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Pre-requisites of Section 91(1) and 192 of I.T. Act, 1961

Gaurav Pahuja 
on 20 March 2013

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In this write up, the author has enlightened the pre-requisites of Section 91(1) and 192 of the Income Tax Act, 1961 keeping in view the basic objective of the concerned section. Also the latest judgment in the case of Commissioner of Income Tax vs. Petroleum India International decided by the High Court of Bombay has been referred to.

FACTS OF THE CASE

1. The assessee had paid tax of Rs. 82 Lakhs in Kuwait on income earned by it there during the previous year 1996-97 and accordingly claimed the benefit thereof in India in accordance with provisions of Sub-Section (1) of Section 91 of Income Tax Act, 1961 which was denied by the A.O. on the ground that the payment of tax under question was not made by assessee during the same previous year i.e. 1996-97. However both the CIT (Appeals) as well as the ITAT concluded that the assessee was entitled to get the deduction for the taxes paid by it in Kuwait.

2. The assessee happened to be an association of persons having nine public sector oil companies as its members, was doing business abroad by deploying the trained manpower which were employed by its member companies. The assessee paid foreign allowance to the extent of Rs. 3.93 Crores to the manpower deployed by it abroad and claimed the deduction for the said amount. The A.O. disallowed the amount on the ground that as the assessee had not deducted TDS u/s 192, the amount was not deductible by virtue of Section 40(a) (iii). However, both the CIT (A) as well as the ITAT allowed the claim of the assessee.       

QUESTION OF LAW

(i) Whether the assessee can claim the relief u/s 91(1) for the taxes paid in a year, in later years also and not only in the assessment year in which it is actually paid?

(ii) Whether TDS is deductible u/s 192 even in a case where foreign allowance is paid by an association, who has deployed abroad the employees of another person because of the fact that the later is a member of the former? 

ANALYSIS OF CASE

1. The A.O. had formed the opinion that the assessee can claim the benefit u/s 91(1) only in the assessment year relevant to the previous year in which the taxes have been paid.  In other words, the benefit of the taxes paid in a year cannot be taken by the assessee in the subsequent assessment years. The basic objective of Section 91(1) is to provide relief from taxation in India to the extent taxes have been paid abroad for the relevant previous year. For the sake of ready reference, Section 91(1) is reproduced below:

91(1) Countries with which no agreement exists

“If any person who is resident in India in any previous year proves that, in respect of his income which accrued or arose during that previous year outside India (and which is not deemed to accrue or arise in India), he has paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, income-tax, by deduction or otherwise, under the law in force in that country, he shall be entitled to the deduction from the Indian income-tax payable by him of a sum calculated on such doubly taxed income at the Indian rate of tax or the rate of tax of the said country, whichever is the lower, or at the Indian rate of tax if both the rates are equal.”

The prerequisites of the above section are as follows:

(a) the assessee is resident in India,

(b) he earns income which accrues outside India and such income is not deemed to accrue or arise in India,

(c) he has paid income tax with respect to the said income in a country with which there is no agreement under section 90,

(d) he shall be entitled to the deduction from the Indian income tax payable by him of a sum calculated on such doubly taxed income.

It is apparent from the above prerequisites that it is not necessary that the income tax paid by the assessee with respect to an income that is earned outside India must have been paid in the previous year relevant to the assessment year in which it is claimed and therefore it can be claimed by the assessee in later assessment years also. Needless to reiterate that such income must have suffered tax outside India. So long, it is substantiated that the income had suffered tax in a country with which no agreement has been entered, relief u/s 91(1) is available. Thus, relief under the said section is not dependent upon the payment also being made in the previous year.      

2. Section 192, which deal with the tax deduction at source of any income that is chargeable under the head “Salaries”, necessitates the relation of employer and employee. Further, the relation of employer and employee, being the very essence of the section to get it attracted, is reflected not only once but many times and the same are clearly evident from a plain reading of the section. For example, Sub-Section 2 of said section covers the case of an assessee who is employed simultaneously under more than one employer, Sub-Section 2A, aims to provide that for the purpose of deduction of tax u/s 192, relief u/s 89(1) must be taken into consideration to which an assessee being an employee is entitled to and similarly Sub-Section 5 talks about the contribution made by an employer in superannuation fund. Thus, it is necessary to establish the relation of an employer and employee to invoke the provisions of Section 192.

In the present case, it is not in dispute that the trained manpower which was deployed abroad was on the rolls of the member companies and not on the rolls of the association i.e. the assessee. In the absence of which the relation of employer and employee is not established between the assessee and the manpower so deployed either at the time of such deployment or at the time of payment of foreign allowance. Also, the seconded employees were receiving their salary and other emoluments from the member companies only. Consequently, the assessee is not responsible for the deduction of tax at source on the amount of foreign allowance paid by it to the concerned trained manpower.   

As the concerned manpower was not employed by the assessee and accordingly it was not liable to deduct tax u/s 192, the question of invoking the provisions of Section 40(a) (iii) does not arise at all. Therefore, it made deletion of the addition made by the A.O. inevitable.   


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