Treaty tax caps on interest and royalty income excluded education cess and higher education cess as surcharge-like levies.

The India-Singapore tax treaty capped source-state taxation on interest and royalty income at specified rates, and the covered taxes extended to income-tax, surcharge, and later taxes that were identical or substantially similar. Education cess, as introduced by the Finance Act, 2004, was treated as an additional surcharge on income-tax and surcharge, so it fell within the treaty's tax coverage. On that reasoning, education cess and higher education cess could not be levied over and above the treaty caps on the assessee's protected income.

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Issues: Whether education cess and higher education cess could be levied in addition to the tax rates prescribed under the India-Singapore Double Taxation Avoidance Agreement on interest and royalty income.

Analysis: The treaty limited the source-state tax on interest and royalties to specified percentages and defined covered taxes to include income-tax and surcharge thereon, as well as any identical or substantially similar taxes imposed later. Education cess, as introduced by the Finance Act, 2004, was described as an additional surcharge on income-tax and surcharge. Once treated as a surcharge-like levy, it fell within the treaty's tax coverage and could not be levied over and above the treaty caps applicable to the underlying income-tax liability.

Conclusion: Education cess and higher education cess were not leviable on the assessee's treaty-protected income; the issue was decided in favour of the assessee.

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