Non-Resident Taxpayer Wins at ITAT: Demand Reduced from ₹2.28 Crore to ₹63,000

Non-Resident Taxpayer Wins at ITAT: Demand Reduced from ₹2.28 Crore to ₹63,000

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, provided major relief to a non-resident taxpayer by substantially reducing the tax demand from ₹2.28 crore to a mere ₹63,000. The ruling was based on rectifying fundamental errors in the application of the India-Japan Double Taxation Avoidance Agreement (DTAA).

Key Grounds for the ITAT’s Favorable Ruling

• Rectification of DTAA Misapplication: The Tribunal found that the Income Tax Authorities had incorrectly calculated the taxpayer’s liability by failing to properly apply the provisions of the India-Japan DTAA. The original assessment wrongly treated certain receipts as fully taxable in India.
• Correct Classification of Income: The ITAT reclassified the disputed income streams according to the DTAA, which mandates that the income be taxed only in the country where the non-resident is a resident (Japan), or taxed at a concessional rate in India.
• Substantial Reduction in Liability: By correctly applying the DTAA, the Tribunal reduced the total taxable amount and the consequent tax demand, leading to the massive reduction from ₹2,28,00,000 (₹2.28 crore) to just ₹63,000.

Significance

This decision underscores the legal principle that the provisions of a Double Taxation Avoidance Agreement (DTAA) prevail over the provisions of the Income Tax Act in India if the DTAA is more beneficial to the taxpayer. The ruling provides significant clarity and relief to non-resident entities operating in India.