Article 23(3), India-Thailand DTAA – credit of tax that would have been payable on dividend paid by Thai subsidiary in Thailand, but for the exemption granted, could be claimed as credit against tax payable in India on the dividend.

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23. 
ITA Nos: 4347 to 4350/Del/2016 Polyplex Corporation Ltd vs. ACIT A.Ys.: 2010-11 to 2013-14, Date of Order: 24^th January, 2019

Article 23(3), India-Thailand DTAA – credit
of tax that would have been payable on dividend paid by Thai subsidiary in
Thailand, but for the exemption granted, could be claimed as credit against tax
payable in India on the dividend.

FACTS

The Taxpayer was an
Indian company, which had a wholly owned subsidiary in Thailand (“Thai Co”).
During the relevant years, Thai Co declared and paid dividend to the Taxpayer.
In terms of the Investment Promotion Act in Thailand, such dividend was not
laible to tax in Thailand..Taxpayer claimed tax sparing credit¹
against the taxes payable in India on the dividend income.

AO noted that the
dividend was exempt in Thailand in terms of Investment Promotion Act. As
provisions of a tax treaty provide tax benefit in respect of income which was
doubly taxed and not for tax which was not paid at all, it was concluded by AO
that the tax credit claimed could not be granted.

____________________________________

1.  Article 23(3) provided that for the
purposes of foreign tax credit in India, “the term “Thai tax payable” shall be deemed
to include any amount which would have been payable as Thai tax for any year
but for an exemption or reduction of tax granted for that year”.

The CIT(A) upheld
the order of the AO.

HELD

•     The Tribunal observed that
  tax sparing credit under Article 23(3) of India-Thailand DTAA could be availed
  by the Taxpayer if dividend received by the Taxpayer was, in the first place,
  taxable in the hands of the Taxpayer in Thailand, but was not taxed owing to an
  exemption under the provisions of Investment Promotion Act or of the Revenue
  Code of Thailand.

•     From perusal of Revenue
  Code and Investment Promotion Act, it was noted that while the dividend would
  have been otherwise taxable at 10%, it qualified for exemption under Investment
  Promotion Act. Hence, tax sparing credit was allowable. However, any such
  credit is further subject to limitation of ordinary credit, i.e. it cannot
  exceed the amount of tax payable in India.

•     In the facts of the
  case,  the tax sparing credit of 10%
  claimed by the Taxpayer was less than the tax payable in India on dividend at
  30%. Acoordingly,  whereas, the Taxpayer
  was eligible  for claiming such credit..