2015 (3) TMI 650 - HC - Income Tax

Taxability of the gross total income - assessee has not paid any federal tax in USA as evidenced by the W-2 furnished by the assessee for the FY 2008-09 - whether Tribunal was justified in not adopting the grossing up concept in respect of the assessee s Indian taxes borne by the employer in reference to Section 17 (2) (iv) r/w Section 192 (1B)? - Plea of the Revenue that there is no specific indication as to what is the gross total income of the assessee and, therefore, there is no clarity in the order of the Tribunal, deserves to be rejected - Held that - A cursory look at the order of the Tribunal reveals that there is no such confusion in the order of the Tribunal, as portrayed by the learned standing counsel for the appellant/Revenue. The Tribunal, in para-7 of its order, has clearly stated that consequent to the withdrawal of hypothetical tax payable in US, certain amount has been paid towards tax liability of the assessee in India. Taking into consideration the amount paid towards salary and deducting the hypothetical tax payable in the US,the Tribunal has determined the salary received after deduction made by the employer towards the hypothetical tax. A cursory look at the above calculation made by the Tribunal would reveal that the computation is just and proper and no clarification is required to be given by the Tribunal, as it is for the assessee to explain as to how this amount should be treated for the purpose of determining the tax. - Decided against revenue.

Summary

Issues involved:
1. Taxability of gross total income when no federal tax paid in USA.
2. Adoption of grossing up concept for Indian taxes borne by the employer.

Analysis:
1. The case involved the question of taxability of an individual's gross total income when the individual, residing and working in India, received salary in US Dollars in the USA. The individual offered net salary in the return after deducting federal taxes, but the employer withdrew an amount as hypothetical tax to be paid in the USA. The employer paid the tax liability of the individual in India, leaving an amount withdrawn but not paid as tax in India. The assessing officer added this amount to the individual's income as no federal tax was paid in the USA, leading to an appeal. The CIT (Appeals) held that the hypothetical tax aimed at tax equalization and cannot be added. The Tribunal considered the computation of actual salary and remanded the matter to verify the correctness of the contentions. The Revenue appealed against this decision, arguing that the entire gross salary should be taxed due to non-payment of federal tax in the USA.

2. The Tribunal's order was challenged on the grounds that it did not adopt the grossing up concept for Indian taxes borne by the employer. The appellant contended that the Double Taxation Agreement between India and the USA allows for a rebate if tax is paid in the country of residence. The appellant argued that since no federal tax was paid in the USA, the entire gross salary should be taxed. The Tribunal's calculation of the salary received after deducting the hypothetical tax was deemed proper, and no clarification was required. The High Court upheld the Tribunal's order, stating that the computation was just and proper, finding no error warranting interference. The Court dismissed the appeal, concluding that no substantial question of law arose for consideration.

This detailed analysis of the judgment highlights the issues of taxability of gross income and the adoption of the grossing up concept, providing a comprehensive understanding of the legal reasoning and decision-making process involved in the case.