TMI Blog2008 (3) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment Year 1994-95, whereby the appeal of the Revenue, is dismissed. 2) Heard learned counsel for the parties. 3) The substantial question of law involved in this Appeal, is as under: Whether, Income Tax Appellate Tribunal has erred in law in holding that word 'tax' does not include 'surcharge' for the purposes of Clause (2) of Article 14 of the Double Taxation Avoidance Agreement with United States of America, and in upholding the decision of the Commissioner of Income-tax (Appeals), reducing the tax rate applicable to assessee NRC (respondent) at 60 per cent instead of 65 per cent applied by the Assessing Officer? 4) Brief facts of the case are that assessee (present respondent) is a foreign company, which is resident of United States of America. In the return of the Income-tax filed by the asessee NRC for the Assessment Year 1994-95, it offered tax at the rate of 60 per cent on its income as against the maximum rate of 65 per cent applicable to foreign companies. The basis for offering the tax rate at 60 per cent by the assessee NRC is that under Article 14(2) of Double Taxation Avoidance Agreement (hereinafter referred as DTAA) betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, this Appeal. 5) Admittedly, the respondent assessee is a foreign company, resident of United States of America. It is also not disputed between the parties that it is liable to pay the tax as per the terms and conditions, mentioned in the DTAA, agreed between the Government of India and Government of United States of America on September 12, 1989, which was notified on 20.12.1990. It is settled principle of law that the DTAA has overriding effect over the provisions of the Income Tax Act, wherever the same are inconsistent to it. 6) Before further discussion, it is pertinent to mention here the relevant Clauses of DTAA, which are to be interpreted for the purposes of coming to the conclusion at what rate of tax the respondent assessee is liable to pay the income tax for the Assessment Year 1994-95. Article 2 of DTAA reads as under: "1. The existing taxes to which this Convention shall apply are: (a) in the United States: the federal income taxes imposed by the Internal Revenue Code (but excluding the accumulated earnings tax, the personal holding company tax, and social security taxes), and the excise taxes imposed on insurance pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 'existing taxes' undoubtedly refers to the rate of tax applicable in the Assessment Year 1990-91, when the Agreement was executed between the two countries. Clause 1(d) of Article 3 of the DTAA simply says that the term 'tax' means Indian tax or United States tax, as the context requires. 8) Having read all the relevant Clauses of the DTAA for the purposes of coming to the conclusion at what rate of tax assessee NRC of United States of America is liable to pay the tax, we are of the view that for the Assessment Year 1994-95, respondent NRC is liable to pay tax at the rate of 45 per cent (applicable for domestic company) + surcharge + 15 per cent, but not exceeding 65 per cent. 9) Mr. Percy Pandiwalla, learned counsel for the respondent assessee, defending the impugned judgment passed by the ITAT and the one passed by CIT(A), argued that the DTAA intended to impose the restriction of 15 percentage points excluding the surcharge. In this connection, he further argued that 'surcharge' and 'Income-tax' are to different connotations. In support of his case, learned counsel for the respondent assessee, relied on the case of Bank of America Vs. Deputy Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax payable by an assessee. Article 270 and Article 271 only clarify that how the taxes levied and recovered by the Government of India are to be distributed between the Union of India and its States. The two words may have different meanings for the purposes of forming part of consolidated fund of India or that of the States but it does not reflect any light whether a foreign company which is liable to pay tax under DTAA, is liable to pay surcharge or not, or whether 15 percentage points are to be added on the rate of tax (inclusive of surcharge), or not? For that purpose the Clauses of DTAA are the final guidelines overriding even the provisions of Income Tax Act, wherever they are inconsistent. 11) Paragraph E of Part I of First Schedule of the Finance Act, 1994 provides the rate of income tax for the companies for the Assessment Year 1994-95. The relevant portion of paragraph E of First Schedule of Finance Act, 1994, is being reproduced below: "In the case of a company, - Rates of income-tax I. In the case of a domestic company, - (1) where the company is a company in which the public are substantially interested 45 per cent of the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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