M/s. Shukla Asher Impex Pvt. Ltd., Rajkot V. The Dy. CIT, CPC, Ghaziabad

ITA 192/RJT/2019

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 5175 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-10-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 07-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; TDS; Set aside
• Section: 234E; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted Through Virtual Court) Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member Shukla Asher Impex Pvt. Ltd. , 205, 206, Orbit Plaza, Dr. Yagnik Road, Rajkot PAN No: AAJCS4670G (Appellant) Vs Deputy Commissioner of Income Tax, Centralized Processing Cell-TDS, Ghaziabad, UP-201010 (Respondent) Assessee Represen ted: S hri Pari malsin h Par mar, A. R. R even ue R epr esen ted: S hr i Ash i sh Kumar Pandey, Sr . D. R. Date of hearing : 12-10-2023 Date of pronouncement : 22-11-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Assessee as against the appellate order dated 01-03-2019 passed by the Commissioner of Income Tax (Appeals)- 2, Rajkot, arising out of the assessment order passed under section 200A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2014-15. ITA No. 192/Rjt/2019 Assessment Year: 2014-15 I.T.A No. 192/Rjt/2019 A.Y. 2014-15 Page No Shukla Asher Impex Pvt. Ltd. Vs. D.CIT 2 2. The brief facts of the case is that the assessee is Company engaged in the business of purely green cleaner bio-bass and soil amendment. During the assessment Year 2014-15, the assessee remitted Rs. 3,05,00,000/- to M/s. 1 st Enviro Safety Inc, U.S.A. which is a Non- Resident company in respect of “Royalty” for technology transfer. The Maximum rate of Tax Deducted at Source (TDS) prescribed under DTAA between India and U.S.A. is 15%. Thus the assessee effected TDS of Rs. 45,75,000/- on the royalty payment to the payee. However the TDS Officer held that the assessee failed to deduct Surcharge and Education Cess along with the TDS of 15% thereby the assessee made short deduction of Rs. 6,10,000/- and also charged interest for the short deduction of Rs. 73,200/- and late filing fee u/s. 234E of Rs. 53,200/- and demanded total sum of Rs. 7,36,400/- from the assessee. 3. Aggrieved against the same, the assessee filed an appeal before Commissioner (Appeals). The Ld. CIT(A) confirmed that the TDS on payment of Royalty should have been at 17% with 2% of surcharge, following the Judgment of the Uttarakhand High Court in the case of CIT vs. Arthusa Offshore Co. reported in [2008] 169 taxmann.com 484 and thereby dismissed the assessee appeal. 4. Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal: 1. The learned CIT(A) has erred in law and on facts in confirming the action of AO of passing an order u/s.200A of the Act which is without jurisdiction and beyond the scope of provisions of the Act. 2. The learned CIT(A) has erred in law and on facts in Rs.6 confirming the action of AO of computing short deduction of TDS on payment of royalty to a USA tax resident at Rs.6,10,000/-. I.T.A No. 192/Rjt/2019 A.Y. 2014-15 Page No Shukla Asher Impex Pvt. Ltd. Vs. D.CIT 3 3. The learned CIT(A) has erred in law and on facts in confirming that surcharge at 2% is to be deducted from payment over and above the TDS rate of 15% under the India-USA DTAA. 4. The learned CIT(A) has grossly erred in law and on facts of the case in not following binding judicial precedent. 5. The learned CIT(A) has erred in law and on facts in confirming levy of interest of Rs.73,200/- u/s.201(1A) of the Act. 6. The learned CIT(A) has erred in law and on facts in confirming the levy of fee of Rs.53,200/- u/s.234E of the Act. 7. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 4. Ld. Counsel Shri Parimalsinh Parmar appearing for the assessee submitted before us that the solitary ground is to be adjudicated in this appeal is whether Ld. CIT(A) was justified in upholding the levy of Surcharge and Education Cess @ 2% in addition to the “tax rates” prescribed in the “DTAA” between India and USA. The Ld. Counsel relied upon the following case laws wherein it was held that the TDS rate which is inclusive of Education Cess: >DCIT vs Marubeni Corporation - (2022) 139 taxmann.com 458 (Mum); > DIC Asia Pacific Pte. vs. ADIT-(2012) 22 taxmann.com 310 (KoL) > Sunil V. Motiani vs ITO - (2013) 33 taxmann.com 252 (Mum); > ITO vs. M Far Hotels Ltd. - (2013) 32 taxmann.com 100 (Cochin): > Parke Davis & Co LLC vs ACIT-(2014) 41 taxmnann.com 193 (Mum.): > Capgemini SA vs. DCIT - (2016) 160 ITD 13 (Mum.); >DDIT vs. BOC Group Ltd. - (2016) 156 ITD 402 (Kol.); > Soregam SA vs. DDIT - (2019) 101 taxmann.com 94 (Del.); 4.1. Ld. Counsel further submitted that the Ld. CIT(A) relied upon the Judgment of the Hon’ble Uttarakhand High Court in the case of CIT vs. Arthusa Offshore Co., the ratio laid down in that judgment is not I.T.A No. 192/Rjt/2019 A.Y. 2014-15 Page No Shukla Asher Impex Pvt. Ltd. Vs. D.CIT 4 applicable to the facts of the present case, since the judgment was in the context of “Article 14(2)” of DTAA between India and USA dealing with “Taxability of income” which is different from the controversy involved in the present case. The Hon’ble High Court was not concerned with the issue whether Surcharge and Education Cess @ 2% can be levied in addition to the “tax rates” prescribed in the “DTAA” between India and USA. This issue was considered by the Co-ordinate Benches of the Tribunal and distinguished the Uttarakhand High Court Judgment in the case of (i) Sunil V. Motiani vs. ITO supra; (ii) Parke Davis & Co LLC vs ACIT supra; (iii) DDIT vs. BOC Group Ltd. supra; 4.2. Thus the Ld. Counsel submitted that the TDS effected by the assessee at 15% is a correct rate and there is no question of short deduction of TDS as well as consequential interest and late filing fees u/s. 234E of the Act. Thus the assessee appeal is liable to be allowed. 5. Per contra, Ld. Sr. D.R. Shri Ashish Kumar Pandey appearing for the Revenue strongly supported the order passed by the Lower Authorities, which does not require any interference. 6. We have given our thoughtful consideration and perused the materials available on record including the compilation of case laws filed by the assessee. In our considered view, this issue of charging of surcharge and education cess in the tax rate prescribed in the DTAA between India and USA, which is no more res integra by the decision of the Co-ordinate Benches of the Tribunal in the following cases, which has considered and distinguished the judgment of the Hon’ble I.T.A No. 192/Rjt/2019 A.Y. 2014-15 Page No Shukla Asher Impex Pvt. Ltd. Vs. D.CIT 5 Uttarakhand High Court in the case of Arthusa Offshore Co. The relevant portion of the decision of Mumbai Tribunal in Sunil V Motaiani reads as follows: “.....5. We have perused the records and considered the matter carefully. There is no dispute that the assessee is a non resident based in UAE. There is also no dispute that the assessee had received gross interest of Rs.7.55.187/-from the Indian firms in which he was a partner. The interest income is no doubt taxable as the same had arisen from the sources in India. However there is Double Taxation Avoidance Agreement (DTAA) between India and UAE and, therefore, tax has to be computed under the provisions of DTAA which is beneficial to the assessee. There are specific Articles in DTAA dealing with taxation of income under different heads. The business profit is governed by Article-7 whereas interest income by Article-11. Under para-7 of Article-7 where business profit includes items of income which are dealt with separately in any other Article of the agreement, provisions of those Articles should not be affected by the provisions of this Article. In other words, in case there is provision for dealing with a particular type of income, such type of income has to be dealt with by those provisions. Therefore, though interest income may have been assessed as business income, there being specific Article to deal with interest income i.e. Article-11, taxation of interest will be governed by the said Article-11. Secondly interest income may be taxed in contracting State in which it arises, according to law of that State but if the recipient is beneficial owner of interest, tax so charged shall not exceed 5% of gross interest if the interest is received from bank and in other cases 12.5% of gross amount of interest. In this case, the assessee is the beneficial owner of interest and tax charged cannot exceed 12.5% of gross interest. Tax has been defined in Article-2(2)(b) as per which income tax included surcharge. Therefore, tax referred to in Article 11(2) @ 12.5% also includes surcharge. Further, nature of education cess and surcharge being same as held by the Tribunal in the case of DIC Asia Pacific Pte Ltd. (supra), in our view education cess and surcharge cannot be levied separately and will be included in tax rate of 12.5%. The judgment of Hon'ble High Court of Uttarakhand in the case of Arthusa Offshore Co. (supra), is not applicable to the facts of the present case as the Hon'ble High Court was concerned with taxability of income under Article 14(2) of the DTA between India and USA. The Hon'ble High Court was not concerned with interpretation of tax payable on interest income under DTAA. The judgment of AAR in the case of Airports Authority of India. IN RE (supra), is also distinguishable as in that the court was concerned with taxability of business income and it was held that under Article 5(3) of DTAA with USA, preparatory and auxiliary type of work was excluded from the purview of PE and therefore, there being no PE it was held that income from software maintenance was liable to be taxed in India. The high Court was not concerned with taxability of interest income as per the treaty. 5.1 In view of the fore-going discussion, we hold that tax payable @ 12.5% under Article 11(2) of FTAA is inclusive of surcharge and education cess. We, therefore, set aside the order of CIT(A) and allow the claim of the assessee.” I.T.A No. 192/Rjt/2019 A.Y. 2014-15 Page No Shukla Asher Impex Pvt. Ltd. Vs. D.CIT 6 7. This above decision was followed by Co-ordinate Bench of the Mumbai Tribunal in the case of Parke Davis & Co LLC (cited supra) as well as by the Calcutta Bench of the Tribunal in the case of BOC Group Ltd. wherein it was held as follows: “.....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. 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.” 8. The Ld. Sr. D.R. could not place on record any other judgments by the High Courts reversing the above decisions rendered by Mumbai and Calcutta Benches of the Tribunal. 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, then the tax rate prescribed thereon shall have to be followed strictly without any additional taxes in the form of Surcharge or Education Cess. Thus we hold that the tax payable at 15% under Article 12(2) of DTAA between India and USA is inclusive of Surcharge and Education Cess. We therefore set aside the order of the Ld. CIT(A) and allow the claim of the assessee. I.T.A No. 192/Rjt/2019 A.Y. 2014-15 Page No Shukla Asher Impex Pvt. Ltd. Vs. D.CIT 7 9. In the result, the appeal filed by the Assessee is hereby allowed. Order pronounced in the open court on 22-11-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 22/11/2023 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, राजकोट