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TMI Blog2023 (10) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... of ITC Ltd [ 2001 (12) TMI 196 - ITAT CALCUTTA-A] Tribunal has held that the protocol to the DTAA is an integral and indispensable part of the tax treaty and furthermore, the benefit of lower rate as prescribed in the protocol for fees for technical services under the relevant tax Treaty is not dependent on any further unilateral action or issuance of notification by the respective Governments. As also held by this Tribunal that no separate notification is required to be issued by the Government of India in order to make a protocol applicable. We find merit in the contention of assessee that as per the DTAA entered into between India and Spain read with the protocol entered into with the members of the OECD, tax rate of 10% was applicable on the payment for fees for technical services. To this extent, relevant grounds raised by the assessee are allowed. As 10% tax rate as per the DTAA includes surcharge and education cess and no separate surcharge of education cess needs to be added - We find that it has been well settled that in case the rate of tax are adopted as per the DTAA, then no surcharge and education cess is to be applied over and above the tax rate since the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in stating that the circular issued by the CBDT is binding on Ld. AO, Ld. CIT(A) and Hon'ble Tribunal where it is a settled principle of law that the circular issued by the CBDT is not binding on appellate authorities and the Ld. CIT(A) has further erred in applying the circular to whittle down or override the benefits which are otherwise envisaged in the protocol to the aforesaid bilateral tax treaty. 4. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that the issuance of unilateral notification by the CBDT to amend a bilateral tax treaty as contained in the aforesaid circular has no binding force and as such, it cannot whittle down or override any benefit which is otherwise envisaged in the protocol to the aforesaid bilateral tax treaty. 5. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the action of the AO in levying interest under section 201(1A) of the IT Act, 1961. 6. That the appellant craves leave to add to and/ or amend, alter, modify or rescind t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Order Pass Date Amount Demanded in INR Interest INR Total in INR (Round off) Disputed Amount in INR for which appeal was filed 1 Q1 2018 -19 154 TDS/1819 /27Q/D/1 00034548 989 25-Jul- 2019 2,23,088 33,447 2,56,540 2,56,540 2 Q2 2018 -19 154 TDS/1819 /27Q/D/1 00034549 022 25-Jul- 2019 2,69,015 32,198 3,01,210 3,01,210 3 Q3 2018 -19 154 TDS/1819 /27Q/D/1 00034549 058 25-Jul- 2019 5,04,193 42,796 5.46.990 2,52,590 4 Q4 2018 -19 154 TDS/1819 /27Q/D/1 00034549 077 25-Jul- 2019 2,77,813 19,102 2,96,910 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2019-20 confirming the action of the Ld. DCIT-CPC on the following alleged grounds:- 1. The Ld. CIT(A) has held that the appellant is not entitled to get benefit of the protocol appended below the Tax Treaty, as no notification under section 90 of the Act has been issued by the CBDT with respect to the aforesaid Tax Treaty specifying lower rate of tax to be deducted at source under Article 13 of the Tax Treaty by following the Circular No. 3/2022 dated 3 rd February, 2022 issued in this regard. 2. The Ld. CIT(A) has held that since the aforesaid Circular issued by the CBDT is binding on him, he has applied the instructions issued by the CBDT in confirming the orders of the Ld. DCIT-CPC. 3. The Ld. CIT(A) has held that the aforesaid Circular has retrospective effect, and it would be applicable to issues prior to the date of issuance of the Circular. 5. Aggrieved the assessee is in appeal before this Tribunal. 6. On Ground Nos. 1, 2 4, which are interrelated, the ld. Counsel for the assessee, firstly invited reference to the provisions of section 115A(1)(b)(B) of the Act which prescribes a tax rate of 10 percent (plus applicable surcharge cess) on income of non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause will only be applicable in the event the Government of India has issued a separate notification extending the benefits of the second treaty into the treaty with the first State as required by section 90(1) of the Act. The copy of the circular is enclosed at pages 51 to 58 of the paper book. Thereafter, reference was made to the Tax Treaties that India has entered into with Philippines and with Switzerland, wherein similar provisions for incorporation of favourable provisions contained in other tax treaties are existent in the protocol appended to those tax treaties, but with the exception that in order to make the incorporation effective, the Governments of two countries should first mutually decide of such incorporation in the form of amendment of tax treaty. It is thus evident that since there is no such requirement under the Indo-Spain Tax Treaty, there was no need to amend the Tax Treaty by resorting to issuance of notification for that purpose. The relevant extracts of the Tax Treaty with Switzerland and Philippines are enclosed at 44 to 50 of the paper book. 7. The ld. Counsel for the assessee finally submitted that, it is evident that the allegation of the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therlands B.V. v. Income-tax [2021] 127 1. taxmann.com 43 (Delhi High Court) Apollo Tyres Ltd. Commissioner of Income Tax, International Taxation [2018] 92 taxmann.com 166 (Karnataka High Court) Galderma Pharma SA v. Income-tax Officer [2022] 138 taxmann.com 44 (Delhi High Court) 9. The ld. Counsel for the assessee finally prayed that, in view of the above submission, more particularly in view of the judgement rendered by the Jurisdictional Tribunal, that the order of the Ld. CIT(A) and the order of the Ld. DCIT-CPC on this issue be set aside and grounds of appeal no. (1), (2) and (4) be allowed. 10. The ld. D/R, on the other hand, vehemently argued supporting the orders of the lower authorities. 11. On Ground No. 3, the ld. Counsel for the assessee submitted that on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in stating that the circular issued by the CBDT is binding on Ld. AO, Ld. CIT(A) and Hon'ble Tribunal whereas it is a settled principle of law that the circular issued by the CBDT is not binding on appellate authorities and the Ld. CIT(A) has further erred in applying the circular to whittle down or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Pune Tribunal has held that the Circular No. 3/2022 dated 03.02.2022 will be prospective in nature and would not have any retrospective effect. 17. Finally, the ld. Counsel for the assessee prayed that order of the Ld. CITA) in this regard, be set aside, as the issue in hand relates to the assessment year 2019-20 and assessment year 2020-21 while the date of issuance of the Circular is 3rd February, 2022. 18. The ld. D/R vehemently argued supporting the orders of the lower authorities. 19. Ground No. 5, is against the action of the Ld. CIT(A) in confirming the action of the AO in levying interest under section 201(1A) of the IT Act, 1961. 20. The ld. Counsel for the assessee, at the outset, placed reliance on decision of the Hon'ble Supreme Court in the case of CCE vs. HMM Ltd reported in (1995) 76 ELT 497 (SC) wherein it is held that where demand is unsustainable, there is no question of levying and interest or penalty and prayed to delete the interest levied by the Ld. AO-CPC, as the same is consequential in nature. 21. In view of the above humble submissions, especially in view of the decisions of the Hon ble Jurisdictional Tribunal in the case of IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for technical services may be taxed in contracting state @ 20% of the gross amount of such fees. Thereafter, the protocol entered in para 7, which reads as follows:- 7. The competent authorities shall initiate the appropriate procedures to review the provisions of Article 13 (Royalties and fees for technical services) after a period of five years from the date of its entry into force. However, if under any Convention or Agreement between India and a third State which is a Member of the OECD, which enters into force after 1-1-1990, India limits its taxation at source on royalties or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of incomes, the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention with effect from the date on which the present Convention comes into force or the relevant Indian Convention or Agreement, whichever enters into force later. 23. The above referred protocol states that in any Convention or agreement between India and the third State, which is a member of the OECD, which e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAA includes surcharge and education cess and no separate surcharge of education cess needs to be added. In other words, the contention of the ld. Counsel for the assessee is that the assessee was required to deduct tax at source only @10% and no separate amount was required to be deducted towards surcharge and education cess since the rate of 10% was as per the agreement of DTAA between India and Spain as per Article 13 read with the protocol referred above. So the only dispute before us remains that as per the CPC/intimation u/s 200A/154 of the Act, it has been alleged that the assessee is required to deduct tax at source @10.608% i.e., (10 percent Tax + 2 percent Surcharge + 4 percent Cess) under the provisions of section 115A(1)(b)(B) read with section 9(1)(vii) of the Act, whereas the assessee has contended that an all inclusive rate of 10% is applicable, as it is the rate as per the DTAA. At this stage we would like to go through the decision of this tribunal in the case of DCIT vs. BOC Group Ltd. reported in 64 taxmann.com 386 (2015) (Kol. ITAT), wherein it was held as under:- 6. We have heard the rival submissions and perused the materials available on record and the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that it shall also cover any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the present Agreement in addition to, or in place of, the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Asia Pacific Pte. Ltd. (supra) This was a case of treaty between India and Singapore. Issue involved was taxability of interest and royalty income under the relevant article of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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 (supra) 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 v. Arthusa Offshore Co. 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 (supra) This judgement was rendered in the context of India USA treaty after considering the decision of the Uttarakhand High Court in the case of Arthusa Offshore Co (supra) which dealt with India US Treaty. It was held that : 2. At the outset it was submitted by Ld. AR that the only issue raised by the assess in the present appeal is that the education cess and secondary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viable 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. Accordingly, the grounds raised by the revenue are dismissed. 7. In the result, the appeal of the revenue is dismissed. 27. After going through the above decision, we find that it has been well settled that in case the rate of tax are adopted as per the DTAA, then no surcharge and education cess is to be applied over and above the tax rate since the tax rate as per the DTAA is held to be all-inclusive of such surcharge and education cess. Therefore, we are of the considered view that since the rate of tax applicable in the case of the assessee is 10% and not 10.608% and since the assessee has rightly deducted the tax at source @ 10%, it cannot be treated as an assessee in default and accordingly the excess amount of tax demanded by the revenue authorities at Rs. 18,61,442/- is deleted. Further as tax demand has been deleted, the interest levied at Rs. 1,53,074/-, also stands deleted being consequential in nature. Accordingly, all the effective grounds raised by the assessee in the instant bunch of appeal stands allowed. 28. In the res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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