Treaty tax cap excludes education cess where surcharge is covered, preventing any levy above the agreed rate.

Education cess was held not leviable where the applicable double taxation avoidance agreements capped tax at the treaty rate and covered income tax and surcharge. The Tribunal treated education cess as an additional surcharge in substance and applied the treaty override principle, holding that treaty provisions prevail over the Income-tax Act to the extent of any inconsistency. As a result, cess could not be imposed over and above the agreed treaty rate.

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Issues: Whether education cess could be levied in addition to the tax rate prescribed under the applicable double taxation avoidance agreements.

Analysis: The Tribunal followed its earlier view that where the treaty covers income tax and surcharge, education cess, being an additional surcharge in substance, falls within the treaty cap. It held that the treaty provisions prevail over the Income-tax Act to the extent they restrict taxation at the agreed rate, and therefore the education cess could not be imposed over and above that rate.

Conclusion: Education cess was not leviable on the assessee's tax liability under the applicable double taxation avoidance agreements.

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