Foreign Tax Credit Allowable Even if Indian Tax on Foreign Income is Nil Due to Exemptions: ITAT
Case Reference: TS-1493-ITAT-2025(DEL) (and related appeals).
Assessee: Canon India Private Limited.
Issue
Whether an assessee can be denied Foreign Tax Credit (FTC) for taxes paid in a foreign country (Japan) on the grounds that the corresponding foreign income is not taxable in India, due to a Section 10A exemption or the set-off of brought-forward losses?
Facts
The assessee earned income from its operations in Japan.
Taxes were withheld on this income in Japan as per Japanese domestic law.
In its Indian tax return, the assessee claimed a Foreign Tax Credit (FTC) for the taxes paid in Japan.
The Assessing Officer (AO) disallowed the entire FTC claim.
The AO’s reasoning was that the corresponding Japanese income resulted in a ‘nil’ tax liability in India, as it was either exempt under Section 10A or was neutralized by brought-forward business losses.
ITAT Delhi held as below:
Delhi High Court had already decided a case of HCL Comnet Systems (2023) based on the same issue, where it agreed with the Karnataka High Court’s decision in Wipro Ltd., which clearly stated that FTC should be allowed even when no Indian tax is payable
The FTC claim cannot be restricted or denied merely because the assessee’s tax liability on that specific stream of income is nil in India due to other provisions of the Act (like Section 10A or set-off of losses).
The copy of the order is as under:
