2013 (10) TMI 1518 - AT - Income Tax

Levy of Surcharge and Cess on interest income - Assessee resident of Singapore claiming benefit under DTAA - Scope of adjustment u/s 143(1) is limited - Upper ceiling for the rate of tax of interest of Article 11 of DTAA as well as Surcharge and education cess can be decided while accepting the return u/s 143(1)? - HELD THAT - Tax has been defined in Article-2(2)(b) as per which income tax included surcharge. Therefore, tax referred to in Article 11(2) @ 12.5% also includes surcharge. Interest income may have been assessed as business income, there being specific Article to deal with interest income i.e. Article-11, taxation of interest will be governed by the said Article-11. Thus , it is held that tax payable @ 12.5% under Article 11(2) of FTAA is inclusive of surcharge and education cess. Decision in favor assessee.

Summary

Issues involved:
The issue involves the levy of Surcharge and education cess on interest income under the Double Taxation Avoidance Agreement (DTAA) between India and Singapore for the assessment year 2009-2010.

Summary:

Issue 1: Levy of Surcharge and Cess
The Revenue challenged the deletion of the levy of Surcharge and Cess by the Commissioner of Income Tax (Appeals) (CIT(A)) on the interest income of the assessee, a tax resident of Singapore claiming benefits under the DTAA between India and Singapore. The CIT(A) deleted the Surcharge and education cess, stating that the adjustment u/s 143(1) is limited and the question of upper ceiling for the tax rate of interest under the DTAA, as well as Surcharge and education cess, cannot be decided at that stage.

Issue 2: Interpretation of DTAA Provisions
The Tribunal considered a similar case involving a non-resident based in UAE receiving interest income from Indian firms. The Tribunal analyzed the specific Articles in the DTAA dealing with taxation of income under different heads, particularly Article 11 governing interest income. It was held that tax payable @ 12.5% under Article 11(2) of the DTAA is inclusive of surcharge and education cess. The Tribunal referred to previous decisions and concluded that education cess and surcharge cannot be levied separately but are included in the tax rate of 12.5%.

Decision:
The Tribunal dismissed the Revenue's appeal, citing precedents and the interpretation of DTAA provisions regarding the taxation of interest income. The Tribunal upheld the CIT(A)'s decision to delete the levy of Surcharge and education cess on the interest income, in line with the provisions of the DTAA between India and Singapore.

This judgment provides clarity on the tax treatment of interest income under DTAA provisions and emphasizes the inclusive nature of tax rates specified in such agreements.