Foreign tax credit – Part 6

Various unresolved issues –

Issues that are arising in context of Foreign tax credit (‘FTC’) are –

  • In accordance with the provisions of the convention –

Country of residence shall grant credit of foreign taxes paid only if the income is taxed in the Source country ‘in accordance with the provision of the Convention’.

Madras High Court in the case of CIT v. Lakshmi Textile Exporters Ltd. ( held
that, where profits of a PE are exempt from tax in the Country of Residence, the Country of residence has to accept a finding of the source Country that a Permanent Establishment exists in the source Country. Also, if the source country chooses to give exemption to such income under its laws then also such income would be treated as “taxed in accordance with the convention” and the Country of residence would not have the right to tax such income.

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