Treaty rate includes surcharge and education cess, so no further levy can be added under the India-UK DTAA.

The India-UK DTAA ceiling rate was held to include surcharge, and education cess was treated as an additional surcharge in substance. Because the treaty rate under Article 13 applied to the relevant income, no further surcharge or cess could be added over and above that rate. The Tribunal followed earlier decisions on similar treaty language and the character of education cess, and the assessee succeeded on the issue.

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Issues: Whether surcharge and education cess were leviable where tax was computed at the rate prescribed under the India-UK Double Taxation Avoidance Agreement.

Analysis: Article 2 of the India-UK treaty covered Indian tax including surcharge, and also extended to identical or substantially similar taxes introduced after the treaty. Education cess was treated as an additional surcharge under the Finance Act, 2004. Since the treaty rate under Article 13 applied to the relevant income, the prescribed treaty rate had to operate without any further addition by way of surcharge or education cess. The view was supported by earlier Tribunal decisions on similar treaty language and the nature of education cess.

Conclusion: Surcharge and education cess were not leviable over and above the treaty rate. The assessee succeeded on the issue.

Ratio Decidendi: Where a tax treaty specifies a ceiling rate that includes surcharge, and education cess is in substance an additional surcharge, no further surcharge or cess can be levied beyond the treaty rate.

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