It’s a great setback to the Bank of India(BOI) and a lesson for other banks operating overseas. The Mumbai bench of the Income-tax Appellate Tribunal (ITAT) has issued orders not to refund foreign taxes aggregating to Rs. 182.64 crore paid by the Bank of India (BOI) as the bank suffered financial loss and does not have any tax liability in India. Nevertheless, the taxes that have been paid overseas by BOI will be allowed as a deduction while calculating the bank’s business income.
The order given by the court if it gets legality would have a heavy impact on all the indian corporates which are involved in the global operations.
As BOI had suffered a financial crisis and has no tax liability in India, Pramod Kumar, vice president ITAT ( Income-tax Appellate Tribunal) sarcastically remarked, “It’s like someone making a contribution to, say, the US Exchequer because an income was earned there, and claiming that the Indian Treasury refunds the said tax because the aggregate of overall taxable income, from all the operations worldwide including India, is in negative, (a loss figure). In effect, one pays tax, for example, to the US and seeks its refund from the Indian Exchequer”.
BOI has many branches across the globe in both types of countries— countries with which India has a tax treaty and the countries with which it does not have a treaty. The bank has earned profits from its branches in the USA, UK, Belgium, France, Kenya, Japan, Singapore, Hong Kong, China, Cambodia, and Jersey and paid taxes in these countries.
The bank had suffered a financial crisis as it had a tax loss during the financial year 2011-12, even after setting off the foreign income. Consequently, it did not have any Indian tax liability on aforesaid foreign income. Nevertheless, it claimed Rs 182.64 crore as a refund of foreign taxes (called foreign tax credit) as a primary claim and alternatively as a business expense deduction.
As there was no income tax payable by the bank in India, the IT officer had said no to the credit for foreign taxes paid.
“Relief of taxes paid in foreign countries is given against the income-tax chargeable under the Income Tax Act 
Get to know complete guide of TDS provisions under income tax act 1961 at here. Also, we include several topics as TDS returns, TDS due dates, penalty & more. Read more . Section 90 does not stipulate that the tax paid in foreign countries would be refunded in cases where the income-tax chargeable under the I-T Act is nil.” Due to these facts and circumstances, the claims of the bank were rejected by the IT officer along with the Commissioner (Appeals). Lastly, BOI filed an appeal with the ITAT.
Before passing judgment, The ITAT bench comprising Vikas Awasthy, judicial member and Pramod Kumar, vice president closely noticed Indian and foreign court decisions in addition to various tax commentaries. And They noticed that the foreign incomes should be ‘subject to tax’ or ‘doubly taxed’ in both countries (the other country and India)for the purpose of availing the foreign tax credit. Adding further, such credit is accessible only to the extent of the Indian tax liability.
Finally, The ITAT held that the taxes that are paid in foreign countries can only be claimed as a business deduction in computing the business profits. Reason being, no credit of such foreign taxes was allowable against Indian tax liability. Putting it another way, this deduction shall further inflate the taxable losses, which can be set off against profits in forthcoming future years, within the prescribed time frame.
