DTAA treaty tax rates include surcharge and cess, so education cess was not separately leviable on treaty-taxed income.

Under the India-USA DTAA, tax charged at treaty rates was treated as including surcharge and surtax, so education cess was held not separately leviable on income taxed under the agreement. The Tribunal relied on Article 2(1)(b)(i) and (ii), which bring surcharge and surtax within the tax covered by the treaty rate, and followed earlier coordinate bench decisions reaching the same conclusion. No contrary authority was shown, so the assessee succeeded on this issue.

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Issues: Whether education cess is leviable on tax computed at the rates prescribed under the India-USA Double Taxation Avoidance Agreement.

Analysis: The assessee's income was divided between income earned in India and income taxed at special treaty rates on foreign income. The dispute was confined to whether education cess could be added over and above the tax rates prescribed under the treaty. Article 2(1)(b)(i) and (ii) of the India-USA DTAA treats surcharge and surtax as included in the tax covered by the treaty rate. On that basis, the prescribed treaty rates were held to include the burden of surcharge and, by extension, education cess. The Tribunal also followed earlier coordinate bench decisions which had taken the same view and noted that no contrary authority was shown.

Conclusion: Education cess is not separately leviable on tax computed at DTAA rates, and the assessee succeeded on this issue.

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