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2025 (3) TMI 1421 - AT - Income TaxForeign tax credit for state taxes paid in the United States under Section 91 - existence of a Double Taxation Avoidance Agreement (DTAA) between India and the USA - HELD THAT - We find no merit in the Revenue s either of the twin vehement contentions raised herein. This is for the precise reason that this tribunal s in Tata Sons Ltd. 2011 (2) TMI 1528 - ITAT MUMBAI has already rejected the Revenue s case seeking to invoke section 91. We find that the same is no more res-integra in light of M/s. Wipro Ltd. 2015 (10) TMI 826 - KARNATAKA HIGH COURT deciding the very issue in assessee s favour and against the department that for the purpose of such foreign tax credit claim both federal as well as state taxes stand on an identical footing. Faced with this situation the Revenue quotes Manpreet Singh Gambhir 2008 (9) TMI 411 - ITAT DELHI-B that a learned coordinate bench has already settled the issue in the department s favour as well. We are of the considered view that the given fact that hon ble Karnataka high court has already adjudicated the issue in assessee s favour the tribunal s foregoing order must make way for the hon ble higher judicial forum s wisdom by following judicial discipline. We accordingly accept the assessee s instant sole substantive grievance in principle and direct the AO to frame his consequential computation as per law. Assessee appeal allowed.
ISSUES PRESENTED and CONSIDERED
The primary issue in this appeal is the entitlement of the assessee to claim foreign tax credit for state taxes paid in the United States under Section 91 of the Income Tax Act, 1961. The core legal questions considered include:
ISSUE-WISE DETAILED ANALYSIS 1. Applicability of Section 91 of the Income Tax Act, 1961 Relevant Legal Framework and Precedents: Section 91 provides relief from double taxation in cases where no DTAA exists between India and the other contracting state. The Tribunal's decision in Tata Sons Ltd. vs. Deputy Commissioner of Income Tax was cited, where it was held that Section 91 could apply even if a DTAA exists, provided it is more beneficial to the assessee. Court's Interpretation and Reasoning: The Tribunal found no merit in the Revenue's contention that Section 91 is inapplicable due to the existing DTAA between India and the USA. It emphasized that Section 91 should be interpreted in a manner that is beneficial to the assessee, as per Section 90(2) of the Act and Circular No. 621, which clarifies that tax treaties should not disadvantage residents of a contracting state. Key Evidence and Findings: The Tribunal noted that the assessee derived salary income from the USA and paid both federal and state taxes. The Tribunal relied on the Tata Sons Ltd. decision, which supports the view that Section 91 does not distinguish between federal and state taxes for the purpose of foreign tax credit. Application of Law to Facts: The Tribunal applied Section 91 to allow the assessee's claim for foreign tax credit concerning state taxes paid in the USA, as the provision is more beneficial than the DTAA, which only allows credit for federal taxes. Treatment of Competing Arguments: The Tribunal dismissed the Revenue's argument that Section 91 is inapplicable due to the DTAA, highlighting that the DTAA should not result in a less favorable outcome for the assessee compared to the domestic law. Conclusions: The Tribunal concluded that the assessee is entitled to claim foreign tax credit under Section 91 for state taxes paid in the USA, as it is more beneficial than the relief provided under the DTAA. 2. Judicial Precedents and Circulars Relevant Legal Framework and Precedents: The Tribunal referenced the Karnataka High Court's decision in M/s. Wipro Ltd. vs. ACIT, which supports the view that both federal and state taxes are eligible for foreign tax credit. It also considered the Tribunal's earlier decision in Manpreet Singh Gambhir vs. DCIT, which was in favor of the department. Court's Interpretation and Reasoning: The Tribunal followed the Karnataka High Court's decision, giving precedence to a higher judicial forum's ruling over a coordinate bench's decision. It emphasized judicial discipline in adhering to the High Court's interpretation. Key Evidence and Findings: The Tribunal found that the Karnataka High Court had already adjudicated the issue in favor of the assessee, which influenced its decision to allow the foreign tax credit for state taxes. Application of Law to Facts: By applying the Karnataka High Court's ruling, the Tribunal ensured that the assessee's foreign tax credit claim was consistent with the higher judicial interpretation. Treatment of Competing Arguments: The Tribunal acknowledged the earlier contrary decision by a coordinate bench but prioritized the High Court's ruling, thereby resolving the conflict in favor of the assessee. Conclusions: The Tribunal upheld the assessee's entitlement to foreign tax credit for state taxes, following the Karnataka High Court's decision and emphasizing the importance of judicial discipline. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal reiterated the principle that "the provisions of Section 91 are to be treated as general in application and these provisions can yield to the treaty provisions only to the extent the provisions of the treaty are beneficial to the assessee." Core Principles Established: The Tribunal established that Section 91's relief for foreign taxes, including state taxes, is applicable even when a DTAA exists, provided it is more beneficial to the assessee. It also reinforced the principle that tax treaties should not disadvantage taxpayers compared to domestic law provisions. Final Determinations on Each Issue: The Tribunal allowed the assessee's appeal, granting foreign tax credit for state taxes paid in the USA under Section 91, as it was more beneficial than the DTAA. It directed the Assessing Officer to compute the tax liability accordingly.
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