TaxTMI 
TaxTMI 
2008 (3) TMI 172
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Tribunal has erred in law in holding that word 'tax' does not include 'surcharge' for the purposes of Clause (2) of Article 14 of the Double Taxation Avoidance Agreement with United States of America, and in upholding the decision of the Commissioner of Income-tax (Appeals), reducing the tax rate applicable to assessee NRC (respondent) at 60 per cent instead of 65 per cent applied by the Assessing Officer? 4) Brief facts of the case are that assessee (present respondent) is a foreign company, which is resident of United States of America. In the return of the Income-tax filed by the asessee NRC for the Assessment Year 1994-95, it offered tax at the rate of 60 per cent on its income as against the maximum rate of 65 per cent applicable to foreign companies. The basis for offering the tax rate at 60 per cent by the assessee NRC is that under Article 14(2) of Double Taxation Avoidance Agreement (hereinafter referred as DTAA) between the Government of India and Government of United States of America, a company which is resident of United States of America can be subjected to tax in India at a higher rate to the one ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nited States of America. It is also not disputed between the parties that it is liable to pay the tax as per the terms and conditions, mentioned in the DTAA, agreed between the Government of India and Government of United States of America on September 12, 1989, which was notified on 20.12.1990. It is settled principle of law that the DTAA has overriding effect over the provisions of the Income Tax Act, wherever the same are inconsistent to it. 6) Before further discussion, it is pertinent to mention here the relevant Clauses of DTAA, which are to be interpreted for the purposes of coming to the conclusion at what rate of tax the respondent assessee is liable to pay the income tax for the Assessment Year 1994-95. Article 2 of DTAA reads as under: "1. The existing taxes to which this Convention shall apply are: (a) in the United States: the federal income taxes imposed by the Internal Revenue Code (but excluding the accumulated earnings tax, the personal holding company tax, and social security taxes), and the e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xceeding 15 percentage points to the rate of tax applicable to the domestic companies. Now, the question arises, whether, word 'tax' used in Article 14 includes 'surcharge', or not? Clause 1 (b) of Article 2 of DTAA, quoted above, clearly provides that surcharge is also payable by the foreign companies under the Income Tax Act. Clause 2 of Article 2 further provides that the Agreement (Convention) would be applicable to substantially similar taxes in place of the 'existing taxes'. The expression 'existing taxes' undoubtedly refers to the rate of tax applicable in the Assessment Year 1990-91, when the Agreement was executed between the two countries. Clause 1(d) of Article 3 of the DTAA simply says that the term 'tax' means Indian tax or United States tax, as the context requires. 8) Having read all the relevant Clauses of the DTAA for the purposes of coming to the conclusion at what rate of tax assessee NRC of United States of America is liable to pay the tax, we are of the view that for the Assessment Year 1994-95, respondent NRC is liable to pay tax at the rate of 45 per cent (appli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tations and 'surcharge' cannot be included in the 'tax', and as such, 15 percentage points can be calculated only from the rate of tax of 45 per cent applicable to the domestic companies in the Assessment Year 1994-95. On going through Article 270 and Article 271 of the Constitution of India, we found that the two Articles provide that 'surcharge' shall form part of the consolidated fund of India, while in the case of 'tax', the Government of India can fix a percentage of tax which shall not form part of consolidated fund of India and will be required to be distributed among the States. The two Articles of the Constitution of India have no application for the purposes of calculating rate of tax payable by an assessee. Article 270 and Article 271 only clarify that how the taxes levied and recovered by the Government of India are to be distributed between the Union of India and its States. The two words may have different meanings for the purposes of forming part of consolidated fund of India or that of the States but it does not reflect any light whether a foreign company which is liable to pay tax under DTAA, is liable to pay surcharge or not, or whether 15 ....