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2016 (1) TMI 414 - AT - Income TaxSurcharge and education cess - whether could be charged when the tax is determined to be payable under the double taxation avoidance agreement? - Held that - Article 2 of the India UK Treaty provides that income tax including any surcharge thereon and it further provides that this convention shall also apply to any identical or substantially similar taxes which are imposed by either contracting state after the date of signature of this convention in addition to or in place of the taxes of the contracting state referred to in paragraph 1 of this article. Hence by this , it can safely be concluded that the levy of education cess though introduced from Finance Act, 2004 which is much after the date of signing of this convention would also be made applicable while determining the tax rates under the convention. It is well settled that the education cess is nothing but an additional surcharge. When the Article 2 states that surcharge is included in income tax and the tax rate of 15% for fee for technical services is prescribed in Article 13 shall have to be deemed to include surcharge and since cess is nothing but an additional surcharge, the tax prescribed under DTAA @ 15% in the instant case shall be deemed to included surcharge and education cess. Hence we hold that when the tax rate is determined under DTAA, then the tax rate prescribed thereon shall have to be followed strictly without any additional taxes thereon in the form of surcharge or education cess. The surcharge and education cess is not leviable when the tax rate is prescribed under DTAA. Hence we do not find any infirmity in the order of the Learned CITA in this regard. - Decided against revneue
Issues Involved:
1. Whether surcharge and education cess could be charged when the tax is determined to be payable under the Double Taxation Avoidance Agreement (DTAA). Detailed Analysis: Issue 1: Applicability of Surcharge and Education Cess under DTAA The primary issue in this appeal is whether surcharge and education cess can be levied when the tax is determined under the Double Taxation Avoidance Agreement (DTAA) between India and the United Kingdom. Facts: - The assessee is a foreign company and a tax resident of the United Kingdom. - The assessee filed its return of income for the Assessment Year 2010-11, declaring taxable income from business or profession and subjected it to tax at the rate of 15% as per the DTAA, instead of the regular tax rate of 40% applicable to foreign companies. - The assessee did not calculate surcharge and education cess on the 15% tax rate, arguing that the DTAA rate is inclusive of all taxes, including surcharge and education cess. Arguments: - The assessee relied on Article 2 of the Double Taxation Convention between India and the UK, which defines Indian Tax as income tax, including any surcharge thereon. - The assessee contended that education cess is an additional surcharge and thus should be included within the 15% tax rate prescribed by the DTAA. Assessment and Appeal: - The assessment was completed under Section 143(1) of the Income Tax Act, 1961, determining the tax payable at the rate of 40%, and additionally levying surcharge and education cess. - The assessee challenged this in the first appeal, where the Learned CIT(A) ruled in favor of the assessee, stating that the DTAA provisions override the Income Tax Act where inconsistent, and thus, the tax rate of 15% under DTAA should not include any additional surcharge or education cess. Revenue's Appeal: - The revenue appealed, arguing that surcharge and education cess should be charged on the income tax as per the DTAA. - The revenue cited the decision of the Uttarakhand High Court in the case of CIT, Dehradun Vs. Arthusa Offshore Co, which held that surcharge and cess are chargeable in addition to the income tax specified in the DTAA. Tribunal's Analysis: - The Tribunal considered the relevant articles of the India-UK DTAA, particularly Article 2, which includes income tax and surcharge in the definition of Indian tax. - The Tribunal noted that education cess, introduced by the Finance Act, 2004, is described as an additional surcharge. - The Tribunal referred to various judicial precedents, including decisions of the Kolkata Tribunal, Mumbai Tribunal, and Cochin Tribunal, which held that surcharge and education cess are not leviable when the tax rate is prescribed under DTAA. Conclusion: - The Tribunal concluded that when the tax rate is determined under DTAA, the tax rate prescribed therein should be followed strictly without any additional taxes in the form of surcharge or education cess. - The Tribunal upheld the order of the Learned CIT(A) and dismissed the revenue's appeal. Judgment: - The appeal of the revenue is dismissed. - The surcharge and education cess are not leviable when the tax rate is prescribed under the DTAA. Pronouncement: - The order was pronounced in open court on 30/11/2015.
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