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2017 (11) TMI 207 - AT - Income TaxDenying the Maryland State Tax credit in the return of income - salary earning from USA - denial of claim in absence of any revised return of income filed - whether such taxes are not covered within Article 2 of the Double Taxation Avoidance Agreement entered into between India and USA - whether state taxes on income paid by the assessee in the USA are eligible for tax credit? - Held that - Merely because a judicial precedent is challenged in further appeal, the precedence value of such a judicial precedent does not get diluted. The stand of the CIT(A), in conscious disregard of a binding judicial precedent, cannot but be condemned. The Co-ordinate Bench of this Tribunal in the case of Tata Sons Ltd vs. DCIT 2011 (2) TMI 1528 - ITAT MUMBAI , speaking through one of us, i.e. AM, has decided the issue in favour of the tax payer. - 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 - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Denial of Maryland State Tax credit. 2. Requirement of filing a revised return for claiming the tax credit. Detailed Analysis: 1. Denial of Maryland State Tax Credit Relevant Facts: The appellant, a Director in a pharmaceutical company, received a salary from a USA-based entity amounting to ?62,10,947/- out of his total income of ?92,77,648/- for the Assessment Year 2010-11. The appellant paid state income tax of ?5,33,372/- in the USA and claimed credit for this amount in his tax computation in India. Assessing Officer's Decision: The Assessing Officer (AO) denied the tax credit on the grounds that Article 2 of the Double Taxation Avoidance Agreement (DTAA) between India and the USA covers only federal income tax and not state taxes. CIT(A)'s Decision: The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, despite acknowledging a favorable decision for the appellant in a similar case. The CIT(A) declined to follow the precedent because the decision was under appeal before the Hon’ble High Court. Tribunal's Analysis: The Tribunal referenced the Co-ordinate Bench's decision in Tata Sons Ltd vs. DCIT, which held that state income taxes paid in the USA are eligible for tax credit under Section 91 of the Income-tax Act, 1961. The Tribunal emphasized that tax treaties cannot be used to deny benefits available under domestic law. Section 91 does not differentiate between federal and state taxes, allowing for tax credits for both types of taxes. Conclusion: The Tribunal condemned the CIT(A) for not following a binding judicial precedent and upheld the appellant's plea for credit for state tax paid in the USA. The matter was remanded to the AO for verification and granting of admissible relief, ensuring that the total foreign tax credit does not exceed the Indian tax liability on the same income. 2. Requirement of Filing a Revised Return for Claiming the Tax Credit Relevant Facts: The AO and CIT(A) denied the tax credit also on the grounds that the appellant did not file a revised return to claim the tax credit for the Maryland State Tax. Tribunal's Analysis: The Tribunal did not specifically address the requirement of filing a revised return in the detailed analysis, focusing instead on the substantive issue of eligibility for the tax credit under Section 91. Conclusion: The Tribunal's decision implicitly suggests that the substantive eligibility for the tax credit under Section 91 overrides procedural requirements, provided the claim is valid and verifiable. Final Judgment: The appeal was allowed for statistical purposes, with instructions to the AO to verify and grant the admissible relief for the state tax credit, ensuring compliance with the overall tax liability limits. Pronouncement: The judgment was pronounced in the open court on the 21st day of September, 2017.
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