If DTAA is silent, no obligation to deduct surcharge & education cess

CLR Editorial Notes: The assessee, in this case bearing relevance to Section 195 of the IT Act, had made a remittance of management fee with interest to a resident of France. The Assessing Officer on review of this transaction, held that in deducting the TDS thereon under section 195 of the IT Act, the assessee should have deducted the necessart surcharge and education cess as per the applicable norms.

On countering this review, the assessee claimed that the India-France DTAA was silent about inclusion of surcharge & education cess, adn hence it was under no obligation to do so.

The Tribunal upheld the assessee™s plea and held:

“The India-France DTAA does not say anything about inclusion of surcharge and education cess for the purpose of deduction of tax at source. Therefore, there is an apparent conflict between the Income-tax Act and the DTAA between the two sovereign countries with regard to deduction of tax at source on surcharge and education cess. U/s 90(2) if the provisions of the DTAA are more beneficial to the taxpayer, the DTAA prevails over the Act. Since the DTAA is silent about the surcharge and education cess for the purpose of deduction of tax at source, the taxpayer may take advantage of that provision in the DTAA for deduction of tax.”


Case document available for download


Main Case File: ITO vs. M. Far Hotels Ltd (ITAT Cochin)

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