Assessee filed its return wherein credit of tax deducted in Japan was claimed in respect of its income covered under Section 10A. Assessing Officer (AO) rejected assessee’s claim holding that the income on which the assessee was charged to tax in Japan was not chargeable to tax in India, being exempted under the provisions of section 10A.
The Tribunal held that the profits and gains to which the provisions of section 10A apply are not excluded from total income and instead a deduction of such profits and gains shall be allowed from the total income of the assessee. It means ‘total income’ must first be determined from which deduction under section 10A shall be allowed. Therefore, it cannot be said that the profits and gains to which section 10A applies are not charged to tax in India.
Hence, assessee was qualified for tax relief under article 23 of the DTAA between India and Japan as income that had been subjected to tax in Japan was also chargeable to tax in India (although exempted under Section 10A).