The Income Tax Appellate Tribunal (ITAT), Mumbai Bench declined foreign tax credits to Bank of India to the tune of Rs.182.64 Crores.
The assessee, Bank of India is a major Indian bank, with several branches abroad- a few in the treaty partner jurisdictions, i.e., the countries with which India has entered into Double Taxation Avoidance Agreements under section 90, and remaining in the non-treaty partner jurisdictions. The assessee has also invested, as a shareholder, in two foreign banks, namely PT Bank Swadeshi (Indonesia) and Indo Zambia Bank Limited (Zambia).
The assessee has earned business profits from its branches outside India, namely in UK, USA, France, Belgium, Kenya, Japan, Singapore, China, Hong Kong, Cambodia, and Jersey. During the relevant previous year, the assessee earned profits in these jurisdictions, and, in accordance with the domestic tax laws in the respective tax jurisdictions, the assessee bank paid income tax aggregating to Rs 165.96 crores in treaty partner jurisdictions (on taxable income aggregating to Rs 200.90 crores in these jurisdictions) and Rs 15.79 crores in non-treaty partner jurisdictions (on taxable income aggregating to Rs 635.19 crores in these jurisdictions), in addition to income tax amounting to Rs 87,54,656 having been withheld from the foreign dividend income aggregating to Rs 8,46,61,252 received by the assessee.
However, while the assessee did earn profits from these foreign operations and by way of foreign dividend income, the computation of the assessee’s global income, which is taxable in India, resulted in a net loss of Rs 191,38,89,912. This is the loss computed by the Assessing Officer, vide appeal effect order dated 15th March 2017, and the assessee does not, therefore, have any tax liability in India in respect of its income. Since the assessee does not have any Indian tax liability in respect of the profits earned by the assessee abroad, the assessee was not given any credit for the taxes paid abroad.
The claim of the assessee is that the taxes so paid by the assessee to the overseas tax jurisdictions, where the related profits are earned, should be given due credit in the computation of refund due to the assessee, and, accordingly, the income tax paid by the assessee to foreign tax jurisdictions should be refunded to the assessee by the Indian tax authorities.
The question arises whether the income in question, i.e. Rs 164,83,03,346 can be said to have been subjected to tax in the United Kingdom as also in India.
The assessee submitted that during the course of hearing pleaded that while the assesses has actually suffered taxation of a soured foreign income in the source jurisdiction, the income earned by the assessee abroad has also been included in the income taxable in India, which happens to be a negative figure nevertheless, the foreign-sourced income has been subjected to tax in India as well.
The coram added by the Vice President, Pramod Kumar emphasised on the point that whether these foreign tax credits could be allowed even when such tax credits lead to a situation in which taxes paid abroad could be refunded in India, but that must not be construed to mean that, as a corollary to our decision, these foreign tax credits would have been allowed, even if there is no domestic tax liability in respect of the related income in India if it was not to result in such a refund situation.
Therefore, the ITAT noted that the assessee declined the foreign tax credits for Rs.182,64,22,948, and, accordingly, held that the assessee is not entitled to seek a refund of that money from the Indian tax exchequer.
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