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Double Taxation Relief
QUESTION FOR PRACTICE

Q.1. What is the difference between double taxation relief and double taxation avoidance?

Q.2. Briefly explain the provisions of Section 91 of the Income Tax Act relating to avoidance of double taxation.

Q.3. What is ‘Unilateral Relief’ in case of doubly taxed income? How is it calculated?

Q.4. Briefly explain the provisions of Section 91 of the income tax act, 1961 relating to grant of unilateral relief to tax players.

Q.5. A resident individual has derived the following income for the previous year relevant to the Assessment 2012-13.
Rs.
Income from business in India 9,00,000
Income from business in foreign country 2,00,000
Tax paid in foreign country 50,000
Interest from bank deposit in India 1,00,000
He wishes to know whether he is eligible to any double taxation relief, and if so, its quantum. India does not have any double taxation avoidance agreement with that foreign country.
Ans. Double Taxation Relief = Rs. 36,393, Tax Payable = Rs. 1,81,967. (Rounded off Rs. 1,81,970.

Q.6. Mr. Z an Indian resident has derived the following income during the previous year 2011- 12.
(i) Income from profession Rs. 4,94,000
(ii) Share of profit from a partnership firm in Singapore Rs. 50,000 (Tax paid in Singapore for his income in equivalent Rupees is Rs. 10,000).
(iii) Interest from bank deposits in India Rs. 28,000.
Mr. Z, wants to know whether he is eligible for any double tax relief and if so, its quantum. India does not have any double taxation avoidance agreement with Singapore.
Ans. Rs.4,178.

Q.7. X and Y are residents in India. The following points are noted for the previous year 2011- 12 from their books of accounts.
Particular X Y
Income from business in India. 1,60,000 (-) 1,30,000
Income from Business in Argentina
(India does not have ADT agreement with Argentina) 2,60,000 4,00,000
Income from other sources in India (bank interest) 1,20,000 80,000
PPF contribution 32,000 1,500
Tax levied in Argentina 78,000 48,000
Find out tax liability of X and Y for assessment year 2012-13.
Ans. Tax Liability – X Rs. 16,895; Y Nil.

Q.8. Ramesh, a resident Indian, has derived the following incomes for the previous year relevant to the assessment year 2012-13.
Rs.
Income from Business 4,00,000
Income from Business in Country A (Tax paid in Country
A for this Income is equivalent Indian Rupees Rs. 20,000) 90,000
Income from a Business in Country B (Tax paid in Country
B at 20%) converted in Indian Rupees 50,000
Ramesh wishes to know whether he is eligible to any double taxation relief, and if so, its quantum. India does not have any Double Taxation Avoidance Agreement with Countries A and B.
Ans. Double Taxation Relief = Rs. 5,865 + Rs. 3,090, Tax Payable = Rs. 32,250 (Rounded off).

Q.9. Mr. A is resident in India. The following points are noted for the previous year 2011-12 from the books of account:
Rs.
Income from a business in India (-) 4,00,000
Income from business in country X 10,00,000
(India does not have DTA agreement with country X)
Income from other sources in India (Interest on Govt. securities) 40,000
PPF contribution on 1.2.2012 80,000
Tax levied in country X 1,80,000
Compute the amount of income tax payable in India for the assessment year 2012–2013.
Ans. Tax Payable Nil.

Q.10. Briefly explain the provisions of Section 91 of the Income Tax Act relating to avoidance of double taxation.
Ans. Avoidance of double taxation. Double Taxation (DT) applies when tax systems of two countries apply to the same tax base or taxable income. It does happen many times that an income is made subject to tax in the country where it arises and then again it is taxed in the country where the person earning it resides. This means the same income is subject to double taxation (DT). Such 'DT' arises because of immigration of persons from one country to another or because of the outflow of capital from one country to another. 

This problem of 'DT' arises because different countries follow or adopt different tax rules. In one country, the citizenship may be the basis of taxation while in another (like India) residence or domicile may be the basis. Usually this problem of DT is tried to be avoided through various measures such as:

— Exemptions. It may be possible if the home country grants exemption to its residents in respect of incomes earned in foreign countries. This method is followed in countries like Germany, France etc.
— Tax Credit System. Home country may allow adjustments or credit in respect of tax already paid in a foreign country. Thus any income already taxed in a foreign country is not taxed again in the home country.
— Tax at reduced rate which only reduces the tax burden and it does not avoid fully double taxation.
— Mutual D.T. Avoidance Agreement between the countries.
Provisions of Section 91. Section 91 grants unilateral relief in a case where an assessee has paid tax in respect of any income, both in India and in a foreign country, and it is not covered by Section 90 because there is no agreement between India and such foreign country for relief, or for avoidance of double taxation.

Conditions:
— The assessee is resident in India during the previous year.
— The income has accrued outside India and it has not been deemed to accrue or arise in India.
— The income is liable to be taxed in India and a foreign country with which India has no agreement for relief or avoidance of double taxation.
— The assessee has paid tax in such foreign country by way of deduction of tax at source or otherwise.

Q.11. What is 'Unilateral Relief? How is it calculated?
Ans. Unilateral Relief, Section 91 provides for the grant of unilateral relief in the case of resident tax-payers on income which has suffered tax in India a as in the country with which there is no ADT agreement.

The following requirement have to be satisfied in order that an assessee is entitled to claim deduction on the doubly taxed income:
(i) The assessee must have been resident in India in the relevant previous year.
(ii) Income must have accrued or arisen to him during that previous year outside India.
(iii) In respect of that income which accrued or arose outside India, he must have paid by deduction or otherwise tax under the law in force in the country in question.

The Relief is worked out as under:
1. First, ascertain the amount of doubly taxed income.
2. On the amount of the doubly taxed income so ascertained, income tax is calculated at the Indian rate of tax and the rate of tax of the foreign country.
3. Relief is granted by allowing to the taxpayer a deduction from the tax liability of an amount equal to the tax calculated at the average Indian rate of tax or the amount of tax calculated at the rate of tax of the other country on the doubly taxed income, whichever is lower.

EXAMINATION PROBLEM

Q.1. Mr. X is resident in India and he has income from a business outside India Rs.2,25,000 and tax paid by him in that country is Rs.21,000 and he has income in India from a business Rs.1,11,000 and his foreign income taxable in India also and the Central Govt. don’t have any double taxation avoidance agreement and the assessee is eligible for relief under sec. 91. Compute relief u/s 91 and also tax payable in India for assessment year 2011-12.

Q.2. Presume in the above question the assessee has invested Rs.20, 000 in NSC out of his India income. Compute relief u/s 91 and also tax payable in India for assessment year 2011-12.

Q.3. Mr. X is ROR in India and he has income from Outside India Rs 1,80,000 and income from a business in India Rs. 1,50,000 and also loss from a business in India Rs. 1,77,000 and tax paid outside India is Rs.12,000 and there is no double taxation avoidance agreement and the assessee is eligible for relief u/s 91. Compute his tax liability in India for assessment year 2011-12.

Q.4. Mr. ROR in India and he has income from a business in India Rs. 2,29,000 and also income from a business outside India Rs. 1,72,000 and tax paid outside India is 18,000 and the same income is taxable in India also and there is no double taxation avoidance agreement, however the assessee is eligible for relief u/s 91.

Q.5. Presume in the above question Mr. X had loss from other business in India Rs. 2, 50,000. Compute his tax liability in India for assessment year 2011-12.

Q.6. Mr. X is resident in India and he has income from business in India Rs.1, 87,000 and he is musician also. He has given performance outside India and 22% and the assessee has brought the remaining foreign exchange within the prescribed time period. Mr. X is eligible for relief u/s 91. Compute his tax liability in India for assessment year 2011-12.

Q.7. Mr. X is a resident in India for income tax purpose , his total income in previous year 2010-11 is Rs.2,50,000 which includes net foreign income of Rs. 54,000 (income Rs. 60,000 tax paid in foreign country Rs. 6,000) India does not have any double taxation avoidance agreement. Assessee is eligible for relief /s 91.
Compute tax payable by him in India for assessment year 2011-12.

Q.8. Mr. x has income from a business in India Rs. 1,00,000 and income from country A Rs. 40,000 and income from country B Rs. 2,00,000 and his foreign income is taxable in India also but he is eligible for relief u/s 91.

Compute tax payable in India for assessment year 2011-12 and relief u/s 91 presuming tax rate in country A is 11% and in country B is 18%.

Q.9. An individual, resident of India, has the following incomes during previous year 2010-11.
(i) Business income in India Rs. 4, 00,000
(ii) Business income in foreign countries with which India does not have avoidance of double taxation agreement:
     (a) Country A Rs. 4, 00,000 and tax levied in foreign country RS. 95,000.
     (b) Country B loss Rs. 2, 50,000.
Compute the amount of double taxation relief u/s 91(1) and tax payable for assessment year 2011-12.

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