Doubly taxed income. - Income Tax - 1089/CBDT

INSTRUCTION NO. 1089/CBDT Dated : August 12, 1977 Under section 91, the unilateral relief has to be allowed on the doubly taxed income at the Indian rate of tax or at the rate of the foreign country concerned, whichever is lower. The underlined expression has been defined in clause (iii) of the Explanation to the said section to mean the tax paid in the said country in accordance with the corresponding laws in force in the said country after deduction of all relief due, but before deduction of any relief due in the said country in respect of double taxation. divided by the whole amount of the income in the said country. 2. In view of the above legal provision, the income assessed in the foreign country and the tax paid thereon in the foreign country in accordance with its law have both to be taken in the denomination of the currency of the foreign country. The rate of tax in the foreign country has been to be worked out (as a percentage of income) and compared with the Indian rate of tax and relief allowed under Section 91 at the lower of these two rates. 3. The relief under section 91 is not to be given by converting the doubly taxed income as also the tax paid in the foreign country in Indian rupees and then working out the rate of tax of the foreign country. This method would not give the correct rate of tax of the foreign country for purpose of relief under section 91 in view of the fluctuations in the conversion rate of that currency into Indian rupees. The Board have come across a case in which relief under section 91 of the Income-tax Act, 1961 was granted for the assessment years 1963-64 to 1965-66 by converting the doubly taxed foreign income into Indian rupees at the pre-devaluation rate of exchange (because the income had been earned prior to devaluation) but the tax paid abroad was converted at the post-devaluation rate of exchange as it was paid after June, 1966. This resulted in an artificial quential excessive relief to the assessee.