2015 (12) TMI 1793 - AT - Income Tax

Levy of education cess on the payments made to non-resident - addition to the tax rates prescribed in DTAA entered by India with Germany China and the United States of America (USA) - HELD THAT - As relying on DIC ASIA PACIFIC PTE LTD VERSUS ASSISTANT DIRECTOR OF INCOME TAX 2012 (6) TMI 686 - ITAT KOLKATA direct the AO not to levy the education cess in respect of tax liability of the assessee company. - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of education cess in addition to tax rates prescribed in DTAA with Germany, China, and the USA.
2. Charging of interest under section 201(1A) of the IT Act, 1961.

Issue 1: Levy of Education Cess in Addition to Tax Rates Prescribed in DTAA:
The appeal concerned whether the CIT(A) was justified in upholding the levy of education cess at 3% in addition to the tax rates prescribed in the DTAA with Germany, China, and the USA. The AO raised the TDS liability on payments made to non-residents at 10.30% (10% tax + 0.30% on account of education cess) instead of the 10% deducted by the assessee. The assessee argued that tax was deducted at 10% as per the DTAA, citing relevant case laws. The CIT(A) upheld the AO's action, stating that surcharge is payable by foreign companies under the Act, referencing a decision by the Authority for Advance Ruling. The assessee contended that TDS should be deducted at 10% as per the DTAA, and the CIT was not justified in upholding the higher rate. The ITAT referred to a similar case and ruled in favor of the assessee, stating that education cess cannot be levied on the tax liability of the company as per the DTAA provisions.

Issue 2: Charging of Interest under Section 201(1A) of the IT Act, 1961:
Both parties agreed that the charging of interest under section 201(1A) of the IT Act was consequential in nature. The ITAT ordered accordingly in this regard.

In conclusion, the ITAT Delhi ruled in favor of the assessee, setting aside the levy of education cess in respect of tax liability based on the DTAA provisions with Germany, China, and the USA. The ITAT also addressed the issue of charging interest under section 201(1A) of the IT Act, 1961, noting it as consequential and making an order accordingly. The appeal of the assessee was allowed, and the order was pronounced in the open court on 29/12/2015.