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2019 (7) TMI 363 - AT - Income TaxApplicability of surcharge and cess on DTAA rate of tax - rectification u/s 154 - assessee being foreign company received Royalty and Fees for Technical Services (FTS) after TDS @ 10% - filed return claiming DTAA benefit - AO applied tax as per Income tax Act - assessee filed rectification wherein tax rate was corrected but retain levy of surcharge and education cess - as per DTAA between India and Netherlands, the income tax including surcharge shall not exceed 10% - education cess is surcharge or not HELD THAT - The DTAA clearly provided that the taxes in India means the income tax including surcharge there as pointed out by the Learned Counsel for the Assessee. Further, clause 11 of the Finance Act 2018 clearly explains that the education cess is nothing but additional surcharge. In the case of J.P. Morgan Securities Asia (P.) Ltd, 2013 (10) TMI 1518 - ITAT MUMBAI the coordinate Bench of this Tribunal was considering the provisions of DTAA between India and Singapore wherein similar adjustment was made by the A.O. and the Tribunal has held that tax payable under DTAA is inclusive of surcharge and education cess. Respectfully following the same, we hold that the A.O. cannot charge surcharge and education cess over and above 10% of the Income Tax levied on the assessee. Appeals of the assessee are accordingly allowed and the A.O. is directed to delete the adjustments made on account of the education cess and surcharge levied on the assessee for all the four assessment years. - all the appeals of the assessee are allowed.
Issues:
Assessment of income tax at 42.23% including education cess and surcharge, Rectification application u/s 154 for TDS credit, Dismissal of appeals by CIT(A) for assessment years 2009-10 and 2010-11, Dispute over education cess and surcharge, Interpretation of DTAA between India and Netherlands, Applicability of education cess as surcharge, Precedents on taxability under DTAA. Analysis: The appeals were filed against orders of the CIT(A) for assessment years 2009-10, 2010-11, 2011-12, and 2013-14. The foreign company, a Netherlands resident, received payments from India for Royalty and FTS with TDS at 10%. The Assessing Officer initially assessed income tax at 42.23%, including education cess and surcharge. The assessee filed rectification applications u/s 154 for TDS credit, challenging the tax rate based on the DTAA with Netherlands, which specifies a 10% tax rate. The CIT(A) dismissed appeals for 2009-10 and 2010-11, citing prior disposal of rectification application. For 2011-12 and 2013-14, CIT(A) held that errors pointed out were not rectifiable. The core dispute revolved around the levy of surcharge and education cess over the 10% tax rate under the DTAA. The ITAT analyzed the DTAA provisions between India and Netherlands, emphasizing that taxes in India include income tax with surcharge. The Finance Act 2018 clarified education cess as an additional surcharge. Citing precedents, the ITAT highlighted that education cess should be considered part of the tax rate, not an additional charge. Referring to a similar case involving India-Singapore DTAA, the ITAT ruled that surcharge and education cess cannot be levied over and above the 10% tax rate specified in the DTAA. Consequently, the ITAT allowed the appeals, directing the deletion of education cess and surcharge adjustments for all assessment years. In conclusion, the ITAT's decision aligned with the interpretation of the DTAA provisions and established that education cess should be treated as part of the tax rate specified in the treaty. The ruling provided clarity on the applicability of surcharge and education cess, ensuring compliance with the DTAA between India and Netherlands.
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