The Supreme Court, while dismissing the appeals filed by the Revenue, held that dividend income earned by the assessee, an Indian resident, from its joint venture in Oman, though exempt from taxation under Article 8(bis) of the Omani Tax Laws, is eligible for foreign tax credit in India by virtue of Article 25(4) of the India–Oman Double Taxation Avoidance Agreement. The Court observed that the exemption granted under the Omani law constitutes a tax incentive specifically designed to promote economic development by encouraging foreign investment, and therefore, the tax which would have been payable but for such exemption is deemed to have been paid for the purposes of granting relief under the DTAA. It was further held that the assessee had a permanent establishment in Oman and that the dividend income was effectively connected with such permanent establishment, thereby satisfying the conditions prescribed under the treaty framework. The Court also upheld the validity and evidentiary value of the clarification issued by the Omani Ministry of Finance, treating it as a legitimate interpretative aid explaining the intent and scope of the exemption provisions, rather than as a non-statutory or extraneous document. In light of these findings, the Supreme Court concluded that the Assessing Officer had rightly allowed the foreign tax credit, that the invocation of revisionary jurisdiction under Section 263 of the Income Tax Act was unwarranted and without jurisdiction, and that the orders of the Income Tax Appellate Tribunal and the High Court required no interference.

SOURCE LINK

https://api.sci.gov.in/supremecourt/2017/41708/41708_2017_17_1501_46972_Judgement_15-Sep-2023.pdf

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