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TMI Blog2025 (3) TMI 1421X X X X Extracts X X X X X X X X Extracts X X X X ..... circular no. 621 dated 19.12.1991 which provides for the applicability of the provisions of Income Tax Act to the extent they are more. beneficial to the appellant. c) In ignoring the fact that even though the appellant is covered by the scope of Double Taxation Treaty of India with USA which provides for relief of federal withholding tax only, however, the provisions of section 91 being more beneficial to the appellant are applicable which permits credit for all income taxes paid abroad whether State or Federal irrespective of the fact whether there is double taxation treaty or not. d) In not following the ITAT Mumbai D Bench decision in the case of Tata Sons Ltd. vs. Deputy Commissioner of Income Tax, ITA No. 4978/Mum/04. e) In charging interest u/s 2343 and 234C of the Income Tax Act, 1961. 3. The appellant craves leave to add, modify, alter, substitute and delete any of the grounds of appeal on or before the date of hearing. 3. Suffice to say, the assessee's sole substantive issue herein which arises for our apt adjudication is her entitlement of foreign tax credit claim pertaining to state taxes paid in the United States of America (USA). There is hardly any dispute b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nada". 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 24th November, 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 respect of US and Canada state income taxes should be allowed, since the US and Canada state income tax payments did not entitle the assessee to any tax credit, and either an income tax payment is to be allowed as deduction or it is to be taken into account for giving tax credit. We were also taken thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 alongwith 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 paid by the assessee in USA will range from 38 per cent to 46 per cent. Therefore, on the facts of the present case and bearing in mind the fact that the Federal Income-tax in USA at the relevant point of time was lesser in rate at 35 per cent vis-a-vis 38.5 per cent Income-tax rate applicable in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 our order on the cross appeal, extracts from which are reproduced in the preceding paragraph, it is incorrect to proceed on the assumption that state income tax paid in USA, or for that purpose paid in Canada, cannot be taken into account for the purposes of computing admissible tax credits. It is so f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax 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 in so far 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 is entitled to make a particular claim, in accordance with a tax treaty provisions, does not disentitle him to make the claim in accordance with the provisions of the Act. In this view of the matter, and further to the observations made by us in our order on the cross appeal, in our considered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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