TaxTMI 
TaxTMI 
2019 (5) TMI 1160
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....e Learned CIT (Appeals) has erred on the facts and law in denying the benefit u/s 91 of the Act on the plea that the assessee being "Resident but not Ordinarily Resident" is not a "Resident in India" and hence not entitled to the benefit of the section. 3. The Learned CIT (Appeals) has erred on the facts and in law in denying the proportionate Foreign Tax Credit for "New York State Taxes" (including local taxes) paid of Rs. 6,03,251/- and restricting the same to US Federal Taxes only. 4. The Learned CIT (Appeals) has erred on the facts and in law in interpreting that the provisions of Section 91 of the Act (which do not discriminate between the taxes levied by the Federal Government and the taxes levied by the State Government), do not apply where there is a treaty entered into for Avoidance of Double Taxation in complete disregard to the provisions of Section 90(2) of the Act where the assessee can take benefit of provisions of the Act that are more beneficial to him. 5. The Learned CIT (Appeals) is wrong in upholding that the judgments in "DC/T Vs Tata Sons Ltd": (2011) 135 TTJ (Mumbai) I: (2011) 9 ITR 154 as well as that passed in "Tata Sons Ltd vs DC/....
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....rned assessing officer noted that assessee has claimed tax credit of various taxes paid in United States. The AO further noted that the tax credit should be limited to the taxes covered under article 2 of the Indo US Double Taxation Avoidance Agreement [ DTAA] . 5. Before the assessing officer it was claimed that assessee has claimed pro rata tax credit for New York State taxes and local state taxes beside federal taxes. It was further stated that such claim is made u/s 91 of the income tax act and based on the order of the coordinate benches in CIT vs Tata Sons Ltd 135 TTJ (Mumbai)1. Assessee also made an alternate claim that if the state taxes are not considered for granting tax credit, the same may also be considered for deduction from the salary earned abroad. 6. The learned assessing officer rejected the contention of the assessee. The learned AO noted that the provisions of section 90 (2) of the income tax act provides for granting credit for only taxes covered therein. He further noted that in the United States the federal income taxes are imposed by the internal revenue code and therefore the treaty applies only to federal income tax paid in United States of America. ....
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....6410/- however granted the credit of the foreign taxes paid to the extent of only Rs. 2251920/-. Accordingly the assessment order u/s 143 (3) of the act was passed on 26/3/2014. 7. Aggrieved, assessee preferred an appeal before THE COMMISSIONER OF INCOME TAX (APPEALS) - 43, New Delhi. The learned CIT - A did not accept claim of the assessee for the following reasons:- a. The provisions of section 91 (1) of the income tax act applies only in case of a person who is a 'resident' in India. As the assessee is not a resident in India but 'not ordinarily resident' in India. The statute being very clear section 91 is not for an individual who claims the status of 'not ordinarily resident' in India. b. The provisions of section 91 of the act apply only in case of country with which there is no agreement u/s 90 for the relief for avoidance of the double taxation. There exist an agreement between India and United States of America and therefore the provision of section 91 does not apply for this reason also. c. The reliance placed by the assessee on the decision of the Tata Sons Ltd of coordinate bench was also found by him to be misplaced as that decision wa....
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.... is squarely covered in favour of the assessee and the assessee should be allowed the credit of state as well as federal taxes under the provisions of section 91 of The Income Tax Act. He further submitted that the order of the learned CIT - A suffers from severe infirmity in considering that the provisions of section 91 could not be made applicable to a person who is 'not ordinarily resident' in India. He submitted that the provisions of subsection (30) of subsection 2 of the act defines the 'nonresident' and on conjoint reading of the provisions of section 6 it is clear that the residential status of 'not ordinarily resident' falls within the definition of a 'resident' and only for the purposes of section 92, 93 and 168 of the act the said residential status is included in the definition of resident. He further submitted that the provisions of section 5 of the act deals with the scope of the income of an assessee which also show that it primarily deals with only 2 classes of the residential status of an assessee being a resident or a non-resident. He therefore submitted that a resident assessee has been divided into 2 subclasses being a 'resident ordinarily resident' [ ROR] an....
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.... tax act with respect to the federal tax and state income tax or not. b. Whether the assessee who is not a 'resident' but 'resident and not ordinarily resident' can also claim relief/ deduction u/s 91 of the act or not. 11. With respect to the 1st issue that whether the benefit conferred u/s 91 of the income tax act has to be extended to the income tax paid in foreign jurisdictions pertaining to the federal tax and state tax or not, question has been answered by the honourable Karnataka High Court in case of Wipro Ltd vs Deputy Commissioner Of Income Tax [382 ITR 179] wherein it has been held as under:- "66. The said provision provides for deduction of the tax paid in any country from the Indian Income-tax payable by him of a sum calculated on such doubly taxed income even though there is no agreement under section 90 for the relief or avoidance of double taxation. Explanation (iv) defines the expression Income-tax in relation to any country includes any excess profit tax or business profits tax charged on the profits by the Government of any part of that country or a local authority in that country. Therefore the intention of Parliament is very clear. The Inco....
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....ressed the ground of appeal seeking credit in respect of state income tax paid in United States, but had claimed deduction in respect of the same under section 37(1). The reason, for not pressing this ground of appeal, was stated to be that the assessee was content with CIT(A)'s having granted the deduction in respect of these taxes, as the claim for tax credit was anyway not admissible in terms of the Indo US tax treaty. The Assessing Officer was also in appeal before us in respect of the deduction having been granted by the CIT(A). For the detailed reasons set out in our order dated 24t h November, 2010, we upheld the grievance of the Assessing Officer and held that deductions in respect of any income tax paid abroad, whether state or federal, were not admissible. One of the arguments before us was that at least deduction in respect of US and Canada state income taxes should be allowed, since the US and Canada state income tax payments did not entitle the assessee to any tax credit, and either an income tax payment is to be allowed as deduction or it is to be taken into account for giving tax credit. We were also taken through the provisions of India-USA Agreement for Avoidance o....
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....untries with which India has entered into agreement, suggests that it is applicable only in the cases where India has not entered into a double taxation avoidance agreement with respective jurisdiction, but the scheme of the section 91, read alongwith section 90, does not reflect any such limitation, and section 91 is thus required to be treated as general in application. The scheme of the Income-tax Act is to be considered in entirety in a holistic manner, and each of the section cannot be considered on standalone basis. It is important to bear in mind the fact that so far as section 91 is concerned, it does not discriminate between taxes levied by the Federal Governments and taxes levied by the State Government. The Income-tax levied by different States in USA usually ranges from 3 per cent to 11 per cent, and the aggregate Income-tax paid by the assessee in USA will range from 38 per cent to 46 per cent. Therefore, on the facts of the present case and bearing in mind the fact that the Federal Incometax in USA at the relevant point of time was lesser in rate at 35 per cent vis-avis 38.5 per cent Incometax rate applicable in India, the admissible double taxation relief un....
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....of taxes on income, in terms of the provisions of domestic tax law in India, and these payments are also not being taken into account for granting credit for taxes paid abroad by the assessee, as only federal income tax is eligible for tax credit in terms of the Indo US and Indo Canada tax treaty. If this approach is adopted, the assessee does not get a deduction for state taxes so paid abroad, nor does he get the tax credit for the same, and if these two propositions are correct, there is clearly an inherent contradiction in these propositions on tax treatment for state income taxes paid abroad. There cannot obviously be a tax payment which is neither treated as admissible expenditure, because it is treated as an income tax, nor is it taken into account for tax credits, because it is not to be treated as income tax. However, as we have observed in our order on the cross appeal, extracts from which are reproduced in the preceding paragraph, it is incorrect to proceed on the assumption that state income tax paid in USA, or for that purpose paid in Canada, cannot be taken into account for the purposes of computing admissible tax credits. It is so for the elementary reason th....
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....any conflict between the provisions of the agreement and the Act, the provisions of the agreement would prevail over the provisions of the Act, as is also clear from the provisions of section 90(2) of the Act. Section 90(2) makes it clear that "where the Central Government has entered into an agreement with the Government of any country outside India for granting relief of tax, or for avoidance of double taxation, then in relation to the assessee to whom such agreement applies, the provisions of the Act shall apply to the extent they are more beneficial to that assessee" meaning thereby that the Act gets modified in regard to the assessee in so far as the agreement is concerned if it falls within the category stated therein. It would thus appear that the treaty override is only restricted to the extent it is beneficial to a taxpayer. In other words, the fact that a taxpayer is entitled to make a particular claim, in accordance with a tax treaty provisions, does not disentitle him to make the claim in accordance with the provisions of the Act. In this view of the matter, and further to the observations made by us in our order on the cross appeal, in our considered view, the provisio....