinized the case by reviewing the company’s tax return, activity statements, and the relevant intimation under Section 143(1). The court noted that the computation of the FTC by the assessing officer was accurate and matched the taxpayer’s claim. Despite this, the credit was denied without clear justification.
The court’s analysis revealed that there was no discernible reason for the denial, especially when the computed FTC was in line with the taxpayer’s claim. This lack of clarity in the denial process led to the court’s decision to remand the matter for reconsideration. The court emphasized that a fair evaluation of the FTC claim was necessary, as the computation itself was accepted.
The court’s decision underscores the importance of a transparent and justified process in the granting of tax credits. By ordering a reconsideration, the court aims to ensure that taxpayers receive due credit based on valid claims. This ruling is significant for companies dealing with international tax credits, as it reinforces the necessity for clear reasoning in the denial or acceptance of such credits.
The Madras High Court’s ruling in Thejo Engineering Limited Vs. Deputy Director of Income Tax highlights a crucial aspect of tax administration—the need for consistency and transparency in processing Foreign Tax Credit claims. The court’s decision to remand the case for reconsideration ensures that taxpayers are not unfairly denied credits they are legitimately entitled to.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
An order under Section 154 of the Income Tax Act, 1961 (the Income Tax Act) dated 27.05.2024 is challenged in this writ petition.
2. In respect of assessment year 2022-2023, the petitioner filed the original return of income on 29.11.2022. Thereafter, the petitioner filed a revised return of income on 29.12.2022. In both the original and revised return of income, the petitioner had claimed the benefit of Foreign Tax Credit under Section 90/90A of the Income Tax Act read with Article 24 of India-Australia Double Taxation Avoidance Agreement in respect of taxes paid by the Australian branch to the extent of Rs.1,14,62,414/-. In order to make the Foreign Tax Credit claim, the petitioner had uploaded Form 67, the business activity statements filed with the Australian Tax Office and the company tax return filed in Australia. Upon such return being processed by Central Processing Centre, under Section 143(1), a demand of 40,47,430/- was made. Upon examining the intimation, the petitioner noticed that Foreign Tax Credit was not granted. In those circumstances, a rectification petition dated 09.11.2023 was filed. Since such rectification petition was rejected by once again denying the Foreign Tax Credit, the present writ petition was filed.
3. Learned counsel for the petitioner invited my attention to the company tax return filed in Australia. With reference thereto, he pointed out that the tax liability was about Australian dollars 231,460. He also points out that such tax liability was duly discharged as evidenced by the petitioner’s activity statement. By referring to the petitioner’s claim for Foreign Tax Credit, he pointed out that such tax credit was claimed to the extent of Rs. 1,14,62,414/- in view of the differential tax rates being applicable in India and Australia, respectively. By referring to the intimation under Section 143(1), he points out that the Foreign Tax Credit was completely denied although the same intimation computes the Foreign Tax Credit in a sum equal to that claimed by the tax payer. He also points out that the cation order is on the same lines, whereby the tax relief is denied, on ne hand, whereas the computation reflects the total value of the Foreign Tax Credit.
4. Mr. V. Mahalingam, learned senior standing counsel, accepts notice for the respondents. He submits that the matter may be remanded for reconsideration with regard to the Foreign Tax Credit.
5. On examining the company tax return and the activity statements, it appears prima facie that the petitioner has remitted taxes through the Australian branch. It is clear that Foreign Tax Credit in respect thereof was claimed by the petitioner by filing Form 67 with relevant annexures. On examining the intimation under Section 143(1) and the impugned rectification order, the Foreign Tax Credit was computed by the assessing officer and such computation tallies with the Foreign Tax Credit claim of the Assessee. In spite of accepting the computation of the tax payer, the tax credit relief was denied. It is not possible to discern the reasons for such denial, but these facts and circumstances undoubtedly warrant reconsideration.
6. For reasons set out above, the impugned rectification order dated 05.2024 is set aside and the matter is remanded for reconsideration in so far as the Foreign Tax Credit claim is concerned. If there are any dues after taking into consideration such Foreign Tax Credit claim and interest liability arising therefrom, the petitioner shall discharge the same. After providing a reasonable opportunity to the petitioner, the Central Processing Centre, Bangalore shall issue a fresh order within three months from the date of receipt of a copy of this order.
7. The writ petition is disposed of on the above terms without any order as to costs. Consequently, connected miscellaneous petitions are closed
Author Bio
