Article 7, 11 of India-UAE DTAA – Interest received by an UAE resident from an Indian partnership firm in which he is a partner is not taxable as business income, but as Interest income, owing to specific “Interest” article in the India-UAE DTAA; DTAA rate is not to be further enhanced by surcharge and education cess.

The CIT(A) ruled that as the interest income was in the nature of business income the same was taxable as per normal rates and the concessional rate as provided in the Article 11 was not applicable.

Held
• The specific Articles in DTAA dealing with taxation of income under different heads would govern the taxability of a specific income.

• Income from business is governed by Article 7 whereas interest income is governed by Article 11.

• Article 7(7) of the DTAA provides that in case specific provision deals with a particular type of income, the same has to be dealt with by those provisions.

• Thus, though interest income may be assessed as business income under the Act, in view of specific interest Article i.e. Article 11, interest income should be governed by the said Article 11.

• The term ‘Income Tax’ has been defined in Article 2 of the UAE DTAA to include surcharge. Therefore, tax rate provided in Article 11(2) dealing with interest income also includes surcharge.

• Based on Kolkata Tribunal decision in the case of DIC Asia Pacific Pte Ltd. v. ADIT(IT) [ITA No.1458/ Kol/2011], it can be held that education cess is in the nature of surcharge. Accordingly, both education cess and surcharge can be regarded as included in the treaty rate of 12.5%.