ADITYA KHANNA V. ITO (2019) 105 TAXMANN.COM 323, TS-285-ITAT-2019 (DEL)

The ITAT held that credit for state taxes paid in USA can be availed under section 91 of the Act


The Assessee individual, is a “Resident but not ordinary resident” in India. During the year under consideration, the Assessee was in India for a period of 224 days. He filed the return of income in India declaring salary income earned in USA for the proportionate period of 224 days. Assessee claimed proportionate FTC for the taxes paid in USA. Foreign taxes paid by the Assessee included Federal Income Tax, local taxes of New York and local city tax. The AO held that section 90 is applicable in the case of the Assessee and accordingly credit is available as per India – USA DTAA.  Applying Article 2 of India-USA DTAA, the AO allowed the credit can be availed of only federal income tax and denied the credit of state and local taxes paid.

On appeal to CIT(A) upheld the order of the AO.  The CIT(A) also held that the provisions of section 91(1) apply only to residents.  


The ITAT referred to the decision in the case of Wipro Ltd. vs. DCIT [382 ITR 179], wherein the Karnataka High Court has held that “The Income-tax in relation to any country includes Income-tax paid not only to the federal government of that country, but also any Income tax charged by any part of that country meaning a State or a local authority, and the assessee would be entitled to the relief of double taxation benefit with respect to the latter payment also. Therefore, even in the absence of an agreement u/s. 90 of the Act, by virtue of the statutory provision, the benefit conferred u/s. 91 of the Act is extended to the Income-tax paid in foreign jurisdictions.”

The ITAT also referred to the decision in the case of Dr. Rajiv I. Modi vs. The DCIT (OSD) [ITA No. 1285/Ahd/2014] wherein credit was granted for state taxes.

Based on the above judicial precedents, the ITAT held that the assessee is entitled to credit of federal as well as state taxes paid by him. The ITAT observed that Section 91(1) and (2) provide tax credit to a person who is a ‘resident’ in India.  Section 6(6) has carved out a separate category of ‘not ordinarily resident’ in India. The ITAT held that such person is primarily a ‘resident’.  Hence, the contention of the tax authority that a ‘resident but not ordinarily resident’ in India does not qualify for the benefit u/s. 91(1) cannot be accepted.

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