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2016 (1) TMI 414 - ITAT KOLKATA

2016 (1) TMI 414 - ITAT KOLKATA - TMI - Surcharge and education cess - whether could be charged when the tax is determined to be payable under the double taxation avoidance agreement? - Held that:- Article 2 of the India UK Treaty provides that income tax including any surcharge thereon and it further provides that this convention shall also apply to any identical or substantially similar taxes which are imposed by either contracting state after the date of signature of this convention in additi .....

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come 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 surchar .....

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n) ORDER SHRI M.BALAGANESH, AM This appeal of the revenue arises out of the order of the Learned CIT(A)-VI, Kolkata in Appeal No. 23/CIT(A)-VI/Kol/ACIT-CPC/2010-11 dated 28-12-2012 against the intimation dated 23.2.2001 u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. The only issue to be decided in this appeal is as to whether surcharge and education cess could be charged when the tax is determined to be payable under the double taxation avoidance agreement. 3. T .....

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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 additio .....

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the rate of 40% being the rate applicable to foreign company. Thereafter, surcharge and education cess was also applied on the said rate. This was challenged by the assessee in first appeal. Before the Learned CITA, the assessee inter alia stated that similar issue came up before the Learned CITA for Asst Year 2007-08 and the same was decided in favour of the assessee. The assessee pleaded that the Learned AO had ignored to apply the provisions of section 90 of the Act containing DTAA provisions .....

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ssessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are are more beneficial to that assessee. The Learned CITA observed that the assessee had received the income in the nature of fees for technical services and in terms of Article 13(2)(a) and 13(4)(c) of the India UK DTAA convention, the tax rate applicable would be 15% . The Learned CITA held that the tax rate to be applicable to the assessee as per DTAA is 15% on which point, the revenue is not in .....

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Tax, International Taxation in ITA No. 1458 (kol) of 2011 dated 20.6.2012 for Asst Year 2009-10 reported in (2012) 52 SOT 447 (Kol ITAT). Aggrieved, the revenue is in appeal before us on the following grounds:- i. That on the facts of the case and in law the ld.CIT(A) failed to appreciated the legal position that surcharge and education cess ae to be charged on income-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 th .....

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, 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 consi .....

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India UK Treaty wherein the relevant clauses are reproduced hereunder for the sake of convenience:- ARTICLE 2 Taxes covered-1. The taxes which are the subject of this Convention are (a) in the United Kingdom: (i) the income-tax; (ii) The corporation tax; (iii) The capital gains tax; and (iv) The petroleum revenue tax; (hereinafter referred to as United Kingdom tax ); (b) In India The income-tax including any surcharge thereon; (hereinafter referred to as Indian tax ) 2. This Convention shall als .....

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es: (a) The term United Kingdom means Great Britain and Northern Ireland; (b) The term India means the Republic of India; (c) The term tax means United Kingdom tax or Indian tax, as the context requires,, but shall not include any amount which is payable in respect of any default or omission in relation to the taxes to which this Convention applies or which represents a penalty imposed relating to those taxes; ARTICLE 13- Royalties and fees for technical services -1. Royalties and fees for techn .....

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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 tech .....

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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 taxes referred to in paragraph 1 . 7. We find that education cess was introduced in India by the Finance Act, 200, and Section 2(11) of the Finance Act, 2004 described it as follows: (11) The amount of incom .....

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that the education cess, as introduced in India initially in 2004, was nothing but in the nature of an additional surcharge. It was described as such in the Finance Act introducing the said cess. 9. We have also noted that Article 2(1) of the applicable tax treaty provides that the taxes covered shall include tax and surcharge thereon. Once we come to the conclusion that education cess is nothing but an additional surcharge, it is only corollary thereto that the education cess will also be cove .....

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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. 6.1. We find that the Article 2 of the India UK Treaty provides that income tax including any surcharge thereon and it further provides that this convention shall also apply to any identical or substantially similar taxes which are imposed by either contracting state after the date .....

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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 addit .....

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the treaty and the levy of surcharge and education cess to the tax prescribed under DTAA in the relevant article. It was held that :- A plain reading of Article 2, 11 and 12 of the treaty show that while interest and royalties can indeed be taxed in the source state, the tax so charged on the same, under Articles 11 and 12, cannot exceed 15% and 10% respectively. The expression tax is defined in Article 2(1) to include income tax and is stated to include surcharge thereon, so far as India is con .....

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ntroducing the said cess. We have also noted Article 2(1) of the applicable tax treaty provides that the taxes covered shall include tax and surcharge thereon. Once we come to the conclusion that education cess is nothing but an additional surcharge, it is only corollary thereto that the education cess will also be covered by the scope of Article 2. Accordingly, the provisions of Article 11 and 12 must find precedence over the provisions of the Income Tax Act and restrict the taxability, whether .....

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ting State after the date of signature of the present 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, there .....

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e 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 taxmann.com 193 (Mumbai Trib) This judgement was rendered in the context of India USA 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 : .....

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der on our record and a copy was also given to Ld. DR. He drew our attention towards the observation of the Tribunal in para-5. 3. On the other hand, Ld. DR submitted that education cess and secondary and higher secondary education cess are considered to be tax payable even when the tax is determined on the basis of DTAA. For this purpose she relied upon the decision of Hon ble Uttarakhand High Court in the case of CIT v. Arthusa Offshore Co. [2008] 169 Taxman 484 and decision of Advance Rulling .....

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