DTAA tax rate governs Article 12 income, barring separate education cess and secondary cess levy

Where tax on royalty or similar income is computed under the India-US DTAA, the treaty rate is treated as the governing rate and education cess and secondary and higher education cess cannot be levied separately. The Tribunal followed its earlier view that tax determined under Article 12 is inclusive of surcharge and cess, so the additional cess levy was not sustainable. The issue was therefore decided in favour of the assessee.

---

---

Issues: Whether education cess and secondary and higher education cess were leviable on tax computed under Article 12 of the India-US tax treaty.

Analysis: The issue was covered by the Tribunal's earlier view that where tax on the relevant income is determined under the DTAA, the treaty rate is the governing rate and the cess and surcharge cannot be levied separately. Following that view, the Tribunal held that the tax payable under Article 12 was inclusive of surcharge and education cess.

Conclusion: The levy of education cess and secondary and higher education cess was not sustainable and the issue was decided in favour of the assessee.

---