09 December 2009
You do not need a case law. If your USA Branch made a profit that is attributable to the Branch in USA, as per DTAA, the tax on business income attributable to USA Branch may be taxed in USA. You have paid tax in USA as per US Laws and that is correct.
Now as per the DTAA and Indian Tax Law, you being resident in India, your worldwide income is taxed. Including USA profit as I understand your consolidated income for India is a loss.
As per section 90 and as per DTAA with USA, In case your USA Income on which you paid tax was $100,000, Indian Government will calculate the Indian Tax on US Income (even if your consolidated income is a loss). This is working out to US$30,000. If you paid more tax in USA you will not be asked to pay in India anything. The excess paid will not be refunded or adjusted against your Indian tax liabilities on the non USA Income. If in USA you suffer less tax than Indian Tax, normally and you have a tax liability including the difference in Indian tax and US tax paid, then you will be called upon to pay the difference. However,as in your case the consolidated account is a loss, even if you suffered less tax in USA than what you suffered in India, you will not be called to pay more tax in India. However you will not get refund.
These provisions are usually towards the end of the DTAA. You read it alongwith section 90 of income tax act to understand the mode of adjustments.
You do not need case laws as these provisions are very clear.
09 December 2009
Riteshji, the only Govt. that can grant you tax credit or refund is the USA Govt. and that too if you paid them in excess of what is due to them. As far as they are concerned you have extinguished your tax liability to them and you owe them nothing they owe you nothing.
As far as India is concerned, as your total income including USA is assessed as loss, they will not call you to pay anything else. They will not refund you anything. If including USA income and Indian Income you have a profit, then they will calculate INDIAN TAX ON USA INCOME. If you paid more, they will not adjust excess to the Indian Tax on INDIAN INCOME. You have to discharge that separately to India. If you paid less to USA and on your total worldwide income including USA and India you still have a liability, you will be called upon to pay the difference. You will understand this better if you understand the word RELIEF. That is what the law is giving you. Other than USA do not think of getting unconditional credit or refund from any other Government on what you suffer in USA.
CAclubindia
