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30-10-2019, Tata Consultancy Service, Section 10A, 115JB, Tribunal Mumbai

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7 months 1 day ago #11300 by amit
Section - 10A, 115JB, 40(a)(ii), 2(43)
Order Date - 30-10.2019
Favouring - Assessee Partly
Court - Tribunal Mumbai
Appellant - Tata Consultancy Service Ltd.
Respondent - ACIT
Citation - 1119Taxpundit43
Appeal No. - ITA no.5713/Mum./2016
Asstt. Year - 2009–10



The captioned cross appeals arise out of the order dated 28th June 2016, passed by the learned Commissioner of Income Tax (Appeals)–58, Mumbai, for the assessment year 2009–10.

ITA no.5713/Mum./2016
Assessee’s Appeal

2. In ground no.1, the assessee has challenged disallowance of State taxes paid overseas.

3. Brief facts are the assessee, an Indian company, is engaged in the business of export of computer software, providing e– Solutions, Business Process Outsourcing (BPO) activities and other management consultancy activities. The assessee has several overseas branches across the globe which are its Associated Enterprises (AE). For the assessment year under consideration, the assessee filed its return of income declaring total income of ` 77,25,47,829, under the normal provisions of the Income Tax Act, 1961 (for short "the Act") after claiming deduction under section 10A / 10AA of the Act. Further, the assessee also declared book profit of ` 40,32,25,37,283, under section 115JB of the Act. Subsequently, on 30th March 2011, the assessee filed a revised return of income enhancing the claim of TDS from ` 139,10,63,978, to ` 160,10,63,978. During the assessment proceedings, the Assessing Officer while verifying the return of income filed by the assessee along with the financial statements noticed that the assessee had claimed deduction of State taxes paid in overseas countries. It was submitted that these taxes were paid in USA and Canada. It was submitted by the assessee that the State taxes paid in USA and Canada do not come within the purview of section 40(a)(ii) of the Act. According to the assessee, the term “tax” as defined under section 2(43) of the Act, would mean the tax chargeable under the Income Tax Act, 1961. Further, it was submitted, in respect of State taxes paid, the assessee is not eligible for any relief either under sections 90 or 91 of the Act r/w the applicable Double Taxation Avoidance Agreements (DTAAs). Further, referring to the applicable DTAAs, it was submitted, the State and local taxes levied by local authorities like State, Cities or Counties are not covered under the tax treaties / conventions with USA and Canada. Thus, it was submitted, the deduction claimed by the assessee is not disallowable under section 40(a)(ii) of the Act.

The Assessing Officer, however, did not find merit in thesubmissions of the assessee. He observed, the expression “tax” under section 40(a)(ii) of the Act would encompass all taxes levied on the profit or gains of the business or profession and is not limited to tax levied on total income computed under the provisions of Indian Income Tax Act. Referring to various judicial precedents in this context, the Assessing Officer ultimately disallowed the deduction claimed on account of State taxes paid overseas. Though, the assessee challenged the aforesaid disallowance before learned Commissioner (Appeals), however, he also sustained the disallowance noticing that while deciding identical issue in assessee’s own case in assessment year 2005–06, the Tribunal has upheld such disallowance

4. Shri Porus Kaka, the leaned Sr. Counsel for the assessee submitted, the State taxes in respect of which the assessee claimed the deduction were paid in USA and Canada to the State authorities. He submitted, these taxes were levied on the income of the assessee by various Provincial and State Governments and not by Federal / Central Government. He submitted, section 40(a)(ii) of the Act does not allow deduction of taxes levied on profit or gains of any business. He submitted, as per section 2(43) of the Act, tax would mean taxes which are chargeable under the Indian Income Tax Act. He submitted, as per Explanation–1 to section 40(a)(ii) of the Act, only taxes which are eligible for relief under section 90 or 91 of the Act are not eligible for deduction. He submitted, as per technical explanation of Indo–US and Indo–Canada Tax Treaties, taxes on income levied by various Provincial or Sate Governments are not eligible for relief. Thus, he submitted, the taxes paid being outside the purview of section 40(a)(ii) of the Act, would be eligible for deduction under section 37 of the Act. He submitted, though, in the assessment year 2005–06, the Tribunal in ITA no.7513/Mum./ 2010, dated 4th September 2015, has decided the issue against the assessee, however, by virtue of the recent decision of the Hon'ble Jurisdictional High Court in Reliance Infrastructure Ltd. v/s CIT, [2017] 390 ITR 271 (Bom.), the issue stands covered in favour of the assessee.

5. The learned Departmental Representative strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals) submitted, the decision in Reliance Infrastructure Ltd. (supra) would not apply to the facts of the present case as the taxes levied by Saudi Arabia was both on Indian income as well as income earned in that country. He submitted, the facts in assessee’s case are different as the State taxes were levied on USA income only. He submitted, since the assessee is governed by the applicable tax treaties it is covered by

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