Brief of the Case
ITAT Delhi held In the case of OSRAM India Pvt. Ltd. vs. DCIT that Article 2(1) of the India Singapore tax treaty provides that the taxes covered shall include tax and surcharge thereon. Once it is concluded that education cess is nothing but an additional surcharge, it is clear 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. Hence addition on account of education cess is not sustainable.
Facts of the Case
The AO raised the TDS liability on account of the payments made by the assessee to non-resident @ 10.30% (10% tax + 0.30% on account of education cess & secondary and higher education cess) as against 10% deducted by the assessee.
Contention of the Assessee
The ld counsel of the assessee reiterated the submissions made before the authorities below and further submitted that as per the DTAA, the TDS was to be deducted @ 10% which the assessee rightly deducted therefore, the AO was not justified in raising the demand on the ground that TDS was to be deducted @ 10.30% and the CIT was not justified in upholding the same. The reliance was placed on the following case laws – Sunil V. Motiani vs. ITO, ITA no. 276/Mum/ 2012, order dated 27.02.2013, DIC Asia Pacific Pte. Ltd. vs. ADIT, ITA no. 1458/Ko/.2011, order dated 20.06.2012 and CSC Technology Singapore Pte. Ltd. vs. ADIT, ITA No. 5604/Del/2010 order dated 17.02.2012.
Contention of the Revenue
The ld counsel of the revenue supported the order of CIT (A).
Held by CIT (A)
The CIT (A) after considering the submissions of the assessee confirmed the action of the AO. It was held that surcharge is also payable by the foreign companies under the Income Tax Act. The reliance was placed on the decision of the Authority for Advance Ruling in the case of Airport Authority of India reported at 299 ITR 102 (AAR).
Held by ITAT
ITAT held that an identical issue having similar facts was a subject matter of adjudication before the ITAT Kolkata Bench B in ITA No. 1458/ Kol. /2011 for the assessment year 2009-10 in the case of DIC Asia Pacific Pte Ltd. vs. Assistant Director of Income Tax International Taxation (1), Kolkata. In this case, it was held that 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 thereto 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.
Further 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 24th 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 an additional surcharge, the scope of article 2 also extends to the education cess.
Since the facts of the case under consideration are identical to the facts involved in the aforesaid referred to case of DIC Asia Pacific Pte Ltd. So, respectfully following the order dated 10th June, 2012 in the said case, we set aside the impugned order and direct the AO not to levy the education cess in respect of tax liability of the assessee company.
Accordingly appeal of the assessee allowed.