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2020 (9) TMI 404
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....07,337. 2.1 Accordingly, the total income offered to tax in India was Rs. 71,07,337/-. In the original return of income the assessee had computed his tax liability at Rs. 4,69,704/- which was paid as self assessment tax. However, in the revised return, the amount of Rs. 4,69,504/- was claimed as refund. It was the assessee's contention that he was claiming relief for double taxation with respect to the taxes paid in United States in respect of salary earned/ taxed in India. The proportionate tax credit being claimed by the assessee for the period of stay in India was for 230 days and it was calculated at Rs. 21,35,813/- but was restricted to the amount of the Indian income tax liability. It was the assessee's plea that the assessee should be given credit of Federal as well as State taxes paid in the United States. However, the Assessing Officer was of the opinion that only the Federal income tax paid in the USA would be covered for the purpose of credit of tax paid abroad which worked out to Rs. 15,37,382/- on proportionate basis for 230 days. 2.2 Aggrieved, the assessee approached the Ld. First Appellate Authority challenging the action of the Assessing Officer and submitted....
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....d 5, Learned CIT (Appeals) has erred on the facts and in law in not considering the "alternate plea" of the assessee that the "New York State Taxes (including local taxes) paid in USA" should not form part of taxable income in India if the same are not considered for the purpose of Foreign Tax Credit as there is no deeming provision u/s 198 of the Income Tax Act, 1961 with respect to taxes deducted at source outside India. 7. The Assessee craves leave to add, amend, alter or forego any of the above grounds of appeal at any time hereafter. 3.0 At the outset, the Ld. Authorised Representative submitted that the assessee's case is squarely covered by the order of the Tribunal in assessee's own case for the immediately succeeding assessment year i.e. assessment year 2011-12 in ITA No. 6668/Del/2015 vide order dated 17.05.2019. The Ld. Authorised Representative drew our attention to the relevant paragraphs of the order of the Tribunal as aforesaid and submitted that in view of the order of the Tribunal in assessee's own case on identical issue in favour of the assesse, the present appeal of the assessee also deserves to be allowed. 4.0 Per contra, the Ld. CIT (DR) placed ....
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.... relation to any country includes Income-tax paid in any part of the country or a local authority. It applies to cases where in a federal structure a citizen is made to pay federal Income-tax and also the State income tax. The Income-tax in relation to any country includes Income-tax paid not only to the Federal Government of that country, but also any Income-tax charged by any part of that country meaning a State or a local authority, and the assessee would be entitled to the relief of double taxation benefit with respect to the latter payment also. Therefore, even in the absence of an agreement under section 90 of the Act, by virtue of the statutory provision, the benefit conferred under section 91 of the Act is extended to the Income-tax paid in foreign jurisdictions. India has entered into an agreement with the federal country and not with any State within that country. In order to extend the benefit of this, relief or avoidance of double taxation, the aforesaid Explanation explicitly makes it clear that Income-tax in relation to any country includes the Incometax paid to the Government of any part of that country or a local authority in that country. Therefore, even though, In....
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....voidance of Double Taxation and Prevention of Fiscal Evasion [ 187 ITR (Statute) 102 - hereinafter referred to as 'Indo US tax treaty], to show that the tax credits under the India US tax treaty are restricted to credits in respect of federal income tax paid in the United States. It Page | 13 was also submitted that under the India Canada Double Taxation Avoidance Agreement, tax credits are admissible only in respect of tax paid under the 'Income Tax Act of Canada' whereas state income taxes are levied under separate provincial legislations. It could not, according to the learned counsel, result in a situation in which an income tax payment cannot have any tax implication - neither as a charge on income, nor as an allocation of income. While rejecting these arguments, and allowing the appeal of the Assessing Officer on this issue, we had, inter alia, observed as follows: "20. Learned counsel has also contended that in any event, we must allow deduction in respect of state income-taxes paid in USA and Canada as relief is not admissible in respect of the same in respective tax treaties. We have been taken through India USA tax treaty to point out that tax credits are admissi....
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....dia, the admissible double taxation relief under section 91 will be higher than relief under the tax treaty. It will be so for the reason that State Incometax will also be added to Income-tax abroad, and the aggregate of taxes so paid will be eligible for tax relief - of course subject to tax rate on which such income is actually taxed in India. The tax relief under section 91 thus works out to at least 38 per cent, as against tax credit of only 35 per cent admissible under the tax treaty. In such a situation, the assessee will be entitled to relief under section 91 in respect of federal as well as state taxes, and that relief being more beneficial to the assessee vis-a-vis tax credit under the applicable tax treaty, the provisions of section 91 will apply to state Income-taxes as well. The state Income-tax is also, therefore, covered by Explanation 1 to section 40(a)(ii), and deduction cannot be allowed in respect of the same. Finally, in view of Hon'ble Bombay High Court's judgment in S. Inder Singh Gill's case (supra), Income-tax abroad cannot be allowed as a deduction in computation of income and this judgment does not discriminate between federal and state taxes eithe....
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....g admissible tax credits. It is so for the elementary reason that the provisions of a tax treaty, based on which tax credits are said to be inadmissible, cannot be pressed into service to decline a benefit to the assessee which is otherwise available to him, even in the absence of such a tax treaty, under the provisions of the Income Tax Act. 5. Even as we have held that, in principle, state income taxes paid in USA are eligible for being taken into account for the purpose of computing admissible tax credit under Section 91, we are alive to the fact that Section 91 refers to a situation in which the assessee has paid tax "in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation" and that there is indeed an agreement under section 90 with United States of America, as also with Canada. If we adopt a literal interpretation of this provision, and bearing in mind the undisputed position that tax credit provisions under section 91 are more beneficial to the assessee vis-à-vis the tax credit provisions in related tax treaties inasmuch as while section 91 permits credit for all income taxes paid abroad - whether state o....
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....s in our order on the cross appeal, in our considered view, the provisions of Section 91 are to be treated as general in application and these provisions can yield to the treaty provisions only to the extent the provisions of the treaty are beneficial to the assessee; that is not the case so far as question of tax credits in respect of state income taxes paid in USA are concerned. Accordingly, even though the assessee is covered by the scope of India US and India Canada tax treaties, so far as tax credits in respect of taxes paid in these countries are concerned, the provisions of Section 91, being beneficial to the assessee, hold the field. As Section 91 does not discriminate between state and federal taxes, and in effect provides for both these types of income taxes to be taken into account for the purpose of tax credits against Indian income tax liability, the assessee is, in principle, entitled to tax credits in respect of the same. Of course, as is the scheme of tax credit envisaged in Section 91, tax credit in respect of foreign income tax is restricted to actual income tax liability in India, in respect of income on which taxes have been so paid abroad." 6. We have ....