M/s. Polyplex Corporation Ltd., New Delhi V. ACIT, New Delhi

ITA 4347/DEL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6151 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 08-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Assessee Lawyers: ASHISH GOEL; VED JAIN ADV SHRI RISHABH JAIN
• Keywords: Residential status; Double taxation relief; Benefit of exemption

Judgement Text

ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: F, NEW DELHI BEFORE SMT. BEENA A PILLAI, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NOS. 4347 TO 4350/DEL/2016 AY: 2010-11 TO 2013-14 M/S POLYPLEX CORPORATION LTD. 40, NEW MANDAKINI, GREATER KAILASH, NEW DELHI. PAN NO. AAACP0278J VS . ACIT CIRCLE-14(1) NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN, ADV. SHRI RISHABH JAIN, CA & SHRI ASHISH GOEL, CA DEPARTMENT BY : SH. SURENDER PAL, SR. DR DATE OF HEARING : 23/01/2019 DATE OF PRONOUNCEMENT : 24/01/2019 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER PRESENT APPEALS HAVE BEEN FILED BY ASSESSEE AGAINST ORDER DATED 24.06.2016 PASSED BY LD.CIT (A)-7, NEW DELHI FOR ASSESSMENT YEARS 2010-11 TO 2013-14. 2. LD.AR SUBMITTED THAT GROUNDS RAISED IN THESE APP EALS ARE ON IDENTICAL ISSUE AND FACTS LEADING TO THE ISSUE A RE SIMILAR. HE THUS SUBMITTED THAT ALL APPEALS MAY BE TAKEN UP TOG ETHER FOR SAKE OF CONVENIENCE. LD.SR.DR ALSO SUBMITTED THAT I SSUES RAISED IN ALL THE APPEALS ARE IDENTICAL ON SIMILAR FACTS. ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 2 3. WE ARE, THEREFORE, INCLINED TO PASS A CONSOLIDAT ED ORDER, BY TAKING INTO CONSIDERATION FACTS AND FIGURES FOR ASS ESSMENT YEAR 2010-11. A.Y:2010-11 4. GROUNDS PERTAINING TO ASSESSMENT YEAR 2010-11 AR E BEING REPRODUCED HEREUNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE OR DER PASSED BY THE LD.CIT(A) IS BAD BOTH IN THE EYES OF LAW AND ON FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN CONFIRMING T HE DISALLOWANCE OF TAX CREDIT OF RS. 1,59,13,089/- CLA IMED BY THE ASSESSEE US/ 90 OF THE INCOME TAX ACT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN CONFIRMING T HE DISALLOWANCE DESPITE THE FACT THAT THE CREDIT HAS B EEN AVAILED IN VIEW OF THE PROVISIONS OF ARTICLE 23(3) OF THE D OUBLE TAX AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND THAILA ND. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN MISINTERPRETATIN G PARA 2 OF ARTICLE 23 WHICH SPECIFICALLY ALLOWS THE TAX BENEFI T FOR WHICH TAX IS NOT PAYABLE IN THAILAND. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN IGNORING THE FACT THAT THE INTERPRETATION PLACED ON PARA 2 OF ARTICLE 23 B Y AO WILL MAKE THE PARA 2 OTIOSE. 6. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD . CIT(A) HAS ERRED IN GIVING SIMILAR TREATMENT TO THE TRANSACTIO N IN INDIA WHICH IS EXEMPT IN THAILAND OR TAXABLE IN THE THAIL AND. (II) THAT THE SAID ACTION OF THE CIT(A) WILL ALTER THE UNDERLYING BENEFIT OF EXEMPTION CLAIMED BY THE ASSESSEE COMPAN Y IN THAILAND. 7. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR AL TER ANY OF THE GROUNDS OF APPEAL. ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 3 BRIEF FACTS OF THE CASE ARE AS UNDER : 5. RETURN DECLARING TOTAL INCOME OF RS.11,41,46,171 /- WAS FILED ON 13.10.2010. RETURN WAS PROCESSED U/S 143( 1) OF THE INCOME TAX ACT, 1961. CASE WAS SELECTED FOR SCRUTIN Y, AND STATUTORY NOTICES WERE ISSUED, IN RESPONSE TO WHICH , REPRESENTATIVE OF ASSESSEE ATTENDED ASSESSMENT PROC EEDINGS AND FURNISHED DETAILS IN SUPPORT OF QUERIES RAISED DURI NG COURSE OF ASSESSMENT PROCEEDINGS. 6. LD.AO, WHILE PASSING FINAL ASSESSMENT ORDER, OBS ERVED THAT, ASSESSEE ASSESSEE HAS CLAIMED RELIEF UNDER SECTION 90 OF THE ACT. THE LD.AO THUS CALLED FOR VARIOUS INFORMATIONS. DISALLOWANCE OF RELIEF CLAIMED U/S 90 OF THE ACT 7. COMPUTATION OF INCOME AND TAX LIABILITY THAT THE ASSESSEE HAS CLAIMED A RELIEF OF RS.1,60,74,706/- U/S 90 OF THE ACT, ON ACCOUNT OF TAX PAID IN THAILAND BY ITS SUBSIDIARY, FROM WHOM ASSESSEE RECEIVED DIVIDEND WHICH WAS OFFERED FOR TA XATION AS PER PROVISIONS OF INDIAN I.T. ACT. 8. LD.AO VIDE ORDER SHEET ENTRY DATED 24.02.2014 CA LLED UPON ASSESSEE TO PROVIDE PROOF OF PAYMENT OF TAX IN THAI LAND, IN SUPPORT OF TAX CREDIT CLAIM. IN RESPONSE TO WHICH ASSESSEE FILED LETTER DATED 27.02.2014 STATING THEREIN THAT ROI FI LED BY IT INCLUDES DIVIDEND INCOME OF RS. 68,81,05,808/- EARN ED FROM M/S POLYPLEX (THAILAND) PUBLIC LIMITED COMPANY, AND CON TENDED THAT AS PER THE PARAGRAPH 2 & 3 OF ARTICLE 23 OF DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIAN AND THAILAND REA D WITH SECTION 90(2) OF THE INDIAN INCOME TAX, 1961 ASSESS EE IS ELIGIBLE FOR TAX REBATE OF 10% ON THE SAID INCOME. ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 4 8.1 SUBMISSIONS OF ASSESSEE WERE ANALYZED LD.AO WIT H PROVISIONS OF INCOME TAX ACT AND DTAA WITH THAILAND VIS-A-VIS CLAIM OF ASSESSEE, AND LD.AO OBSERVED AS UNDER: 1. THAT ASSESSEE HAS NOT PAID TAX ACTUALLY IN THAILAND , FOR TAX ON DIVIDEND IS EXEMPT IN THAILAND UNDER PROVISIONS OF INVESTMENT PROMOTION ACT OF THAILAND. 2. THAT, SINCE TAX HAS ONLY BEEN PAID IN INDIA THEREFO RE, THE QUESTION OF DOUBLE TAXATION OF AN INCOME DOES NOT A RISE AT ALL. 3. THAT CONTENTION OF ASSESSEE THAT ARTICLE 23 OF DTAA WITH THAILAND ALLOWS RELIEF FOR TAX WHICH HAS BEEN EXEMP TED AND HAS NEVER BEEN PAID BY ASSESSEE IS FALSIFIED. LD.AO IS OF THE VIEW THAT ARTICLE NOWHERE ALLOWS TAX BENEFIT FOR TA X WHICH HAS NOT BEEN PAID AT ALL. PARA 2 OF ARTICLE 23, SPECIF ICALLY ALLOWS RELIEF AGAINST INCOME WHICH HAS BEEN SUBJECTED TO TAX BOTH IN INDIA AND IN THAILAND BUT IN CASE OF ASSESSEE, TAX HAS ONLY BEEN PAID IN INDIA, SINCE DIVIDEND INCOME HAS BEEN EXEMPTED UNDER INVESTMENT PROMOTION ACT OF THAILAND. FURTHE R, PARA 3 OF ARTICLE 23 EXPLAINS THAI TAX PAYABLE AND SPECIFI CALLY EXCLUDES EXEMPTIONS GRANTED OF TAX, FROM THAI TAX P AYABLE, THAI TAX PAYABLE SHALL BE DEEMED TO INCLUDE ANY A MOUNT WHICH WOULD HAVE BEEN PAYABLE AS THAI TAX FOR ANY Y EAR BUT FOR AN EXEMPTION OR REDUCTION OF TAX GRANTED FOR TH AT YEAR OR ANY PART THEREOF UNDER THE PROVISIONS OF THE INVEST MENT PROMOTION ACT (B.E. 2520) OR OF THE REVENUE CODE (B .E. 2481) WHICH ARE DESIGNED TO PROMOTE ECONOMIC DEVELOPMENT IN THAILAND, OR WHICH MAY BE INTRODUCED HEREAFTER IN MODIFICATION OF, OR IN ADDITION TO, THE EXISTING LA WS FOR PROMOTING ECONOMIC DEVELOPMENT IN THAILAND. ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 5 IN VIEW OF THE ABOVE, PROVISIONS OF THE ACT AND DIS CUSSION IN ABOVE PARA, RELIEF OF RS.1,60,74,706/- CLAIMED BY A SSESSEE U/S 90 OF THE ACT IS DENIED. 9. AGGRIEVED BY ORDER OF LD.AO, ASSESSEE PREFERRED APPEAL BEFORE LD.CIT (A). 10. BEFORE LD.CIT(A), ASSESSEE SOUGHT TO TAKE SHELT ER OF PARA 3 OF ARTICLE 23 OF DTAA BETWEEN INDIA AND THILAND. H E CONTENDED THAT THAI TAX PAYABLE SHALL BE DEEM TO INCLUDE ANY AMOUNT WHICH WOULD HAVE BEEN PAYABLE AS THAI TAX FOR ANY Y EAR BUT FOR AN EXEMPTION OR REDUCTION OF TAX GRANTED FOR THAT Y EAR OR ANY PART THEREOF UNDER PROVISIONS OF INVESTMENT PROMOTION AC T OR OF REVENUE CODE WHICH ARE DESIGNED TO PROMOTE ECONOMIC DEVELOPMENT IN THAILAND, OR WHICH MAY BE INTRODUCED IN MODIFICATION SUBSEQUENTLY, OR IN ADDITION TO, EXIST ING LAWS FOR PROMOTING ECONOMY IN THAILAND. THE LD.AR FILED PRO MOTION CERTIFICATE ISSUED BY BOARD OF INVESTMENT TO M/S PO LYPLEX THAILAND CO. LTD., WHICH HAS DISTRIBUTED DIVIDEND T O ASSESSEE. LD.CIT(A) OBSERVED THAT THAILAND COMPANY IS ALLOWED PRIVILEGE IN TERMS OF PARA 6 OF THE PROMOTION CERTIFICATE, AS PE R WHICH DIVIDEND DISTRIBUTED FORM PROMOTED ACTIVITY TO WHIC H EXEMPTION FROM CORPORATE INCOME TAX IS GRANTED U/S 31, IS ALS O EXEMPT FROM INCLUSION IN TAX CALCULATION THROUGHOUT THE PE RIOD, THE PROMOTED PERSON (THAILAND COMPANY) REMAINS EXEMPT F ROM CORPORATE INCOME TAX PAYMENTS. HOWEVER, THIS CLAUS E DOES NOT REFER TO ANY DIVIDEND DISTRIBUTED BY THAILAND COMPA NY TO NON- RESIDENT HOLDING COMPANY (ASSESSEE). 11. LD.CIT(A), THUS CONFIRMED ADDITION MADE BY LD.A O. ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 6 12. AGGRIEVED BY ORDER OF LD.CIT(A), ASSESSEE IS IN APPEAL BEFORE US NOW. 13. LD.AR SUBMITTED THAT ASSESSEE RECEIVED DIVIDEND OF RS.68,81,05,808/- FROM ITS SUBSIDIARY COMPANY IN TH AILAND. HE SUBMITTED THAT DIVIDEND SO RECEIVED WAS OFFERED TO TAX BY ASSESSEE AS PER INDIAN TAX LAWS, HOWEVER ASSESSEE A LSO CLAIMED RELIEF AS PER PROVISIONS OF DTAA AMOUNTING TO RS.15 3.13 LACS U/S.90 & 91 OF THE ACT. LDAR REFERRING TO ARTICLE 2 3 OF DTAA BETWEEN INDIA AND THAILAND SUBMITTED THAT AS PER PA RAGRAPH 3, OF ARTICLE 23 PERTAINING TO ELIMINATION OF DOUBLE T AX, AMOUNT OF THAI TAX PAYABLE UNDER LAWS OF THAILAND, AND IN ACC ORDANCE WITH PROVISIONS OF DTAA, DIRECTLY OR INDIRECTLY BY A RES IDENT OF INDIA IN RESPECT OF PROFIT OF INCOME ARISING IN THAILAND, WH ICH HAS BEEN SUBJECTED TO TAX, BOTH IN INDIA AND THAILAND, SHALL BE ALLOWED AS CREDIT AGAINST INDIAN TAX PAYABLE IN RESPECT OF SUC H PROFITS OF INCOME, PROVIDED SUCH CREDIT SHALL NOT EXCEED INDIA N TAX. HE PLACED RELIANCE ON DECISION OF HONBLE DELHI HIGH COURT IN CASE OF PR.CIT VS. KRISHAK BHARATI COOPERATIVE LTD. (2017) REPORTED IN (4) TMI 1035 , IN SUPPORT OF HIS ARGUMENTS. 14. ON THE CONTRARY, LD.SR.DR SUBMITTED THAT, BY PL ACING RELIANCE UPON PROMOTION CERTIFICATE ISSUED BY BOARD OF INVESTMENT OF THAILAND WOULD NOT ENTITLED ASSESSEE TO CLAIM CR EDIT OF DEEMED TAX PAYABLE IN THAILAND ON THE DIVIDEND INCOME RECE IVED. HE SUBMITTED THAT EXEMPTION AS PER THE PROMOTION CERTI FICATE IS APPLICABLE FOR THAILAND COMPANY AND NOT FOR ASSESSE E AS NO REFERENCES MADE IN SUCH CERTIFICATES ON DEEMED PAYM ENT OF TAX ON DIVIDEND DISTRIBUTED BY THAILAND COMPANY. LD. SE NIOR DR VEHEMENTLY ARGUED THAT, UNLESS TAX IS PAID BY ASSES SEE IN ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 7 THAILAND ON THE DIVIDEND INCOME, NO CREDIT CAN BE A LLOWED AGAINST TAX PAYABLE ON SUCH DIVIDEND INCOME IN INDI A. 15. WE HAVE CAREFULLY CONSIDERED RELEVANT FACTS AND ARGUMENTS ADVANCED BY BOTH SIDES AND HAVE PERUSED SUBMISSION ADVANCED BY BOTH SIDES ON THE BASIS OF RECORDS PLACED BEFORE US. 16. BEFORE ASSAILING TO OUR VIEW, IT IS NECESSARY T O REFER TO LAWS APPLICABLE TO ISSUE IN HAND AS PER INCOME TAX ACT, 1960, AS WELL AS DTAA BETWEEN INDIA AND THAILAND. FACTS TO BE CONSIDERED FOR DETERMINATION: 17. ASSESSEE IS AN INDIAN COMPANY AND HAS 100% HOLD ING IN ITS SUBSIDIARY, SITUATED IN THAILAND BY NAME M/S POLYTE X THAILAND CO.LTD. IT IS OBSERVED THAT, THAILAND SUBSIDIARY DE CLARED DIVIDEND DURING YEARS UNDER CONSIDERATION, WHICH WAS RECEIVE D BY ASSESSEE, AND THAT BY VIRTUE OF INVESTMENT PROMOTION ACT B.E, 2520(1977) , TA ON INCOME IS EXEMPT UNDER SECTION 31 IN THE HANDS OF THAILAND COMPANY AND UNDER SECTION 34 IN A SSESSEES HANDS. 18. ASSESSEE CLAIMS THAT, FOR YEARS UNDER CONSIDERA TION, IT IS ENTITLED TO CLAIM SPARING OF FOREIGN TAX PAYABLE IN THAILAND, DUE TO EXEMPTION AVAILABLE TO ASSESSEE AS PER INVESTMENT PROMOTION ACT B.E, 2520(1977) , UNDER ARTICLE 23(3) OF DTAA BETWEEN INDIA AND THAILAND, AS CREDIT AGAINST INDIAN TAX PAYABLE IN RESPECT OF SUCH PROFITS OR INCOME AGAINST TAX PAIYABLE IN INDI A ON THE DIVIDEND INCOME. 19. NOW QUESTION THAT ARISES IS, WHETHER BENEFIT OF TAX SPAIRING IS AVAILABLE TO ASSESSEE UNDER DTAA BETWEEN INDIA A ND THAILAND. ARTICLE 23 DEALING WITH, ELIMINATION OF DOUBLE TAX ATION READS AS UNDER: ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 8 CHAPTER IV METHODS FOR ELIMINATION OF DOUBLE TAXATION ARTICLE 23 : ELIMINATION OF DOUBLE TAXATION 1. THE LAWS IN FORCE IN EITHER OF THE CONTACTING ST ATES SHALL CONTINUE TO GOVERN THE TAXATION OF INCOME IN THE RE SPECTIVE CONTRACTING STATES EXCEPT WHERE PROVISIONS TO THE C ONTRARY ARE MADE IN THIS CONVENTION. 2. THE AMOUNT OF THAI TAX PAYABLE, UNDER THE LAWS OF THAILAND AND IN ACCORDANCE WITH THE PROVISIONS OF THIS CONVE NTION, WHETHER DIRECTLY OR BY DEDUCTION, BY A RESIDENT OF INDIA, IN RESPECT OF PROFITS OR INCOME ARISING IN THAILAND, W HICH HAS BEEN SUBJECTED TO TAX BOTH IN INDIA AND IN THAILAND , SHALL BE ALLOWED AS A CREDIT AGANIST THE INDIAN TAX PAYABLE IN RESPECT OF SUCH PROFITS OR INCOME PROVIDED THAT SUCH CREDIT SHALL NOT EXCEED THE INDIAN TAX (AS COMPUTED BEFORE ALLOWING ANY SUCH CREDIT) WHICH IS APPROPRIATE TO THE PROFITS OR INCO ME ARISING THAILAND FURTHER, WHERE SUCH RESIDENT IS A COMPANY BY WHICH SUR-TAX IS PAYABLE IN INDIA, THE CREDIT AFORESAID S HALL BE ALLOWED IN THE FIRST INSTANCE AGAINST INCOME-TAX PA YABLE BY THE COMPANY IN INDIA AND AS TO THE BALANCE, IF ANY, AGA INST SURTAX PAYABLE BY IT IN INDIA. 3. FOR THE PURPOSES OF THE CREDIT REFERRED TO IN P ARAGRAPH 2, THE TERM ' THAI TAX PAYABLE ' SHALL BE DEEMED TO INCLUD E ANY AMOUNT WHICH WOULD HAVE BEEN PAYABLE AS THAI TAX FO R ANY YEAR BUT FOR AN EXEMPTION OR REDUCTION OF TAX GRANT ED FOR THAT YEAR OR ANY PART THEREOF UNDER THE PROVISIONS OF TH E INVESTMENT PROMOTION ACT (B.E. 2520) OR OF THE REVENUE CODE (B .E. 2481) WHICH ARE DESIGNED TO PROMOTE ECONOMIC DEVELOPMENT IN THAILAND OR WHICH MAY BE INTRODUCED HEREAFTER IN MO DIFICATION OF, OR IN ADDITION TO, THE EXISTING LAWS FOR PROMOT ING ECONOMIC DEVELOPMENT IN THAILAND. 4. THE AMOUNT OF INDIAN TAX PAYABLE UNDER THE LA WS OF INDIA AND IN ACCORDANCE WITH THE PROVISIONS OF THIS CONVENTIO N, WHETHER DIRECTLY OR BY DEDUCTION, BY A RESIDENT OF THAILAND , IN RESPECT OF PROFITS OR INCOME ARISING IN INDIA, WHICH HAS BE EN SUBJECTED TO TAX BOTH IN INDIA AND THAILAND, SHALL BE ALLOWED AS A CREDIT AGAINST THAI TAX PAYABLE IN RESPECT OF SUCH PROFITS OR INCOME PROVIDED THAT SUCH CREDIT SHALL NOT EXCEED THE THAI TAX (AS COMPUTED BEFORE ALLOWING ANY SUCH CREDIT) WHICH IS APPROPRIATE TO THE PROFITS OR INCOME ARISING IN IND IA. ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 9 5. FOR THE PURPOSES OF THE CREDIT REFERRED TO IN P ARAGRAPH 4, THE TERM ' INDIAN TAX PAYABLE ' SHALL BE DEEMED TO INCL UDE ANY AMOUNT WHICH WOULD HAVE BEEN PAYABLE AS INDIAN TAX FOR ANY ASSESSMENT YEAR BUT FOR AN EXEMPTION OR REDUCTION O F TAX GRANTED FOR THAT YEAR OR ANY PART THEREOF BY THE SP ECIAL INCENTIVE MEASURES UNDER THE PROVISIONS OF THE INCO ME-TAX ACT, 1961 (43 OF 1961). WHICH ARE DESIGNED TO PROMOTE EC ONOMIC DEVELOPMENT, OR WHICH MAY BE INTRODUCED HEREAFTER I N MODIFICATION OF, OR IN ADDITION TO, THE EXISTING PR OVISIONS FOR PROMOTING ECONOMIC DEVELOPMENT IN INDIA. 6. WHERE UNDER THIS CONVENTION A RESIDENT OF A CO NTRACTING STATE IS EXEMPT FROM TAX IN THAT CONTRACTING STATE IN RES PECT OF INCOME DERIVED FROM THE OTHER CONTRACTING STATE, TH EN THE FIRSTMENTIONED CONTRACTING STATE MAY, IN CALCULATIN G TAX ON THE REMAINING INCOME OF THAT PERSON, APPLY THE RATE OF TAX WHICH WOULD HAVE BEEN APPLICABLE IF THE INCOME EXEMPTED F ROM TAX IN ACCORDANCE WITH THIS CONVENTION HAD NOT BEEN SO EXE MPTED. 20. ARTICLE 23(3) OF TREATY WITH THAILAND PROVIDES FOR RELIEF FROM DOUBLE TAXATION. THE METHODOLOGY PRESCRIBED UNDER I S 'TAX SPARING METHOD. 20.1 COMMENTARY TO MODEL CONVENTIONS (BOTH OECD AND UN MODEL CONVENTIONS) ACKNOWLEDGES THAT THERE MAY BE L OT OF DIFFICULTIES IN APPLICATION OF ARTICLE ON 'RELIEF F ROM DOUBLE TAXATION'. IT THEREFORE RECOMMENDS THAT DOMESTIC LE GISLATION SHOULD PROVIDE SOLUTIONS FOR ALL DIFFICULT AREAS/IS SUES. THERE ARE NO RULES IN DOMESTIC STATUTE IN INDIA DEALING WITH MANNER OF GRANTING RELIEF FROM DOUBLE TAXATION. RELIEF FROM D OUBLE TAXATION IS THUS TO BE CALCULATED ON THE BASIS OF PROVISIONS OF TREATY, READ WITH DOMESTIC LEGISLATIONS IN INDIA. 21. AS PER SECTION 90(2) WHERE TREATY EXISTS, FOR G RANTING RELIEF OF TAX IN RELATION TO AN ASSESSEE TO WHOM SUCH AGREEME NTS APPLIES, PROVISIONS OF THE ACT SHALL APPLY TO THE EXTENT, TH EY ARE MORE BENEFICIAL TO ASSESSEE. THUS, THOUGH CHARGEABLE PRO VISION OF ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 10 INCOME-TAX ACT IS APPLICABLE TO ASSESSEE FOR ITS GL OBAL INCOME, YET AS PER SECTION 90, IF INCOME IS TAXED BOTH IN INDIA AND THAILAND, ASSESSEE IS ENTITLED TO RELIEF AS PER CLAUSE 23 OF THE DTAA WITH THAILAND. 22. READING ABOVE REPRODUCED PROVISION OF ARTICLE 2 3(2), FOLLOWING ARE THE CIRCUMSTANCES THAT ARISE: RESIDENT OF INDIA WHO EARNS INCOME, TAXED IN THAILA ND DIRECTLY OR BY DEDUCTION IN RESPECT OF PROFITS OR I NCOME ARISING IN THAILAND, AND ALSO IN INDIA, INDIA IS TO ALLOW CREDIT AGAINST INDIAN TAX PAYABLE IN RESPECT OF SUCH PROFI TS OR INCOME, WITH A CAVEAT THAT, CREDIT SHALL NOT EXCEED INDIAN TAXES. CREDIT IS GRANTED AGAINST TAX LIABILITY IN R ESIDENT COUNTRY. THEREFORE, RESIDENT WOULD NOT BE REQUIRED TO PAY TAX TO THE EXTENT OF CREDIT AVAILABLE TO HIM. IN THE EVENT ASSESSEE IS NOT LIABLE TO PAY TAX IN I NDIA, OR IF TAX PAYABLE BY HIM IN INDIA, BECAUSE OF DEDUCTION/EXEMPTION GRANTED, IS LESS THAN TAX PAYAB LE OUTSIDE INDIA, ASSESSEE CANNOT CLAIM CREDIT FOR ENT IRE TAXES PAID. THE CREDIT IS OUT OF TAX ON INCOME, OF RESIDE NT. THUS, IF THERE IS NO TAX OR LESSER TAX BECAUSE OF EXEMPTION/ DEDUCTION IN INDIA, THERE IS NO DOUBLE TAXATION AND APPLICABI LITY OF ARTICLE 23 OF INDO THAILAND DTAA DOES NOT ARISE. 23. FOR SEVERAL DEVELOPING COUNTRIES TAX SPARING CR EDITS BECOME ESSENTIAL TO ENSURE THAT INCENTIVES OFFERED BY THEM TO FOREIGN INVESTORS YIELD RESULTS. ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 11 COMMENTARY TO UN MODEL CONVENTION NOTES; ' ONE OF THE PRINCIPAL DEFECTS OF THE FOREIGN TAX CRE DIT METHOD, IN THE EYES OF THE DEVELOPING COUNTRIES, IS THAT TH E BENEFIT OF LOW TAXES IN DEVELOPING COUNTRIES OR OF SPECIAL TAX CONCESSIONS GRANTED BY THEM MAY IN LARGE PART INURE TO THE BENEFIT OF THE TREASURY OF THE CAPITAL-EXPORTING CO UNTRY RATHER THAN TO THE FOREIGN INVESTOR FOR WHOM THE BENEFITS WERE DESIGNED. THUS, REVENUE IS SHIFTED FROM THE DEVELOP ING COUNTRY TO THE CAPITAL-EXPORTING COUNTRY. THE EFFEC TIVENESS OF THE TAX INCENTIVE MEASURES INTRODUCED BY MOST DEVEL OPING COUNTRIES THUS DEPENDS ON THE INTER-RELATIONSHIP BE TWEEN THE TAX SYSTEMS OF THE DEVELOPING COUNTRIES AND THOSE O F THE CAPITAL-EXPORTING COUNTRIES FROM WHICH THE INVESTME NT ORIGINATES. IT IS OF PRIMARY IMPORTANCE TO DEVELOPI NG COUNTRIES TO ENSURE THAT THE TAX INCENTIVE MEASURES SHALL NOT BE MADE INEFFECTIVE BY TAXATION IN THE CAPITAL-EXPO RTING COUNTRIES USING THE FOREIGN TAX CREDIT SYSTEM. THIS UNDESIRABLE RESULT IS TO SOME EXTENT AVOIDED IN BIL ATERAL TREATIES THROUGH A 'TAX SPARING' CREDIT, BY WHICH A DEVELOPED COUNTRY GRANTS A CREDIT NOT ONLY FOR THE TAX PAID B UT FOR THE TAX SPARED BY INCENTIVE LEGISLATION IN THE DEVELOPI NG COUNTRY .' PROVISIONS FOR TAX SPARING CREDIT ARE SEEN IN INDIA 'S DTAA WITH UK, AUSTRALIA, CANADA, ETC. KLAUS VOGEL NOTES REGARDING ARTICLE 23 IN HIS BOOK FOR DOUBLE TAXATION CONVENTIONS AS UNDER: IN ACCEPTING THE TAX SPARING CREDIT METHOD, THE STATE OF RESIDENCE TAKES INTO CONSIDERATION SPECIAL MEASURES BY WHICH THE STATE OF SOURCE HAS FOR REASONS OF ECONOMIC POL ICY OR THE LIKE, REDUCED ITS TAX INDIVIDUALLY ORDER FOR CERTAIN CATEGORIES OF CASES. THE TAX ALLOWED AS CREDIT BY THE STATE OF RESIDENCE IS THAT WHICH WOULD HAVE BEEN PAID IN THE ABSENCE OF SUCH A SPECIAL REDUCTION . THIS ARRANGEMENT AVOIDS THE OTHERWISE UNAVOIDABLE RESULT OF THE CREDIT METHOD IS THAT THE TAX RELIEF OFFERED BY THE STATE OF SOURCE WOULD BE SIPHONED O FF BY THE HIGHER TAX IN THE STATE OF RESIDENCE AND WOULD, THE REFORE, HAVE NO EFFECT. IN THIS REGARD, THE STATE OF RESIDE NCE RESPECT THE INDIRECT SUBSIDY GIVEN BY THE STATE OF SOURCE. FROM THE POINT OF VIEW OF INTERNATIONAL TAX LAW, THE RESULT WOULD BE THE SAME IF THE STATE OF SOURCE HAD GIVEN THE TAX SPARE D A DIRECT ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 12 SUBSIDY AND THE STATE OF RESIDENCE HAD REFRAINED FR OM TAXING IT. 24. ON PERUSAL OF ABOVE COMMENTARIES, IT IS CLEAR T HAT CONCEPT OF TAX SPARING CREDIT SHALL BE APPLICABLE TO AN ASSESSEE, ONLY IF DIVIDEND RECEIVED BY ASSESSEE IS TAXABLE IN THE HAN DS OF ASSESSEE AS PER THAI TAX LAWS AND EXEMPTION IS AVAILABLE T O ASSESSEE EITHER AS PER THE REVENUE CODE OF THAILAND OR AS PER INVESTMENT PROMOTION ACT B.E, 2520(1977) IN ORDER TO AVAIL CREDIT OF SUCH TAXES SPARED IN THAILAND AS MENTIONED IN PARAGRAPH 2 OF ARTICLE 23. 25. WE SHALL NOW ANALYSE TAXABILITY OF DIVIDEND INC OME UNDER THAILAND REVENUE CODE AND WHETHER ANY EXEMPTION HAS BEEN GRANTED TO SUCH DIVIDEND INCOME TO ASSESSEE IN THAI LAND EITHER UNDER REVENUE CODE OF THAILAND OR AS PER INVESTMENT PROMOTION ACT B.E, 2520(1977). IN PAPER BOOK FILED BEFORE US, AT PAGES 103-276 ASS ESSEE HAS PLACED COPY OF REVENUE CODE OF THAILAND. 26. LD.AR SUBMITTED THAT PAGE 178 DEALS WITH SCHEDULE OF INCOME TAX RATE APPLICABLE IN THAILAND, AS PER THAILAND REVENUE CODE , WHERE FOR A COMPANY OR JURISTIC PARTNERSHIP FOLLOWING TAX RATES APPLY: SCHEDULE OF INCOME TAX RATE (A) TAX FROM NET PROFIT OF A COMPANY OR JOURNALISTIC PARTNERSHIP - 30% (B) TAX UNDER SECTION 70, EXCEPT THOSE MENTIONED IN (C) - 15% (C) TAX UNDER SECTION 70, ONLY FOR THE CASE OF PAYMENT OF ASSESSABLE INCOME UNDER SECTION 40 (4) (B) - 10% ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 13 (D) TAX UNDER SECTION 70BIS - 1 0% (E) TAX FROM CROSS INCOME BEFORE DEDUCTION OF ANY EXPENSES OF A FOUNDATION OR ASSOCIATION OPERATING A BUSINESS THAT GENERATES MONEY WHICH IS NOT INCOME UNDER SECTION 65BIS (13) - 10% 27. LD.AR SUBMITTED THAT ASSESSEES CASE FALLS UNDE R SECTION 70 BIS , OF THAILAND REVENUE CODE, WHICH HAS BEEN REPRODUCED AT PAGE 172 OF PAPER BOOK AND READS AS UNDER: ........ SECTION 70BIS . A COMPANY OR JOURNALISTIC PARTNERSHIP FORMED UNDER FOREIGN LAW WHICH DOES NOT DO BUSINESS IN THAILAND, BUT RECEIVES ASSESSABLE INCOME UNDER SECT ION 40 (2), (3), (4), (5), OR (6), THAT IS PAID FROM OR IN THAILAND, SHALL BE LIABLE TO PAY TAX; THE PAYER SHALL DEDUCT THE TAX F ROM ASSESSABLE INCOME AT THE INCOME TAX RATE FOR COMPAN IES AND JOURNALISTIC PARTNERSHIPS, AND SHALL REMIT IT TO TH E LOCAL AMPHOE AND AT THE SAME TIME FILE A RETURN IN THE FO RM PRESCRIBED BY THE DIRECTOR-GENERAL WITHIN 7 DAYS FR OM THE LAST DAY OF THE MONTH IN WHICH SUCH ASSESSABLE INCOME IS PAID........ 28. IT WAS ARGUED THAT AS PER SECTION 70 BIS , DIVIDEND INCOME RECEIVED BY ASSESSEE IS TAXABLE IN THAILAND AND THA T SECTION 40 (4) (B) INCLUDES DIVIDENDS AS ASSESSABLE INCOME, WH ICH READS AS UNDER: SECTION 40 (4) (B) A DIFFIDENT, SHARE OF PROFIT OR ANY OTHER BENEFITS DERIVED FROM A COMPANY OR JOURNALISTIC PAR TNERSHIP, A ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 14 MUTUAL FUND OR A FINANCIAL INSTITUTION ESTABLISHED UNDER A SPECIFIC LAW IN THAILAND FOR THE PURPOSE OF PROVIDI NG A LOAN TO PROMOTE AGRICULTURE, COMMERCE OR INDUSTRY, THE PORT ION OF DIVIDEND OR SHARE OF PROFITS AFTER DEDUCTION OF WIT HHOLDING TAX UNDER THE LAW GOVERNING PETROLEUM INCOME TAX. IT WAS FURTHER SUBMITTED THAT, AS PER SECTION 34 OF INVESTMENT PROMOTION ACT B. E. 2520 AS HAS BEEN AMENDED BY INVESTMENT PROMOTION ACT (NO. 2) B. E. 2534 , WHICH WAS FURTHER AMENDED BY INVESTMENT PROMOTION ACT (NO. 3) B.E. 2544, PROVIDES EXEMPTION ON INCOME TAX ON DIVIDENDS DERIVED FROM A PROMOTED ACT IVITY IN THAILAND. THE SAID CLAUSE READS AS UNDER: SECTION 34. DIVIDENDS DERIVED FROM A PROMOTED ACTIVITY GRANTED AN EXEMPTION OF JOURNALISTIC PERSON INCOME TAX SHALL BE EXEMPT FROM COMPUTATION OF TAXABLE INCOME THROUGHOU T THE PERIOD THE PROMOTED PERSON RECEIVES THE EXEMPTION O F JOURNALISTIC PERSON INCOME TAX PRIOR TO AMENDMENT SAID SECTION READ AS UNDER : SECTION 34 . DIVIDENDS DERIVED FROM THE PROMOTED BUSINESS UNDERTAKINGS BEING EXEMPTED FROM CORPORATE INCOME T AX UNDER SECTION 31 SHALL BE EXCLUDED FROM CALCULATION OF TA XABLE INCOME THROUGHOUT THE PERIOD OF THAT TAX EXEMPTION THUS FROM CO-JOINT READING OF TAXABILITY OF DIVIDEN D INCOME UNDER THAILAND REVENUE CODE , WHICH HAS BEEN EXEMPTED AS PER INVESTMENT PROMOTION ACT (SUPRA) , IT IS CLEAR THAT EXEMPTION IS AVAILABLE TO ASSESSEE ON DIVIDEND RECEIVED FROM ITS SUBSIDIARY IN THAILAND, WHICH WOULD HAVE BEEN OTHERWISE TAXABLE A S PER THAILAND REVENUE CODE @ 10%. MEANING THEREBY, ASSESSEE WAS NOT LIABLE TO PAY ANY TAX IN THAILAND BY VIRTUE OF EXEMPTION ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 15 GRANTED AS PER INVESTMENT PROMOTION ACT (SUPRA) , AND THEREFORE ASSESSEE WOULD BE ENTITLED TO CREDIT OF SUCH TAXES DEEMED TO HAVE BEEN PAYABLE IN THAILAND UNDER ARTICLE 23 (3) OF DT AA BETWEEN INDIA AND THAILAND. 29. FROM RECORDS PLACED BEFORE US, IT IS NOTED THAT ASSESSEE HAS SOUGHT CREDIT AT 10% ON DIVIDEND RECEIVED BY IT FRO M ITS THAILAND SUBSIDIARY, WHICH IS THE TAX THAT WOULD HAVE BEEN O THERWISE PAYABLE BY ASSESSEE IN THAILAND AS PER SECTION 70 BIS OF THAILAND REVENUE CODE . THE TAX PAID BY ASSESSEE ON DIVIDEND INCOME IN INDIA IS AT 30%, WHICH IS MORE THAN TAX PAYABLE IN THAILAND AND THEREFORE, WE DO NOT FIND ANY VIOLATION OF REQUIREM ENTS OF PARAGRAPH 2 OF ARTICLE 23 OF DTAA BETWEEN INDIA AND THAILAND. ACCORDINGLY WE ALLOW GROUND NO. 2 RAISED BY ASSESSE E. 30. INSOFAR AS GROUND NOS. 1, 3-7 ARE CONCERNED, THESE HAVE BEEN RAISED IN SUPPORT OF GROUND NO.2. AS WE HAVE A LREADY ALLOWED GROUND NO. 2 AFORESTATED PARAGRAPHS, THESE GROUNDS ALSO STANDS ALLOWED. 31. IN THE RESULT, APPEAL FILED BY ASSESSEE FOR ASSESSM ENT YEAR 2010-11 STANDS ALLOWED. A.Y: 2011-12 TO 2013-14 32. BOTH PARTIES AGREE THAT FACTS AND CIRCUMSTANCES IN ASSESSMENT YEARS 2011-12 TO 2013-14 ARE SAME AND ID ENTICAL AND THAT VIEW TAKEN FOR ASSESSMENT YEAR 2010-11 WOU LD ALSO BE APPLICABLE TO ASSESSMENT YEARS 2011-12 TO 2013-14. 33. WE HAVE PERUSED RECORDS FOR THESE YEARS AND FOU ND THAT AFORE STATED SUBMISSIONS BY PARTIES TO BE CORRECT. ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 16 34. ACCORDINGLY, RELYING UPON OUR DISCUSSION, TAX C REDIT CLAIMED BY ASSESSEE AGAINST DIVIDEND RECEIVED FROM THAILAND COMPANY AT 10% STANDS ALLOWED. IN THE RESULT, APPEAL FILED BY ASSESSEE FOR ASSESSM ENT YEARS 2011-12 TO 2013-14 STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/01/2019 SD/- SD/- (PRASHANT MAHARISHI) (BEENA A PILLAI) ACCOUNTANT MEMBER JU DICIAL MEMBER DT. 24/01/2019 *KAVITA ARORA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES ITA NOS. 4347 TO 4350/DEL/2016 M/S POLYPLEX CORPORATION LTD. 17 DATE 1. DRAFT DICTATED ON 27/12/18, 15/01/19, 24/1/19 2. DRAFT PLACED BEFORE AUTHOR 12/12/19, 24/1/19 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 24/01 6. KEPT FOR PRONOUNCEMENT ON 24/01 7. FILE SENT TO THE BENCH CLERK 24/01 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.