TaxTMI 
TaxTMI 
2018 (12) TMI 2039
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....Hospital Ltd. in ITA Nos. 2 of 2012 & 16 of 2014 dated 20.05.2015 wherein it has been held. that short fall in deduction of tax is liable for disallowance u/s 40(a)(ia) of the IT. Act. 2. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored." 3. The solitary issue raised by the Revenue in this appeal is that ld. CIT(A) erred in deleting the addition made by the AO on account of short deduction of TDS for Rs. 72,43,870/- u/s 40(a)(ia) of the Act. 4. Briefly stated facts are that the assessee in the present case is a private limited company and engaged in the business of manufacturing, trading, and export of Dry Batteries and also deals in the spare parts of dry batteries. The assessee during the year has paid a sum of Rs. 6,17,09,072/- on account of Royalty payment and a Brand usage fee to Panasonic Corporation Japan. 4.1 The assessee on the payment of Rs. 6,17,09,072/- deducted TDS of Rs. 1,23,41,815/- (20% of Rs. 6,17,09,072). However, the AO during the assessment pr....
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....e various judgments which are recorded in the order of ld. CIT(A). 5.3 The ld. CIT(A) after considering the submission of the assessee deleted the addition made by the AO by observing as under: "4.1 Ground No. 3 to 6 pertain to disallowance of Rs. 72,43,870/- u/s 40(a)(i) of the Act. Undisputedly, the appellant has paid Royalty and Brand usage fees amounting to Rs. 6,17,09,072/- to a non-resident persons located in Japan. The appellant has also deducted tax u/s 195 on the above payment to non-resident at 20% in view of the specific rates prescribed in DTAA, However, the AO was of the view that surcharge and education cess should. also be included in the amount of the TDS and Accordingly he worked out short deduction of Rs. 16,41,461/-. On this basis, the AO has further worked out the expenditure relatable to short deduction amounting to Rs. 72,43,870/- and made the disallowance u/s 40(a)(i). 4.1.1 The Ld .. AR has heavily relied upon the provisions of DTAA and argued that the rate prescribed in DTAA is inclusive of surcharge and any incidental or substantially similar taxes. Various decisions rendered by Hon'ble ITAT also support the above contention of the....
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....ase relates to whether the short deduction of TDS requires proportionate disallowance of the expenses. The assessee has paid Royalty charges and Brand fees to Panasonic Corporation Japan after deducting the TDS @20% of the gross amount. However, the AO was of the view that the TDS should have been deducted @22.66% after including the surcharge and education cess. Therefore, as per the AO, there was a short deduction of TDS on the expense claimed by the assessee amounting to Rs. 72,43,870/-. However, the view taken by the AO was reversed by the ld. CIT(A) as discussed above. 8.1 At this juncture, we find important to refer the provision Article 2 and Article 12 of DTAA with Japan which reads as under: ARTICLE 2 1. The taxes which are the subject of this Convention are : (a) In Japan : (i) the income-tax ; and (ii) the corporation tax (b) (hereinafter referred to as "Japanese tax") ; In India : the income-tax including any surcharge thereon (hereinafter referred to as "Indian tax"). 2. This Convention shall also apply to any identical or substantially similar taxes which are imposed after the date of signature of this Conven....
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.... the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of article 7 or article 14, as the case may be, shall apply. 6. Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that Contracting State itself, a political sub-division, a local authority thereof or a resident of that Contracting State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. 7. Where, by reason of special relationship between the payer and the beneficial owner or betw....
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....hat Article 2(1) of the applicable tax treaty provides that the taxes covered shall include tax and surcharge thereon. Once we come to the conclusion that education cess is nothing but an additional surcharge, it is only corollary there to that the education cess will also be covered by the scope of Article 2. Accordingly, the provisions of Article 11 and 12 must find precedence over the provisions of the Income Tax Act and restrict the taxability, whether in respect of income tax or surcharge or additional surcharge - whatever name called, at the rates specified in the respective article. In any case, education cess was introduced by the Finance Act 2004, with effect from assessment year 2005-06 which was much after the signing of India Singapore tax treaty on 24t h January 1994. In view of the specific provisions to the effect that the scope of Article 2 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", and in view of the fact that education cess is essentially of the same nature as surcharge, being ....