IN THE HIGH COURT OF KARNATAKA AT BENGALURU PRESENT THE HON BLE MR. JUSTICE N.KUMAR AND THE HON BLE MR. JUSTICE B.SREENIVASE GOWDA

Transcription

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 25 TH DAY OF MARCH 2015 PRESENT THE HON BLE MR. JUSTICE N.KUMAR AND THE HON BLE MR. JUSTICE B.SREENIVASE GOWDA I.T.A.No.879/2008 c/w I.T.A.Nos.882/2008, 907/2008, 909/2008, 880/2008, 881/2008, 904/2008, 905/2008, 108/2009, 109/2009, 210/2009, 211/2009, 209/2009, 333/2009, 334/2009 & 363/2009 In ITA No.879/2008: BETWEEN : R M/s Wipro Limited 76R & 80P, Doddakannelli, Sarjapur Road, Bangalore Rep. by Sri P.V.Srinivasan Authorised Signatory...APPELLANT (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.) AND : The Deputy Commissioner of Income Tax Central Circle 1 (3), 3 rd Floor, Central Revenue Buildings, Queens Road, Bangalore RESPONDENT (By Sri E.R.Indrakumar, Senior Counsel for Sri K.V.Aravind, Adv.)

2 - 2 - This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in ITA No.468/BNG/2006, for the assessment year , praying to: I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.468/BNG/2006, dated in the interest of justice. In ITA No.882/2008: BETWEEN : M/s Wipro Limited 76R & 80P, Doddakannelli, Sarjapur Road, Bangalore Rep. by Sri P.V.Srinivasan Authorised Signatory...APPELLANT (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.) AND : The Deputy Commissioner of Income Tax Central Circle 1 (3), 3 rd Floor, Central Revenue Buildings, Queens Road, Bangalore RESPONDENT (By Sri E.R.Indrakumar, Senior Counsel for Sri K.V.Aravind, Adv.) This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in ITA No.426(BANG)/2006, for the assessment year , praying to I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.426(BANG)/2006, Dated in the interest of justice.

3 - 3 - In ITA No.907/2008: BETWEEN : 1. The Commissioner of Income Tax Central Circle, C.R.Building, Queens Road, Bangalore 2. The Deputy Commissioner of Income Tax Central Circle 1(3), C.R.Building Queens Road, Bangalore....APPELLANTS (By Sri E.R.Indrakumar, Senior Counsel for Sri K.V.Aravind, Adv.) AND : M/s Wipro Ltd., Doddakannelli, Sarjapur Road Bangalore RESPONDENT (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.) This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in Ita.No.468/BANG/2006, for the assessment year , praying to I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.468/BANG/2006, Dated confirming the order of the Appellate Commissioner and confirm the order passed by the Deputy Commissioner of Income Tax, Central Circle-1(3), Bangalore, in the interest of justice and equity.

4 - 4 - In ITA No.909/2008: BETWEEN : 1. The Commissioner of Income Tax Central Circle, C.R.Building, Queens Road, Bangalore 2. The Deputy Commissioner of Income Tax Central Circle 1(3), C.R.Building Queens Road, Bangalore....APPELLANTS (By Sri E.R.Indrakumar, Senior Counsel for Sri K.V.Aravind, Adv.) AND : M/s Wipro Ltd., Doddakannelli, Sarjapur Road Bangalore. RESPONDENT (By Sri Venkataraman, Senior counsel for Dr.R.B.Krishna, Adv.) This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in ITA.No.426/BANG/2006, for the assessment year , praying to I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.426/BANG/2006, dated confirming the order of the Appellate Commissioner and confirm the order passed by the Deputy Commissioner of Income Tax, Central Circle-1(3), Bangalore in the interest of justice and equity.

5 - 5 - In ITA No.880/2008: BETWEEN : M/s Wipro Limited 76R & 80P, Doddakannelli, Sarjapur Road, Bangalore Rep. by Sri P.V.Srinivasan Authorised Signatory...APPELLANT (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.) AND : The Deputy Commissioner of Income Tax Central Circle 1 (3), 3 rd Floor, Central Revenue Buildings, Queens Road, Bangalore RESPONDENT (By Sri E.R.Indrakumar, Senior Counsel for Sri K.V.Aravind, Adv.) This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in ITA No.469/BNG/2006, for the assessment year , praying to I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.469/BNG/2006, Dated in the interest of justice.

6 - 6 - In ITA No.881/2008: BETWEEN : M/s Wipro Limited 76R & 80P, Doddakannelli, Sarjapur Road, Bangalore , Rep. by Sri P.V.Srinivasan authorised signatory....appellant (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.) AND : The Deputy Commissioner of Income Tax Central Circle 1 (3), 3 rd Floor, Central Revenue Buildings, Queens Road, Bangalore RESPONDENT (By Sri E.R.Indrakumar, Senior Counsel for Sri K.V.Aravind, Adv.) This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in ITA No.427/BANG/2006, for the assessment year , praying to I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.427/Bng/2006, Dated in the interest of justice. In ITA No.904/2008: BETWEEN : 1. The Commissioner of Income Tax Central Circle, C.R.Building,

7 - 7 - Queens Road, Bangalore 2. The Deputy Commissioner of Income Tax Central Circle 1(3), C.R.Building Queens Road, Bangalore....APPELLANTS (By Sri E.R.Indrakumar, Senior Counsel for Sri K.V.Aravind, Adv.) AND : M/s Wipro Ltd., Doddakannelli, Sarjapur Road Bangalore. RESPONDENT (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.) This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in ITA No.469/BNG/2006, for the assessment year , praying to I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.469/BNG/2006, Dated confirming the order of the Appellate Commissioner and confirm the order passed by the Deputy Commissioner of Income Tax, Central Circle-1(3), Bangalore, in the interest of justice and equity. In ITA No.905/2008: BETWEEN : 1. The Commissioner of Income Tax Central Circle, C.R.Building, Queens Road, Bangalore

8 The Deputy Commissioner of Income Tax Central Circle 1(3), C.R.Building, Queens Road, Bangalore....APPELLANTS (By Sri E.R.Indrakumar, Senior Counsel for Sri K.V.Aravind, Adv.) AND : M/s Wipro Ltd., Doddakannelli, Sarjapur Road Bangalore. RESPONDENT (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.) This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in ITA No.427/BNG/2006, for the assessment year , praying to I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.427/BNG/2006, Dated confirming the order passed by the Deputy Commissioner of Income Tax, Central Circle-1(3), Bangalore, in the interest of justice and equity. In ITA No.108/2009: BETWEEN : M/s Wipro Limited 76R & 80P, Doddakannelli Sarjapur Road, Bangalore Rep. by P.V.Srinivasan as authorised signatory...appellant (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.)

9 - 9 - AND : The Deputy Commissioner of Income Tax Central Circle 1(3), 3 rd Floor Central Revenue Buildings Queens Road, Bangalore RESPONDENT (By Sri E.R.Indrakumar, Senior Counsel for Sri K.V.Aravind, Adv.) This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in ITA No.817/BANG/2007, for the assessment year , praying to I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.817/BANG/2007, dated 31/10/2008 in the interest of justice. In ITA No.109/2009: BETWEEN : M/s Wipro Limited 76R & 80P, Doddakannelli Sarjapur Road, Bangalore Rep. by its P.V.Srinivasan as authorised signatory...appellant (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.) AND : The Deputy Commissioner of Income Tax, Central Circle (3), 3 rd Floor,

10 Central Revenue Building Queens Road, Bangalore RESPONDENT (By Sri E.R.Indrakumar, Senior Counsel for Sri K.V.Aravind, Adv.).... This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in ITA No.624/BANG/2007, for the assessment year , praying to I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.624/BANG/2007, Dated 31/10/2008 in the interest of justice. In ITA No.210/2009: BETWEEN : 1. The Commissioner of Income Tax C.R.Building, Queens Road, Bangalore 2. The Deputy Commissioner of Income Tax Central Circle-1 (3), C.R.Building, Queens Road, Bangalore....APPELLANTS (By Sri E.R.Indrakumar, Senior Counsel for Sri E.Sanmathi, Adv.) AND : M/s Wipro Ltd., Doddakannelli, Sarjapur Road, Bangalore. RESPONDENT (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.)

11 This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in ITA No.624/BANG/2007, for the assessment year , praying to I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.624/BANG/2007, Dated 31/10/2008 in the interest of justice. In ITA No.211/2009: BETWEEN : 1. The Commissioner of Income Tax C.R.Building, Queens Road, Bangalore 2. The Income Tax Officer Central Circle-1 (3), C.R.Building, Queens Road, Bangalore....APPELLANTS (By Sri E.R.Indrakumar, Senior Counsel for Sri E.Sanmathi, Adv.) AND : M/s Wipro Ltd., Doddakanneli, Sarjapur Road, Bangalore. RESPONDENT (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.) This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in ITA.No.817/BANG/2007, for the assessment year , praying to I) Formulate the substantial questions of law

12 stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.817/BANG/2007, Dated and confirm the order passed by the Deputy Commissioner of Income Tax, Central Circle-1(3), Bangalore, in the interest of justice and equity. In ITA No.209/2009: BETWEEN : 1. The Commissioner of Income Tax C.R.Building, Queens Road, Bangalore 2. The Deputy Commissioner of Income Tax Central Circle-1 (3), C.R.Building, Queens Road, Bangalore....APPELLANTS (By Sri E.R.Indrakumar, Senior Counsel for Sri E.Sanmathi, Adv.) AND : M/s Wipro Ltd., Doddakanneli, Sarjapur Road, Bangalore. RESPONDENT (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.) This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in ITA.No.1178/BANG/2007, for the assessment year , praying to I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.1178/BANG/2007, Dated and confirm the order of the Appellate Commissioner confirming the order passed by the Deputy

13 Commissioner of Income Tax, Central Circle-1(3), Bangalore, in the interest of justice and equity. In ITA No.333/2009: BETWEEN : M/s Wipro Limited Rep. by Authorised Signatory P.V.Srinivasan, 76R & 80P, Doddakannelli, Sarjapur Road, Bangalore APPELLANT (By Sri E.R.Indrakumar, Senior Counsel for Sri E.Sanmathi, Adv.) AND : The Deputy Commissioner of Income Tax, Central Circle 1(3), 3 rd Floor, Central Revenue Buildings, Queens Road, Bangalore RESPONDENT (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.) This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in C.O.No.77/BNG/2007, for the assessment year , praying to I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in C.O.No.77/BNG/2007, dated in the interest of justice and equity.

14 In ITA No.334/2009: BETWEEN : M/s Wipro Limited Rep. by Authorised Signatory P.V.Srinivasan, 76R & 80P, Doddakannelli, Sarjapur Road, Bangalore APPELLANT (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.) AND : The Deputy Commissioner of Income Tax Central Circle 1(3), 3 rd Floor, Central Revenue Buildings, Queens Road, Bangalore RESPONDENT (By Sri E.R.Indrakumar, Senior Counsel for Sri K.V.Aravind, Adv.) This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in ITA No.1072/BNG/2007, for the assessment year , praying to I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.1072/BNG/2007, Dated in the interest of justice and equity. In ITA No.363/2009: BETWEEN : 1. The Commissioner of Income Tax C.R.Building, Queens Road,

15 Bangalore 2. The Deputy Commissioner of Income Tax Central Circle-1(3), C.R.Building Queens Road, Bangalore....APPELLANTS (By Sri E.R.Indrakumar, Senior Counsel for Sri K.V.Aravind, Adv.) AND : M/s Wipro Ltd., Doddakanneli, Sarjapur Road Bangalore. RESPONDENT (By Sri Venkataraman, Senior Counsel for Dr.R.B.Krishna, Adv.) This I.T.A. is filed under Section 260-A of I.T.Act, 1961 arising out of order dated passed in ITA No.1072/BNG/2007, for the assessment year , praying to I) Formulate the substantial questions of law stated therein, II) Allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.1072/BNG/2007, dated confirming the order of the Appellate Commissioner and confirm the order passed by the Deputy Commissioner of Income Tax, Central Circle 1(3), Bangalore, in the interest of justice and equity. These I.T.As coming on for hearing, this day, N.Kumar J., delivered the following: J U D G M E N T These batch of appeals filed by the assessee and the revenue/department arise out of the orders passed by the

16 Bangalore Bench of the Income Tax Appellate Tribunal in the case of the assessee-company, M/s Wipro Limited for the assessment years , , and The assessee is the appellant in ITA Nos. 879/2008, 880/2008, 881/2008, 882/2008, 108/2009, 109/2009, 333/2009 and 334/2009. The revenue is the appellant in ITA Nos. 907/2008, 909/2008, 904/2008, 905/2008, 209/2009, 210/2009, 211/2009 and 363/ The assessee-company is a public limited company, listed in India and US engaged in the business of software exports, computer peripherals, IT enabled services, manufacture and sale of vegetable oils, soaps, leather products, hydraulic cylinders and tippers, and manufacture of reagents as well as marketing and support of medical equipment and other related businesses. The business of the company is carried on through the various business units or divisions of the company. It is the case of the assessee that it runs each business unit as an independent profit center. Accordingly separate accounts are maintained for each

17 business unit. The accounts of the assessee are compiled on the basis of consolidation of all accounts maintained at the business unit levels. 3. The facts of the case for each assessment year are set out in brief as under: Assessment Year ITA Nos. 879 & 882/2008; 907 & 909/2008 The appellant filed its return of income for the assessment year on disclosing a total income of Rs.135,51,15,000/- after claiming deduction under Section 10A of the Income Tax Act (for short, hereinafter referred to as the Act ) to the extent of Rs.620,17,27,569/-. 4. The case for assessment year was selected for scrutiny and notice u/s 143(2) was issued on The assessee moved a rectification application u/s 154 for having wrongly claimed deduction u/s 80HHC at 100% instead of 80%. Rectification order was passed on

18 and the income was determined at Rs.114,72,43,817/- u/s 143(1) read with Section 154. Notice u/s 142(1) was issued on with a questionnaire. Further notices u/s 142 (1) were issued on various dates beginning from to The assesseecompany filed written replies along with enclosures from time to time. The return furnished on was processed u/s 143(3) of the I.T.Act on and order was passed after making certain allowances/ disallowances. The total income of the assessee-company was determined at Rs.598,69,89,110/- for assessment year The demand, after making adjustments for interest, advance tax and tax refunded, was quantified at Rs.261,45,68,657/-. 5. Assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] which was disposed-off by the CIT(A) vide order dated Aggrieved by the said order, both the assessee and the Department preferred separate appeals before the ITAT. The ITAT, vide common order dated disposed of the appeals.

19 Assessment Year ITA Nos. 880 & 881/2008; 904 & 905/ The assessee-company filed its return of income for the assessment year on disclosing a total income of Rs.112,73,48,342/- after claiming deduction u/s 10A of the Act to the extent of Rs.808,17,76,941/-. The case was selected for scrutiny and notice u/s 143(2) was issued on Notice u/s 142(1) was issued on with a questionnaire. Further notices u/s 142(1) were issued on various dates beginning from , , and The assesseecompany filed written replies along with enclosures from time to time. Assessment u/s 143(3) was completed and order dated was passed after making certain allowances/ disallowances. The total income of the assesseecompany was determined at Rs.717,81,57,770/- for assessment year The demand, after making certain adjustments for interest, advance tax and tax refunded, was quantified at Rs.261,66,03,694/- for AY

20 Assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] which was disposed-off by the CIT(A) vide order dated Aggrieved by the said order, both the assessee and the Department preferred separate appeals before the ITAT. The ITAT, vide common order dated disposed of the appeals. Assessment Year ITA Nos. 108 & 109/2009; 210 & 211/ The assessee-company filed its return of income for the assessment year on disclosing a total income of Rs.164,86,92,630/- after claiming deduction u/s 10A of the Act to the extent of Rs.763,34,75,604/-. The assessee had claimed relief under Double Taxation Avoidance Agreement u/s 90 in the return amounting to Rs.20,99,63,631/-. The assessee also claimed TDS of Rs.9,55,12,095/- and advance tax payment of Rs.69,40,50,000/-. The assessee claimed refund of Rs.39,36,31,184/-. The return of income was processed u/s 143(1) on and the case was selected for scrutiny

21 and notice u/s 143(2) was issued on A questionnaire was issued on calling for certain details and the compliance was fixed on The assessee-company also had international transactions with Associated Enterprises, which were referred to the Transfer Pricing Officer for determination of arms length price, who passed an order u/s 92CA. Assessment u/s 143(3) was completed and orders dated for assessment year was passed after making certain allowances/ disallowances, re-computation of deductions u/s 10A and 80-IB leading to a taxable income of Rs.740,10,34,452/. 9. Assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] which was disposed-off by the CIT(A) vide order dated Aggrieved by the said order, both the assessee and the Department preferred separate appeals before the ITAT. The ITAT, vide order dated disposed of the appeals. Assessment Year ITA No. 333 & 334/2009; 363/2009

22 The assessee-company filed its return of income for the assessment year on disclosing a total income of Rs.134,86,47,530/- after claiming deduction u/s 10A of the Act to the extent of Rs.881,34,08,342/- The assessee-company also had international transactions with Associated Enterprises, which were referred to the Transfer Pricing Officer for determination of arms length price. As per the return filed the tax payable was Rs.48,38,27,302/-. The assessee also claimed TDS of Rs.6,02,14,066/- and advance tax payment of Rs.59,50,80,000/-. The assessee claimed refund of Rs.17,12,21,725/-. The return of income was processed u/s 143(1) on and the case was selected for scrutiny and notice u/s 143(2) was issued on A questionnaire was issued on calling for certain details and the compliance was fixed on various dates beginning from The assesseecompany filed written replies along with enclosures. Assessment u/s 143(3) was completed and orders dated for assessment year was passed after

23 making certain allowances/ disallowances, re-computation of deductions u/s 10A and 80-IB leading to a taxable income of Rs.846,77,24,943/ Assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] which was disposed-off by the CIT(A) vide order dated Aggrieved by the said order, the Department preferred an appeal before the ITAT. The assessee filed a Memorandum of Cross Objections. The ITAT, vide order dated disposed of the appeal and the Cross objections. Assessment Year ITA No. 209/2009; 12. There are two more substantial questions of law arising out of the order dated passed by the Commissioner u/s 263 of the Act. Assessee filed an appeal to the ITAT in ITA No. 1178/2007 and ITAT disposed-off the appeal vide order dated Against the order of the ITAT, department has filed an appeal in this Hon ble Court u/s 260A of the Act. Substantial questions raised therein are connected with this batch of appeals.

24 Several substantial questions of law do arise for consideration in these batch of appeals. Some of the substantial questions of law are already answered either in favour of the revenue or in favour of the assessee in the very assessee s case. Some of the substantial questions of law are already answered by the Apex Court. However, some of the substantial questions of law do arise for consideration for the first time in these appeals. They are now first taken up for consideration. Substantial question of law No. 1 [Question of law No. (e) in ITA No. 879/2008, 880/2008 and 334/2009; Question of law No. (d) in ITA No. 108/2009 (Assessee s appeal)] Whether the Tribunal was right in holding that credit for income tax paid in a country outside India in relation to income eligible for deduction under section 10A would not be available under section 90(1)(a)? [Question of law No. 18 in ITA Nos. 210 & 211/2009 (Department s Appeal)]

25 Whether the appellate authorities were correct in reversing the finding of the AO that the credit for taxes paid in foreign countries being income which falls u/s 10A of the Act does not fall part of the total income to the extent of 90% for which deduction is allowable as it falls under Chapter III and does not therefore partake the nature of total income chargeable to tax as per provisions of section 4 of the Act and therefore not entitled to? 14. The assessee-company is engaged in the business of export of computer software including services for on-site development of software through its permanent establishment (PE) in many countries such as USA, UK, Canada, Japan, Germany. The assessee computes the profits attributable to the PEs, pays the applicable income taxes on such profits and files the returns of income as required by the domestic tax laws in the respective countries. The clients in some countries withhold tax at source from the consideration payable to the assesseecompany which is regarded as the final tax in such

26 countries. The assessee being an Indian Company as defined in Section 2(26) of the Act and is a tax resident in India in terms of Section 6 of the Act, it is, therefore, liable to tax in India on its worldwide income including the profits attributable to its Permanent Establishments in foreign countries and also the incomes which are subjected to withholding tax in foreign countries. 15. The assessee-company claims that it is entitled to relief of such income taxes paid in the foreign jurisdiction. The entitlement to relief of foreign tax is governed by the relevant Double Taxation Avoidance Agreements (DTAAs) with the foreign countries or specified territories as the case may be. For the assessment year in the case of Wipro Infotech Limited (the assessee s erstwhile wholly owned subsidiary which since merged with the assessee company with effect from ) full credit for foreign taxes was granted by applying Article 25 of the India-US DTAA even though 50% deduction of the eligible income under Section 80-O of the Act was allowed. The said relief

27 was granted by the CIT(A) which the Department has accepted. Since the claim for foreign tax credit is an entitlement like any other pre-paid tax, no revised return as contemplated under Section 139(5) was required. The limitations of the domestic tax law, if any, would also not apply where relief is to be allowed as per the provisions of DTAA. 16. By a letter dated , request was made to allow tax credit of Rs.24,94,67,448/- at the fag end of the assessment proceedings which was erroneously not claimed earlier. Therefore, the assessee raised a claim for tax credit for the tax paid in foreign countries. The assessing authority relying on Section 139(5) of the Act held that the claim is not admissible at this juncture. Section 139(5) of the Act defines the mandatory requirements and the time limit for rectification and the assessee has not filed any revised return for claim of tax credit with reference to income computed under Section 10A.

28 Thereafter, the Assessing Authority proceeded to decide the claim on merits also. Insofar as assessment year is concerned, as the assessee has not filed any detailed break-up of the income being taxed in India and other countries, he has held that he is not in a position to allow tax rebate at this juncture. However, in the assessment order passed for the assessment year , where break-up figures were furnished, he has discussed this question at length. After considering the said break-up figures, the assessing authority held that the assessee s claim of foreign tax credit is on the ground that the entire earnings in respect of claim under Section 10A has been included in computing the total income. Section 10A which is appearing under Chapter III refers to incomes which do not form part of total income. It is, therefore, clear in the first instance income falling under Section 10A did not form part of total income of the assessee in India. Since Section 10A falls under Chapter III, it does not therefore partake of the nature of total income chargeable to tax as per the

29 provisions of Section 4 of the Act. In the second instance, no tax was paid on this income. The credit is being claimed under the provisions of Section 90, which is applicable for the grant of relief in respect of income on which have been paid both income tax under this Act and Income Tax in the foreign country. The issue of credit under Section 90 clearly does not arise. Then, after referring to agreements with various countries and after referring to the judgments on which reliance was placed it was held the claim made by the assessee for foreign tax credit is not admissible. The assessee has also made a claim for tax relief against the State Taxes paid in USA and Canada. A perusal of the DTAA with USA and Canada shows that the claim is admissible only for the taxes paid under the Income Tax Act in India and Federal tax in USA and Canada. Therefore, the claim for relief for the State Taxes paid is not admissible. The assessee s claim is only admissible for the income for which deduction has been rejected under Section10-A i.e.,

30 for the unit at Bangalore and a proportionate claim for the foreign tax payment is being considered. 18. Against the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). The CIT(A) relying on the Judgment in the assessee s case itself for the assessment year as well as where foreign tax credit was allowed, allowed the claim of the assessee for all the years, setting aside the order passed by the assessing authority. 19. Aggrieved by the said order, the revenue preferred an appeal to the Tribunal. The Tribunal taking note of Section 90(1)(a) prior to its amendment held the word paid has been defined under Section 43(2) of the Act. The said definition is for the purpose of Section 28 to 41. But the said meaning of the word can be imported for Section 90(1)(a). As per Section 43(2) paid means actually paid or incurred according to the method of computing upon the basis on which the profit or gains are computed under the

31 head profit and gains of business or profession. In respect of the income of the unit qualifying for deduction under Section 10-A, income tax is neither paid nor incurred. The Apex Court in the case of CIT vs- Williamson Financial Services & Ors. (297 ITR 17) dealing with computation of deduction under Section 80HHC in respect of profits from export of tea held that Section 10 groups in one place various incomes which are exempt from tax. In respect of incomes on which deductions under Chapter VI-A are allowed, such incomes are wholly or partly tax free incomes. Section 10-A provides deduction out of the total income and it is not the income which is exempt from tax. Hence, the deduction which is allowed under Section 10-A is an item of income on which tax is not paid. After referring to the Judgment of the Madras High Court in the case of CIT vs- K.S.Vaidyanathan (1985) 153 ITR 11(FB) under the Wealth Tax Act, it was held credit for income tax paid in other country in relation to income under Section 10-A will not be available under Section 90(1)(a). Under Section 90(1)(b), the Central

32 Government may enter into an agreement with the Government of any country outside India for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country. For application of Section 90(1)(b), one is required to go with the DTAA. Though the assessing officer has discussed this issue in detail in his order but the CIT(A) has not considered the arguments advanced by the assessing officer for not allowing the tax credit. Therefore, the Tribunal felt that the issue requires to be reconsidered by the CIT(A) in view of the facts and arguments considered by the assessing officer in his order. Hence, the issue was restored back to the file of the CIT(A). 20. However, a finding was recorded that when the assessee is not liable to pay tax in view of the exemption under Section 10-A, the assessee is not entitled to tax relief in respect of taxes paid in the contracting country.

33 Therefore, the finding of the Tribunal that credit for income tax paid in other country in relation to income under Section 10A will not be available under Section 90(1)(a) would stand and the appellate authority has to decide the appeal in the light of the aforesaid statement of law. Aggrieved by the said legal proposition laid down by the Tribunal, the assessee has preferred this appeal. 22. Sri N.Venkataraman, learned Senior Counsel appearing for the assessee assailing the impugned order contended that a reading of Section 90 makes it clear that Section 90(1)(a)(i) provides, if the income is subjected to tax, both in India and in the foreign country, the foreign income taxes paid attributable to such income is allowed as credit in India. However, Section 90(1)(a)(ii) is in respect of DTAA for granting of relief in respect of income tax chargeable under the Act and under the corresponding law in force in that country to promote mutual economic relations, trade and investment. Section 10A income is chargeable to tax in view

34 of Section 4 of the Act. However, subject to the assessee satisfying the conditions prescribed income under Section 10-A is exempted from making such payment. Once the assessee is made to pay tax on such exempted income in the other contracting State then Section 90(1)(a)(ii) enables him to claim credit of the tax paid in the contracting country. Though this provision 90(1)(a)(ii) came on the statute book from , it is clarificatory in nature. As per Section 90(2) of the Act, the assessee-company was always entitled to the said benefit as the provisions of the agreement was more beneficial than the statutory provisions. India has entered into DTAA with various countries. The expression used in some of the agreements is subjected to tax. The other expression used is chargeable to tax. Therefore, the benefit to which the assessee is entitled to is dependant on the expressions used in these contracts in the background of Section 90(1)(a)(ii). He further submitted that in cases where income is subjected to tax, there is no difficulty. The entire amount subjected to tax is given credit

35 which is known as ordinary tax credit. Further, in the case of the agreements where expression used is subjected to tax on income derived, if the entire export income is not exempted from payment of tax, to the extent the income is subjected to tax, the assessee would be entitled to foreign tax credit. He further pointed out that in the instant case the tax paid by the assessee towards the State tax in USA and Canada has been disallowed on the ground that the DTAA with USA and Canada shows that the claim is admissible only for the taxes paid under Income Tax Act in India and Federal tax in USA and Canada. In coming to the said conclusion the authorities have failed to notice Section 91 of the Act. Statutorily the assessee would be entitled to deduction from the Indian Income Tax payable by him on a sum calculated on such doubly taxed income at the Indian rate of tax or rate of tax of the said country whichever is lower or at the Indian rate of tax if both the rates are equal. The word country has been explained in Explanation (iv) where it provides that the expression Income Tax in

36 relation to any country includes any excess profit tax or business profit tax charged on the profits by the Government of any part of that country or a local authority in that country. Lastly, it was contended that if for any reason the foreign tax relief is not given either under Section 90(1)(a)(i) or (ii) or 91, then the said amount of tax paid in the contracting country is liable for deduction under Section 37 r/w Section 40(a)(ii) r/w Explanation 1 of the Act. Therefore, he submits that seen from any angle the assessee is entitled to the benefit of credit of tax paid in the contracting country. 23. Insofar as not computing the claim in the return filed is concerned he submitted the claim is in the nature of eligibility for tax relief under the Act. When he has furnished the particulars of the income and all other relevant particulars the relief to which the assessee is entitled to is a matter to be determined at the time of assessment. At that stage, he has put forth his claim. If the assessee is not liable to pay tax under the Act merely because he did not put

37 forth the claim in the return he cannot be denied this benefit. Decision pertaining to mandatory filing of a revised returns is with reference to claim for deductions and not with reference to tax relief/credit for prepaid taxes. 24. Per contra, Sri Indra Kumar, the learned Senior Counsel appearing for the revenue supported the impugned order. He contended that admittedly the assessee is not liable to pay any tax in respect of the income which falls under Section 10A. Therefore, it is not a case of assessee having paid tax or assessee is liable to pay tax under the Act. When that being so, he is not entitled to credit of any tax paid in the contracting country. He submits that the idea behind the foreign tax credit is that the same income should not suffer taxation twice. When an income suffers taxation in both source and resident jurisdiction, tax paid in first jurisdiction needs to be allowed as tax credit in other jurisdiction. Consequently, if a source of income is taxed only in one jurisdiction, no tax credit or relief is required for other jurisdiction. The assessee s contention is that the

38 entire profit under Section 10A is not exempted as only that part of profit which pertains to export turnover is exempted under the Act. The foreign tax credit cannot be permitted on profit pertaining to domestic turnover because the domestic profit of Section 10A has not suffered double taxation. He also pointed out that Section 14A of the Act categorically states no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act and therefore, he submits no case for interference with the judgment of the Tribunal is made out. Section 90(1)(a)(ii) came into effect from It is not retrospective in operation nor it is clarificatory as sought to be made out and therefore, at any rate the assessee is not entitled to any benefit under this provision for the assessment years prior to Further, he contended that tax paid or tax payable cannot be deducted under Section 37 of the Act as is clear from the opening words of Section 40a(ii) of the Act. He also contended that the arguments which were canvassed

39 before this Court were not canvassed before the lower authorities and therefore, they had no opportunity to consider the same and therefore on that score those orders cannot be found fault with. As the matter has already been remanded to the CIT(A), it is open to the assessee to urge all these grounds before the appellate authorities and it is not necessary for this Court to decide these legal issues in this appeal. 25. It is in this background of rival contentions, the substantial question of law framed in these appeals has to be answered. 26. The answer to the question depends on the interpretation to be placed on Section 90 which is found in Chapter IX which deals with Double Taxation Relief. 27. Section 90 deals with agreement with foreign countries or specified territories. The present Section came into force from Earlier to that period, Section 90 read as under:

40 Agreement with foreign countries.-(1) The Central Government may enter into an agreement with the Government of any country outside India- (a) for the granting of relief in respect of income on which have been paid both income-tax under this Act and income-tax in that country; or 28. The notes on clauses to Finance Bill, 2003 which explains Clause 43 seeking amendment to the Act reads as follows: Clause 43 seeks to amend section 90 of the Income-tax Act relating to agreement with foreign countries. The existing provisions of the said section, inter alia, provide that the Central Government may enter into agreement with the Government of any country outside India for granting of relief in respect of income on which have been paid both income-tax under the Income Tax Act and income-tax in that country, or for the avoidance of double taxation of income under that Act and under the corresponding law in force in that country, etc.

41 It is proposed to substitute clause (a) of sub-section (1) of the said section to provide that the Central Government may enter into an agreement with the Government of any country outside India for the granting of relief, inter alia, in respect of income-tax chargeable under the Income-tax Act or under the corresponding law in force in that country to promote mutual economic relations, trade and investment. 29. The memorandum explaining provisions in the Finance Bill 2003 reads as follows: Double Taxation Avoidance Agreementsextending the scope to include agreements for developing mutual trade and investment Under the existing section 90, the Central Government may enter into an agreement with the Government of any country outside India for granting of relief in respect of income on which have been paid both income-tax under the Income-tax Act and income-tax in that country, or for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country, etc

42 In order to encourage international trade and commerce, it is proposed to insert a new clause in sub-section (1) of Section 90 so as to provide that the Central Government may also enter into an agreement with the Government of any country outside India, for granting relief in respect of income-tax chargeable under this Act or under the corresponding law in that country to promote mutual economic relations, trade and investment. The amended Section 90 reads as under :- Agreement with foreign countries or specified territories. 90 (1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India, (a) for the granting of relief in respect of (i) income on which have been paid both income tax under this Act and income-tax in that country or specified territory, as the case may be, or (ii) income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be,

43 to promote mutual economic relations, trade and investment, or (b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, or (c) for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country or specified territory, as the case may be, or investigation of cases of such evasion or avoidance, or (d) for recovery of income-tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be, and may, by notification in the Official Gaxette, make such provisions as may be necessary for implementing the agreement. (2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies,

44 the provisions of this Act shall apply to the extent they are more beneficial to that assessee. (2A) Notwithstanding anything contained in subsection (2), the provisions of Chapter X-A of the Act shall apply to the assessee even if such provisions are not beneficial to him. (3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf. 30. Sub-section (1) lays down that the Central Government may enter into an agreement with the Government of another country. Clause (a) (i) contemplates situation when tax is already paid on the same income in both the countries and it empowers the Central Government to grant relief in respect of such double taxation. Clause (b) which is wider than clause (a) provides that any agreement may be made for the avoidance of the double taxation of income under the Act and under the corresponding law in

45 force in that country. Clauses (c) and (d) essentially deals with the agreements made for the exchange of information, investigation of cases and recovery of income tax. With effect from , clause (a)(ii) was substituted to provide for entering into an agreement for granting relief in respect of income tax chargeable under this Act and under corresponding law in force in that country, to promote mutual economic relations, trade and investment. With this amendment the power of the Central Government has been greatly widened and it can now enter into agreement not only for avoidance of double taxation, but also for granting relief for income exempt from taxation. 31. Thus, Section 90 empowers the Central Government to enter into an agreement with the Government of any country for two purposes: (a) for granting of relief in respect of income tax paid or payable (b) for avoidance of double taxation of income

46 Prior to the amendment, the relief was granted in respect of income on which the income tax is paid under the Income Tax Act in the contracting country. Therefore to get the benefit of the said provision, payment of income tax in both the countries was sine qua non. However, by the amendment made by the Finance Act 2003, the benefit of granting the relief was extended to even in respect of income tax chargeable under the Act. Therefore, the payment of income tax in both jurisdictions is not sine qua non any more for granting the relief. This provision was introduced with the object of promoting mutual economic relations, trade and investment. In other words, it was a policy of the Government. 33. When there is a specific provision in the double taxation avoidance agreement providing for a particular mode of computation of income or granting of relief, the same should be followed irrespective of the provisions of the Act. If the agreement with the foreign country is under Clause (a)(i) for relief against double taxation and not under

47 Clause (b) for the avoidance of double taxation; the assessee must show that the identical income has been doubly taxed and that he has paid tax both in India and in the foreign country on the same income. Section 91 makes it clear that if a person who is residing in India has paid tax in any country with which, there is no agreement under Section 90 for the relief or avoidance of double taxation, income tax if deducted or otherwise paid as per law in force in that Country, then he shall be entitled to the deduction from the Indian Income Tax payable by him in a sum computed on such doubly taxed income, at the Indian rate of tax or the rate of tax of the said country, whichever is lower or the Indian rate of tax, if both the rates are equal. 34. In fact, the circular No.333 dated April 2, 1982 clarifies the legal position. The said circular reads as under:- The correct legal position is that where a specific provision is made in the Double Taxation Avoidance Agreement, that provision will prevail

48 over the general provisions contained in the Income Tax Act, In fact the Double Taxation Avoidance Agreements which have been entered into by the Central Government under Section 90 of the Income Tax Act, 1961, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective country except where provisions to the contrary have been made in the agreement. Thus where a Double Taxation Avoidance Agreement provided for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income Tax Act. Where there is no specific provision in the agreement, it is the basic law i.e., Income tax Act that will govern the taxation of income. 35. It is necessary to notice that if no tax liability is imposed under this Act, the question of resorting to the agreement would not arise. No provision of the agreement can possibly fasten a tax liability where the liability is not imposed by the Act.

49 The Apex Court had an occasion to go into the validity of the agreements entered into under these provisions and their enforceability in the case of UNION OF INDIA AND ANOTHER VS. AZADI BACHAO ANDOLAN AND ANOTHER reported in 263 ITR 706. Dealing with the purpose of provisions for avoidance of double taxation, the Supreme Court at page 721 held as under :- Every country seeks to tax the income generated within its territory on the basis of one or more connecting factors such as location of the source, residence of the taxable entity, maintenance of a permanent establishment, and so on. A country might choose to emphasise one or the other of the aforesaid factors for exercising fiscal jurisdiction to tax the entity. Depending on which of the factors is considered to be the connecting factor in different countries, the same income of the same entity might become liable to taxation in different countries. This would give rise to harsh consequences and impair economic development. In order to avoid such an anomalous and incongruous situation, the Governments of different countries enter into bilateral treaties,

50 Conventions or agreements for granting relief against double taxation. Such treaties, conventions or agreements are called double taxation avoidance treaties, conventions or agreements. The power of entering into a treaty is an inherent part of sovereign power of the State. By Article 73, subject to the provisions of the Constitution, the executive power of the Union extends to the matters with respect to which the Parliament has power to make laws. Our Constitution makes no provision making legislation a condition for the entry into an international treaty in time either of war or peace. The executive power of the Union is vested in the President and is exercisable in accordance with the Constitution. The Executive is qua the State competent to represent the State in all matters international and may by agreement, convention or treaty incur obligations which in international law are binding upon the State. But the obligations arising under the agreement or treaties are not by their own force binding upon Indian nationals. The power to legislate in respect of treaties lies with the Parliament under entries 10 and 14 of List I of the