Tribunal upholds CIT(A)'s decisions on surcharge, education cess; rules on foreign equipment income

The tribunal dismissed both the assessee's and the Revenue's appeals, upholding the CIT(A)'s decisions. It confirmed that the levy of surcharge and education cess is not deductible. Additionally, the tribunal ruled that income from the supply of equipment manufactured and sold outside India is not taxable in India. The tribunal's order was pronounced on 29/04/2022.

---

---

Issues Involved:
1. Non-rectification of mistake apparent on record.
2. Erroneous levy of surcharge and education cess.
3. Taxability of receipts on account of supply of overhauled equipment and associated services.

Detailed Analysis:

1. Non-rectification of Mistake Apparent on Record:
The assessee contended that the CIT(A) erred in holding that a speaking order cannot be modified and failed to recognize an apparent mistake in the order dated 14 June 2017. The mistake involved the erroneous levy of surcharge and education cess on rates considered as per the Double Taxation Avoidance Agreement (DTAA). The assessee argued that the non-application of a specific provision of the Income-tax Act, 1961, constitutes a mistake apparent on record. The CIT(A) concluded that the appellant was seeking modification under the guise of rectification without appreciating that the beneficial rate of tax as per DTAA was not applied, thus constituting a mistake apparent on record. The CIT(A) did not adjudicate on the merits of the rectification application, which the assessee claimed was an error.

2. Erroneous Levy of Surcharge and Education Cess:
The CIT(A) upheld the levy of surcharge and education cess on income from troubleshooting services taxable at a special rate of 15% as per the India-USA DTAA. The CIT(A) did not consider that as per Article 2 of the India-USA DTAA, tax includes any surcharge thereon. The CIT(A) also ignored Circular 728 dated 30 October 1995, which provides for the application of rates as per DTAA or the relevant Finance Act, whichever is beneficial to the assessee. The CIT(A) failed to follow the binding decision of the ITAT, Delhi in the case of OSRAM India Pvt. Ltd. vs. DCIT. The tribunal examined various judgments and provisions, concluding that the deduction for taxes paid as cess cannot be allowed as a deduction. The Finance Bill, 2022 clarified that education cess is not an allowable expenditure while computing profits and gains from business or profession, effective retrospectively from AY 2005-06. The tribunal dismissed the grounds taken by the assessee, stating that the matter had attained finality.

3. Taxability of Receipts on Account of Supply of Overhauled Equipment and Associated Services:
The Revenue appealed against the CIT(A)'s decision that receipts from the supply of overhauled equipment (turbine/gas producer assembly Taurus 60) are not taxable in India. The CIT(A) found that the purchase order from SI Group India Ltd was for the supply of new equipment, not overhauling services. The equipment was manufactured in the USA, and the sale was concluded outside India under an ex-works arrangement. The CIT(A) held that the sale of equipment took place outside India, and the income from such sale is not taxable in India. The CIT(A) also noted that the appellant had offered tax on installation and commissioning services provided in India at the rate of 10.506% u/s 115A of the Act. The assessing officer's addition of Rs.1,14,58,250/- on account of the sale of equipment was deleted. The tribunal affirmed the CIT(A)'s well-reasoned order, dismissing the Revenue's appeal.

Conclusion:
The tribunal dismissed both the assessee's and the Revenue's appeals, upholding the CIT(A)'s decisions on all counts. The tribunal confirmed that the levy of surcharge and education cess is not deductible, and the income from the supply of equipment manufactured and sold outside India is not taxable in India. The tribunal's order was pronounced in the open court on 29/04/2022.

---