ITAT Delhi Upholds Foreign Tax Credit Claim Despite Nil Indian Tax Liability Under Section 10A
The ITAT Delhi recently held that a taxpayer can claim full foreign tax credit for taxes paid abroad (Japan), even if no Indian tax is payable due to deductions or losses. However, no interest (u/s 244A) is allowed on such FTC refunds since no actual Indian tax payment was made.
The present appeals (Two: one for AY 2003-04 and another for AY 2005-06) have been filed by a company named Canon India Private Limited (Appellant) against Dy. C.I.T Circle – 4(2) Delhi (Respondent) in the Income Tax Appellate Tribunal (ITAT), Delhi ‘D’ Bench, New Delhi, before Shri Challa Nagendra Prasad (Judicial Member) and Shri Naveen Chandra (Accountant Member). The case is related to the assessment years 2003-04 and 2005-06, and the final decision was announced on November 10, 2025. The Revenue had also filed a cross-appeal for the assessment year 2005-06.
The appeal has been filed challenging an order dated January 20, 2021, passed by the DRP-1, New Delhi, for the assessment year 2003-04. The Dy. C.I.T. has filed an appeal challenging an order dated December 21, 2021, of CIT(A) Delhi, belonging to the assessment year 2005-06.
Main Issue
The key question asked in the case is whether Canon India should be allowed Foreign Tax Credit (FTC) for taxes paid in Japan, even though in India, the company had no taxable income because of Section 10A deductions and brought-forward business losses.
The company wanted credit in India for the tax already paid in Japan under the India-Japan Double Taxation Avoidance Agreement (DTAA).
However, the Assessing Officer (AO) did not allow the foreign tax credit, saying that since the company did not have any tax payable in India due to exemptions and losses, there was no Indian tax to adjust the Japanese tax against. Therefore, in conclusion to the above reasons, AO denied FTC or a refund.
The company argued that on software export income, it had already paid more than Rs. 20.39 crore in the form of tax in Japan and according to Section 90 of the Income Tax Act and Article 23 of the DTAA, FTC must be allowed even if the Indian tax is Nil.
To support its point, the company also cited earlier judgments [Wipro Ltd vs DCIT (Karnataka High Court) and HCL Comnet Systems (Delhi High Court)] based on the same issue, where the authority ruled in favour of the assessee.
Tribunal’s Findings and Decision
When the case was taken before the ITAT Delhi, the tribunal noted that the 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.
Hence, the present issue was no longer left for further debate.
Therefore, this issue was no longer open for debate (“no longer res integra”).
The Tribunal followed these High Court rulings and held that Canon India is entitled to full Foreign Tax Credit for taxes paid in Japan.
- Result for AY 2003-04: Thus, in its final decision, the tribunal allowed the assessee’s appeal.
Revenue’s Appeal (AY 2005-06)
Dissatisfied with the action of ITAT Delhi, the revenue further filed an appeal challenging the order for AY 2003-04 and said that the assessee should not be allowed for FTC merely based on the same Wipro case.
Since the Tribunal had already allowed FTC for AY 2003-04, it applied the same logic for AY 2005-06. The final decision was again announced in favour of the assessee.
- Result for AY 2003-04: The tribunal dismissed the Revenue’s appeal.
Cross Objection by Canon (Interest on Refund)
Canon India also asked for interest under Section 244A on the refund that arose because of the foreign tax credit.
However, the Tribunal held that Interest under Section 244A is available only when actual tax has been paid to the Indian government (like TDS, advance tax, etc.). In this case, Canon had only adjusted the Japanese tax credit, not paid any extra tax in India. Hence, no interest can be given on the FTC refund.
- Final Result: Cross objection dismissed.
Citation: Canon India Pvt Ltd Vs. The Dy. C.I.T (ITAT Delhi); ITA No. 585/DEL/2021 [A.Y. 2003-04] & CO No. 04/DEL/2025; 10/11/2025; 2003-04 and 2005-06
