Foreign tax credit under India-UK DTAA allowed where UK tax was paid and Article 16(2) could not deny treaty relief.

Section 90(2) of the Income-tax Act, 1961 and Article 24 of the India-UK DTAA were applied to allow foreign tax credit where the assessee, an Indian resident, had worked in the United Kingdom for more than 183 days and tax had in fact been paid there on the remuneration. Article 16(2) was found inapplicable on the stated facts, so it could not be used to deny relief. The treaty being more favourable, the assessee was entitled to credit for the UK taxes on the doubly taxed income, and the disallowance made by the lower authorities was held unsustainable.

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Issues: Whether the assessee was entitled to foreign tax credit under Article 24 of the India-UK DTAA read with Section 90(2) of the Income-tax Act, 1961, and whether Article 16(2) of the DTAA was applicable to deny such relief.

Analysis: The assessee was a resident of India and had worked in the United Kingdom for more than 183 days. The revenue did not dispute that tax had been paid in the United Kingdom on the remuneration earned there. On the facts found, Article 16(2) was held to be inapplicable. The combined effect of Section 90(2) of the Income-tax Act, 1961 and Article 24 of the India-UK DTAA entitled the assessee to claim credit for the taxes paid in the United Kingdom in respect of the doubly taxed income, as the treaty benefit was more favourable.

Conclusion: The foreign tax credit claim was allowed and the disallowance sustained by the lower authorities was held unsustainable.

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