Treaty cap on interest income under India-UAE DTAA includes surcharge and education cess, barring separate levy.

Under the India-UAE DTAA, interest income was governed by the specific treaty article for interest rather than the general business profits article, so the source State could tax the interest only within the treaty cap of 12.5% of gross interest. The treaty definition of tax was read to include surcharge, and education cess was treated as of the same nature as surcharge. On that basis, the 12.5% cap under Article 11(2) was inclusive of surcharge and education cess, and no separate levy of either was permissible.

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Issues: Whether the tax rate of 12.5% on interest income under the India-UAE Double Taxation Avoidance Agreement was inclusive of surcharge and education cess.

Analysis: The income, though assessed as business income by the Revenue, was held to be governed by the specific treaty article dealing with interest income. Under the treaty, interest could be taxed in the source State, but the rate was capped at 12.5% of gross interest in the relevant case. The treaty definition of tax included surcharge, and education cess was treated as of the same nature as surcharge. The general article dealing with business profits did not displace the specific article governing interest income.

Conclusion: The cap of 12.5% under Article 11(2) included surcharge and education cess, and no separate levy of either was permissible. The assessee's claim was allowed.

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