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TMI Blog2016 (1) TMI 414X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 11,98,03,921/- subjecting the same to tax at the rate of 15% in terms of Double Taxation Avoidance Agreement (DTAA) as against the regular tax rate applicable to a foreign company at the rate of 40%. The assessee felt that the provisions of DTAA would prevail over the Act wherever they are inconsistent. While filing the return, the assessee did not calculate surcharge and education cess on the tax rate of 15% as per DTAA , as according to assessee, the tax specified in Article 2 of the Double Taxation Convention entered into between United Kingdom (UK) and India on 25.10.1993, wherein the terms Indian Tax is defined as income tax including any surcharge thereon. It felt that education cess is only an additional surcharge and hence it takes the character of surcharge. Since the Article 2 which defines tax states income tax including surcharge, assessee felt that separately surcharge and education cess is not to be applied on the tax rate of 15% which is inclusive of all and was of the opinion that no other tax other than 15% is payable. 4. The assessment was completed u/s 143(1) of the Act dated 23.2.2011 accepting the income returned ignoring the DTAA rates. The tax was det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax leviable in this case. ii. That on the facts of the case and in law the ld.CIT(A) erred in law by not taking cognizance of the decision of the Hon'ble Uttarakhand High Court in the case of CIT, Dehradun Vs. Arthusa Offshore Co reported in 216 CTR 86 where the Hon'ble Court has held that surcharge and cess are chargeable in addition to the income-tax as per the rate specified in the DTTA." 5. The Learned DR relied on the decision of Uttarakhand High Court in the case of CIT vs Arthusa Offshore Co.reported in 216 CTR 86 , wherein it was held that surcharge is leviable to the tax determined under DTAA. In response to this, the Learned AR reiterated the findings given by the Learned CITA and argued the relevant portions of the Article 2, 3 & 13 of the DTAA between India and UK and further argued that the decision of Uttarakhand High Court was rendered in the context of India US Treaty , whereas the assessee is governed by the India UK Treaty wherein the relevant clauses are significantly different from each other. He also relied on the following decisions of Mumbai Tribunal which had been rendered after considering Uttarakhand High Court decision and ultimately deciding in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax so charged shall not exceed: (a) In the case of royalties within paragraph 3(a) of this Articles, and fees for technical services within paragraphs 4(a) and ( c) of this Article, (i) During the first five years for which this Convention has effect; (aa) 15 per cent of the gross amount of such royalties or fees for technical services when the payer of the royalties or fees for technical services is the Government of the first mentioned Contracting State or a political sub-division of that State, and (bb) 20 per cent of the gross amount of such royalties or fees for technical services in all other cases; and (ii) During subsequent years, 15 per cent of the gross amount of such royalties or fees for technical services; and (b) In the case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10 per cent of the gross amount of such royalties and fees for technical services." The expression 'tax' is defined in Article 2(1) to include 'income tax'and is stated to include 'sur charge' thereon, so far as India is concerned. Article 2(2) further extends the scope of the 'tax' by laying down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntracting 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. Reliance in this regard is also placed on the following decisions in support of our contentions:- a) DIC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent Agreement in addition to, or in place of , the taxes referred to in paragraph 1", and in view of the fact that education cess is essentially of the same nature as surcharge, being an additional surcharge, the scope of article 2 also extends to the education cess. For the reasons set out above, we are of the considered view that the education cess cannot indeed be levied in respect of tax liability of the appellant company. The assessee, therefore, deserves to succeed on this issue. b) Sunil V. Motiani vs ITO (International Taxation) reported in (2013) 33 taxmann.com 252 (Mumbai Trib) This judgement was rendered by the Mumbai Tribunal in the context of India UAE Treaty after considering the decision of the Uttarakhand High Court in the case of CIT vs Arthusa Offshore Co reported in 216 CTR 86 which dealt with India US Treaty. It was held that :- "5. We have heard both the parties and their contentions have carefully been considered. We found that the issue raised by the assessee is covered in favour of the assessee by the aforementioned decisions of Tribunal in the case of Sunil V. Motiani (supra)." c) Parke Davis and Company LLC vs ACIT reported in (2014) 41 taxman ..... X X X X Extracts X X X X X X X X Extracts X X X X
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