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TMI Blog2011 (2) TMI 1528X X X X Extracts X X X X X X X X Extracts X X X X ..... in our order dated 24th November, 2010 on the cross appeal, and for the sake of continuity, we will take up this issue first. The relevant ground of appeal, i.e., ground No. 4 in assessee's appeal, is that the " CIT(A) erred in not granting DIT relief in respect of taxes paid in various States in USA and Canada". 3. In the original hearing, the assessee had not pressed the ground of appeal seeking credit in respect of State Income-tax paid in United States, but had claimed deduction in respect of the same under section 37(1). The reason, for not pressing this ground of appeal, was stated to be that the assessee was content with CIT(A)'s having granted the deduction in respect of these taxes, as the claim for tax credit was anyway not admissible in terms of the Indo US tax treaty. The Assessing Officer was also in appeal before us in respect of the deduction having been granted by the CIT(A). For the detailed reasons set out in our order dated 24-11-2010, we upheld the grievance of the Assessing Officer and held that deductions in respect of any Income-tax paid abroad, whether State or Federal, were not admissible. One of the arguments before us was that at least deduction in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be worse off vis-a-vis the provisions of the Income-tax Act, even when a tax treaty applies in his case. Section 90(2) states that even in relation to the assessee to whom a tax treaty applies "the provisions of this Act shall apply to the extent they are more beneficial to that assessee". Undoubtedly, title of section 91 as also reference to the countries with which India has entered into agreement, suggests that it is applicable only in the cases where India has not entered into a double taxation avoidance agreement with respective jurisdiction, but the scheme of the section 91, read along with section 90, does not reflect any such limitation, and section 91 is thus required to be treated as general in application. The scheme of the Income-tax Act is to be considered in entirety in a holistic manner, and each of the section cannot be considered on standalone basis. It is important to bear in mind the fact that so far as section 91 is concerned, it does not discriminate between taxes levied by the Federal Governments and taxes levied by the State Government. The Income-tax levied by different States in USA usually ranges from 3 per cent to 11 per cent and the aggregate Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the same is not admissible in terms of the Indo US and Indo Canada tax treaty provisions, we deemed it appropriate to once again hear the parties on this issue. In our considered view, it is indeed an incongruous position that payment of State Income-taxes in US and Canada are not allowed deduction as these are treated as in the nature of taxes on income, in terms of the provisions of domestic tax law in India, and these payments are also not being taken into account for granting credit for taxes paid abroad by the assessee, as only Federal Income-tax is eligible for tax credit in terms of the Indo US and Indo Canada tax treaty. If this approach is adopted, the assessee does not get a deduction for State taxes so paid abroad, nor does he get the tax credit for the same, and if these two propositions are correct, there is clearly an inherent contradiction in these propositions on tax treatment for State Income-taxes paid abroad. There cannot obviously be a tax payment which is neither treated as admissible expenditure, because it is treated as an Income-tax, nor is it taken into account for tax credits, because it is not to be treated as Income-tax. However, as we have observed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advantageous to the assessee, but just because there is a tax treaty between India and USA, the benefits of the domestic law provisions are being declined to the assessee. That is an interpretation which leads to absurdity and calls for an interpretation harmonious with the scheme of the Income-tax Act. In case of any conflict between the provisions of the agreement and the Act, the provisions of the agreement would prevail over the provisions of the Act, as is also clear from the provisions of section 90(2) of the Act. Section 90(2) makes it clear that "where the Central Government has entered into an agreement with the Government of any country outside India for granting relief of tax, or for avoidance of double taxation, then in relation to the assessee to whom such agreement applies, the provisions of the Act shall apply to the extent they are more beneficial to that assessee" meaning thereby that the Act gets modified in regard to the assessee insofar as the agreement is concerned if it falls within the category stated therein. It would thus appear that the treaty override is only restricted to the extent it is beneficial to a taxpayer. In other words, the fact that a taxpayer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these grounds of appeal were not pressed by the assessee. The same are accordingly dismissed for want of prosecution. 9. Ground No. 1 is also dismissed. 10. In ground No. 2, the assessee has raised a grievance against CIT(A)'s not accepting the assessee's contention to the effect that foreign dividends are liable to be taxed, on net basis, after deducting foreign taxes withheld abroad. 11. Learned representatives fairly agree that the issue is covered in favour of the assessee, by Hon'ble Bombay High Court's judgment in the case of CIT v. Ambalal Kilachand [1994] 210 ITR 844. In the said judgment, Their Lordships have, inter alia, observed as follows : .....What, therefore, accrues to an assessee in respect of shares held by him in the United Kingdom is the dividend as actually distributed to him. The amount initially available for distribution by the U.K. company cannot be considered as income accruing to the assessee, because the assessee does not have any right to receive the amount so initially declared. He does not have any right to claim any credit for the tax which is deducted on that amount. Therefore, under no circumstances can he claim that the gross amount available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast part of the system development life cycle, which is preceded by feasibility study, requirement definition, software acquisition, programming, testing and implementation. It is clearly stated herein that 'maintenance' is nothing but ongoing development which continues till the system is replaced or discontinued. While the term 'maintenance' in relation to a tangible asset would mean those activities which are required to keep it useful, 'maintenance' of a software is a part of its development for enhancing its capabilities and correcting errors. In Chapter XXII of the same reference book, which discusses alternative systems development methodologies like data oriented system development, object oriented system development, prototyping, rapid application development, re-engineering, reverse engineering and structured analysis, it is stated that a system is never static and system maintenance is a part of ongoing development. Information Systems Audit and Control Association of USA, which is considered the topmost professionally recognized body, prescribing standards for systems audit and audit of business application software development, has in its 2004 CISA review manual, in Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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