Assessee covered by DTAA will be eligible for credit of State taxes u/s 91 despite DTAA not providing for the same

Brief:- Section 91 of the Income Tax Act, 1961 allows credit for Federal & State taxes, the DTAA allows credit only for Federal taxes. The result is that the Section 91 is more beneficial to the assessee & by virtue of Section 90(2) it must prevail over the DTAA. Though Section 91 applies only to a case where there is no DTAA, a literal interpretation will result in a situation where an assessee will be worse off as a result of the provisions of the DTAA which is not permissible under the Act. Section 91 must consequently be treated as general in application and must prevail where the DTAA is not more beneficial to the assessee. Accordingly, even an assessee covered by the scope of the DTAA will be eligible for credit of State taxes u/s 91 despite the DTAA not providing for the same.  ITAT observed that:

1.  Tax credit provisions under Indian Income Tax Act are more beneficial to the taxpayer vis-à-vis the tax credit provisions in related tax treaties as the provisions does not discriminate between State and Federal taxes, and in effect provides for both these types of income taxes to be taken into account for the purpose of tax credits against Indian income-tax liability.
2.  However, the India-US tax treaty provides for the credit of the Federal income taxes only.
3. While the title of section 91 of Indian Income Tax suggests that it is applicable only in cases where India has not entered into a double taxation avoidance agreement with the respective jurisdiction, but the scheme of section 91, read along with section 90, does not reflect any such limitation. Section 91 is, thus, required to be treated as general in application.

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