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TMI Blog2017 (11) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... ase and in law, the Honourable CIT(A) erred in confirming the action of the Learned AO of not allowing credit for Maryland State Tax on the contention that such claim cannot be allowed in absence of any revised return of income filed by the Appellant for claiming such tax credit. 3 The Appellant prays that based on the facts and circumstances above, the Appellant be granted consequential reliefs as well as relief in the Computation of tax as well." 3. To adjudicate on this appeal, only a few material facts need to be taken note of. The assessee before us is a Director in a pharmaceutical company, and, out of the total income of Rs. 92,77,648/- earned by him during the relevant previous year, the salary received from a USA based entity aggregate to Rs. 62,10,947/-. It is in respect of this salary earning from USA that the assessee has paid state income-tax aggregating to Rs. 5,33,372/- in the USA. The assessee has claimed a credit in respect of the income so paid in computation of his tax liability in India. However, when the claim so made by the assessee came up for examination before the Assessing Officer, the Assessing Officer rejected the same on the ground that Article 2 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the provisions of India-USA Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion [ 187 ITR (Statute) 102 - hereinafter referred to as 'Indo US tax treaty], to show that the tax credits under the India US tax treaty are restricted to credits in respect of federal income tax paid in the United States. It was also submitted that under the India Canada Double Taxation Avoidance Agreement, tax credits are admissible only in respect of tax paid under the 'Income Tax Act of Canada' whereas state income taxes are levied under separate provincial legislations. It could not, according to the learned counsel, result in a situation in which an income tax payment cannot have any tax implication - neither as a charge on income, nor as an allocation of income. While rejecting these arguments, and allowing the appeal of the Assessing Officer on this issue, we had, inter alia, observed as follows: "20. Learned counsel has also contended that in any event, we must allow deduction in respect of state income-taxes paid in USA and Canada as relief is not admissible in respect of the same in respective tax treaties. We have been taken through India USA tax treaty to point o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, the admissible double taxation relief under section 91 will be higher than relief under the tax treaty. It will be so for the reason that State Income-tax will also be added to Income-tax abroad, and the aggregate of taxes so paid will be eligible for tax relief - of course subject to tax rate on which such income is actually taxed in India. The tax relief under section 91 thus works out to at least 38 per cent, as against tax credit of only 35 per cent admissible under the tax treaty. In such a situation, the assessee will be entitled to relief under section 91 in respect of federal as well as state taxes, and that relief being more beneficial to the assessee vis-a-vis tax credit under the applicable tax treaty, the provisions of section 91 will apply to state Income-taxes as well. The state Income-tax is also, therefore, covered by Explanation 1 to section 40(a)(ii), and deduction cannot be allowed in respect of the same. Finally, in view of Hon'ble Bombay High Court's judgment in S. Inder Singh Gill's case (supra), Income-tax abroad cannot be allowed as a deduction in computation of income and this judgment does not discriminate between federal and state taxes either. Interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the elementary reason that the provisions of a tax treaty, based on which tax credits are said to be inadmissible, cannot be pressed into service to decline a benefit to the assessee which is otherwise available to him, even in the absence of such a tax treaty, under the provisions of the Income Tax Act. 5. Even as we have held that, in principle, state income taxes paid in USA are eligible for being taken into account for the purpose of computing admissible tax credit under Section 91, we are alive to the fact that Section 91 refers to a situation in which the assessee has paid tax "in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation" and that there is indeed an agreement under section 90 with United States of America, as also with Canada. If we adopt a literal interpretation of this provision, and bearing in mind the undisputed position that tax credit provisions under section 91 are more beneficial to the assessee vis-à-vis the tax credit provisions in related tax treaties inasmuch as while section 91 permits credit for all income taxes paid abroad - whether state or federal, relevant tax treaties permit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered view, 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; that is not the case so far as question of tax credits in respect of state income taxes paid in USA are concerned. Accordingly, even though the assessee is covered by the scope of India US and India Canada tax treaties, so far as tax credits in respect of taxes paid in these countries are concerned, the provisions of Section 91, being beneficial to the assessee, hold the field. As Section 91 does not discriminate between state and federal taxes, and in effect provides for both these types of income taxes to be taken into account for the purpose of tax credits against Indian income tax liability, the assessee is, in principle, entitled to tax credits in respect of the same. Of course, as is the scheme of tax credit envisaged in Section 91, tax credit in respect of foreign income tax is restricted to actual income tax liability in India, in respect of income on which taxes have been so paid abroad." 6. We have noted that the concerned CIT(A) has declined to follow t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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