Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether For The Purpose Of DTAA Rate Of Tax Would Include Surcharge And Education Tax?

QUERY: While withholding tax as per the rate specified under DTAA, whether surcharge and education cess is applicable?
ANSWER: The Supreme Court in CIT v. K. Srinivasan [83 ITR 346] held that the expression “income tax” used in the Finance Act and the Income-tax Act includes surcharge whenever provided in the Act. The surcharge, the special surcharge and the additional surcharge form part of the income tax and super tax and not separate taxes by themselves.

The rates of tax, surcharge or additional surcharge (cess) as provided in the Finance Act are to be applied, if the DTAA does not prescribe. Since interest, dividend, royalties under DTAA are subject to the rate as provided therein, there is no question of referring to and applying the rate of the Finance Act.

As aforesaid, clause (2) of Article 11 provides ‘the tax so charged shall not exceed 10 per cent of the gross amount of the interest”. It would mean that the upper limit of the tax to be withheld is ten per cent. It cannot be more. Therefore, any addition by way of surcharge or cess or by whatever name levy is imposed, if it results in crossing the threshold of ten per cent is not permissible. This is absolute rate.

Posted in Income-tax

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