By Geeta Jani| Dhishat B. Mehta
Chartered Accountants
12 [2019] 105 taxmann.com 323 (Delhi – Trib.) Aditya Khanna vs. ITO ITA No: 6668 (Delhi) of 2015 A.Y.: 2011-12 Date of order: 17th
May, 2019
Section 91 of the Act
– Credit for state taxes paid in USA can be availed u/s. 91 of the Act
Section 91 of the Act
– A ‘resident but not ordinarily resident’ being a category carved out of
‘resident’ – Such assessee is a resident – Entitled to claim tax credit u/s. 91
FACTS
The
assessee was an individual. During the relevant year, in terms of section 6(6)
of the Act, he was ‘resident but not ordinarily resident in India’ and had
earned salary in the USA as well as in India. In the USA, the assessee had paid
federal income tax, alternate minimum tax, New York State tax and local city
tax. The assessee had stayed in India for 224 days. Accordingly, he offered
salary proportionate to the period of his stay in India and claimed
proportionate tax credit.
He
contended before the AO that he had claimed credit for local taxes u/s. 91 of
the Act and relying on the decision in CIT vs. Tata Sons Ltd. 135 TTJ
(Mumbai). Alternately, the assessee contended that if the AO does not
consider claim for credit of state taxes, they may be allowed as deduction from
the salary earned abroad.
The
AO noted that Article 2 of the India-USA DTAA mentions only federal income
taxes imposed by internal revenue code and hence the tax credit should be
limited only to those taxes. He further noted that sections 90 and 91 stand on
different premises. Section 90 deals with the situation wherein India has an
agreement with foreign countries / specified territories, whereas section 91
deals with the situation where no agreement exits between India and other
countries. Since an agreement exists between India and the USA, section 90
would apply which refers to DTAA, and as per DTAA, only federal income taxes
paid in USA qualify for tax credit.
On
appeal, even the CIT(A) did not accept the contentions of the assessee.
HELD I:
- In Wipro Ltd. vs. DCIT [382 ITR 179],
the Karnataka High Court has held that “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 u/s. 90 of the Act, by virtue of the
statutory provision, the benefit conferred u/s. 91 of the Act is extended to
the Income-tax paid in foreign jurisdictions.”
- In Dr. Rajiv I. Modi vs. The DCIT
(OSD) [ITA No. 1285/Ahd/2014], dealing with a similar issue, the
Ahmedabad Tribunal has also granted credit for state taxes.
- In light of these judicial precedents, u/s.
91 of the Act, the assessee is entitled to credit of federal as well as state
taxes paid by him.
HELD II:
- Section 91(1) and (2) provide tax credit to
a person who is a ‘resident’ in India. Section 6(6) has carved out a separate
category of ‘not ordinarily resident’ in India. However, such person is
primarily a ‘resident’. Hence, the contention of the tax authority that a
‘resident but not ordinarily resident’ in India does not qualify for the
benefit u/s. 91(1) cannot be accepted.
