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Income Tax Appellate Tribunal, “SMC-C” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee and it is directed against the order of ld. CIT(A)-5, Bangalore dated 21.02.2018 for Assessment Year 2013-14.
The grounds raised
by the assessee are as under. “1. The Order of the Learned Commissioner of Income Tax (Appeals) is opposed to law, facts and circumstances of the case.
2. The Order is passed in haste, without providing sufficient and reasonable opportunity of being heard.
3. The Order is passed against the principle of natural justice and thus liable to be quashed.
4. The Ld. CIT(A) erred in confirming the order of the Ld. AO, who erred in restricting the foreign tax relief to only Rs. 1,67,677/- as against Rs. 6,64,162/- claimed by the Appellant in his return of income.
5. The Ld. AO erred in limiting the benefit of foreign tax credit to the extent of Federal Taxes paid in USA. The Ld. CIT(A) erred in confirming the same. 6. The Ld. CIT(A) and the Ld. AO erred in not taking cognizance of the provisions laid down in section 90(2) and 91 of the Income Tax Act. 7. The Ld. CIT(A) and the Ld. AO ought to have construed that all the taxes paid in the foreign country on the doubly taxed income are eligible for deduction under section 91 r.w.s. 90(2) of the Act. The Appellant seeks your leave to add, alter, amend or delete any of the grounds urged at the time of hearing.”
The assessee has also raised additional grounds which are as under. “a. The Ld AO erred in treating the gross income i.e. salary income as per payslip instead of total income as per US tax return filed [Form 1040]; b. The Ld. AO ought to have accepted the appellant submission dated 31-03-2016 of accepting the total income as per US return filed while computing the total income i.e. Assessed Income of the appellant;”
Regarding the main grounds raised in the memo of appeal, it was submitted by ld. AR of assessee that the claim of the assessee regarding relief on account of taxes paid in a foreign country has been restricted by AO to Rs. 1,67,677/- as against Rs. 6,64,162/- on this basis that only federal taxes paid are eligible for foreign tax credit and not state taxes. In this regard, he submitted that as per section 91 of IT Act, even state taxes paid by the assessee are eligible for foreign tax credit. In support of his contention, reliance was placed by him on the judgement of Hon'ble Karnataka High Court rendered in the case of Wipro Ltd. Vs. DCIT in dated 25.03.2015, copy available on pages 85 to 283 of paper book and in particular, my attention was drawn to page no. 167 of paper book and it was pointed out that it was held in that case that India has entered into agreement with the Federal Country and not with any State within that country and in order to extend the benefit of this relief or avoidance of double taxation, aforesaid explanation explicitly makes it clear that income tax in relation to any country includes the income tax paid to the Government of any part of that country or a local authority in that country and therefore, even though, India has not entered into any agreement with the State of a Country
but if the assessee has paid income tax to that State, the income tax paid in relation to that State is also eligible for being given credit to the assessee in India. Reliance was also placed on Tribunal order rendered in the case of DCIT Vs. Tata Sons Ltd. in dated 24.11.2010, copy available on pages 285 to 315 of paper book and in particular, my attention was drawn to para no. 20 of this Tribunal order and it was pointed out that it was held by Tribunal in this case that the assessee will be entitled to relief u/s. 91 in respect of federal as well as state taxes and that relief as per section 91 being more beneficial to the assessee vis-à-vis tax credit under the applicable tax treaty, the provisions of section 91 should be considered and applied resulting into allowing of tax credit for state income taxes as well.
In reply, it was submitted by ld. DR of revenue that as per the provisions of section 91 reproduced by Hon'ble Karnataka High Court in this judgment of Wipro Ltd. Vs. DCIT (supra) as can be seen on page no. 165 of paper book, foreign tax credit has to be allowed only if taxes in foreign country has been paid in respect of that income which is being doubly taxed in the foreign country and in India, and such benefit should be allowed at the India rate of tax or the rate of taxes between the said country whichever is lower. He submitted that even if it is held that the assessee is eligible for credit of state taxes then also, the issue should be restored back to the file of AO to quantify the relief allowable to assessee in view of the provisions of section 91 of IT Act.
I have considered the rival submissions and by respectfully following the judgment of Hon'ble Karnataka High Court rendered in the case of Wipro Ltd. Vs. DCIT (supra), I hold that the assessee is eligible for tax credit in respect of state taxes also paid by the assessee in a foreign country. But in order to quantify amount of such foreign tax credit in respect of state taxes paid by the assessee in USA, I feel it proper to restore the matter back to the file of AO with the direction that he should quantify the amount of foreign tax credit allowable to assessee in respect of state taxes paid by the assessee in the light of provisions of section 91 of IT Act after providing adequate opportunity of being
heard to the assessee. The relevant grounds on this issue are allowed for statistical purposes in the terms indicated above.
Regarding the additional grounds raised
by the assessee, the ld. AR of assessee placed reliance on Tribunal order rendered in the case of Shri Sunil Shinde Vs. ACIT in dated 31.08.2017 of which he submitted a copy which is kept on record. It was pointed out that it was held by Tribunal in this case that for the purpose of section 5. (1)(c) of IT Act, only actual income which is received in the hands of the assessee has to be considered. He submitted that in the present case, out of gross income as per pay slip in USA, various deductions were allowable as per US IT return and therefore, the such net income should be considered instead of gross income as per pay slip. At this juncture, it was observed by the bench that whether as per the claim of the assessee, State taxes and federal taxes paid by assessee in US is also to be deducted from the income of the assessee for the purpose of taxation in India, it was submitted by ld. AR of assessee that the assessee’s request is not for deduction of state taxes and federal taxes being in the nature of income tax but the assessee is requesting for various allowable deductions in that country and not income tax paid in USA being federal tax or state taxes. The ld. DR of revenue supported the orders of authorities below.
I have considered the rival submissions. I find that additional grounds raised by the assessee is in respect of legal issue and I admit the same. Since this issue was not raised before CIT(A) and the AO and therefore, there is no decision of them on this aspect of the matter, I feel it proper to restore the matter back to the file of AO for fresh decision with the direction that the AO should decide this issue after providing reasonable opportunity of being heard to assessee and after considering the Tribunal order rendered in the case of Shri Sunil Shinde Vs. ACIT (supra) and any other judgment on this issue which may be available at that point of time. The additional grounds raised by the assessee stands allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes in the terms indicated above. Order pronounced in the open court on the date mentioned on the caption page.