Surcharge and Education Cess is not leviable when the Tax Rate is Prescribed under DTAA


D.D. IT (IT) -1 (1) , Kolkata Versus The BOC Group Limited | 2016 (1) TMI 414 – ITAT KOLKATA | No.- I.T.A No. 571/Kol/2013 A.Y : 2010-11 | Dated.- November 30, 2015


Facts:- The brief facts of this issue is that the assessee is a foreign company and is a tax resident of United Kingdom. The return of income for the Asst Year 2010-11 was filed by the assessee company on 12.10.2010 declaring taxable income from business or profession to the tune of ₹ 11,98,03,921/- subjecting the same to tax at the rate of 15% in terms of Double Taxation Avoidance Agreement (DTAA) as against the regular tax rate applicable to a foreign company at the rate of 40%.

The assessee felt that the provisions of DTAA would prevail over the Act wherever they are inconsistent. While filing the return, the assessee did not calculate surcharge and education cess on the tax rate of 15% as per DTAA , as according to assessee, the tax specified in Article 2 of the Double Taxation Convention entered into between United Kingdom (UK) and India on 25.10.1993, wherein the terms Indian Tax is defined as income tax including any surcharge thereon. It felt that education cess is only an additional surcharge and hence it takes the character of surcharge. Since the Article 2 which defines tax states income tax including surcharge, assessee felt that separately surcharge and education cess is not to be applied on the tax rate of 15% which is inclusive of all and was of the opinion that no other tax other than 15% is payable.




The Learned CITA held that the surcharge and education cess is not to be levied on the tax rate prescribed under DTAA at 15% on fees for technical services by relying on the decision of Kolkata Tribunal in the case of DIC Asia Pacific Pte Ltd vs Asst Director of Income Tax, International Taxation in ITA No. 1458 (kol) of 2011 dated 20.6.2012 for Asst Year 2009-10 reported in (2012) 52 SOT 447 (Kol ITAT). Aggrieved, the revenue is in appeal before us on the following grounds:-


“i. That on the facts of the case and in law the ld.CIT(A) failed to appreciated the legal position that ‘surcharge’and education cess’ae to be charged on income-tax leviable in this case.


ii. That on the facts of the case and in law the ld.CIT(A) erred in law by not taking cognizance of the decision of the Hon’ble Uttarakhand High Court in the case of CIT, Dehradun Vs. Arthusa Offshore Co reported in 216 CTR 86 where the Hon’ble Court has held that surcharge and cess are chargeable in addition to the income-tax as per the rate specified in the DTTA.”


ITAT Held:-


a) 6.1. We find that the Article 2 of the India UK Treaty provides that income tax including any surcharge thereon and it further provides that this convention shall also apply to any identical or substantially similar taxes which are imposed by either contracting state after the date of signature of this convention in addition to or in place of the taxes of the contracting state referred to in paragraph 1 of this article. Hence by this , it can safely be concluded that the levy of education cess though introduced from Finance Act, 2004 which is much 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


b) 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.


c) Respectfully following the aforesaid judicial precedents, we hold that the surcharge and education cess is not leviable when the tax rate is prescribed under DTAA. Hence we do not find any infirmity in the order of the Learned CITA in this regard. Accordingly, the grounds raised by the revenue are dismissed.

Disclaimer:- Purely for Information Purpose. Readers are advised to peruse the complete judgement and draw inference accordingly.

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