July 2019
Articles 2, 11 and 12 of India-UAE DTAA – Education cess is in the nature of an additional surcharge – As Articles 11 and 12 restrict taxability and have precedence over the Act, royalty and interest could not be taxed at rates higher than that specified in the respective articles by including surcharge and education cess separately
By Geeta Jani| Dhishat B. Mehta
Chartered Accountants
14 [2019] 104 taxmann.com 380 (Hyderabad – Trib.) R.A.K. Ceramics, UAE vs.
DCIT ITA No: 2043 (HYD) of 2018 A.Y.: 2012-13 Date of order: 29th
March, 2019
Articles 2, 11 and 12
of India-UAE DTAA – Education cess is in the nature of an additional surcharge
– As Articles 11 and 12 restrict taxability and have precedence over the Act,
royalty and interest could not be taxed at rates higher than that specified in
the respective articles by including surcharge and education cess separately
FACTS
The
assessee was a company fiscally domiciled in, and tax resident of, the UAE.
During the relevant previous year, the assessee received royalty and interest
from its group company in India. Under Article 12(2) of the India-UAE DTAA such
receipt is taxable @ 10% and under Article 11(2)(b) interest is taxable @
12.5%.
While
the AO applied the aforementioned rates, he further levied 2% surcharge and 3%
education cess on the tax so computed. The CIT(A) upheld this order of the AO.
HELD
- Article
2(2) of the India-UAE DTAA defines the expression ‘taxes covered’ in India as “(i)
the income-tax including any surcharge thereon; (ii) the surtax; and (iii) the
wealth-tax”. Article 2(3) clarifies that “this Agreement shall also
apply to any identical or substantially similar taxes on income or capital
which are imposed at Federal or State level by either contracting state in
addition to, or in place of, the taxes referred to in paragraph 2 of this
Article”.
- In the context of India-Singapore DTAA, in
DIC Asia Pacific (Pte.) Ltd. vs. Asstt. DIT [2012] 22 taxmann.com 310/52 SOT
447 (Kol.), the Tribunal has observed that: “The education
cess, as introduced in India initially in 2004, was nothing but in the nature
of an additional surcharge … Accordingly, the provisions of Articles 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”.
- This view has also been adopted in a large
number of cases (See NOTE below), including in the context of the
India-UAE DTAA. Further, no contrary decision was cited nor any specific
justification for levy of surcharge and education cess was provided.
- The
provisions of the India-UAE DTAA are in pari materia with those of the
India-Singapore DTAA, which was the subject matter of consideration in DIC
Asia Pacific’s case.
- Accordingly, the Tribunal directed the AO to
delete the levy of surcharge and education cess.
{NOTE: Capgemini SA vs. Dy. CIT
(International Taxation) [2016] 72 taxmann.com 58/160 ITD 13 (Mum. – Trib.);
Dy. DIT vs. J.P. Morgan Securities Asia (P.) Ltd. [2014] 42 taxmann.com
33/[2015] 152 ITD 553 (Mum. – Trib.); Dy. DIT vs. BOC Group Ltd. [2015] 64
taxmann.com 386/[2016] 156 ITD 402 (Kol. – Trib.); Everest Industries Ltd. vs.
Jt. CIT [2018] 90 taxmann.com 330 (Mum. – Trib.); Soregam SA vs. Dy. DIT (Int.
Taxation) [2019] 101 taxmann.com 94 (Delhi – Trib.); and Sunil V. Motiani vs.
ITO (International Taxation) [2013] 33 taxmann.com 252/59 SOT 37 (Mum. –
Trib.).}
