2013 (4) TMI 339 - AT - Income Tax

Deduction of tax at source on surcharge and education cess - surcharge portion was not taken into consideration while deducting the tax. - Held that - It is obvious that in respect of a taxpayer to whom the double taxation avoidance agreement applies, the provisions of the Indian Income-tax Act shall apply to the extent they are more beneficial to that taxpayer. Thus if the provisions of DTAA are more beneficial to the taxpayer, then the provisions of DTAA would prevail over the Indian Income-tax Act. Since the DTAA is silent about the surcharge and education cess for the purpose of deduction of tax at source, this Tribunal is of the considered opinion that the taxpayer may take advantage of that provision in the DTAA for deduction of tax. The CIT(A) has only deleted the tax component to the extent of surcharge and education cess at the rate applicable under the DTAA. Therefore, this Tribunal do not find any infirmity in the orders of lower authority. Accordingly the same are confirmed.

Summary

Issues involved:
Interpretation of double taxation avoidance agreement (DTAA) vs. Indian Income-tax Act regarding deduction of tax at source on surcharge and education cess.

Analysis:
The judgment by the Appellate Tribunal ITAT Cochin involves appeals by the revenue against the orders of CIT(A)-III for assessment years 2003-04 to 2008-09, along with cross objections by the taxpayer. The main issue is the treatment of the taxpayer as "assessee in default" under section 201(1) and the levy of interest under section 201(1A) of the Income-tax Act. The disagreement arises from the deduction of tax at source under section 195, specifically regarding the inclusion of surcharge. The revenue argues that the tax should have been deducted at 10.5% inclusive of surcharge, while the taxpayer contends that the DTAA between India and France does not mention surcharge for tax deduction purposes, giving precedence to the DTAA over the Indian Income-tax Act.

The Tribunal considered the arguments from both sides and examined the provisions of section 90(2) of the Income-tax Act, which states that for a taxpayer covered by a DTAA, the provisions more beneficial to the taxpayer shall apply. As the DTAA between India and France does not address the inclusion of surcharge and education cess for tax deduction, the Tribunal ruled in favor of the taxpayer, allowing the deduction of tax without considering surcharge. The CIT(A) had already deleted the tax component equivalent to surcharge and education cess based on the DTAA rates, which the Tribunal found to be appropriate. Therefore, the Tribunal confirmed the lower authority's decision, stating that the taxpayer could benefit from the DTAA provision for tax deduction purposes.

Regarding the cross objections filed by the taxpayer, the Tribunal noted that they only supported the CIT(A)'s orders without raising any independent issues. Consequently, the Tribunal deemed the cross objections as not maintainable. In conclusion, both the revenue's appeals and the taxpayer's cross objections were dismissed based on the above analysis and findings.