Assessee entitled to tax credit u/s 91 of both USA federal and state taxes paid by him

Assessee entitled to tax credit u/s 91 of both federal and state taxes paid by him. Benefit also available to not ordinarily resident Indians

ABCAUS Case Law Citation
ABCAUS 3390 (2020) (09) ITAT

Important case law relied upon by the parties:
Wipro Ltd vs Deputy Commissioner of Income Tax [382 ITR 179

In the instant case, the assessee had challenged the order passed by the CIT(A) in denying the Foreign Tax Credit for New York State Taxes (including local taxes) and restricting the same to US Federal Taxes only.

The assessee was employed with a USA company and had declared income under the head ‘salaries’ proportionately based on days of stay in India.

The assessee had filed the original return of income and thereafter a revised return was filed declaring the same income but also claiming a 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 assessee contended that he should be given credit of Federal as well as State taxes paid in the United States.  

The assessee claimed proportionate tax credit for the period of stay in India but was restricted to the amount of the Indian income tax liability.

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.

Before the CIT (A) the assessee contended that he should be allowed the credit of State taxes paid in India and that the  assessee’s  claim should be allowed u/s 91 of the Income Tax Act,  1961 (the Act) .

However, the CIT (A) rejected the assessee’s appeal and denied the credit of State taxes paid in USA. The CIT(A) also held that since the assessee was not ordinarily resident in India during the year under consideration, the benefit of provisions of section 91 of the Act would not be available to him.

The Tribunal observed that the Coordinate Bench of the Tribunal had decided this issue in favour of the assessee in the succeeding assessment year.

The Coordinate Bench had observed that the question 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, had been answered by the Hon’ble High Court.

The Hon’ble High Court hand 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 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.

Further, with regard to the question whether the assessee being “resident but not ordinarily resident” in India is entitled to tax relief u/s 91 of the income tax act or not, the Coordinate Bench had held that provisions of section 91 (1) provides relief/deduction of taxes paid with respect to a person who is a “resident” in India. The provisions of section 91 (2) also deals with the person who is a “resident” in India. The provisions of section 91 (3) deals with the person who is a “non-resident”.

The Bench held the provisions of section 6 (6) carves out another category of person in “Residents”, who is said to be “not ordinarily resident” in India. However, such persons are also “resident”. Therefore, such persons are also entitled to relief u/s 91(1) of the Act.

Following the decision of the Coordinate Bench, the appeal was allowed.

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