2014 (2) TMI 379 - AT - Income Tax

Tribunal allows appeal, includes education cess in tax rate under India-US Tax Treaty

The appeal filed by the assessee was allowed as the Tribunal held that education cess and secondary and higher secondary education cess should be included ... Education cess and surcharge – Whether the rate of TAX as per DTAA is inclusive of Education Cess and Surcharge – Held that:- The decision in Sunil V. Motiani Versus Income tax Officer(International Taxation) -4(1) Mumbai [2013 (12) TMI 1105 - ITAT MUMBAI] followed - The non-resident assessee has earned interest from partnership firm in India – As per article 11(2) if recipient is beneficial owner of interest, tax so charged shall not exceed 5% of gross interest if the interest is paid by the bank and in other cases 12.5% of the gross interest - The assessee is the beneficial owner of interest and tax charged cannot exceed 12.5% of gross interest – As per DTAA between India and UAE - Tax has been defined in Article-2(2)(b) as per which income tax included surcharge - Therefore, tax referred to in Article 11(2) @ 12.5% also includes surcharge and education cess - Decided in favour of assessee. Issues:Education cess applicability under India-US tax treaty.Analysis:The appeal was against the order passed by Ld. CIT(A)-11, Mumbai for the assessment year 2009-10. The main issue raised by the assessee was regarding the applicability of education cess and secondary and higher secondary education cess of Rs. 50,104 when tax is determined as per the India-US Tax Treaty. The assessee contended that these cess amounts were not payable as per the treaty. The AR for the assessee relied on the decision of ITAT in the case of Sunil V. Motiani v. ITO to support their argument.The Ld. DR, on the other hand, argued that education cess and secondary and higher secondary education cess should be considered as tax payable even when tax is determined based on the Double Taxation Avoidance Agreement (DTAA). The Ld. DR cited the decision of the Hon'ble Uttarakhand High Court in the case of CIT v. Arthusa Offshore Co. and the decision of the Advance Ruling Authority in the case of Airports Authority of India to support this argument.After considering the submissions from both parties, the Tribunal found that the issue raised by the assessee was in their favor based on the decision in the case of Sunil V. Motiani. The Tribunal referred to specific articles in the DTAA dealing with taxation of income under different heads. It was noted that tax payable at a rate of 12.5% under Article 12(2) of the DTAA includes surcharge and education cess. The Tribunal held that education cess and surcharge cannot be levied separately and should be included in the tax rate specified in the DTAA. Therefore, the Tribunal set aside the order of CIT(A) and allowed the claim of the assessee.In conclusion, the appeal filed by the assessee was allowed based on the decision that tax payable at a rate of 12.5% under the India-US Tax Treaty includes surcharge and education cess. The Tribunal decided the issue in favor of the assessee, following the precedent set in the case of Sunil V. Motiani v. ITO.