Interpretation of Income-tax Act: Relief from double taxation clarified by Rajasthan High Court

The High Court of Rajasthan ruled on the interpretation of sections 80RRA and 91(1) of the Income-tax Act, 1961, regarding relief from double taxation on foreign income. The court held that relief under section 91(1) should only apply to the income doubly taxed in India after the deduction under section 80RRA. The assessee, a medical practitioner, was entitled to relief on the tax paid on 50% of the foreign income included for taxation in India, not the entire amount. The Tribunal's decision to grant relief on the full tax amount was overturned.

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Issues involved: Interpretation of sections 80RRA and 91(1) of the Income-tax Act, 1961 regarding relief from double taxation on foreign income.

Summary:
The High Court of Rajasthan addressed a reference under section 256(1) of the Income-tax Act, 1961, concerning the entitlement of an assessee to relief under section 91(1) of the Act on the tax deducted at source in a foreign country. The dispute arose from the treatment of foreign income received by the assessee, a medical practitioner, from Iran, and the subsequent relief from double taxation under sections 80RRA and 91(1) of the Act. The Income-tax Officer allowed relief only on 50% of the foreign income included for tax in India, while the Tribunal ruled in favor of the assessee, granting relief on the entire tax amount deducted at the source in the foreign country.

The court analyzed the provisions of sections 80RRA and 91(1) to determine the correct interpretation. Section 80RRA allows a deduction equal to 50% of the foreign income received by an individual, while section 91(1) provides relief from double taxation on the income already taxed in the foreign country. The court emphasized that relief under section 91(1) should apply only to the income that is doubly taxed, i.e., included in the Indian income for taxation purposes after the deduction under section 80RRA.

Referring to a Supreme Court decision and the Andhra Pradesh High Court's interpretation, the court rejected the assessee's argument that relief under section 91(1) should apply to the total foreign income, not just the portion included for tax in India. The court held that relief from double taxation should be granted only on the amount of tax paid on 50% of the total foreign income, in line with the provisions of sections 80RRA and 91(1). Consequently, the Tribunal's decision was overturned, and the assessee was entitled to relief only on the tax paid on 50% of the foreign income, not the full amount.

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