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Tax Publishers Amarchand & Mangaldas & Suresh A. Shroff & Co. v. Asstt. CIT [I.T.A. No. 2613/Mum/19, dt. 18-12-2020] : 2020 TaxPub(DT) 5486 (Mum-Trib) Tax credit availability under Indo-Japan DTAA Article 23(2) in India on fee for Independent personal services whether debatable *Facts:* Assessee a resident leading firm of lawyers was in receipt of certain professional fee from Japan on which TDS was done by the payer @ 10% under Article 12 of the Indo-Japan DTAA (Article on Fee for technical services). They claimed tax credit of this TDS paid in Japan as the said income was also taxable in India due to residency under Article 23(2) (Tax credit article) of the said DTAA. It was the case of the assessee that this amount was first not taxable in Japan as it fell in the scope of Fee for Independent personnel services (IPS) under Article 14 of the Indo-Japan DTAA and not under Article 12 FTS as erroneously held by the payer and TDS fastened on the same. This also stems from the fact that the assessee did not meet the test of 183 days presence in Japan so as to have a TDS on the IPS income in the first place so the wrong deduction of TDS deserves a grant of credit in India. The case of the assessing officer/Commissioner (Appeals) was that the IPS clause Article 14 cannot cover a firm but only individuals thus the payer having wrongly done the TDS the credit of the same cannot be availed by them. A wrong payment of tax cannot be claimed as tax credit was the stand of the revenue. On higher appeal -- Held in favour of the assessee that there was certainly an overlap of income between Article 12 (FTS) and 14 (IPS). That Article 14 of the DTAA enables only individuals does not mean that the amount then necessarily has to fall into Article 12 especially when Article 12 has an exclusion of IPS (Special provision overriding General provision principle). On the contrary if Article 14 or Article 12 neither of it is applicable it will have to fall in the scope of Article 7 (Business profits) where income is taxable only upon existence of a PE in the source jurisdiction. The wordings in Article 23(2) of the DTAA do not stand in the way of credit though OCED and other commentaries always have given the option of denying tax credit on judicial grounds to the other state. In this case the same is not the fact as the income is taxable in India and offered to tax in India thus tax credit has to be granted to the assessee in line with the DTAA protocol between India and Japan. *Editorial Note:* Article 23(2) reads as -- "Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in Japan, India shall allow as a deduction from the tax on the income of that resident an amount equal to the Japanese tax paid in Japan, whether directly or by deduction".

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Amarchand & Mangaldas & Suresh A. Shroff & Co. v. Asstt. CIT [I.T.A. No. 2613/Mum/19, dt. 18-12-2020] : 2020 TaxPub(DT) 5486 (Mum-Trib)

Tax credit availability under Indo-Japan DTAA Article 23(2) in India on fee for Independent personal services whether debatable

Facts:

Assessee a resident leading firm of lawyers was in receipt of certain professional fee from Japan on which TDS was done by the payer @ 10% under Article 12 of the Indo-Japan DTAA (Article on Fee for technical services). They claimed tax credit of this TDS paid in Japan as the said income was also taxable in India due to residency under Article 23(2) (Tax credit article) of the said DTAA. It was the case of the assessee that this amount was first not taxable in Japan as it fell in the scope of Fee for Independent personnel services (IPS) under Article 14 of the Indo-Japan DTAA and not under Article 12 FTS as erroneously held by the payer and TDS fastened on the same. This also stems from the fact that the assessee did not meet the test of 183 days presence in Japan so as to have a TDS on the IPS income in the first place so the wrong deduction of TDS deserves a grant of credit in India. The case of the assessing officer/Commissioner (Appeals) was that the IPS clause Article 14 cannot cover a firm but only individuals thus the payer having wrongly done the TDS the credit of the same cannot be availed by them. A wrong payment of tax cannot be claimed as tax credit was the stand of the revenue. On higher appeal --

Held in favour of the assessee that there was certainly an overlap of income between Article 12 (FTS) and 14 (IPS). That Article 14 of the DTAA enables only individuals does not mean that the amount then necessarily has to fall into Article 12 especially when Article 12 has an exclusion of IPS (Special provision overriding General provision principle). On the contrary if Article 14 or Article 12 neither of it is applicable it will have to fall in the scope of Article 7 (Business profits) where income is taxable only upon existence of a PE in the source jurisdiction. The wordings in Article 23(2) of the DTAA do not stand in the way of credit though OCED and other commentaries always have given the option of denying tax credit on judicial grounds to the other state. In this case the same is not the fact as the income is taxable in India and offered to tax in India thus tax credit has to be granted to the assessee in line with the DTAA protocol between India and Japan.

Editorial Note:

Article 23(2) reads as -- "Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in Japan, India shall allow as a deduction from the tax on the income of that resident an amount equal to the Japanese tax paid in Japan, whether directly or by deduction".