1994 (11) TMI 186 - AT - Income Tax

Central Government Double Taxation Avoidance Agreement Double Taxation Relief TDS On Salary Tax Liability

Summary

Issues Involved:
1. Applicability of Section 90 vs. Section 91 of the Income-tax Act, 1961.
2. Computation of tax liability and double taxation relief (DTR) for foreign income.
3. Correctness of deductions under Section 80RRA.

Issue-wise Detailed Analysis:

1. Applicability of Section 90 vs. Section 91 of the Income-tax Act, 1961:

The primary issue was whether the provisions of Section 90 or Section 91 of the Income-tax Act were applicable to the assessee's case. Section 90 applies when there is an agreement between the Central Government and a foreign government for the avoidance of double taxation. Section 91 applies in the absence of such an agreement. The Tribunal concluded that Section 90 was applicable as there was a specific agreement between the Central Government and the Libyan Government for the avoidance of double taxation. The agreement stipulated that the Central Government would allow a deduction from its tax on the income of the assessee equal to the tax paid in Libya, but not exceeding the tax liability computed under the Act.

2. Computation of Tax Liability and Double Taxation Relief (DTR) for Foreign Income:

The Assessing Officer (AO) computed the assessee's total income at Rs. 61,390 but raised a demand for tax amounting to Rs. 7,317, arguing that deductions under Sections 16(1) and 80C should be proportionately allowed on both Indian and foreign incomes. The DC (Appeals) allowed DTR on half of the foreign income, but the Tribunal found this approach confusing and incorrect. The Tribunal clarified that as per Article 20 of the agreement between India and Libya, the assessee was entitled to a rebate of Rs. 21,150 in his tax liability of Rs. 14,496 on his total income of Rs. 61,390. Since the deduction from tax was not to exceed the tax applicable to the income taxed in Libya, no further tax demand was justified.

3. Correctness of Deductions under Section 80RRA:

The assessee claimed a 50% deduction under Section 80RRA for remuneration received for services rendered outside India. The Tribunal confirmed that the assessee was entitled to this deduction as he met the conditions laid down in Section 80RRA, including being in the employment of the State Government and having his service to the foreign country sponsored by the Central Government. The Tribunal emphasized that Section 80RRA provides for deductions irrespective of whether the foreign income has suffered taxation in the foreign country.

Conclusion:

The Tribunal held that the provisions of Section 90 were applicable due to the existing agreement between India and Libya. The assessee was entitled to a rebate of Rs. 21,150 against his tax liability of Rs. 14,496, and no further tax demand was justified. The appeal by Revenue was dismissed, and the Cross Objection by the assessee was allowed.