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2023 Supreme(Del) 3493
IN THE HIGH COURT OF DELHI AT NEW DELHI
Rajiv Shakdher, Tara Vitasta Ganju, JJ.
Principal Commissioner of Income Tax-7 – Appellant
Versus
M/s. Polyplex Corporation Ltd. – Respondent
ITA 571 of 2019, ITA 573 of 2019, ITA 574 of 2019 & ITA 575 of 2019
Decided On : 18-07-2023
Mr Kunal Sharma, Sr Standing Counsel with Ms Zehra Khan, Advocate, for the Appellant.
Mr Ved Jain with Mr Nischay Kantoor, Advocates, for the Respondent.
The main legal principle established in the judgment is the interpretation of Article 23 of the Indo-Thai DTAA, emphasizing the concept of tax sparing and the mutuality of interests in giving stimulus to investment for securing economic development in both countries.
Headnote:
Tax Sparing - Double Taxation Avoidance Agreement - Article 23 of the Indo-Thai DTAA - 23(2), 23(3), 23(4), 23(5) - The court discussed the interpretation of Article 23 of the Indo-Thai DTAA, which allows tax credit against tax payable in India for profits or income arising in Thailand. The court analyzed the provisions of the DTAA and emphasized the concept of tax sparing, which incentivizes economic development and investment. The court held that the respondent/assessee was entitled to claim tax credit on dividend income received from its Thai subsidiary, in respect of 'Thai Tax Payable', which it would have to pay, but for the exemption accorded to it under the provisions of Section 34 of the Investment Promotion Act. The court also highlighted the mutuality of interests in giving stimulus to investment for securing economic development in both countries.
Fact of the Case:
The case involved appeals against a common order passed by the Income Tax Appellate Tribunal concerning Assessment Years 2010-11, 2011-12, 2012-13, and 2013-14. The dispute centered around the eligibility of the respondent/assessee for tax credit on dividend income received from its Thai subsidiary, based on the provisions of Article 23 of the Double Taxation Avoidance Agreement (DTAA) between India and Thailand.
Finding of the Court:
The court found that the respondent/assessee was entitled to claim tax credit on dividend income received from its Thai subsidiary, in respect of 'Thai Tax Payable', which it would have to pay, but for the exemption accorded to it under the provisions of Section 34 of the Investment Promotion Act. The court dismissed the appeals, stating that no substantial question of law arises for consideration.
Issues: The broad issue concerned the eligibility of the respondent/assessee for tax credit on dividend income received from its Thai subsidiary, based on the provisions of Article 23 of the Indo-Thai DTAA. The court also addressed the appellant/revenue's arguments regarding the interpretation of the DTAA provisions and the requirement of proof for exemption under foreign law.
Ratio Decidendi: The court's decision was based on the interpretation of Article 23 of the Indo-Thai DTAA, emphasizing the concept of tax sparing and the mutuality of interests in giving stimulus to investment for securing economic development in both countries. The court held that the respondent/assessee was entitled to claim tax credit on dividend income received from its Thai subsidiary, in accordance with the provisions of the DTAA.
Final Decision: The court dismissed the appeals, stating that no substantial question of law arises for consideration.
JUDGMENT
Rajiv Shakdher, J.
Prefatory Facts
1. The above-captioned appeals, which are four (4) in number, are directed against a common order dated 24.01.2019 [hereafter referred to as "impugned order"] passed by the Income Tax Appellate Tribunal [in short, "Tribunal"].
1.1. The impugned order concerns Assessment Years (AY) 2010-11 (ITA 573/2019), 2011-12 (ITA 574/2019), 2012-13 (ITA 571/2019) and 2013-14 (ITA 575/2019).
2. The disputants before us, via their respective counsel, have conveyed that the controversy at hand is common to all four AYs and therefore, a decision rendered vis-a-vis one AY, will cover and/or apply to the remaining AYs as well. Notably, this position was also adopted before the Tribunal.
3. Accordingly, as was the case before the Tribunal, we will be adverting to the facts, as obtained in AY 2010-11.
4. Before we proceed further, we may indicate that the broad issue which arose for consideration before the statutory authorities [including the Tribunal] and us, concerns the following:
4.1. The respondent/assessee claims that it is eligible for tax credit qua tax which, though payable in the country from where the income emanated, was not paid because of the statutory regime operating in that country.
4.2. The respondent/assessee, in seeking tax credit qua tax payable [though not paid], has sought to place reliance on Article 23 of the Double Taxation Avoidance Agreement [in short, "DTAA"] obtaining between India and Thailand.
4.3. It is the respondent/assessee's stand that it ought to be given tax credit qua the tax which it was spared from paying, on income by way of dividend, received from its subsidiary in Thailand, in consonance with the provisions of Article 23 of the Indo-Thai DTAA. Thus, the issue at hand centres around the concept of "tax sparing", which is embedded in several DTAAs arrived at between India and other countries, including Thailand.
5. On the other hand, appellant/revenue seeks to contend that because the tax was not paid by the respondent/assessee on dividend received from its Thai subsidiary, i.e., Polyplex (Thailand) Public Limited Company, it could not be granted tax credit on dividend income, which was otherwise taxable in India at the rate of 30% (plus surcharge and cess, at the applicable rates).
6. Thus, before we proceed further to adjudicate the issue at hand, the following broad facts concerning AY 2010-11 are required to be noticed.
7. The respondent/assessee had e-filed its return of income for AY 2010-11 on 13.10.2010. The income declared for the said AY was Rs.11,41,46,171/-. The return of income (ROI) was processed under Section 143 (1) of the Income Tax Act, 1961 [hereafter referred to as, "Indian Income Tax Act"].
7.1. The ROI was picked up for scrutiny, whereupon it was discovered that the respondent/assessee had claimed tax credit amounting to Rs.1,60,74,706/- in respect of tax, which it would have to ordinarily pay in Thailand on dividend received from its Thai subsidiary, but for the statutory regime obtaining in Thailand, which exempted levy of tax in that country.
7.2. It is important to note at this stage that the respondent/assessee had included in its ROI, dividend income amounting to Rs.68,81,05,808/- earned from its Thai subsidiary.
8. But for the exemption granted under the statutory regime obtaining in Thailand, the respondent/assessee would have to pay tax, in Thailand, at the rate of 10% on dividend received by it from its Thai subsidiary. On account of this, the respondent/assessee claimed tax credit for the amount quantified at the said rate, i.e., 10%, under the provisions of paragraphs 2 & 3 of the Article 23 of the Indo-Thai DTAA.
9. The Assessing Officer (AO), however, disagreed with the stand taken by the respondent/assessee and thus, declined the tax credit sought in the ROI.
10. The respondent/assessee, being aggrieved, carried
