TMI Blog2008 (9) TMI 411X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the total Federal income-tax and State income-tax paid to the extent of Rs. 2,36,406. The appellant enjoyed income from salary inUSAandIndiaand also derived income from interest. The appellant's salary inUSAamounted to Rs. 7,22,850 and deduction under s. 80RRA was claimed and allowed at Rs. 4,54,555. The appellant claimed the benefit of tax paid at Rs. 1,75,739 inUSAas Federal income-tax and further amount of Rs. 60,667 as State income-tax, as per art. 25(2)(a) of the DTAA betweenUSAandIndia. The AO allowed credit of taxes paid inUSAto the extent the tax was attributable on the income-tax inUSA. The income so worked out by AO after allowing deduction of Rs. 4,54,555 under s. 80RRA stood at Rs. 2,68,260 and tax attributable to income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the order of AO. Accordingly, the action of AO in rejecting the application under s. 154 is upheld." The assessee is now in further appeal before us. 5. The learned counsel for the assessee, Shri K. Sampath, submitted that as per agreement for avoidance of double taxation between USA and India [as reported in (1991) 91 CTR (St) 6 : (1991) 187 ITR (St) 102], under art. 25 of the said agreement, an assessee who is resident in India whose income is taxed in US, is eligible for deduction from tax on the income of an amount equal to income-tax paid in USA whether directly or by way of deduction, though there is upper limit, which prescribes that deduction shall not exceed that part of income-tax which is attributable to the income which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus even if the learned CIT(A) has directed to include State income-tax. the direction is not in accordance with art. 3 of DTAA. Such direction can also be challenged in terms of r. 27 of the ITAT Rules, 1963. 7. We have carefully considered relevant facts and arguments advanced. We have perused the material placed before us and also the orders of the authorities below. We have also considered the decisions cited. Avoidance of double taxable is achieved by either-(a) exemption method or (b) credit method. Under the "Exemption" method, the country of residence exempts the income which has been taxed in the source country. The "Exemption" method may be classified as-(i) full exemption method (ii) exemption with progression. Under the credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef as per cl. 25 of the DTAA withUSA. 9. Relevant provisions of art. 25(2)(a) of the DTAA withUSAare extracted below: "2. (a) Where a resident of India derives income which, in accordance with the provisions of this convention, may be taxed in the US, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in the US, whether directly or by deduction. Such deduction shall not, however, exceed that part of the income-tax (as computed before the deduction is given) which is attributable to the income which may be taxed in theUS." Reading the above provision of art. 25, a resident ofIndiawho earns income which was also taxed in US,Indiais to allow deduction from the tax on the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that resident". Thus, the prerequisite is that there should be tax on the income of the resident. The Hon'ble Rajasthan High Court in the case of CIT vs. Dr. R.N. Jhanji (1988) 73 CTR (Raj) 152 : (1990) 185 ITR 586 (Raj) and the Hon'ble Andhra Pradesh High Court in the case of CIT vs. M.A. Mois (1994) 210 ITR 284 (AP) held that where the assessee is entitled to special deduction under s. 80RRA to the extent of 50 per cent of the remuneration received, he would be entitled to relief under s. 91(1) of the amount of tax paid on 50 per cent of the foreign income. 9.1 It was also held that, "in other words, that part of foreign income on which deduction is given under s. 80RRA 'in computing the total income of the individual' for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. If it can be found that the entire receipts charged inCanadaare exempt under the provisions of Indian tax laws, the assessee is only paying tax on income otherwise chargeable inIndiaand not on income doubly taxed. Thus, in such a situation, assessee cannot claim credit of tax paid against income, which is otherwise chargeable to tax inIndialegitimately. It is true that tax payable inIndiais not on different components of income but when deduction is claimed under s. 80HHE, such deduction is admissible only on eligible income and not entire income. Thus, at this moment, what income is eligible or not is not known and hence, once it is now that turnover/receipt taxed outside India has been allowed to be deducted while computing taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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