Treaty tax includes surcharge under the India-US DTAA, so the domestic-company rate is applied with the treaty ceiling.

The word "tax" in Article 14(2) of the India-US DTAA was read to include surcharge because Article 2 expressly treated Indian tax as including surcharge and extended the Convention to similar taxes imposed after signature. The relevant domestic-company benchmark therefore comprised the company rate under the Finance Act, 1994 plus surcharge, and the treaty ceiling of 15 percentage points was applied to that combined rate. Articles 270 and 271 of the Constitution were held irrelevant to treaty computation. The treaty, operating override in case of inconsistency, supported taxation at the higher treaty-permitted rate, and the Revenue's position was accepted.

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Issues: Whether, for the relevant assessment year, the word "tax" in Article 14(2) of the Double Taxation Avoidance Agreement with the United States included surcharge so that the ceiling of 15 percentage points had to be applied to the domestic-company rate inclusive of surcharge.

Analysis: Article 2 of the Double Taxation Avoidance Agreement specifically referred to Indian tax as including surcharge, and the Convention was to apply to identical or substantially similar taxes imposed after the date of signature in addition to, or in place of, the existing taxes. The domestic rate prescribed in the Finance Act, 1994 for companies, together with surcharge, therefore formed the relevant benchmark. Articles 270 and 271 of the Constitution of India were held to be unrelated to the computation of tax payable under the treaty. The treaty, being overriding where inconsistent, required the foreign company to be taxed on the domestic-company rate plus surcharge and then the treaty margin of 15 percentage points, subject to the ceiling fixed by the treaty.

Conclusion: The word "tax" in Article 14(2) included surcharge, and the assessee was liable to tax at the higher treaty-permitted rate; the Revenue's position was accepted.

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