TaxTMI 
TaxTMI 
2023 (10) TMI 1185
X X X X Extracts X X X X
X X X X Extracts X X X X
....n considering the rate of withholding tax as per the provisions of Income-tax Act, 1961 (hereinafter referred to as the 'Act'), instead of the rate specified in the relevant Double Tax Avoidance Agreement (hereinafter referred to as the 'tax treaty') entered into between India and Spain read with the protocol signed at the time of conclusion of the tax treaty, in respect of payments made by the appellant to TDK Electronics Components S. A. being a tax resident of Spain. 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that it is a well settled principle of law that the protocol signed at the time of conclusion of the principal tax treaty is an integral part of the principal tax treaty and its binding force is equal to that of the principal tax treaty. 3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in stating that the circular issued by the CBDT is binding on Ld. AO, Ld. CIT(A) and Hon'ble Tribunal where it is a settled principle of law that the circular issued by the CBDT is not binding on appellate authorities and the Ld. CIT(A) ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ereinafter referred to as the 'Tax Treaty') which forms an integral part of the tax treaty from financial year 2018-19 and onwards, as the treaty rate is more favorable to the assessee. The assessee deposited the said tax deducted at source and fled withholding tax return on quarterly basis. The assessee received intimations under section 200A of Act for all quarters of Financial Year 2018-2019 and Financial Year 2019-2020 from TDS Reconciliation Analysis and Correction Enabling System (hereinafter referred as 'TRACES') wherein short deduction of tax deducted at source was reported and accordingly demand was raised on the assessee along with interest under section 201(1A) of the Act for all the quarters stated hereinbelow:- Sl. No. Period FY Intimations u/s Intimation Reference No. Order Pass Date Amount Demanded in INR Interest INR Total in INR (Round off) Disputed Amount in INR for which appeal was filed 1 Q1 2018 -19 154 TDS/1819 /27Q/D/1 00034548 989 25-Jul- 2019 2,23,088 33,447 2,56,540 2,56,540 2 Q2 2018 -19 154 TDS/1819 /27Q/D/1 00034549 022 25-Jul- 2019 2,69,015 32,198 3,01,210 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Act has been issued by the CBDT with respect to the aforesaid Tax Treaty specifying lower rate of tax to be deducted at source under Article 13 of the Tax Treaty by following the Circular No. 3/2022 dated 3^rd February, 2022 issued in this regard. 2. The Ld. CIT(A) has held that since the aforesaid Circular issued by the CBDT is binding on him, he has applied the instructions issued by the CBDT in confirming the orders of the Ld. DCIT-CPC. 3. The Ld. CIT(A) has held that the aforesaid Circular has retrospective effect, and it would be applicable to issues prior to the date of issuance of the Circular. 5. Aggrieved the assessee is in appeal before this Tribunal. 6. On Ground Nos. 1, 2 & 4, which are interrelated, the ld. Counsel for the assessee, firstly invited reference to the provisions of section 115A(1)(b)(B) of the Act which prescribes a tax rate of 10 percent (plus applicable surcharge & cess) on income of non- resident arising from fees for technical services. He further referred to the provisions of Article 13 of the Tax Treaty which interalia states that fees for technical services would be taxable at the rate of 20 percent on gross basis in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he circular is enclosed at pages 51 to 58 of the paper book. Thereafter, reference was made to the Tax Treaties that India has entered into with Philippines and with Switzerland, wherein similar provisions for incorporation of favourable provisions contained in other tax treaties are existent in the protocol appended to those tax treaties, but with the exception that in order to make the incorporation effective, the Governments of two countries should first mutually decide of such incorporation in the form of amendment of tax treaty. It is thus evident that since there is no such requirement under the Indo-Spain Tax Treaty, there was no need to amend the Tax Treaty by resorting to issuance of notification for that purpose. The relevant extracts of the Tax Treaty with Switzerland and Philippines are enclosed at 44 to 50 of the paper book. 7. The ld. Counsel for the assessee finally submitted that, it is evident that the allegation of the Ld. CIT(A) that the requirement for issuance of separate notification by the Government of India is clearly redundant and, in any event, it does not whittle down or override the benefits which are otherwise envisaged in paragraph 7 of the prot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncome-tax Officer [2022] 138 taxmann.com 44 (Delhi High Court) 9. The ld. Counsel for the assessee finally prayed that, in view of the above submission, more particularly in view of the judgement rendered by the Jurisdictional Tribunal, that the order of the Ld. CIT(A) and the order of the Ld. DCIT-CPC on this issue be set aside and grounds of appeal no. (1), (2) and (4) be allowed. 10. The ld. D/R, on the other hand, vehemently argued supporting the orders of the lower authorities. 11. On Ground No. 3, the ld. Counsel for the assessee submitted that on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in stating that the circular issued by the CBDT is binding on Ld. AO, Ld. CIT(A) and Hon'ble Tribunal whereas it is a settled principle of law that the circular issued by the CBDT is not binding on appellate authorities and the Ld. CIT(A) has further erred in applying the circular to whittle down or override the benefits which are otherwise envisaged in the protocol to the aforesaid bilateral tax treaty. 12. The ld. Counsel for the assessee, placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v Hero Cyc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yed that order of the Ld. CITA) in this regard, be set aside, as the issue in hand relates to the assessment year 2019-20 and assessment year 2020-21 while the date of issuance of the Circular is 3rd February, 2022. 18. The ld. D/R vehemently argued supporting the orders of the lower authorities. 19. Ground No. 5, is against the action of the Ld. CIT(A) in confirming the action of the AO in levying interest under section 201(1A) of the IT Act, 1961. 20. The ld. Counsel for the assessee, at the outset, placed reliance on decision of the Hon'ble Supreme Court in the case of CCE vs. HMM Ltd reported in (1995) 76 ELT 497 (SC) wherein it is held that where demand is unsustainable, there is no question of levying and interest or penalty and prayed to delete the interest levied by the Ld. AO-CPC, as the same is consequential in nature. 21. In view of the above humble submissions, especially in view of the decisions of the Hon'ble Jurisdictional Tribunal in the case of ITC Ltd. (supra) and in the case of MSK Travels and Tours Ltd. (supra), the assessee prayed for setting aside of the order issued by the ld. CIT(A) and the ld. DCIT-CPC raising demand on the assessee. 22. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hall initiate the appropriate procedures to review the provisions of Article 13 (Royalties and fees for technical services) after a period of five years from the date of its entry into force. However, if under any Convention or Agreement between India and a third State which is a Member of the OECD, which enters into force after 1-1-1990, India limits its taxation at source on royalties or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of incomes, the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention with effect from the date on which the present Convention comes into force or the relevant Indian Convention or Agreement, whichever enters into force later." 23. The above referred protocol states that in any Convention or agreement between India and the third State, which is a member of the OECD, which enters into force after 01/01/1990, India limits its taxation at source on royalties or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to deduct tax at source only @10% and no separate amount was required to be deducted towards surcharge and education cess since the rate of 10% was as per the agreement of DTAA between India and Spain as per Article 13 read with the protocol referred above. So the only dispute before us remains that as per the CPC/intimation u/s 200A/154 of the Act, it has been alleged that the assessee is required to deduct tax at source @10.608% i.e., (10 percent Tax + 2 percent Surcharge + 4 percent Cess) under the provisions of section 115A(1)(b)(B) read with section 9(1)(vii) of the Act, whereas the assessee has contended that an all inclusive rate of 10% is applicable, as it is the rate as per the DTAA. At this stage we would like to go through the decision of this tribunal in the case of DCIT vs. BOC Group Ltd. reported in 64 taxmann.com 386 (2015) (Kol. ITAT), wherein it was held as under:- "6. We have heard the rival submissions and perused the materials available on record and the various case laws relied upon by the counsels of both the sides. We find that the assessee herein is governed by India UK Treaty wherein the relevant clauses are reproduced hereunder for the sake of c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or fees for technical services is the Government of the first mentioned Contracting State or a political sub-division of that State, and (bb) 20 per cent of the gross amount of such royalties or fees for technical services in all other cases; and (ii) During subsequent years, 15 per cent of the gross amount of such royalties or fees for technical services; and (b) In the case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10 per cent of the gross amount of such royalties and fees for technical services." The expression 'tax' is defined in Article 2(1) to include 'income tax'and is stated to include 'sur charge' thereon, so far as India is concerned. Article 2(2) further extends the scope of the 'tax' by laying down that it shall also cover "any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the present Agreement in addition to, or in place of, the taxes referred to in paragraph 1". 7. We find that education cess was introduced in India by the Finance Act, 200, and Se....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... after the date of signing of this convention would also be made applicable while determining the tax rates under the convention. It is well settled that the education cess is nothing but an additional surcharge. When the Article 2 states that surcharge is included in income tax and the tax rate of 15% for fee for technical services is prescribed in Article 13 shall have to be deemed to include surcharge and since cess is nothing but an additional surcharge, the tax prescribed under DTAA @ 15% in the instant case shall be deemed to included surcharge and education cess. Hence we hold that when the tax rate is determined under DTAA, then the tax rate prescribed thereon shall have to be followed strictly without any additional taxes thereon in the form of surcharge or education cess. Reliance in this regard is also placed on the following decisions in support of our contentions:- (a) DIC Asia Pacific Pte. Ltd. (supra) This was a case of treaty between India and Singapore. Issue involved was taxability of interest and royalty income under the relevant article of the treaty and the levy of surcharge and education cess to the tax prescribed under DTAA in the relevant a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in respect of tax liability of the appellant company. The assessee, therefore, deserves to succeed on this issue. (b) Sunil V. Motiani (supra) This judgement was rendered by the Mumbai Tribunal in the context of India UAE Treaty after considering the decision of the Uttarakhand High Court in the case of CIT v. Arthusa Offshore Co. 216 CTR 86 which dealt with India US Treaty. It was held that :- "5. We have heard both the parties and their contentions have carefully been considered. We found that the issue raised by the assessee is covered in favour of the assessee by the aforementioned decisions of Tribunal in the case of Sunil V. Motiani (supra)." (c) Parke Davis and Company LLC (supra) This judgement was rendered in the context of India USA treaty after considering the decision of the Uttarakhand High Court in the case of Arthusa Offshore Co (supra) which dealt with India US Treaty. It was held that :- "2. At the outset it was submitted by Ld. AR that the only issue raised by the assess in the present appeal is that the education cess and secondary and higher secondary education cess of Rs. 50,104/- is not liable to be payabl....