Federal Tax, State Tax and Medicare-cum-Disability Tax in USA eligible for Credit under Income Tax Act: ITAT [Read Order]

Income Tax - ITAT - Taxscan

The Income Tax Appellate Tribunal (ITAT), Hyderabad has held that the federal tax, state tax and medicare-cum-disability tax in USA is eligible for section 91 of the Income Tax Act, 1961.

The assessee was employed for a part of the year in USA and paid taxes in USA which includes federal and state with-holding taxes. Assessee claimed the same u/s 90 of the Income-tax Act, 1961. AO allowed the tax credit to the extent of federal taxes paid and did not allow the state tax paid.

The Tribunal noted that the assessee has paid federal tax, state tax and medicare-cum-disability tax in USA. Accordingly, assessee claimed tax credit of all the tax paid in USA, relying on the decision of Tata Sons Ltd., wherein it was held that 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 was not the case so far as question of tax credits in respect of State Income-taxes paid in USA were concerned. Accordingly, even though the assessee was covered by the scope of India US and Indio Canada tax treaties, so far as tax credits in respect of taxes paid in those countries were concerned, the provisions of section 91, being beneficial to the assessee, held the field.

In that case, it was held that as section 91 does not discriminate between State and Federal taxes, and in effect provides for both the 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.

Following the above decision, the Tribunal held that “From the above decision, it is clear that assessee is eligible to claim tax credit both federal as well as state taxes paid on the income earned during the year. Respectfully following the above decision, we direct the AO to allow the credit to the extent of state taxes paid by the assessee along with the federal taxes paid. The Medicare and Disability taxes are not in the nature of income-tax, hence, this may be disallowed. Accordingly, ground raised by the assessee is allowed.”

Subscribe Taxscan Premium to view the Judgment
taxscan-loader