Treaty rate for technical service fees prevails over domestic rate, without separate notification or extra surcharge and cess.

A tax treaty protocol can grant a more beneficial rate for fees for technical services where India's treaties with other OECD member States provide such relief, and that treaty rate prevails over the domestic rate without separate notification. The protocol is part of the treaty itself, so the benefit cannot be curtailed on the ground of unilateral notification requirements. Once tax is determined at the treaty rate, surcharge and education cess are not added separately unless the treaty expressly so provides. On that basis, deduction of tax at source at 10% was correct, the higher demand based on 10.608% was unsustainable, and the consequential interest could not stand.

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Issues: Whether the assessee was entitled to deduct tax at source on fees for technical services at the treaty rate without adding surcharge and cess, and whether the demand and interest raised on the basis of a higher domestic rate were sustainable.

Analysis: The applicable treaty provisions, read with the protocol, conferred a lower rate on fees for technical services where a favourable rate was available under India's treaties with other OECD member States. The protocol formed part of the treaty itself and did not require separate notification to operate. The Tribunal followed its earlier view that the treaty benefit could not be curtailed by the absence of unilateral notification. It also applied the settled principle that once tax is determined under the treaty rate, surcharge and education cess are not to be added separately, because the treaty rate governs the levy in full.

Conclusion: The assessee was correctly permitted to deduct tax at source at 10% under the treaty, the excess demand based on 10.608% was unsustainable, and the consequential interest also could not survive.

Ratio Decidendi: Where a tax treaty, read with its protocol, prescribes a more beneficial rate for fees for technical services, that rate prevails over the domestic rate without need for separate notification, and the treaty rate is applied without additional surcharge or cess unless the treaty expressly provides otherwise.

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