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Tax Publishers Denial of tax credit of foreign taxes to a firm of lawyers *Facts:* Assessee a law firm claimed tax credit of taxes paid in Japan by its clients on the revenue what they offered to tax in India as well. It was the case of the revenue that as per Indo-Japan DTAA the amounts paid by the clients did not fall in the scope of Article 14A (Independent Personal services) as they were a firm and the article was limited only to individuals. On that contrary it is quite likely that the said fee was taxable as FTS under Article 12(4) of the DTAA. Since the income was not taxable at all in Japan under the DTAA with the debate between these two sections and in the absence of a PE for the assessee in Japan no TDS was first required to be done in Japan. In that reasoning the tax credit was denied by the AO. On appeal the CIT(A) allowed the tax credit based on the ITAT order of the related entity of the assessee. On further appeal by the revenue - Held against the revenue that the assessee was entitled to tax credit of taxes paid in Japan. *Applied:* Amarchand and Mangaldas and Suresh A Shroff & Co. v. ACIT, in [ITA No.2613/Mum./2019, dt. 18-12-2020] : 2020 TaxPub(DT) 5486 (Mum-Trib) K.P. Varghese v. ITO (1981) 131 ITR 597 (SC) : 1981 TaxPub(DT) 0972 (SC) and even in the context of the interpretation of taxing statutes, have held that the task of interpretation is not a mechanical task and, quoted with approval; Justice Hand's observation that "it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning". Linklaters LLP v. ITO (2011) 9 ITR (T) 217 (Mum) : 2010 TaxPub(DT) 2106 (Mum-Trib) held that - "105. Learned counsel has also contended that the professional services can only be taxed under the head Article 15 and in case chargeability under Article 15 fails, that is end of the road. It cannot be open to revenue authorities to tax income from professional services under article 7". This was under Indo-UK DTAA (Article 15 is Independent personal services) *Ed. Note:* If one were to say that the income was not taxable at all in the DTAA, then the taxes that were paid ought to be given relief on the doubly taxed income in India. It cannot be that they end up paying taxes on both countries. In the event a fee is not falling in the scope of Article 12 or 14 (which might be overlapping in many ways) the income will fall in the scope of PE taxation Article 5 or 7 in which case it can be taxed as business profits only if there exists a PE for the assessee. It is for this reason that Article 14/15 on IPS has been omitted from most DTAA's as what is taxable as business profits need not have a special article/clause called IPS in the first place. *Case:* Dy. CIT v. Cyril Amarchand Mangaldas 2023 TaxPub(DT) 3977 (Mum-Trib)

Tax Publishers

Denial of tax credit of foreign taxes to a firm of lawyers

Facts:

Assessee a law firm claimed tax credit of taxes paid in Japan by its clients on the revenue what they offered to tax in India as well. It was the case of the revenue that as per Indo-Japan DTAA the amounts paid by the clients did not fall in the scope of Article 14A (Independent Personal services) as they were a firm and the article was limited only to individuals. On that contrary it is quite likely that the said fee was taxable as FTS under Article 12(4) of the DTAA. Since the income was not taxable at all in Japan under the DTAA with the debate between these two sections and in the absence of a PE for the assessee in Japan no TDS was first required to be done in Japan. In that reasoning the tax credit was denied by the AO. On appeal the CIT(A) allowed the tax credit based on the ITAT order of the related entity of the assessee. On further appeal by the revenue -

Held against the revenue that the assessee was entitled to tax credit of taxes paid in Japan.

Applied:

Amarchand and Mangaldas and Suresh A Shroff & Co. v. ACIT, in [ITA No.2613/Mum./2019, dt. 18-12-2020] : 2020 TaxPub(DT) 5486 (Mum-Trib)

K.P. Varghese v. ITO (1981) 131 ITR 597 (SC) : 1981 TaxPub(DT) 0972 (SC) and even in the context of the interpretation of taxing statutes, have held that the task of interpretation is not a mechanical task and, quoted with approval; Justice Hand's observation that "it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning".

Linklaters LLP v. ITO (2011) 9 ITR (T) 217 (Mum) : 2010 TaxPub(DT) 2106 (Mum-Trib) held that -

"105. Learned counsel has also contended that the professional services can only be taxed under the head Article 15 and in case chargeability under Article 15 fails, that is end of the road. It cannot be open to revenue authorities to tax income from professional services under article 7". This was under Indo-UK DTAA (Article 15 is Independent personal services)

Ed. Note: If one were to say that the income was not taxable at all in the DTAA, then the taxes that were paid ought to be given relief on the doubly taxed income in India. It cannot be that they end up paying taxes on both countries. In the event a fee is not falling in the scope of Article 12 or 14 (which might be overlapping in many ways) the income will fall in the scope of PE taxation Article 5 or 7 in which case it can be taxed as business profits only if there exists a PE for the assessee. It is for this reason that Article 14/15 on IPS has been omitted from most DTAA's as what is taxable as business profits need not have a special article/clause called IPS in the first place.

Case: Dy. CIT v. Cyril Amarchand Mangaldas 2023 TaxPub(DT) 3977 (Mum-Trib)