Trilegal Successfully Represents Canon India In Foreign Tax Credit Matter Before ITAT, Delhi

Trilegal Successfully Represents Canon India in Foreign Tax Credit Matter Before ITAT, Delhi

The leading law firm in India, Trilegal successfully represented Canon India Private Limited before the Income Tax Appellate Tribunal (ITAT), Delhi on the contentious issue of whether an Indian entity is entitled to full credit of taxes withheld in a foreign jurisdiction.

The ITAT examined whether an Indian group entity can claim full credit of taxes withheld abroad under section 90 of the Income-tax Act, 1961, read with Article 23 of the India–Japan DTAA, even if the Indian entity may not be liable to tax in India due to deductions under section 10A of the Act. The assessee relied on the Karnataka High Court judgment in Wipro Ltd. v. DCIT, as subsequently approved by the Delhi High Court in HCL Comnet Systems & Services Ltd.

The Revenue sought to distinguish Wipro by relying on the ITAT, Mumbai decision in Bank of India, contending that foreign tax credit must be restricted to the extent of tax payable in India, and that the Indian exchequer cannot be compelled to refund taxes paid to a foreign jurisdiction.

ITAT Ruling

The ITAT rejected the Revenue’s contention, observing that the Mumbai Bench decision in Bank of India dealt with a different issue, namely the binding nature of a non-jurisdictional High Court judgment. Since the Delhi High Court had expressly approved the Karnataka High Court’s ruling in Wipro, there was no justification to take a contrary view.

Accordingly, the ITAT held that the assessee is entitled to full credit of taxes paid in the foreign jurisdiction, and such credit cannot be denied or restricted merely because the Indian tax liability is nil due to business losses or deductions under section 10A of the Act.

Matter Significance

The decision is significant as it reaffirms the settled treaty principle that entitlement to foreign tax credit depends on the assessee being “liable to tax” in the relevant jurisdiction, rather than being actually “subject to tax” in a particular year. The ITAT clarified that full foreign tax credit cannot be denied solely because an Indian entity has no tax liability on account of losses or statutory deductions.

This ruling brings clarity and certainty to the application of treaty provisions aimed at eliminating economic double taxation, even in cases where an assessee is not subject to any tax in India.

The Trilegal Tax Team advising on the matter was led by Himanshu Sinha (Partner); and supported by Prashant Meharchandani (Counsel) and Jainender Singh Kataria (Associate).

Conclusion

The ITAT’s decision provides a strong precedent for Indian entities claiming foreign tax credit under DTAA provisions, ensuring that taxpayers can benefit from credit for taxes paid abroad even in years when domestic tax liability is reduced or nil. This ruling strengthens certainty in cross-border taxation and supports the principle of economic double taxation relief under international treaties.

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